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As filed with the Securities and Exchange Commission on April 10, 2000
File No. 33-13530
811-5115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 [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
Elizabeth Frederick, Esq.
1300 S. Clinton St.
Fort Wayne, IN 46802
(Name and Address of Agent for Service)
Copies of all communications to
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.,
Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
Richard Choi, Esq.
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, 2000 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.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
The fund is one of the Lincoln National Funds (funds) that sells its shares only
to Lincoln National Life Insurance Co. and its affiliates (Lincoln Life).
Lincoln Life holds the shares in its separate accounts to support variable
annuity contracts and variable life contracts (contracts). We refer to a
separate account as a variable account. Each variable account has its own
prospectus that describes the account and the contracts it supports. You choose
the fund or funds in which a variable account invests your contract assets. In
effect, you invest indirectly in the fund(s) that you choose under the contract.
The Prospectus discusses the information about the fund that you ought to know
before choosing to invest your contract assets in the fund. You can find
information common to all Lincoln National Funds in the General Prospectus
Disclosure following the fund Prospectus.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson, or any other person to give any
information, or to make any representation, other than what this prospectus
states. This Prospectus does not offer to sell fund shares, or seek offers to
buy fund shares, where it would be unlawful.
CONTENTS
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SUBJECT PAGE
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Summary description of the Fund GAA-2
Investment Strategies GAA-3
Risk of investment Strategies GAA-5
Investment Advisor and Portfolio Manager GAA-7
General Prospectus Disclosure -- Important
Additional Information
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Prospectus
May 1, 2000
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SUMMARY DESCRIPTION OF THE FUND
The investment objective of the Global Asset Allocation Fund (fund) is long-term
total return (capital appreciation plus current income) consistent with
preservation of capital.
The fund pursues its investment objective by buying and holding (investing in)
three categories of securities: equity securities (stocks), fixed-income
securities (debt obligations) and money market securities. The fund invests in
securities of both U.S. and foreign issuers. The fund's investment strategy is
to vary the amount invested (1) in each category and (2) in specific types
(sectors) of securities within each category, based on ongoing evaluations of
which category and sectors world-wide provide the best opportunity to meet the
fund's investment objective.
The fund generally invests primarily in the stock and debt obligations
categories. The stock category consists of stocks of (1) large-, medium-, and
small-sized U.S. companies, (2) foreign companies whose primary location and
business is outside the U.S., and (3) rapidly-growing companies in developing
and less developed foreign countries (emerging markets).
The debt obligations category primarily consists of a diverse group of U.S. debt
obligations. These securities include high-quality investment-grade bonds issued
by U.S. companies and obligations issued or guaranteed by the U.S. Government.
The fund also invests in investment-grade debt obligations issued by non-U.S.
companies and foreign governments and governmental or supranational agencies.
The fund also invests a small percentage of its assets in debt obligations rated
below investment grade (junk bonds, including emerging markets bonds).
The money market category consists of a diversified group of high-quality
short-term money market securities of both U.S. and foreign issuers that mature
within one year from date of purchase.
The main investment risks of choosing to invest your contract assets in the fund
are as follows:
- - the value of the fund's shares will fluctuate, and you could lose money;
- - the value of the fund's shares will depend on the categories and sectors of
investment in which the fund invests, and poor timing when selecting the size,
categories and sectors of investment could cause the value of the fund's
shares to fall;
- - investing in the stocks of small- and medium-sized, less mature, lesser-known
companies involves greater risks than those normally associated with investing
in the stocks of larger, more mature, well-known companies including greater
and more rapid fluctuations in the value of these stocks, and, therefore, the
fund's shares;
- - the value of the debt obligations held by the fund -- and therefore, the value
of the fund's shares -- will fluctuate with changes in interest rates
(interest rate risk) and the perceived ability of the issuer to make interest
or principal payments on time (credit risk), and you could lose money;
- - because the fund invests in a small amount of junk bonds, the fund involves
more interest rate risk and credit risk -- and, therefore, more risk of
loss -- than that normally associated with a fund that invests only in
investment-grade debt obligations;
- - investing in securities of foreign issuers involves additional risks,
including risk of loss from foreign currency fluctuations, international
economic or financial instability, and foreign government or political
actions;
- - the fund invests a small amount in securities of issuers in emerging markets.
This fund investment involves a greater risk of loss from foreign currency
fluctuations, international economic or financial instability, and foreign
government or political actions than investing in securities of issuers in
developed markets; and
- - the fund's investment in money market securities is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The following information provides some indication of the risks of choosing to
invest your contract assets in the fund. The information shows:
- - changes in the fund's performance from year to year and
- - how the fund's average annual returns for one, five and ten year periods
compare with those of a broad measure of market performance.
Please note that the past performance of the fund is not necessarily an
indication of how the fund will perform in the future. Further, the returns
shown do not reflect variable contract expenses. If reflected the returns shown
would be lower.
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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ANNUAL TOTAL RETURNS
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Year Annual Total Return(%)
1990 0.92%
1991 18.43%
1992 6.43%
1993 17.28%
1994 -1.82%
1995 23.95%
1996 15.04%
1997 19.47%
1998 13.50%
1999 11.36%
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During the periods shown in the above chart, the fund's highest return for a
quarter occurred in the fourth quarter of 1998 at: 14.17%
The fund's lowest return for a quarter occurred in the third quarter of 1990 at:
(-10.63)%
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED 12/31/99)
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SSB WORLD
LEHMAN GOVERNMENT
GLOBAL BROTHERS NON-U.S.
ASSET AGGREGATE BOND MSCI (UNHEDGED)
PERIOD BACK ALLOCATION S&P 500* INDEX* EAFE* BOND INDEX*
<S> <C> <C> <C> <C> <C>
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1 year 11.36% 21.14% (-0.82)% 27.30% (-4.27)%
5 year 16.58 28.66 7.73 13.15 6.42
10 year 12.17 18.25 7.70 7.34 8.03
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* The S&P 500 is the Standard & Poor's Composite Index of 500 stocks. The
Lehman Brothers Aggregate Bond Index is Lehman Brothers' index of U.S.
government, government agency, and corporate bonds, and also includes
mortgage-backed securities. The MSCI EAFE is Morgan Stanley Capital
International's aggregate index produced from the national stock market indices
from Europe, Australia and the Far East. Solomon Smith Barney, Inc. produces the
SSB World Government non-U.S. (unhedged) Bond Index. All four are
widely-recognized unmanaged indexes reflecting the prices of the types of
securities included in the index.
The fund invests in three categories of securities, each of which includes
securities issued by U.S. or foreign issuers. None of the four investment
performance indices provided in the above table matches the fund's investment
strategy exactly. Consequently, none of the indices reflects performance that is
directly comparable to the fund's performance. Nevertheless, the indices can be
helpful for comparing the fund's performance. When comparing the fund's
performance to that of the indices, you should note that the fund generally
invests the largest amount in U.S. stocks and debt obligations, but the amount
invested in any one category, or in the securities of U.S. or foreign issuers,
varies. See "Investment strategies" for a description of a hypothetical
benchmark portfolio used by the fund as one means to evaluate the success of its
investment strategy.
INVESTMENT STRATEGIES
The investment objective of the fund is long-term total return (capital gains
plus current income) consistent with preservation of capital.
The fund pursues its objective by buying and holding (investing in) three
categories of securities: equity securities (stocks), fixed-income securities
(debt obligations) and money market securities. The fund invests in securities
of both U.S. and foreign issuers. The fund's investment strategy is to vary the
amount invested (1) in each category and (2) in specific types of securities
(sectors) within each category, based on ongoing evaluations of which category
and securities world-wide provide the best opportunity to meet the fund's
investment objective.
The fund continuously adjusts the mix of investments among and within the three
categories in an effort to:
- - reduce fluctuations in the value of the fund's shares and control the level of
risk during unfavorable market conditions, and
- - take advantage of the potential for greater returns in one category or sector
versus another.
The fund uses computer-based analyses of critically important global economic
and market factors, including corporate earnings growth, interest rates,
inflation and political trends and developments, to help decide how much will be
invested in each of the three categories of investment and which specific types
of securities will be bought or sold within each category.
One of the ways the fund evaluates the success of its investment strategy is by
comparing the fund's annual performance to the return generated by a
hypothetical benchmark portfolio. The hypothetical benchmark portfolio is
constructed in the following manner: 50% - S&P 500 Index; 30% - Lehman Brothers
Aggregate Bond Index; 10% - MSCI EAFE; 10% - SSB World Government non-U.S.
(unhedged) Bond Index.
STOCK CATEGORY
The Stock category primarily holds stocks in the following five sectors:
Conservative -- primarily stocks of large-sized U.S. companies with market
capitalizations of more than $5 billion. (A company's market capitalization is
calculated by multiplying the total number of shares of its common
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stock outstanding by the market price of the stock. As a point of reference, as
of December 31, 1999, the average market capitalization of the S&P 500, a broad
based market index representative of larger, typically more financially stable
companies, was $146 billion.) The fund seeks stocks of companies considered to
be undervalued or with high dividend yields, and that are undergoing significant
positive changes either organizationally, operationally, financially, or for
external reasons. The fund sells Conservative stocks when the positive changes
diminish or when the stock is no longer undervalued.
Growth -- primarily stocks of large-sized U.S. companies with market
capitalizations of $5 billion and higher. This sector also includes companies
with market capitalizations greater than $2 billion. Stocks sought include those
with above-average earnings growth, that, at a minimum, have a 10% expected
earnings growth rate. The fund assesses a company's earnings growth prospects
through examination of the company's business trends and discussions with the
company's management. The fund sells Growth stocks when the fundamental factors
supporting the expected earnings growth no longer are present or if the fund can
no longer justify the current price of the stock based on the company's expected
earnings. Additionally, the fund sells some or all of a Growth stock if the size
of the fund's holding becomes too large relative to other fund holdings or if
the price of a Growth stock rises too fast in a short period.
Aggressive Growth -- primarily stocks of smaller-sized U.S. companies with
market capitalizations of more than $50 million but less than $750 million at
the time of purchase. Stocks sought include those with above average earnings
growth. The fund assesses a company's earnings growth prospects through
examination of the company's profitability, financial strength, management
strength and prospects for growth. The fund sells Aggressive Growth stocks when
the fundamental factors supporting the expected earnings growth no longer are
present or if the fund is unable to justify the high price of the stock.
International -- stocks of companies organized, or having a majority of their
assets, or earning a majority of their operating income, in a country outside of
the U.S. International stocks may be traded on a U.S. or foreign stock market.
The fund selects International stocks through a two-step process: (1)
identifying those countries where stock market valuations and the economic
outlook are attractive as compared to other countries, and (2) within the
countries identified, selecting individual high-quality stocks that appear to be
undervalued as compared to other stocks in that market.
Emerging Markets -- stocks of rapidly growing foreign companies in developing
and less developed countries. An emerging market country is generally considered
to be one that (1) is in the initial stages of its industrialization cycle and
(2) has a low per capita gross national product. The fund selects Emerging
Markets stocks using the same approach used to select International stocks.
As a general matter, the fund compares its current stock investments to possible
new investments on an ongoing basis. The fund replaces a current investment if a
possible new investment appears significantly more attractive under the fund's
investment criteria.
DEBT OBLIGATIONS CATEGORY
The debt obligations category primarily holds debt obligations in the following
three sectors:
U.S. Fixed-Income -- primarily includes high-quality investment-grade corporate
bonds, and obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Investment-grade corporate bonds are debt obligations rated at the time of
purchase in the top four credit rating categories of a nationally recognized
statistical rating organization, or, if unrated, are judged by the fund to be of
comparable quality. (See the General SAI Disclosure for the 11 funds for a
description of the credit rating categories of two of these entities, Moody's
Investor Service, Inc. and Standard & Poor's Corp., and a description of U.S.
government obligations.) Investment-grade corporate bonds include high-quality
corporate bonds (top three credit-rating categories) or medium-grade corporate
bonds (fourth credit-rating category). All debt obligations in this category are
denominated in U.S. dollars at the time of purchase. U.S. Fixed-Income
securities primarily include debt obligations with maturities of less than 40
years. (A debt obligation's "maturity" refers to the time period remaining until
the debt obligation's issuer must repay the principal amount of the debt
obligation.)
The fund selects U.S. Fixed-Income debt obligations using three techniques: (1)
selecting individual securities with valuations that are attractive relative to
the securities' underlying characteristics, including credit quality,
call/prepayment features and covenant protection; (2) changing the category's
exposure to different parts of the U.S. investment-grade debt obligations market
(such as investing in government bonds versus corporate bonds or AA-rated issues
versus A-rated issues) based on relative valuation across parts of this market;
and (3) seeking debt obligations with maturities likely to benefit from expected
changes in interest rates.
International Fixed-Income -- primarily includes non-U.S. investment-grade debt
obligations issued by foreign governments and governmental and supranational
agencies, as well as those issued by non-U.S. corporations.
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All debt obligations in this category are denominated in currencies other than
U.S. dollars at the time of purchase and are principally traded in foreign
markets.
The fund selects International Fixed-Income debt obligations using three
techniques: (1) seeking debt obligations likely to benefit from expected changes
in foreign currency exchange rates; (2) changing the category's exposure to the
debt obligations markets of different countries based on relative valuation
across these markets; and (3) seeking debt obligations with maturities likely to
benefit from expected changes in interest rates in the country where the
securities trade.
Lower-rated Fixed-Income -- includes debt obligations rated below
investment-grade (junk bonds) issued by:
- - U.S. corporations,
- - Non-U.S. corporations domiciled in developed countries, and
- - governments, government agencies, and corporations domiciled in developing and
less developed countries (emerging market securities).
The fund selects Lower-Rated Fixed-Income debt obligations by (1) seeking
securities with valuations that are attractive relative to their underlying
credit quality; and (2) selecting a wide-variety of debt obligations based on
the issuer's country, industry, and type of security. The fund, however, may
emphasize certain market sectors believed to represent good value.
MONEY MARKET CATEGORY
The money market category includes money market instruments issued by U.S. and
foreign issuers, 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.
SECTOR LIMITS
As a general matter and under normal circumstances, the fund will not invest
- - more than 50% of its total assets in the Conservative stock sector;
- - more than 15% of its assets in the Lower-Rated Fixed-Income debt obligations
sector; and
- - more than 35% of its assets in any other sector of any category.
Additionally, the fund will not invest more than 10% of its assets in emerging
market securities (stock or debt obligations) or more than 35% of its assets in
medium-grade debt obligations.
The fund expects its annual portfolio turnover rate to average approximately
150% in any year. (For example, the fund would have a rate of portfolio turnover
of 100%, if the fund replaced all of its investments in one year.) Market
conditions could result in a greater or lesser degree of market activity and a
higher or lower portfolio turnover rate. High turnover could increase fund
expenses. The fund's portfolio turnover rate was 134.31% in 1999 and 133.84% in
1998.
OTHER STRATEGIES
When conditions indicate a temporary defensive strategy may be appropriate, or
during periods when the fund is re-assessing its investment strategy, the fund
may invest up to 50% of its assets in both the money market category and the
U.S. Fixed-Income sector of the debt obligations category. The fund, in so
doing, would not be pursuing its investment objective.
The fund also uses other investment strategies, to a lesser degree, to pursue
its investment objective. The fund's SAI describes these other investment
strategies and the risks they involve.
RISKS OF INVESTMENT STRATEGIES
The fund's investment strategy is to vary the amount invested among the various
sectors of the three categories of securities. Therefore, the value of the
fund's shares held under your contract depends on:
- - the performance of each category, and the sectors within a category; and
- - the amount of the fund's total assets invested in each category and sector.
Accordingly, the value of the fund's shares may be negatively affected if:
- - the securities in one of the fund's categories or sectors do not perform as
well as securities in the other categories or sectors;
- - the fund invests large amounts in a category or sector that does not perform
as well as the other categories or sectors; and
- - when selecting categories and sectors of investment, poor timing causes the
fund to suffer losses or miss gains generated in a specific category or
sector.
Additionally, each category of investment involves specific risks. As a general
matter, the stock category
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involves more risk than the debt obligations category, and the money market
category involves the least risk. Because the fund normally invests amounts in
all three categories, the overall risk of the fund is lower than that of a fund
that invests only in stocks.
Investing in stocks involves the risk that the value of the stocks purchased
will fluctuate. These fluctuations could occur for a single company, an
industry, a sector of the economy, or the stock market as a whole. These
fluctuations could cause the value of the fund's stock investments -- and,
therefore, the value of the fund's shares -- to fluctuate, and you could lose
money.
Moreover, the fund's stock category holds stocks in five different sectors. The
fund's performance may be affected if stocks in one of these five sectors do not
perform as well as stocks in the other sectors.
Further, investing in stocks of small- and medium-sized, less mature,
lesser-known companies involves greater risks than those normally associated
with larger, more mature, well-known companies. The fund runs a risk of
increased and more rapid fluctuations in the value of its stock investments.
This is due to the greater business risks of small size and limited product
lines, markets, distribution channels, and financial and managerial resources.
Historically, the price of small and medium capitalization stocks and stocks of
recently organized companies have fluctuated more than the larger capitalization
stocks included in the S&P 500. One reason is that small- and medium-sized
companies have less certain prospects for growth, a lower degree of liquidity in
the markets for their stocks, and greater sensitivity to changing economic
conditions.
Investing in debt obligations primarily involves interest rate risk and credit
risk.
Interest rate risk is the risk that the value of the debt obligations held by
the fund -- and therefore, the value of the fund's shares -- will fluctuate with
changes in interest rates. As a general matter, the value of debt obligations
will fluctuate with changes in interest rates. These fluctuations can be greater
for debt obligations with longer maturities. When interest rates rise, debt
obligations decline in value, and when interest rates fall, debt obligations
increase in value. Accordingly, during periods when interest rates are
fluctuating, you could lose money investing in the fund.
Credit risk is the risk that the issuer of the debt obligation will be unable to
make interest or principal payments on time. A debt obligation's credit rating
reflects the credit risk associated with that debt obligation. Higher-rated debt
obligations involve lower credit risks than lower-rated debt obligations.
Generally, credit risk is higher for corporate and foreign government debt
obligations than for U.S. government securities, and higher still for debt rated
below investment grade (junk bonds). The value of the debt obligations held by
the fund -- and, therefore, the value of the fund's shares -- will fluctuate
with the changes in the credit ratings of the debt obligations held. Generally,
a decrease in an issuer's credit rating will cause the value of that issuer's
outstanding debt obligations to fall. The issuer may also have increased
interest payments, as issuers with lower credit ratings generally have to pay
higher interest rates to borrow money. As a result, the issuer's future earnings
and profitability could also be negatively affected. This could further increase
the credit risks associated with that debt obligation.
If debt obligations held by the fund are assigned a lower credit rating, the
value of these debt obligations and, therefore, the value of the fund's shares
could fall, and you could lose money. Because the fund also invests in
medium-grade U.S. Fixed-Income and International debt obligations, the fund
involves more risk than that normally associated with a bond fund that only
invests in high-quality corporate bonds. Additionally, because a small
percentage of the debt obligations held by the fund are junk bonds issued by
U.S. and foreign issuers, investing in the fund also involves additional risks.
Junk bonds are often considered speculative and involve significantly higher
credit risk. Junk bonds are also more likely to experience significant
fluctuation in value due to changes in the issuer's credit rating. The value of
junk bonds may fluctuate more than the value of higher-rated debt obligations,
and may decline significantly in periods of general economic difficulty or
periods of rising interest rates.
Further, the amount of current income generated by the fund depends on the types
of debt obligations held and changes in current interest rates. During extended
periods of falling interest rates, the fund will earn reduced income on new
investments, and the fund's income distributions could be lower. Conversely,
during extended periods of rising interest rates, the fund will earn increased
income on new investments, and the fund's income distributions could be higher.
As discussed above, however, the value of the debt obligations held by the fund
are also affected by changes in interest rates. Accordingly, while periods of
rising interest rates could produce increased income distributions, the value of
the fund's shares could also fall during such periods.
Investing in money market securities involves the risk that the amount of income
generated by the money market securities will vary with fluctuations in short-
term interest rates. In general, you should expect that (1) as short-term
interest rates fall, the level of income generated by the money market
securities will also fall and (2) similarly, as short term interest rates rise,
the level income generated by the money market securities will also rise. The
money market category attempts to keep the value of the fund's money market
portfolio stable. However, the value of the portfolio is neither insured nor
guaranteed by the U.S. Government. The fund's money market securities, however,
are considered
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to be a relatively low risk investments, because the fund only purchases high
quality short-term money market securities, and the fund's average portfolio
maturity for the money market category is no greater than 90 days.
Finally, investing in International and Emerging Markets securities, whether
stocks, debt obligations, or money market securities, involves additional risks.
Foreign currency fluctuations or economic or financial instability could cause
the value of the fund's investments -- and, therefore, the value of the fund's
shares -- to fluctuate, and you could lose money.
Investing in the securities of issuers with significant operations outside the
U.S., including foreign governments and their agencies, also involves the risk
of loss from foreign government or political actions. These actions could range
from changes in tax or trade statutes to governmental collapse and war. These
actions could include a foreign government's imposing a heavy tax on a company,
withholding the company's payment of interest or dividends, seizing assets of a
company, taking over a company, limiting currency convertibility, or barring the
fund's withdrawal of assets from the country. As a general matter, risk of loss
is typically higher for issuers in emerging markets located in less developed or
developing countries.
Investing in foreign issuers also involves risks resulting from the reduced
availability of public information concerning issuers and the fact that foreign
issuers generally are not subject to uniform accounting, auditing, and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to U.S. issuers. Further, the volume of securities
transactions effected on foreign markets in most cases remains appreciably below
that of the U.S. markets. Accordingly, the fund's foreign investments may be
less liquid and their prices may be more volatile than comparable investments in
securities of U.S. issuers. (See the General SAI Disclosure for the 11 funds for
a more detailed discussion of the risks and costs involved in investing in
securities of foreign issuers.)
On January 1, 1999, the European Economic and Monetary Union implemented a
common currency for several participating countries. This currency is commonly
known as the "euro." The long-term consequences of the euro conversion for
foreign exchange rates, interest rates and the value of European securities in
which the Fund may invest are unclear. The consequences may adversely affect the
value and/or increase the volatility of securities held by the Fund.
You may consider choosing this fund for investing some portion of your contract
assets if (1) you are seeking to invest in stocks issued by companies located
around the world, including emerging markets, but want to lower the risks
involved by also investing in debt obligations and money market securities, and
(2) you are comfortable with a professional money manager determining the timing
and amount of the investment in each of the investment categories and sectors.
INVESTMENT ADVISER AND PORTFOLIO MANAGER
The fund's investment adviser is Lincoln Investment Management (Lincoln
Investment). You can find information about Lincoln Investment, including its
plans to merge into a newly created series of its affiliate, Delaware Management
Business Trust, in the General Prospectus Disclosure under "Management of the
funds -- Investment advisor." Lincoln Investment is responsible for overall
management of the fund's securities investments. This includes monitoring the
fund's sub-adviser, Putnam Investment Management, Inc. ("Putnam"). Putnam's
address is One Post Office Square, Boston, Massachusetts 02109.
Putnam, founded in 1937, is one of the oldest and largest investment management
firms in the U.S. Putnam's Global Asset Allocation Team has primary
responsibility for the day-to-day management of the fund and all decisions
concerning the size and amount of the investment in each investment category.
Putnam's investment teams are responsible for specific investment categories and
sectors and make all recommendations and decisions regarding the purchase and
sale of individual securities.
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GENERAL PROSPECTUS DISCLOSURE -- IMPORTANT ADDITIONAL INFORMATION
This General Prospectus Disclosure is part of the Prospectus of:
Lincoln National Aggressive Growth Fund, Inc.
(Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation)
Lincoln National Equity-Income Fund, Inc.
(Equity-Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc.
(Money Market)
Lincoln National Social Awareness Fund, Inc.
(Social Awareness)
Lincoln National Special Opportunities Fund, Inc.
(Special Opportunities)
The following information applies to each fund, unless otherwise indicated.
NET ASSET VALUE
Each fund determines its net asset value per share (NAV) as of close of business
(currently 4:00 p.m., New York time) on the New York Stock Exchange (NYSE) on
each day the NYSE is open for trading. Each fund, determines its NAV by:
- - adding the values of all securities investments and other assets,
- - subtracting liabilities (including dividends payable), and
- - dividing by the number of shares outstanding.
NYSE's most recent announcement states that, as of the date of this prospectus,
the NYSE 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. NYSE may also be closed on other days. The NYSE may modify
its holiday schedule at any time.
A fund's securities may be traded in other markets on days when the NYSE is
closed. Therefore, the fund's NAV may fluctuate on days when you do not have
access to the fund to purchase or redeem shares.
Each fund (other than for the Money Market Fund) values its securities
investments as follows:
- - equity securities, at their last sale prices 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;
- - debt securities, at the price established by an independent pricing service,
which is believed to reflect the fair value of these securities; and
- - equity securities, debt securities and other assets for which market
quotations are not readily available, fair value as determined in good faith
under the authority of each fund's Board of Directors.
MONEY MARKET FUND. The Money Market Fund values its securities using the
amortized cost method of valuation provided by SEC Rule 2a-7 under the
Investment Company Act of 1940. Under the Rule, the fund's NAV must fairly
reflect market value.
See the General SAI Disclosure for the methodology that a fund (other than for
the Money Market Fund) uses to value short-term investments, options, futures
and options on futures, and foreign securities.
MANAGEMENT OF THE FUNDS
Each fund's business and affairs 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 shareholders.
INVESTMENT ADVISOR. Lincoln Investment Management, Inc. (Lincoln Investment or
advisor) is the investment advisor to each fund. Its headquarters are at 200
East Berry Street, Fort Wayne, Indiana 46802.
The advisor has registered with the SEC as an investment advisor and 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.
The advisor is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. LNC,
through its subsidiaries, provides life insurance and annuities, property-
casualty insurance, reinsurance and financial services.
GPD-1
<PAGE>
The advisor, either directly or through a sub-advisor, provides portfolio
management and investment advice to each fund and administers each fund's other
affairs, subject to the supervision of each fund's Board of Directors.
Lincoln Investment has informed the funds that it intends to merge into a newly
created series of its affiliate, Delaware Management Business Trust ("Delaware")
during the second or third quarter of 2000. Delaware is registered with the SEC
as an investment adviser and, like Lincoln Investment, is a wholly owned
subsidiary of Lincoln National Investments, Inc., and ultimately of Lincoln
National Corporation. The address of Delaware is 2005 Market Street,
Philadelphia, PA 19103. Lincoln Investment does not expect the merger to result
in any change in the level of advisory services that it currently provides to
the funds, although there may be some changes in, and additions to, personnel.
Lincoln Investment has concluded that the proposed merger would not result in an
"assignment" of its investment advisory agreements with the funds, or of its
sub-advisory agreements with the sub-advisors, that would require shareholder
approval under the Investment Company Act of 1940, as amended. The proposed
merger is subject to review by the funds' boards of directors.
Some of the funds using sub-advisors have names, investment objectives and
investment policies that are very similar to certain publicly available mutual
funds that are managed by these same sub-advisors. These funds will not have the
same performance as those publicly available mutual funds. Different performance
will result from many factors, including, but not limited to, different cash
flows into and out of the funds, different fees, and different sizes.
Each fund pays the advisor a monthly fee for the advisor's services. The annual
rate of the fee is 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>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 ADVISORY FEES*
FUND 1999 RATIO OF THE ADVISOR'S COMPENSATION TO AVERAGE NET ASSETS
<S> <C>
- ---------------------------------------------------------------------------------------------------
Aggressive Growth .73%
Bond .45
Capital Appreciation .72
Equity-Income .72
Global Asset Allocation .72
Growth and Income .31
International .77
Managed .36
Money Market .48
Social Awareness .33
Special Opportunities .37
</TABLE>
* The sub-advisor to the funds, where applicable, is paid out of the fees paid
to the advisor.
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF FUND SHARES
Each fund sells its shares of common stock to Lincoln Life and Lincoln Life &
Annuity Company of New York. Lincoln Life and Lincoln Life & Annuity Company of
New York hold the fund shares in separate accounts (variable accounts) that
support various Lincoln Life and Lincoln Life & Annuity Company of New York
variable annuity contracts and variable life insurance contracts.
Each fund sells and redeems its shares, without charge, at their NAV next
determined after Lincoln Life and
GPD-2
<PAGE>
Lincoln Life & Annuity Company of New York receives a purchase or redemption
request. However, each fund redeems its shares held by Lincoln Life and Lincoln
Life & Annuity Company of New York for its own account at the NAV next
determined after the fund receives the redemption request. The value of shares
redeemed may be more or less than original cost, depending on the market value
of a fund's securities investments at the time of redemption.
The fund normally pays for shares redeemed within seven days after Lincoln Life
and Lincoln Life & Annuity Company of New York receives the redemption request.
However, a fund may suspend redemption or postpone payment for any period when:
- - the NYSE closes for other than weekends and holidays;
- - the SEC restricts trading on the NYSE;
- - the SEC determines that an emergency exists, so that a fund's (1) disposal of
investment securities, or (2) determination of net asset value, is not
reasonably practicable; or
- - The SEC permits, by order, for the protection of fund shareholders.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each fund's policy is to distribute substantially all of its net investment
income and net realized capital gains each year. A fund may distribute net
realized capital gains only once a year. Each fund pays these distributions to
Lincoln Life for the variable accounts. The variable accounts automatically
reinvest the distributions in additional fund shares at no charge.
Each fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains. See the SAI for a more complete
discussion.
Each fund must meet asset diversification requirements under Section 817(h) of
the Code and the related regulation of the United States Treasury Department.
Each fund intends to comply with these diversification requirements.
Since the only shareholders of the funds are Lincoln Life and Lincoln Life &
Annuity Company of New York, this Appendix does not discuss the federal income
tax consequences at the shareholder level. For information concerning the
federal income tax consequences to owners of variable annuity contracts or
variable life insurance contracts (contract owners), including the failure of a
fund to meet the diversification requirements discussed above, see the
Prospectus for the variable account.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Each fund's Annual Report includes the portfolio manager's discussion of the
fund's performance for the previous fiscal year and the factors affecting the
performance. Each fund will send you a free copy of its Annual Report on
request.
GPD-3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the funds for the past 5 years, or, if shorter, the period of the
fund's operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Ernst &
Young LLP, independent auditors, whose report, along with each fund's financial
statements, are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DIVIDENDS FROM:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO
NET NET REALIZED OF
ASSET AND NET EXPENSES
VALUE NET UNREALIZED NET ASSET TO
BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM NET REALIZED VALUE AVERAGE
OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET
PERIOD ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(1) ASSETS
<CAPTION>
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund, Inc.
12/31/99 $13.367 (0.060) 5.732 5.672 (0.001) -- (0.001) $19.038 42.43% 0.87%
12/31/98 $16.385 0.001 (0.810) (0.809) (0.023) (2.186) (2.209) $13.367 (6.20%) 0.81%
12/31/97 $13.980 0.023 3.055 3.078 -- (0.673) (0.673) $16.385 23.09% 0.81%
12/31/96 $12.183 0.004 1.989 1.993 (0.004) (0.192) (0.196) $13.980 17.02% 0.82%
12/31/95 $ 9.048 0.007 3.135 3.142 (0.007) -- (0.007) $12.183 34.15% 0.94%
Lincoln National Bond Fund, Inc.
12/31/99 $12.689 0.772 (1.180) (0.408) (0.845) -- (0.845) $11.436 (3.27%) 0.53%
12/31/98 $12.861 0.662 0.494 1.156 (1.328) -- (1.328) $12.689 9.56% 0.52%
12/31/97 $11.766 0.785 0.310 1.095 -- -- -- $12.861 9.30% 0.53%
12/31/96 $12.247 0.767 (0.481) 0.286 (0.767) -- (0.767) $11.766 2.31% 0.51%
12/31/95 $10.941 0.803 1.306 2.109 (0.803) -- (0.803) $12.247 18.95% 0.49%
Lincoln National Capital Appreciation Fund, Inc.
12/31/99 $21.772 0.007 9.839 9.846 -- (0.152) (0.152) $31.466 45.46% 0.78%
12/31/98 $17.530 (0.003) 6.127 6.124 (0.050) (1.832) (1.882) $21.772 37.96% 0.83%
12/31/97 $14.504 0.050 3.510 3.560 -- (0.534) (0.534) $17.530 25.29% 0.89%
12/31/96 $12.916 0.135 2.051 2.186 (0.135) (0.463) (0.598) $14.504 18.02% 0.93%
12/31/95 $10.152 0.116 2.764 2.880 (0.116) -- (0.116) $12.916 28.69% 1.07%
Lincoln National Equity-Income Fund, Inc.
12/31/99 $21.715 0.189 1.204 1.393 (0.171) (0.890) (1.061) $22.047 6.27% 0.79%
12/31/98 $20.118 0.282 2.204 2.486 (0.460) (0.429) (0.889) $21.715 12.73% 0.79%
12/31/97 $15.780 0.229 4.511 4.740 -- (0.402) (0.402) $20.118 30.67% 1.02%
12/31/96 $13.507 0.288 2.451 2.739 (0.288) (0.178) (0.466) $15.780 19.81% 1.08%
12/31/95 $10.335 0.275 3.218 3.493 (0.275) (0.046) (0.321) $13.507 34.74% 1.15%
Lincoln National Global Asset Allocation Fund, Inc.
12/31/99 $15.759 0.323 1.409 1.732 (0.266) (0.432) (0.698) $16.793 11.36% 0.91%
12/31/98 $15.628 0.357 1.585 1.942 (0.589) (1.222) (1.811) $15.759 13.50% 0.91%
12/31/97 $14.226 0.383 2.205 2.588 -- (1.186) (1.186) $15.628 19.47% 0.89%
12/31/96 $13.391 0.392 1.522 1.914 (0.392) (0.687) (1.079) $14.226 15.04% 1.00%
12/31/95 $11.144 0.412 2.247 2.659 (0.412) -- (0.412) $13.391 23.95% 0.92%
Lincoln National Growth and Income Fund, Inc.
12/31/99 $46.288 0.509 7.356 7.865 (0.497) (1.946) (2.443) $51.710 17.55% 0.36%
12/31/98 $41.949 0.607 7.371 7.978 (1.164) (2.475) (3.639) $46.288 20.33% 0.35%
12/31/97 $33.110 0.649 9.331 9.980 -- (1.141) (1.141) $41.949 30.93% 0.35%
12/31/96 $29.756 0.683 4.943 5.626 (0.683) (1.589) (2.272) $33.110 18.76% 0.36%
12/31/95 $23.297 0.701 7.680 8.381 (0.701) (1.221) (1.922) $29.756 38.81% 0.35%
Lincoln National International Fund, Inc.
12/31/99 $15.982 0.294 2.182 2.476 (0.529) (3.555) (4.084) $14.374 17.75% 0.92%
12/31/98 $14.673 0.253 1.838 2.091 (0.189) (0.593) (0.782) $15.982 14.65% 0.93%
12/31/97 $14.556 0.066 0.771 0.837 -- (0.720) (0.720) $14.673 6.00% 0.93%
12/31/96 $13.398 0.071 1.244 1.315 (0.071) (0.086) (0.157) $14.556 9.52% 1.19%
12/31/95 $13.027 0.069 0.892 0.961 (0.069) (0.521) (0.590) $13.398 8.89% 1.27%
Lincoln National Managed Fund, Inc.
12/31/99 $18.971 0.622 0.767 1.389 (0.552) (0.898) (1.450) $18.910 7.75% 0.42%
12/31/98 $19.304 0.599 1.632 2.231 (1.162) (1.402) (2.564) $18.971 12.72% 0.42%
12/31/97 $16.266 0.661 2.811 3.472 -- (0.434) (0.434) $19.304 21.82% 0.42%
12/31/96 $15.895 0.628 1.291 1.919 (0.628) (0.920) (1.548) $16.266 12.05% 0.43%
12/31/95 $12.783 0.623 3.132 3.755 (0.623) (0.020) (0.643) $15.895 29.29% 0.43%
<CAPTION>
<S> <C> <C> <C>
RATIO
OF NET
INVESTMENT
INCOME
TO NET ASSETS
AVERAGE PORTFOLIO AT END OF
NET TURNOVER PERIOD
PERIOD ENDED ASSETS RATE (000'S)
Lincoln National
12/31/99 (0.48%) 208.50% $ 448,193
12/31/98 0.01% 102.33% $ 335,366
12/31/97 0.16% 105.07% $ 342,763
12/31/96 0.03% 77.51% $ 242,609
12/31/95 0.06% 85.82% $ 138,471
Lincoln National
12/31/99 6.02% 39.11% $ 330,923
12/31/98 5.90% 51.33% $ 363,808
12/31/97 6.45% 56.16% $ 280,383
12/31/96 6.56% 142.19% $ 253,328
12/31/95 6.90% 139.61% $ 250,816
Lincoln National
12/31/99 0.03% 59.68% $1,913,076
12/31/98 (0.01%) 77.99% $ 770,736
12/31/97 0.35% 137.07% $ 451,036
12/31/96 0.99% 92.73% $ 267,242
12/31/95 1.00% 195.63% $ 127,936
Lincoln National
12/31/99 0.86% 191.21% $ 990,758
12/31/98 1.40% 29.04% $ 991,977
12/31/97 1.46% 17.81% $ 811,070
12/31/96 1.99% 22.17% $ 457,153
12/31/95 2.27% 27.81% $ 238,771
Lincoln National
12/31/99 2.05% 134.31% $ 490,804
12/31/98 2.36% 133.84% $ 490,154
12/31/97 2.77% 178.40% $ 438,090
12/31/96 2.93% 167.33% $ 316,051
12/31/95 3.36% 146.49% $ 248,772
Lincoln National
12/31/99 1.05% 15.91% $4,709,687
12/31/98 1.44% 33.55% $4,263,557
12/31/97 1.79% 32.09% $3,540,862
12/31/96 2.23% 46.70% $2,465,224
12/31/95 2.64% 51.76% $1,833,450
Lincoln National
12/31/99 2.05% 11.51% $ 526,317
12/31/98 1.63% 123.11% $ 501,654
12/31/97 0.44% 77.58% $ 466,229
12/31/96 0.51% 68.67% $ 440,375
12/31/95 0.59% 63.15% $ 358,391
Lincoln National
12/31/99 3.25% 44.79% $ 927,572
12/31/98 3.31% 57.36% $ 965,486
12/31/97 3.77% 53.40% $ 850,646
12/31/96 4.05% 108.86% $ 675,740
12/31/95 4.37% 112.52% $ 589,165
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DIVIDENDS FROM:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO
NET NET REALIZED OF
ASSET AND NET EXPENSES
VALUE NET UNREALIZED NET ASSET TO
BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM NET REALIZED VALUE AVERAGE
OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET
PERIOD ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(1) ASSETS
<CAPTION>
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Money Market Fund, Inc.
12/31/99 $10.000 0.468 N/A 0.468 (0.468) N/A (0.468) $10.000 4.62% 0.59%
12/31/98 $10.000 0.497 N/A 0.497 (0.497) N/A (0.497) $10.000 5.10% 0.58%
12/31/97 $10.000 0.501 N/A 0.501 (0.501) N/A (0.501) $10.000 5.13% 0.59%
12/31/96 $10.000 0.505 N/A 0.505 (0.505) N/A (0.505) $10.000 5.07% 0.57%
12/31/95 $10.000 0.570 N/A 0.570 (0.570) N/A (0.570) $10.000 5.67% 0.52%
Lincoln National Social Awareness Fund, Inc.
12/31/99 $40.283 0.319 5.649 5.968 (0.296) (1.663) (1.959) $42.292 15.44% 0.38%
12/31/98 $35.657 0.367 6.414 6.781 (0.672) (1.483) (2.155) $40.283 19.89% 0.38%
12/31/97 $27.316 0.364 9.447 9.811 -- (1.470) (1.470) $35.657 37.53% 0.41%
12/31/96 $22.590 0.389 5.748 6.137 (0.389) (1.022) (1.411) $27.316 28.94% 0.46%
12/31/95 $16.642 0.432 6.491 6.923 (0.432) (0.543) (0.975) $22.590 42.83% 0.50%
Lincoln National Special Opportunities Fund, Inc.
12/31/99 $33.416 0.482 (1.779) (1.297) (0.373) (3.521) (3.894) $28.225 (4.45%) 0.44%
12/31/98 $35.056 0.470 1.795 2.265 (0.862) (3.043) (3.905) $33.416 6.79% 0.42%
12/31/97 $29.423 0.477 7.293 7.770 -- (2.137) (2.137) $35.056 28.15% 0.42%
12/31/96 $27.383 0.548 3.867 4.415 (0.548) (1.827) (2.375) $29.423 16.51% 0.44%
12/31/95 $22.164 0.616 6.131 6.747 (0.616) (0.912) (1.528) $27.383 31.86% 0.45%
<CAPTION>
<S> <C> <C> <C>
RATIO
OF NET
INVESTMENT
INCOME
TO NET ASSETS
AVERAGE PORTFOLIO AT END OF
NET TURNOVER PERIOD
PERIOD ENDED ASSETS RATE (000'S)
Lincoln National
12/31/99 4.68% N/A $ 234,676
12/31/98 4.97% N/A $ 137,062
12/31/97 5.01% N/A $ 89,227
12/31/96 5.07% N/A $ 90,358
12/31/95 5.67% N/A $ 75,319
Lincoln National
12/31/99 0.79% 23.77% $1,946,179
12/31/98 1.10% 37.55% $1,868,231
12/31/97 1.37% 34.84% $1,255,494
12/31/96 1.58% 45.90% $ 636,595
12/31/95 2.21% 54.02% $ 297,983
Lincoln National
12/31/99 1.46% 96.49% $ 665,652
12/31/98 1.44% 76.27% $ 917,796
12/31/97 1.57% 73.74% $ 872,822
12/31/96 2.00% 88.17% $ 648,592
12/31/95 2.39% 90.12% $ 505,755
</TABLE>
(1) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares. The total return percentages in
the table are NOT calculated on the same basis as the performance
percentages in the letter at the front of this booklet (those percentages
are based upon the change in unit value).
(2) Per share information for the years ended December 31, 1999 and 1998 were
based on the average shares outstanding method for Capital Appreciation,
Equity-Income, Global Asset Allocation and International.
GENERAL INFORMATION
You should direct any inquiry to Lincoln National Life Insurance Co., at
P.O. Box 2340, Fort Wayne, Indiana 46801, or, call 1-800-4LINCOLN (454-6265).
Each fund will issue:
- - unaudited semiannual reports showing current investments and other
information; and
- - annual financial statements audited by the fund's independent auditors.
These Prospectuses do not contain all the information included in the
Registration Statements that the funds have filed with the SEC. You may examine
the Registration Statements, including exhibits, at the SEC in Washington, D.C.
Statements made in the Prospectuses about any variable annuity contract,
variable life insurance contract, or other document referred to in a contract,
are not necessarily complete. In each instance, we refer you to the copy of that
CONTRACT or other document filed as an exhibit to the related Registration
Statement. We qualify each statement in all respects by that reference.
The use of a fund by both annuity and life insurance variable accounts is called
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
accounts. Violation of the federal tax laws by one variable account investing in
a fund could cause the contracts 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, the fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial
amount of assets from any of the funds. The redemption could disrupt orderly
portfolio management to the detriment of those contract owners still investing
in that fund. Also, that fund could determine that it has become so large that
its size materially impairs investment performance. The fund would then examine
its options.
Lincoln Life performs the dividend and transfer functions for each fund.
GPD-5
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
GPD-6
<PAGE>
You can find additional information in each fund's Statement of Additional
Information (SAI), which is on file with the SEC. Each fund incorporates its
SAI, dated May 1, 2000, into its Prospectus. Each fund will provide a free copy
of its SAI on request.
You can find still further information about each fund's investments in the
fund's annual and semi-annual reports to shareholders. The Annual Report
discusses the market conditions and investment strategies that significantly
affected that fund's performance (except the Money Market Fund) during its last
fiscal year. Each fund will provide a free copy of its Annual and Semi-Annual
Report on request.
For an SAI or Report, either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265).
Also call this number to request other information about a fund, or to make
inquiries.
You can review and copy information about the funds (including the SAIs) at the
SEC's Public Reference Room in Washington, D.C. You can get information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
can also get reports and other information about the funds on the SEC's Internet
site at http:// www.sec.gov. You can get copies of this information by writing
the SEC Public Reference Section, Washington, D.C. 20549-6009, and paying a
duplicating fee.
Fund Investment Company Act File Numbers:
<TABLE>
<S> <C> <C>
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC.: 33-70742; 811-8090
LINCOLN NATIONAL BOND FUND, INC.: 2-80746; 811-3210
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.: 33-70272; 811-8074
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.: 33-71158; 811-8126
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.: 33-13530; 811-5115
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.: 2-80741; 811-3211
LINCOLN NATIONAL INTERNATIONAL FUND, INC.: 33-38335; 811-6233
LINCOLN NATIONAL MANAGED FUND, INC.: 2-82276; 811-3683
LINCOLN NATIONAL MONEY MARKET FUND, INC.: 2-80743; 811-3212
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.: 33-19896; 811-5464
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.: 2-80731; 811-3291
</TABLE>
GPD-7
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LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
The SAI provides more information about the fund. The fund's audited financial
statements and the report of Ernst & Young, LLP, Independent Auditors, are
incorporated by reference to the fund's 1999 Annual Report. This SAI should be
read in conjunction with the prospectus of the Global Asset Allocation Fund
dated May 1, 2000. You may obtain a copy of the fund's Annual Report or
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).
The fund's SAI is not a prospectus.
CONTENTS
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SUBJECT PAGE
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Description of the Fund GAA-2
Additional Investment Strategies and Risks GAA-2
Strategic Portfolio Transactions GAA-3
Investment Restrictions GAA-10
Portfolio Transactions and Brokerage GAA-11
General SAI Disclosure -- Important
Additional Information
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May 1, 2000
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DESCRIPTION OF THE FUND
Lincoln National Global Asset Allocation Fund, Inc. (fund), 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. The fund is an
open-end diversified management investment company whose investment objective is
long-term total return consistent with preservation of capital. The fund's
investment objective and certain investment restrictions are fundamental and
cannot be changed without the affirmative vote of a majority of the outstanding
voting securities of the fund. The fund may change its non-fundamental
investment policies without prior shareholder approval. See "Investment
restrictions." There can be no assurance that the objective of the fund will be
achieved. References to advisor in this SAI may include both Lincoln Investment
Management, Inc. (Lincoln Investment) and Putnam Investment Management, Inc.,
unless the context otherwise indicates.
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The Prospectus discusses the fund's principal investment strategies used to
pursue the fund's investment objective and the risks of those strategies. The
following discussion describes other investment strategies that the fund may use
as market conditions warrant, and notes the risks associated with these other
investment strategies. (Italicized terms that are not defined herein are defined
in the fund's Prospectus.)
CONVERTIBLE SECURITIES
These securities include investments in corporate bonds, notes or preferred
stocks that can be converted into or exchanged for common stock.
FOREIGN INVESTMENTS; AMERICAN DEPOSITARY RECEIPTS (ADRS) AND EUROPEAN DEPOSITARY
RECEIPTS (EDRS)
The International Stock and International Fixed-Income sectors may each invest
100% of their respective assets in securities principally traded in foreign
markets. The other investment sectors may do so as well, but only up to the
following percentages of their total assets: the money market category, 50%; all
other sectors, 10%. (Eurodollar certificates of deposit are excluded for
purposes of these limitations.) As discussed in the fund's prospectus, foreign
investments can involve risks not present in domestic investments. With respect
to 65% of the assets allocated to each of the International Stock and
International Fixed-Income categories, the fund will hold securities in at least
three countries outside the United States at all times.
As also discussed in the fund's prospectus, the fund may invest in securities of
issuers located in countries considered to be emerging markets. While emerging
market countries may change over time depending on market and economic
conditions, at present the fund believes that emerging market countries include
every country in the world except Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and
the United States.
For the domestic sectors, 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. 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 or
EDRs.
On January 1, 1999, the European Economic and Monetary Union implemented a new
currency unit, the euro, for eleven participating European countries. The
countries that initially converted or tied their currencies to the euro are
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Each participating country is currently
phasing in use of the Euro for major financial transactions. In addition, each
participating country will begin using the euro for currency transactions
beginning July 1, 2002. Implementation of this plan means that financial
transactions and market information, including share quotations and company
accounts, in participating countries will be denominated in euros. Participating
governments will issue their bonds in euros, and monetary policy for
participating countries will be uniformly managed by a new central bank, the
European Central Bank. The transition to the euro is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world.
Although it is not possible to predict the impact of the euro implementation
plan on the Fund, the transition to the euro presents unique uncertainties,
including: (i) the legal treatment of certain outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the euro;
(ii) the establishment and maintenance of exchange rates for currencies being
converted into the euro; (iii) the fluctuation of the euro
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relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; (iv) whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge over
time; and (v) whether the conversion of the currencies of other countries in the
European Union ("EU"), such as the United Kingdom and Denmark, into the euro and
the admission of other non-EU countries, such as Poland, Latvia and Lithuania,
as members of the EU may have an impact on the euro or on the computer systems
used by the Fund's service providers to process the Fund's transactions.
Further, the process of implementing the euro may adversely affect financial
markets outside of Europe and may result in changes in the relative strength and
value of the U.S. dollar or other major currencies. The transition to the euro
is likely to have a significant impact on fiscal and monetary policy in the
participating countries and may produce unpredictable effects on trade and
commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
These or other factors could cause market disruptions, and could adversely
affect the value of securities held by the Fund. Because of the number of
countries using this single currency, a significant portion of the assets of the
Fund may be denominated in the euro.
U.S. FIXED-INCOME DEBT OBLIGATIONS
This sector also includes investment-grade debt obligations, including both
government and corporate obligations, with maturities of greater than 40 years.
The fund, however, may not invest more than 5% of this sector's assets in
securities with maturities greater than 40 years. As a general matter, the value
of debt obligations will fluctuate with changes in interest rates, and these
fluctuations can be greater for debt obligations with longer maturities.
Investment grade bonds are those rated at the time of purchase in the top four
credit rating categories of Moody's Investors Service (Moody's) or Standard &
Poor's Corp. (S&P), or their equivalents from other nationally recognized rating
agencies, or are unrated securities judged by the advisor to be of comparable
value. (See the General Prospectus Disclosure for the 11 funds for a description
of the credit rating categories of Moody's and S&P.)
This sector also includes mortgage-backed securities, which are debt obligations
issued by government agencies and other non-government agency issuers.
Mortgage-backed securities include obligations backed by a mortgage or pool of
mortgages and direct interests in an underlying pool of mortgages.
Mortgage-backed securities also include collateralized mortgage obligations
(CMO's). The mortgages involved could be those on commercial or residential real
estate properties.
Because the fund invests in mortgage-backed securities, the value of the fund's
shares may react more severely to changes in interest rates. In periods of
falling interest rates, mortgage-backed securities are subject to the
possibility that the underlying mortgages will be paid early (pre-payment risk),
lowering the potential total return and, therefore, the value of the
mortgage-backed securities. During periods of rising interest rates, the rate at
which the underlying mortgages are pre-paid may slow unexpectedly, causing the
maturity of the mortgage-backed securities to increase and their value to
decline (maturity extension risk). In either instance, the value of the
mortgage-backed securities may fluctuate more widely than the value of other
investment-grade debt obligations in response to changes in interest rates.
LOWER-RATED FIXED-INCOME SECURITIES. This category will include investments in
U.S. and foreign fixed-income securities rated at the time of purchase below Baa
by Moody's, or BBB by S&P, or their equivalents from other nationally recognized
rating agencies, or if unrated, are determined by the sub-adviser 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. The fund may take
full advantage of the entire range of U.S. and foreign junk bonds, (except that
no more than 10% of fund assets may be in emerging market issues). In any event,
the fund will not purchase securities rated at the time of purchase lower than
Ca by Moody's or CCC by S&P, or their equivalents from other nationally
recognized rating agencies, 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.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the fund 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 General SAI Disclosure for the 11 funds, we have
included a basic discussion of these special financial arrangement transactions
and some of the risks associated with them. Note also that the General SAI
Disclosure 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.
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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.
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 U.S. and foreign stock
indices, foreign fixed-income securities and foreign currencies and engage in
spread and straddle transactions.
b) for cash enhancement 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.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
The fund may seek to increase its current return by writing covered call or put
options 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 options 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 for
non-hedging purposes 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 for non-hedging purposes would exceed 5% of the
fund's net 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. 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 if
the fund holds, on a security-for-security or currency-for-currency basis, an
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
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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 debt obligations equal to the
difference).
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, 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
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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.
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
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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 a 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 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
GAA-7
<PAGE>
futures contracts rather than selling futures contracts. 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 options 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.
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
GAA-8
<PAGE>
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
hedged 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
this 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 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.
GAA-9
<PAGE>
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 (a)
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 (b)
enters into offsetting contracts for the forward sale of other securities it
owns. In the case of to-be-announced purchase commitments, the exact price and
estimated principal amount are established when the fund enters into a contract,
with the actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities, and include a risk of loss if
the value of the security to be purchased declines in value before the
settlement date. This risk is in addition to the risk of decline in value of the
fund's other assets. Where the fund purchases forward commitments 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 or
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 fund has adopted policies and investment restrictions. The investment
restrictions may not be changed without a majority vote of its outstanding
shares, and are considered fundamental. Such majority is defined in the 1940 Act
as the vote of the lesser of (1) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (2) more
than 50% of the outstanding voting securities. For purposes of the following
restrictions: (1) all percentage limitations apply immediately after the making
of an investment; and (2) any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security
from the portfolio.
The fund may not:
1. 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 all times when a short position is open it
owns an equal amount of such securities or owns securities
GAA-10
<PAGE>
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.
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.
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
GAA-11
<PAGE>
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 1999,
the advisor directed transactions totaling approximately $367 million to these
brokers and paid commissions of approximately $481,317 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 1999 was $620,471, for 1998 it was $570,904, and for 1997 it was
$460,621.
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."
GAA-12
<PAGE>
GENERAL SAI DISCLOSURE
(Note: this is uniform information for the 11 Funds. See each Fund's SAI for
information specific to that Fund.)
THIS GENERAL SAI DISCLOSURE CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL
AGGRESSIVE GROWTH FUND, INC. (AGGRESSIVE GROWTH), LINCOLN NATIONAL BOND
FUND, INC. (BOND), LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL
APPRECIATION), LINCOLN NATIONAL EQUITY-INCOME FUND, INC. (EQUITY-INCOME),
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC. (GLOBAL ASSET ALLOCATION),
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC. (GROWTH AND INCOME), LINCOLN
NATIONAL INTERNATIONAL FUND, INC. (INTERNATIONAL), LINCOLN NATIONAL MANAGED
FUND, INC. (MANAGED), LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY MARKET),
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS), AND LINCOLN
NATIONAL SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL OPPORTUNITIES). UNLESS
OTHERWISE INDICATED, THE FOLLOWING INFORMATION APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment or advisor) is the
investment advisor to the funds and is headquartered at 200 E. Berry Street,
Fort Wayne, Indiana 46802. Lincoln Investment is a subsidiary of Lincoln
National Investments, Inc., which 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, 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 an Advisory Agreement with each fund, the advisor provides portfolio
management and investment advice to the funds and administers its other affairs,
subject to the supervision of the fund's 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 General Prospectus Disclosure. Lincoln
Life has paid the organizational expenses of all the funds. The rates of
compensation to the advisor is set forth in the General Prospectus Disclosure to
the Prospectus.
<TABLE>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $ 2,417,737 $ 2,476,022 $2,109,952
Bond Fund 1,552,439 1,421,361 1,221,295
Capital Appreciation Fund 9,051,341 4,265,160 2,940,632
Equity-Income Fund 7,394,087 6,639,317 6,053,404
Global Asset Allocation Fund 3,493,557 3,320,142 2,808,358
Growth and Income Fund 13,910,486 12,112,568 9,714,765
International Fund 3,998,445 3,837,594 3,741,563
Managed Fund 3,376,216 3,283,079 2,873,786
Money Market Fund 859,855 517,294 451,243
Social Awareness Fund 6,167,750 5,287,914 3,355,544
Special Opportunities Fund 2,868,328 3,248,791 2,824,015
</TABLE>
A-1
<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.
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:
<TABLE>
ANNUAL FEE RATE BASED ON
FUND SUB-ADVISOR AVERAGE DAILY NET ASSET VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Putnam Currently .50 of 1% of the first $150 million .35 of 1% of
One Post Office Square the excess over $150 million; upon shareholder approval
Boston, MA 02109 fees will be .50 of 1% of the first $250 million, .45 of 1%
of the excess over $250 million
Capital Appreciation Janus .55 of 1% of the first $100 million .50 of 1% of the next
100 Fillmore Street $400 million; and .45 of 1% of the excess over
Denver, CO 80206 $500 million
Equity-Income Fidelity Trust .48 of 1%
82 Devonshire Street
Boston, MA 02108
Global Asset Allocation Putnam The greater of (a) $40,000; or (b) .47 of 1% of the first
One Post Office Square $200 million; .42 of 1% of the next $200 million; and .40
Boston, MA 02109 of 1% of any excess over $400 million
International Delaware International Advisers .50 of 1% of the first $200 million; .40 of 1% of the next
Ltd. $200 million; and .35 of 1% of any excess over
80 Cheapside, $400 million
London, England
EC2V 6EE
</TABLE>
<TABLE>
ANNUAL FEE RATE BASED ON MARKET
VALUE OF SECURITIES HELD IN THE
PORTFOLIO OF EACH RESPECTIVE CLIENT
FUND AT THE CLOSE OF BUSINESS ON THE
FUND SUB-ADVISOR LAST TRADING DAY OF EACH CALENDAR QUARTER
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Vantage .20 of 1%
405 Lexington Avenue, 34th
floor
New York, NY 10174
Managed Vantage .20 of 1%
(stock portfolio only)
Social Awareness Vantage .20 of 1%
Special Opportunities Vantage .20 of 1%
</TABLE>
A-2
<PAGE>
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus, most of which it acquired in 1984. KCSI is a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, information processing and financial services. Thomas H. Bailey,
President and Chairman of the Board of Janus, owns approximately 12% of its
voting stock and, by agreement with KCSI, selects a majority of Janus' Board.
FMR Corp., organized in 1972, is the ultimate parent company of Fidelity Trust.
The voting common stock of FMR Corp. is divided into two classes. Class B is
held predominantly by members of the Edward C. Johnson 3d family and is entitled
to 49% of the vote on any matter acted upon by the voting common stock. Class A
is held predominately by non-Johnson family member employees of FMR Corp. and
its affiliates and is entitled to 51% of the vote on any such matter. The
Johnson family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. Under the 1940 Act, control
of a company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company. Therefore, through their ownership
of voting common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
Putnam is a majority-owned subsidiary of Marsh & McLennan Companies, a
diversified firm offering insurance and reinsurance broking, consulting, and
investment management services. Putnam, however, operates independently of its
parent.
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>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund 1,637,988 $1,450,345 $1,229,800
Bond Fund N/A N/A N/A
Capital Appreciation Fund 5,545,764 2,840,385 2,072,388
Equity-Income Fund 5,268,247 5,248,803 4,781,931
Global Asset Allocation Fund 2,296,989 2,000,284 1,724,369
Growth and Income Fund 9,501,504 7,502,197 6,155,225
International Fund 2,200,556 1,233,752 1,503,294
Managed Fund 1,269,452 1,116,901 974,080
Money Market Fund N/A N/A N/A
Social Awareness Fund 4,013,362 2,992,902 1,901,560
Special Opportunities Fund 1,706,577 1,775,700 1,519,961
</TABLE>
- --------------------------------------------------------------------------------
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 Aggressive Growth and Global Asset Allocation Funds. 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.
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<PAGE>
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>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
* KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
Chairman of the Board,
President and Director, age 47
1300 S. Clinton Street
Fort Wayne, IN 46802
- ----------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Director of Northwestern University
Director, age 66
1776 Sherwood Road
Des Plaines, IL 60016
- ----------------------------------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Vice President/Chief Financial Officer, Desoto Memorial
Director, age 58 Hospital
127 Sinclair Street, S.W., Formerly Chief Financial Officer, Bascom Palmer Eye
Port Charlotte, FL 33952 Institute, University of Miami School of Medicine
- ----------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and
Director, age 48 Development, Lincoln National Management Corporation;
Centre Square, West Tower Director, Lincoln Life and Annuity Company of New York
1500 Market St., Suite 3900 (formerly Executive Vice President, Lincoln Investment
Philadelphia, PA 19102-2112 Management, Inc.)
- ----------------------------------------------------------------------------------------------------------
KENNETH G. STELLA President, Indiana Hospital and Health Association
Director, age 56
One America Square
Indianapolis, IN 46282
- ----------------------------------------------------------------------------------------------------------
JANET C. CHRZAN Vice President and Treasurer, Lincoln National Corp.
Treasurer, age 51 (formerly Vice President and General Auditor)
Centre Square, West Tower
1500 Market St., Suite 3900
Philadelphia, PA 19102-2112
- ----------------------------------------------------------------------------------------------------------
CYNTHIA A. ROSE Assistant Vice President, Lincoln National Life Insurance
Secretary, age 45 Co.
1300 South Clinton Street Secretary and Assistant Vice President (eff. 1/1/99)
Fort Wayne, IN 46802
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Interested persons of the funds, as defined in the 1940 Act.
A-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND
NAME OF PERSON, FROM EACH FUND* AND FUND COMPLEX
POSITION
- ----------------------------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. $18,105
Director $1,646
- ----------------------------------------------------------------------------------------------------------------------------
NANCY L. FRISBY 18,226
Director 1,657
- ----------------------------------------------------------------------------------------------------------------------------
KENNETH G. STELLA 16,874
Director 1,534
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Directors fees of $350 per meeting, plus expenses to attend the meetings, are
paid by each fund to each director who is not an interested person of the funds.
CODE OF ETHICS
The funds permit "Access Persons" as defined by Rule 17j-1 under the 1940 Act to
engage in personal securities transactions, subject to the terms of the Code of
Ethics that has been adopted by each fund's Board of Directors. Access Persons
are required to follow the guidelines established by a fund's Codes of Ethics in
connection with all personal securities transactions and are subject to certain
prohibitions on personal trading. Each fund's advisor and sub-advisor, pursuant
to Rule 17j-1 and other applicable laws and pursuant to the terms of each fund's
Code of Ethics, must adopt and enforce their own Codes of Ethics appropriate to
their operations. Each fund's Board of Directors is required to review and
approve the Codes of Ethics for the fund's advisor and sub-advisor.
FUND EXPENSES
Expenses other than investment advisory fees 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.
DESCRIPTION OF SHARES
The authorized capital stock of each fund consists of shares of common stock,
$0.01 par value. Fund shares will be owned by Lincoln Life and will be held by
it in the variable accounts. As principal 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 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
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<PAGE>
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 AT THE END OF THIS
GENERAL SAI DISCLOSURE.
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 SAIs. Therefore, where a particular fund discloses the intent of that
fund to engage in any of the types listed, that fund hereby reserves the right
to engage in related variations on those transactions.
The funds intend to engage in derivative transactions only defensively, unless a
fund's Prospectus or SAI states otherwise. 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, or
securities such as collateralized mortgage obligations, structured notes,
inverse floaters, principal-only or interest-only securities, etc. For a
description of these securities see the Prospectus or SAI for the funds that 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
A-6
<PAGE>
most common ones here; however, this is not an exhaustive list. Consult
your financial counselor if you have additional questions.
CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one counterparty
has received payment in one indicated currency and the time the other
counterparty(ies) receive payment in the others, those awaiting payment
are exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in
particular jurisdictions or against a financially troubled entity; or
will be subject to regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will be unable to control
its losses if a liquid secondary market for a financial instrument does
not exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundamental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a
market segment, to a settlement system, etc.) might cause widespread
difficulties at other firms, in other market segments, or in the
financial system as a whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's
ability to correctly predict the direction of stock prices and interest
rates, and other economic factors. Options and futures trading may fail
as hedging techniques in cases where the price movements of the
securities underlying the options and futures do not follow the price
movements of the portfolio securities subject to the hedge. The loss from
investing in futures transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular fund, please consult your
financial counselor if you have questions about the risks associated with
that fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each fund, that fund's
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the
Comptroller of the Currency), and by self-regulatory agencies (such as
the NASD). Should legislation or regulatory initiatives be enacted
resulting in 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
A-7
<PAGE>
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 fund's
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 fund's
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.
RISKS OF OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to all funds except the International Fund and the Money
Market Fund. (Note: The SAIs for Aggressive Growth, Capital Appreciation,
Equity-Income and Global Asset Allocation Funds provide additional disclosures
concerning the types and risks 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.
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.
A-8
<PAGE>
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.
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.
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
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.
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. For certain
limited purposes, the fund may also be authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge. Currently, futures contracts
are available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
The Bond, Growth and Income, Managed, Social Awareness, and Special
Opportunities funds may only purchase futures and related options thereon for
hedging purposes. The Aggressive Growth, Capital Appreciation, Equity-Income,
and Global Asset Allocation funds may purchase futures and related options for
both hedging and non-hedging purposes, but subject to the limits described in
each fund's SAI. The funds will not purchase or sell futures contracts or
related options if immediately thereafter more than 1/3 of its net assets would
be hedged.
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. This investment policy does not apply to the
Capital Appreciation, Global Asset Allocation, and Equity-Income funds. There
can be no assurance that a liquid market will always exist for any particular
contract at any particular time. Accordingly, there can be no assurance that it
will always be possible to close a futures position when such closing is desired
and, in the event of adverse price movements, the fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been sold to hedge 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.
A-9
<PAGE>
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 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.
The fund's successful use of futures contracts and options thereon depends upon
the ability of its investment advisor to predict movements in the securities
markets and other factors affecting markets for securities and upon the degree
of correlation between the prices of the futures contracts and the prices of the
securities being hedged. As a result, even a correct forecast of price changes
may not result in a successful hedging transaction. Although futures contracts
and options thereon may limit the fund's exposure to loss, they may also limit
the fund's potential for capital gains. For example, if the fund has hedged
against the possibility of decrease in prices which would adversely affect the
price of securities in its portfolio and prices of such securities increase
instead, the fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
Although the fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
LENDING OF PORTFOLIO SECURITIES
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.
RISKS OF REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. 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
A-10
<PAGE>
transaction will be in the actual or constructive possession of the particular
fund during the terms of the transaction, as provided in the agreement.
Similarly, the fund will enter into reverse repurchase agreements only with
parties that the advisor or sub-advisor deems creditworthy. 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.
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, bars preventing the removal of assets, or other
foreign governmental laws or restrictions; reduced availability of public
information concerning issuers; and the fact that foreign companies are not
generally subject to uniform accounting, auditing, and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is also the possibility of expropriation, nationalization, confiscatory
taxation, and limitations on the use or removal of cash or other assets of a
fund, including the withholding of interest payments or dividends. These risks
may be particularly great in so-called developing or undeveloped countries,
sometimes referred to as Emerging Markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio 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 U.S. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the U.S. There may be difficulty in
enforcing legal rights outside the U.S. 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.
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
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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.
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 General Prospectus Disclosure for the
funds for information about how to obtain a copy of the SAI booklet for the
11 funds.
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 1999
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
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<PAGE>
reporting matters; and meetings with the Audit Committee.
FINANCIAL STATEMENTS
The audited financial statements and the reports of Ernst & Young LLP,
Independent Auditors, for the funds are incorporated by reference to each fund's
1999 Annual Report. We will provide a copy of each fund's 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.
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.
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<PAGE>
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 funds 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
funds will not invest in commercial paper rated A-3).
A -- 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A -- 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of two to ten years and
Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). Obligations supported by the credit of the instrumentality include
securities issued by government-sponsored corporations whose stock is publicly
held (for example, the Federal National Mortgage Association, and the Student
Loan Marketing Association). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk than
other government obligations.
TAXES
Each fund intends to qualify and has elected to be taxed as a regulated
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the Code). If a fund qualifies as a regulated investment
company and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each fund must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
which are not directly related to the fund's principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its investing in such
stocks, securities, or currencies.
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
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federal tax considerations with respect to the fund. State and local taxes vary.
DERIVATIVE TRANSACTIONS-DEFINITIONS
The SAI for each fund and this uniform Appendix 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).
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
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<PAGE>
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.
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THIS PAGE WAS INTENTIONALLY LEFT BLANK.
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<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits:
(a) - Articles of Incorporation*
(b) - By-Laws*
(c) - Certificate*
(d)1. - Advisory Agreement between Lincoln Investment Management,
Inc. and Lincoln National Global Asset Allocation Fund, Inc.
dated May 31, 1987.*
2. - Sub-Advisory Agreement between Lincoln Investment
Management, Inc. and Putnam Investment Management, Inc. dated
June 8, 1987.*
(e)1. - NA
2. - Specimen Agents Contract*
(f) - NA
(g)1. - Custody Agreement*
2. - Custody Fee Schedule (Filed with post-effective Amendment
No. 12 to this registration statement)
(h)1. - Fund Participation Agreement
2. - Trade Name Agreement*
3. - Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc., Lincoln National
Global Asset Allocation Fund, Inc. and Lincoln National
Life Insurance Company is incorporated herein by
reference to the Registration Statement on Form N-1A
(2-80741), Amendment No. 21 filed on April 10, 2000.
4. - Amendment to Fund Participation Agreement
(i) - Opinion of Counsel*
(j) - Consent of Ernst & Young LLP, Independent Auditors
(k) - NA
(l) - Investment Letter*
(m) - NA
(n) - NA
(o) - NA
(p) - Code of Ethics
1. - Lincoln National Global Asset Allocation Fund, Inc.
2. - Lincoln Investment Management Inc.
3. - Putnam Investment Management Inc.
(q)1. - Power of Attorney, Kenneth G. Stella is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
2. - Power of Attorney, John B. Borsch Jr. is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
3. - Power of Attorney, Barbara S. Kowalczyk is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
4. - Power of Attorney, Nancy L. Frisby is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
5. - Power of Attorney, Eric C. Jones is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
6. - Power of Attorney, Janet C. Chrzan is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
7. - Power of Attorney, Kelly D. Clevenger is incorporated by
reference to Post-Effective Amendment No. 15 filed on
April 16, 1999.
(r) - ORG chart
(s) - Memorandum Concerning Books and Records
* Filed with Post-Effective Amendment No. 13 to this Registration
Statement.
Item 24. 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 25. Indemnification
Reference is made to Article IX of the Fund's By-Laws (filed as Exhibit
(b) hereto), in the Indemnification provision of the Fund Participation
Agreement between Registrant and Lincoln National Life Insurance Co.
(filed as exhibit h(1) to the Registration Statement filed with
Post-Effective Amendment No. 15) and Section to 2-418 of the Maryland
General Corporation Law.
<PAGE>
Item 26. 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 March 23, 2000, 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>
David A. Berry Vice President Vice President, Lincoln National Income Fund, Inc. and
Lincoln National Convertible Securities Fund, Inc., Vice
President, Lincoln National Life Insurance Company.
Second Vice President, Lincoln Life & Annuity Company of
New York, 200 East Berry Street, Fort Wayne, Indiana
46802
Dennis A. Blume Vice President Director, Vantage Global Advisors, Inc., 200 East Berry
Street, Fort Wayne, Indiana 46802
Steven R. Brody Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company, 200 East Berry Street, Fort Wayne,
Indiana 46802
Philip C. Byrde Vice President Vice President, Lincoln National Life Insurance Company and
Second Vice President Lincoln Life & Annuity Company of New
York, 200 East Berry Street, Fort Wayne, Indiana 46802
Mark Laurent Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
J. Michael Keefer Vice President 200 East Berry Street
General Counsel and Fort Wayne, Indiana 46802
Assistant Secretary,
And Director
H. Thomas McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., Executive Vice President and Chief Investment
Officer, Lincoln National Corporation; Executive Vice
President and Chief Investment Officer, Fixed-Income
Delaware Management Company, and Director of Lincoln
National Investments, Inc. (Formerly Lincoln National
Investment Companies, Inc.); Director, Delaware
Management Holdings, Inc., Lincoln National Realty
Corporation, Lynch & Mayer, Inc., Vantage Global
Advisors, Lincoln National Life Insurance Company,
200 East Berry Street, Fort Wayne, Indiana 46802
David C. Patch Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Luke Girard Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
David J. Miller Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Howard R. Lodge Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
</TABLE>
(b) The Sub-Advisor.
As of March 23, 2000 the officers and/or directors of the Sub-Adviser
are as follows:
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
<TABLE>
<CAPTION>
Name Officer Title
------ -------------
<S> <C>
Putnam,George Chairman
------------------------------------------------------------------
Lasser,Lawrence J. President
------------------------------------------------------------------
Collman,Kathleen M. Senior Managing Director
------------------------------------------------------------------
Ferguson,Tim Senior Managing Director
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Oristaglio,Stephen M. Senior Managing Director
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Regan,Anthony W. Senior Managing Director
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Silver,Gordon H. Senior Managing Director
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Spiegel,Steven Senior Managing Director
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Anderson,Blake E. Managing Director
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Beck,Robert R. Managing Director
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Boneparth,John F. Managing Director
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Bresnahan,Leslee R. Managing Director
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Browchuk,Brett C. Managing Director
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Cassaro,Joseph A. Managing Director
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Cotner,C. Beth Managing Director
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Cronin,Kevin M. Managing Director
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D'Alelio,Edward H. Managing Director
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Daly,Kenneth L. Managing Director
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DeTore,John A. Managing Director
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Durgarian,Karnig H. Managing Director
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Esteves,Irene M. Managing Director
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Farrell,Deborah S. Managing Director
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Gillis,Roland Managing Director
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Haslett,Thomas R. Managing Director
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Holding,Pamela Managing Director
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Hurley,William J. Managing Director
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Jacobs,Jerome J. Managing Director
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Joseph,Joseph P Managing Director
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Kamshad,Omid Managing Director
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Kanwal,Amrit Managing Director
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King,David L. Managing Director
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Kohli,D. William Managing Director
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Kreisel,Anthony I. Managing Director
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Kuenstner,Deborah F. Managing Director
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Landes,William J. Managing Director
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Leibovitch,Richard G. Managing Director
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Leichter,Jennifer E. Managing Director
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Lohr,Mark G. Managing Director
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Maloney,Kevin J. Managing Director
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Martens,Erwin W. Managing Director
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Martino,Michael Managing Director
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Maxwell,Scott M. Managing Director
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McMullen,Carol C. Managing Director
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Memani,Krishna K. Managing Director
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Miller,Daniel L. Managing Director
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Miller,Jeffrey M. Managing Director
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Morgan Jr,John J. Managing Director
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Morgan,Kelly A. Managing Director
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Morris,Dirk Managing Director
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Murphy,Jennifer P. Managing Director
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Nagashima,Toshio Managing Director
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<PAGE>
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Peacher,Stephen C. Managing Director
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Peters,Jeffrey F. Managing Director
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Pollard,Mark D. Managing Director
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Porter,Charles E. Managing Director
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Price,Quintin Managing Director
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Reilly,Thomas V. Managing Director
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Schultz,Mitchell D. Managing Director
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Scott,Justin M. Managing Director
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Shadek Jr,Edward T. Managing Director
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Starr,Loren M. Managing Director
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Swift,Robert Managing Director
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Talanian,John C. Managing Director
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Tibbetts,Richard B. Managing Director
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Waldman,David L. Managing Director
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Warren,Paul C. Managing Director
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Wetlaufer,Eric M. Managing Director
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Woolverton,William H. Managing Director
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Allansmith,Lauren L. Senior Vice President
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Arends,Michael K. Senior Vice President
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Asher,Steven E. Senior Vice President
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Atkin,Michael J. Senior Vice President
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Augustine,Jeffrey B. Senior Vice President
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Bakshi,Manjit S. Senior Vice President
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Bamford,Dolores Snyder Senior Vice President
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Bent,John J. Senior Vice President
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Block,Richard L. Senior Vice President
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Bloemker,Rob A. Senior Vice President
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Boselli,John A. Senior Vice President
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Bousa,Edward P. Senior Vice President
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Bradford Jr.,Linwood E. Senior Vice President
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Burke,Andrea Senior Vice President
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Burns,Cheryl A. Senior Vice President
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Byrne,Joshua L. Senior Vice President
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Callahan,Ellen S. Senior Vice President
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Carlson,David G. Senior Vice President
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Chase,Mary Claire Senior Vice President
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Chrostowski,Louis F. Senior Vice President
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Crane III,George H. Senior Vice President
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Curran,Peter J. Senior Vice President
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Dalferro,John R. Senior Vice President
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Derbyshire,Ralph C Senior Vice President
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Dexter,Stephen P. Senior Vice President
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Divney,Kevin M. Senior Vice President
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Eigerman,Nathan W. Senior Vice President
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Elavia,Tony H. Senior Vice President
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England,Richard B. Senior Vice President
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Epke,Laura L. Senior Vice President
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Flaherty,Patricia C. Senior Vice President
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Fleisher,Peter M. Senior Vice President
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Fontana,Forrest N. Senior Vice President
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Francis,Jonathan H. Senior Vice President
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Frost,Karen T. Senior Vice President
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<PAGE>
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Frucci,Richard M. Senior Vice President
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Gorman,Stephen A. Senior Vice President
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Graham,Andrew Senior Vice President
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Grant,J. Peter Senior Vice President
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Graviere,Patrice Senior Vice President
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Grim,Daniel J. Senior Vice President
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Haagensen,Paul E. Senior Vice President
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Hadas,Edward Senior Vice President
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Hadden,Peter J. Senior Vice President
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Halperin,Matthew C. Senior Vice President
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Hamlin,David E. Senior Vice President
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Harring,Linda Senior Vice President
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Hart,Nigel P. Senior Vice President
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Healey,Deborah R. Senior Vice President
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Horwitz,Jonathan S. Senior Vice President
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Hotchkiss,Michael F. Senior Vice President
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Kaufman,Jeffrey Senior Vice President
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Kay,Karen R. Senior Vice President
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Kirson,Steven L. Senior Vice President
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Knight,Jeffrey L. Senior Vice President
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Koontz,Jill A. Senior Vice President
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Korn,Karen R. Senior Vice President
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Lannum III,Coleman N. Senior Vice President
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Lindsey,Jeffrey R. Senior Vice President
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Lode,Geirulv Senior Vice President
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MacElwee Jones,Elizabeth M. Senior Vice President
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Madore,Robert A. Senior Vice President
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Malloy,Julie M. Senior Vice President
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Manuel Jr.,Richard D. Senior Vice President
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Marrkand,Paul E. Senior Vice President
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Marshall,William L. Senior Vice President
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Matteis,Andrew S. Senior Vice President
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McDonald,Richard E. Senior Vice President
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Meehan,Thalia Senior Vice President
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Mehta,Sandeep Senior Vice President
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Mockard,Jeanne L. Senior Vice President
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Mufson,Michael J. Senior Vice President
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Mullen,Donald E. Senior Vice President
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Mullin,Hugh H. Senior Vice President
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Murphy,Kevin F. Senior Vice President
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Netols,Jeffrey W. Senior Vice President
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Oler,Stephen S. Senior Vice President
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Paine,Robert M. Senior Vice President
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Parker,Margery C. Senior Vice President
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Parr,Cynthia O. Senior Vice President
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Perry,William Senior Vice President
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Peters,Carmel Senior Vice President
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Petralia,Randolph S. Senior Vice President
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Plapinger,Keith Senior Vice President
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Pohl,Charles G. Senior Vice President
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Prusko,James M. Senior Vice President
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Puddle,David G. Senior Vice President
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<PAGE>
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Quistberg,Paul T. Senior Vice President
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Rogers,Kevin J. Senior Vice President
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Ruys de Perez,Charles A. Senior Vice President
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Sai,Yumiko Senior Vice President
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Santos,David J. Senior Vice President
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Santosus,Anthony C. Senior Vice President
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Schwister,Jay E. Senior Vice President
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Scordato,Christine A. Senior Vice President
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Selden,Denise D. Senior Vice President
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Sievert,Jean I. Senior Vice President
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Simon,Sheldon N. Senior Vice President
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Simozar,Saied Senior Vice President
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Smith Jr,Leo J. Senior Vice President
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Smith,Margaret D. Senior Vice President
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Spatz,Erin J. Senior Vice President
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Spiers,John Graham Senior Vice President
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Stack,Michael P. Senior Vice President
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Stairs,George W. Senior Vice President
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Strumpf,Casey Senior Vice President
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Sugimoto,Toshifumi Senior Vice President
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Sullivan,Roger R. Senior Vice President
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Sullivan,William J. Senior Vice President
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Suzuki,Toshimi Senior Vice President
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Svensson,Lisa H. Senior Vice President
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Swanberg,Charles H. Senior Vice President
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Thomsen,Rosemary H. Senior Vice President
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Troped Blacker,Bonnie Senior Vice President
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Verani,John R. Senior Vice President
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Walsh,Francis P. Senior Vice President
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Weinstein,Michael R. Senior Vice President
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Weiss,Manuel Senior Vice President
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Whalen,Edward F. Senior Vice President
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Wyke,Richard P. Senior Vice President
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Yogg,Michael R. Senior Vice President
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</TABLE>
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
See Exhibit (s)
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable
<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 Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Amendment to the
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 10th day of April, 2000.
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
Amendment to the Registration Statement has been signed below on April 10,
2000, by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
April 10, 2000
/s/ Kelly D. Clevenger Chairman of the Board -----------------
- ------------------------ President and Director
Kelly D. Clevenger (Principal Executive
Officer)
April 10, 2000
* Director -----------------
- ------------------------
John B. Borsch, Jr.
April 10, 2000
* Director -----------------
- ------------------------
Kenneth G. Stella
April 10, 2000
* Director -----------------
- ------------------------
Barbara S. Kowalczyk
April 10, 2000
* Director -----------------
- ------------------------
Nancy L. Frisby
* Chief Accounting Officer April 10, 2000
- ------------------------ (Principal Accounting -----------------
Eric C. Jones Officer)
* Vice President and April 10, 2000
- ------------------------ Treasurer (Principal -----------------
Janet C. Chrzan Financial Officer)
* By /s/ Steven M. Kluever pursuant to a Power of Attorney filed with
------------------------ Post-Effective Amendment No.15 filed on
Steven M. Kluever April 16, 1999.
</TABLE>
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998, by and
between Lincoln National Global Asset Allocation Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule 1
to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of Fund
shares to the extent permitted by the 1940 Act, any rules, regulations or orders
thereunder, or the then currently effective Fund Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be
the agent of the Fund for the limited purpose of receiving
redemption
2
<PAGE>
and purchase requests from the Account (but not from the general
account of the Company), and receipt on any Business Day by the
Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date
of execution of this Agreement is 4 p.m., E.S.T.) shall
constitute receipt by the Fund on that same Business Day,
provided that the Fund receives notice of such redemption or
purchase request by 9:00 a.m., E.S.T. on the next following
Business Day. For purposes of this Agreement, "Business Day"
shall mean any day on which the New York Stock exchange is open
for trading.
(b) The Company shall pay for the shares on the same day
that it places an order with the Fund to purchase those Fund
shares for an Account. Payment for Fund shares will be made by
the Account or the Company in Federal Funds transmitted to the
Fund by wire to be received by 11:00 a.m., E.S.T. on the day the
Fund is properly notified of the purchase order for shares. The
Fund will confirm receipt of each trade and these confirmations
will be received by the Company via Fax or Email by 3:00 p.m.
E.S.T. If Federal Funds are not received on time, such funds will
be invested, and shares purchased thereby will be issued, as soon
as practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company
by wire on the same day the Fund is notified of the redemption
order of shares, except that the Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment
be delayed longer than the period permitted under Section 22(e)
of the 1940 Act. The Fund shall not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption
proceeds if securities must be redeemed; the Company alone shall
be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Account. Purchase and
redemption orders for Fund shares will be recorded in an appropriate ledger for
the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for
3
<PAGE>
any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company to the
Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner
requests; (ii) upon a determination by a majority of the Fund
Board, or a majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of
(x) any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the Fund to
substitute the shares of another investment company for shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other
legal precedent of general application; or (v) at the Company's
sole discretion, pursuant to an order of the SEC under Section
26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
4
<PAGE>
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for
5
<PAGE>
the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will provide
the appropriate Contractowner names and addresses to the Fund for this
purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does not
respond within 10 days of a request by the Company, then the Company shall be
relieved of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
6
<PAGE>
3.7. The Fund will provide to the Company at least one complete copy of all
Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of all
Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions of
any registration statements, prospectuses, statements of additional information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, Statements of Additional
Information, shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under NASD rules, the 1940 Act or
the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the Fund
shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with
7
<PAGE>
instructions or proxies received in timely fashion from such Contract
owners;
(b) vote Fund shares attributable to Contract owners for which no
instructions have been received in the same proportion as Fund shares
of such Series for which instructions have been received in timely
fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent
8
<PAGE>
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend Schedule
3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may be
appropriate for inclusion in Schedule 3, the Company shall be informed
immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the Company
and a reasonable opportunity for the Company to appear before it and
present its case, determines that the Company is responsible for said
conflict, and if the Company
9
<PAGE>
agrees with that determination, the Company shall, at its sole cost
and expense, take whatever steps are necessary to remedy the material
irreconcilable conflict. These steps could include: (i) withdrawing
the assets allocable to some or all of the affected Accounts from the
Fund and reinvesting such assets in a different investment vehicle, or
submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance policyowners,
or variable Contractowners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Contractowners the option of making such a change; and (ii)
establishing a new registered mutual fund or management separate
account; or (iii) taking such other action as is necessary to remedy
or eliminate the material irreconcilable conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board,
reserving its right to dispute the determination as between just
the Company and the Fund and to seek reimbursement from the Fund
for the reasonable costs and expenses of resolving the conflict .
After reserving that right the Company, although disagreeing with
the Board that it (the Company) was responsible for the conflict,
shall take the necessary steps, under protest, to remedy the
conflict, substantially in accordance with paragraph (a) just
above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the matter. If the matter has not been amicably resolved
within 60 days from the date of the Company's notice of its
intent to press the dispute, then before either party shall
undertake to litigate the dispute it shall be submitted to
non-binding arbitration conducted expeditiously in accordance
with the CPR Rules for Non-Administered Arbitration of Business
Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if one
party has requested the other party to seek an amicable
resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to
select an arbitrator the parties cannot agree upon the
arbitrator, then he or she will be selected from the CPR Panels
of Neutrals. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. Sec. 1-16. The place of
arbitration shall be Fort Wayne, Indiana. The Arbitrator is not
empowered to award damages in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
was responsible for the conflict, then the Board shall notify the
Company immediately
10
<PAGE>
of that determination. The Fund shall assure the Company that it
(the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever
steps are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all
or part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (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 in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if
such
11
<PAGE>
statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Fund (or a
person authorized in writing to do so on behalf of the Fund) for
use in the Contracts Registration Statement, Contracts Prospectus
or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of
the Company (other than statements or representations contained
in the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not supplied
by the Company or persons under its control) or wrongful conduct
of the Company or persons under its control with respect to the
sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement
or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company;
or
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely
basis in accordance with the procedures set forth in Article I;
or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate
its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
12
<PAGE>
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Fund Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, 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 in light of the circumstances in which
they were made; provided that this obligation to indemnify shall
not apply if such statement or omission or alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund for
use in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the Fund
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund
(other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control) or
wrongful conduct of the Fund or persons under its control with
respect to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment
or supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement
or omission was made in reliance upon information furnished in
writing by the Fund to the Company (or a person authorized in
writing to do so on behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to
comply with the diversification requirements specified in
Sections 2.4 and 6.1 in Article VI of this Agreement; and (ii) to
provide the Company with accurate information sufficient for it
to calculate its accumulation and/or annuity unit values
13
<PAGE>
in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those
14
<PAGE>
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are
not available to meet the requirements of the Contracts as
determined by the Company. Prompt notice of the election to
terminate for such cause shall be furnished by the Company.
Termination shall be effective ten days after the giving of
notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related to
the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable
law) and written approval of the Company, to substitute the
shares of another investment company for the corresponding shares
of the Fund in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any
15
<PAGE>
successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may
fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Section 817(h) of
the Code and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes
that the Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine,
in its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have
been the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and operations
of the Fund; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that:
(1) the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been
the subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or
the Accounts to another insurance company pursuant to an
assumption reinsurance agreement) unless the non-assigning party
consents thereto or unless this Agreement is assigned to an
affiliate of the Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination.
Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required
by law or regulation.
10.3. EFFECT OF TERMINATION
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<PAGE>
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund will, at the
option of the Company, continue to make available additional Fund
shares for so long after the termination of this Agreement as the
Company desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts
in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, if the Company so elects to make additional
Fund shares available, the owners of the Existing Contracts or
the Company, whichever shall have legal authority to do so, shall
be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts.
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in
effect except for Section 10.1(a) and thereafter either the Fund
or the Company may terminate the Agreement, as so continued
pursuant to this Section 10.3, upon prior written notice to the
other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be
for more than six months.
(c) The parties agree that this Section 10.3 shall not apply
to any termination made pursuant to Article VII, and the effect
of such Article VII termination shall be governed by the
provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the parties
and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Global Asset Allocation Fund, Inc.
17
<PAGE>
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION
FUND, INC.
Signature:
-------------------------------------------------
Name: Kelly D. Clevenger
------------------------------------------------------
Title: President
-----------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-------------------------------------------------
Name: Stephen H. Lewis
------------------------------------------------------
Title: Senior Vice President, Lincoln National
Life Insurance Company
-----------------------------------------------------
19
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#73844
20
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SCHEDULE 1
Lincoln National Global Asset Allocation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Global Asset Allocation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
22
<PAGE>
SCHEDULE 3
Lincoln National Global Asset Allocation Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDMENT TO
SCHEDULE 2
Lincoln National Global Asset Allocation Fund, Inc
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of October 15, 1999
MULTI FUND INDIVIDUAL VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
LINCOLN VUL
LINCOLN SVUL
MULTI FUND - NON-REGISTERED
DB
LINCOLN VUL
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule 2 to be executed in its name and behalf by its duly authorized officer
on the date specified below.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
Date: By:
----------------------- -----------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
----------------------- -----------------------------
Stephen H. Lewis
Senior Vice President
<PAGE>
AMENDMENT TO
SCHEDULE 1
Lincoln National Global Asset Allocation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of May 1, 1999
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT R
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
<PAGE>
AMENDMENT TO
SCHEDULE 2
Lincoln National Global Asset Allocation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of May 1, 1999
MULTI FUND INDIVIDUAL VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
LINCOLN VUL
LINCOLN SVUL
MULTI FUND - NON REGISTERED
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedules 1 and 2 to be executed in its name and behalf by its duly
authorized officer on the date specified below.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
Date: By:
----------------------- -----------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
----------------------- -----------------------------
Stephen H. Lewis
Senior Vice President
<PAGE>
The Fund Participation Agreement (the "Agreement"), dated July 1, 1998, by
and among The Lincoln National Life Insurance Company and Lincoln National
Global Asset Allocation Fund, Inc. is hereby amended as follows:
Page 2, the second paragraph is replaced in its entirety with the following:
"WHEREAS, the Company has registered or will have registered each Account
with the SEC (unless exempt therefrom) as a unit investment trust under the 1940
Act before any Contracts are issued by that Account; and"
Page 5, Article 2.1 is replaced in its entirety with the following:
"The Company represents and warrants (a) that the Contracts are registered
under the 1933 Act or will be so registered before the issuance thereof
(unless exempt therefrom), (b) that the Contracts will be issued in
compliance in all material respects with all applicable Federal and state
laws and (c) that the Company will require of every person distributing the
Contracts that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws. The Company
further represents and warrants that it is an insurance company duly
organized and validly existing under applicable law and that it has legally
and validly authorized each Account as a separate account under Section
27-1-5-1 of the Indiana Insurance Code, and has registered or, prior to the
issuance of any Contracts, will register each Account (unless exempt
therefrom) as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under
them are outstanding."
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to the
Fund Participation Agreement to be executed in its name and behalf by its duly
authorized officer on the date specified below.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
Date: By:
----------------------- -----------------------------
Name: Kelly D. Clevenger
-----------------------------
Title: President
-----------------------------
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
----------------------- -----------------------------
Name: Stephen H. Lewis
-----------------------------
Title: Senior Vice President
-----------------------------
<PAGE>
The Fund Participation Agreement (the "Agreement"), dated July 1, 1998, by
and among The Lincoln National Life Insurance Company and Lincoln National
Global Asset Allocation Fund, Inc. is hereby amended as follows:
Page 2, the second paragraph is replaced in its entirety with the following:
"WHEREAS, the Company has registered or will have registered each Account
with the SEC (unless exempt therefrom) as a unit investment trust under the 1940
Act before any Contracts are issued by that Account; and"
Page 5, Article 2.1 is replaced in its entirety with the following:
"The Company represents and warrants (a) that the Contracts are registered
under the 1933 Act or will be so registered before the issuance thereof
(unless exempt therefrom), (b) that the Contracts will be issued in
compliance in all material respects with all applicable Federal and state
laws and (c) that the Company will require of every person distributing the
Contracts that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws. The Company
further represents and warrants that it is an insurance company duly
organized and validly existing under applicable law and that it has legally
and validly authorized each Account as a separate account under Section
27-1-5-1 of the Indiana Insurance Code, and has registered or, prior to the
issuance of any Contracts, will register each Account (unless exempt
therefrom) as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under
them are outstanding."
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to the
Fund Participation Agreement to be executed in its name and behalf by its duly
authorized officer on the date specified below.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
Date: 9/8/99 By: /s/ Kelly D. Clevenger
------------------- -------------------------------
Name: Kelly D. Clevenger
---------------------------
Title: President
---------------------------
LINCOLN NATIONAL LIFE INSURANCE
COMPANY
Date: 9/8/99 By: /s/ Stephen H. Lewis
------------------- -------------------------------
Name: Stephen H. Lewis
---------------------------
Title: Senior Vice President
---------------------------
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 16 to the Registration Statement (Form N-1A) (No.
33-13530) of Lincoln National Global Asset Allocation Fund, Inc. of our report
dated February 4, 2000, included in the 1999 Annual Report to shareholders.
Philadelphia, Pennsylvania
April 6, 2000
<PAGE>
Code of Ethics
Lincoln National Variable Annuity Fund A
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
----------------------------------------
Section 1 - Statement of General Fiduciary Principles
This Code of Ethics (the "Code") is adopted to prescribe standards and
procedures which are designed to prevent conduct which is in contravention of
Section 17(j)-1 of the Investment Company Act of 1940 [15 U.S.C.
80q-17(j)-1] (the "1940 Act").
The Code is applicable to all Access Persons (as defined below). The
fundamental standard of this code is that, at all times, Access persons
should place the interests of the corporation's Separate Account's
shareholders/unitholders first. No action should be taken by an Access Person
which is inconsistent with this obligation. An Access Person must abide by
both the spirit and the letter of the Code in order to avoid even the
appearance of impropriety, as well as potential conflict situations. Any and
all personal securities transactions must be conducted in a manner consistent
with the Code so as to avoid any actual or potential conflict of interest or
any abuse of a position of trust and responsibility. It is imperative that
Access Persons avoid any situation that might compromise or call into
question their exercise of judgment that is fully independent and that places
primary importance on their fiduciary duty to shareholders.
Section 2 - Definitions
(a) "Corporation" means Lincoln National Variable Annuity Fund A,
Lincoln National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc.,
Lincoln National Capital Appreciation Fund, Inc., Lincoln National Equity-Income
Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln
National Growth and Income Fund, Inc., Lincoln National International Fund,
Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market Fund,
Inc., Lincoln National Social Awareness Fund, Inc., Lincoln National Special
Opportunities Fund, Inc.
(b) "Access Person" means (1) any employee, director or officer of
the Corporation; and (2) any Advisory Person (defined below); and (3) any
natural person in a control relationship to the Corporation or to the Adviser
who obtains information concerning current recommendations made to the
Corporation with regard to security transactions.
<PAGE>
(c) "Advisory Person" means any officer, director or employee of the
Corporation who in connection with his or her regular functions or duties,
makes any recommendation, participates in the determination of which
recommendation should be made or whose principal function or duties relate to
the determination of which recommendation shall be made to any registered
investment company with respect to the purchase or sale of securities for the
Corporation, or who, in connection with his or her duties, obtains any
information concerning securities recommendations being made by any such
investment adviser to any registered investment company.
(d) "Director" means each member of the board of Directors of the
Corporation.
(e) "Independent Director" means each Corporation director who is not
an "interested person" of the investment company under the provisions of Section
2 (a)(19) of the 1940 Act.
(f) A security is "to be considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
(g) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p] and the rules
and regulations thereunder, except that the determination of direct and indirect
beneficial ownership shall apply to all securities which an Access Person has or
acquires.
(h) "Compliance Officer" means the officer so designated by the
Corporation, to review the personal securities transactions of Access Persons,
and to make related decisions and offer advice regarding such personal
securities transactions.
(i) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(j) "Purchase or sale of a security" and "security transaction"
includes, inter alia, the writing of an option to purchase or sell a security.
(k) "Security" shall have the meaning set forth in Section 2(a)(36) of
the 1940 Act except that it shall not include securities issued by the
government of the United States, banker's acceptances, bank certificates of
deposit, commercial paper, shares of registered open-end investment companies or
short term debt securities. The term "security" includes any option right
related to a security.
(l) "Security held or to be acquired" by the Corporation means any
security as defined above which, within the most recent 15 days, (i) is or has
been held by the Corporation, or (ii) is being or has been considered by the
Corporation or the Adviser for purchase by the Corporation.
<PAGE>
Section 3 - Exempt Transactions
The prohibitions of Section 4 of the Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access
person has no direct or indirect influence or control;
(b) Purchases or sales of securities which are not eligible for
purchase or sale by the Corporation;
(c) Purchases or sales which are non-volitional on the part of either
the Access Person or the Corporation;
(d) Purchases which are part of an automatic dividend reinvestment
plan;
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
(f) Purchases or sales which are only remotely potentially harmful to
the Corporation because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related economically to
the securities held or to be acquired or sold by the Corporation.
Section 4 - Prohibitions
(a) No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership and which to his or her actual
knowledge at the time of such purchase or sale:
(1) Is currently being considered for purchase or sale by the
Corporation; or
(2) Is currently being purchased or sold by the Corporation.
(b) No Advisory Person may invest in or acquire any securities in an
initial public offering.
(c) No Advisory Person may invest in a private placement without first
obtaining approval from the Compliance Officer or Law Division appropriate
under the circumstances.
(d) No Access Person may make personal use of information available
only by reason of his or her position until after the Corporation has acted upon
it and, in addition, each investment opportunity which comes to the attention of
any such Access Person and which is appropriate for consideration by the
Corporation must first be made available to the Corporation before the Access
Person may take personal advantage of such investment opportunity.
(e) No Advisory Person may receive any gift or other thing of more
than de minimis value from any person or entity that does business with or on
behalf of the Corporation/Separate Account.
<PAGE>
(f) No Advisory Person may serve as a director on the board of a
publicly traded company without first obtaining approval from the Compliance
Officer or Law Division.
(g) For a period of three trading days before and after the
Corporation's trade, no Access Person shall trade in a security which is or has
been traded by the Corporation.
Section 5 - Reporting
Except as provided below under "Exceptions," each Access Person shall
report not later than ten (10) days after the end of a calendar quarter, each
transaction during such calendar quarter in any security in which such Access
Person has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership in the security. Such transactions may involve any of the
following:
(a) A security in which the Access Person, the Access Person's spouse
or minor children, or any relative residing in the Access Person's home, has any
direct or indirect beneficial interest in himself or herself, including by
reason of being the settlor of a revocable trust.
(b) A security in which the Access person, or the Access Person's
spouse or minor children may, by reason of any agreement or understanding, vest
or revest any beneficial interest in himself or herself, including by reason of
being the settlor of a revocable trust.
(c) A security whose purchase or sale was or may be controlled or
influenced by the Access person, including securities for the account of a trust
of which the Access Person is a trustee.
In addition, all Access Persons shall preclear personal securities
transactions with the Compliance Officer. After preclearance has been granted,
the Compliance Officer shall monitor such precleared personal securities
transactions in accordance with Section 5 - Form of Reporting below.
EXCEPTIONS
(a) No report is required of security transactions of any account over
which the Access Person does not have any direct or indirect influence or
control.
(b) Independent Directors who would be required to make a report solely
by reason of being a director are required only to report those security
transactions where such director knew or, in the ordinary course of fulfilling
his or her official duties as a director of the Corporation, should have known
that during the 15-day period immediately preceding or after the date of the
transaction in a security by the director, such security is or was purchased or
sold by or on behalf of the Corporation or such purchase or sale is or was
considered by the Corporation or the Adviser. No director shall be presumed to
know such matters solely by reason of his or her being a director or serving on
any committee of the Board of Directors.
<PAGE>
Form of Report
Each report shall be made to the Compliance Officer no later than 10
days after the end of the calendar quarter in which the transaction occurred.
The report shall contain the following information:
(a) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or other
acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected.
Any report submitted to comply with the requirements of this Section 5
may contain a statement that the report shall not be construed as an admission
by the person making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
Every Advisory Person shall disclose all personal securities holdings
upon the commencement of a relationship between such Advisory Person and the
Corporation and/or the Adviser.
All Access Persons shall certify annually that they have read and
complied with the Code.
Until further notice, all reports filed with the Compliance Officer
shall be mailed to: Jerry C. Danielson, AVP and Chief Compliance Officer,
Internal Audit, P.O. Box 1110, 1300 South Clinton Street, Fort Wayne, IN
46801.
Use of the Form
The filed report will be reviewed by the Compliance Officer of the
Corporation and of the Adviser. It will be confidential and subject only to
disclosure to the SEC staff as required by law pursuant to a periodic,
special or other examination. The reports of persons other than independent
directors may be disclosed to there senior officers of the Corporation or the
Adviser or to legal counsel as deemed necessary for compliance purposes and
to otherwise administer the Code. Reports of independent directors will be
subject to disclosure only to the person with whom they are filed, the SEC
staff as required by law, independent directors of the Corporation involved,
relevant committees composed of such directors, and the Corporation's legal
counsel (if such directors or such committees shall determine to consult
counsel in respect to any such report).
<PAGE>
Section 6 - Sanctions
Upon discovering a violation of the Code, the Corporation, the Adviser, or
the Board of Directors, whichever is most appropriate under the circumstances,
may impose such sanctions as it deems appropriate, including, inter alia,
censure, suspension or termination of employment. All material violations of the
code and any sanctions imposed with respect hereto shall be reported
periodically, as necessary, to the Board of Directors of the Corporation.
Until further notice, certificates of compliance with the Code may be
forwarded to the Securities Compliance Unit, Lincoln National Corporation.
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Jerry
Danielson, Chief Compliance Officer at (219) 455-3984.
Signed:_______________________ Date:_______________________
Position:_____________________
Company:______________________
CONSENT TO RELEASE
REPORTS OF PERSONAL TRANSACTIONS
To:_______________________________
I am reporting my personal securities transactions to Jerry Danielson,
Chief Compliance Officer, under the Code of Ethics for Lincoln National Variable
Annuity Fund A, Lincoln National Aggressive Growth Fund, Inc., Lincoln National
Bond Fund, Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln
National Equity-Income Fund, Inc., Lincoln National Global Asset Allocation
Fund, Inc., Lincoln National Growth and Income Fund, Inc., Lincoln National
International Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National
Money Market Fund, Inc., Lincoln National Social Awareness Fund, Inc., Lincoln
National Special Opportunities Fund, Inc.
I consent to having copies of all reports which I file made available so long as
I am an Access Person with respect to any or all of the above companies.
Signed:_______________________ Date:_______________________
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ John B. Borsch, Jr
---------------------------------------
Name: John B. Borsch, Jr
--------------------------------------------
(Please print name)
Title: Director
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Kelly D. Clevenger
---------------------------------------
Name: Kelly D. Clevenger
--------------------------------------------
(Please print name)
Title: President
-------------------------------------------
Date: 10/29/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Nancy L. Frisby
---------------------------------------
Name: Nancy L. Frisby
--------------------------------------------
(Please print name)
Title: Director
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Barbara S Kowalczyk
---------------------------------------
Name: Barbara S Kowalczyk
--------------------------------------------
(Please print name)
Title: Sr VP
-------------------------------------------
Date: Nov 1, 1999
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Kenneth G. Stella
---------------------------------------
Name: Kenneth G. Stella
--------------------------------------------
(Please print name)
Title:
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CODE OF ETHICS
FOR
LINCOLN INVESTMENT MANAGEMENT, INC.
- --------------------------------------------------------------------------------
I. INTRODUCTION
IT IS THE DUTY OF ALL EMPLOYEES TO CONDUCT THEMSELVES WITH INTEGRITY, IN
ACCORDANCE WITH THE CODE OF ETHICS, AND AT ALL TIMES TO PLACE THE INTERESTS
OF THE SHAREHOLDERS AND CLIENTS FIRST. IN THE INTEREST OF THIS CREDO, ALL
PERSONAL SECURITIES TRANSACTIONS WILL BE CONDUCTED CONSISTENT WITH THE CODE
OF ETHICS AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT
OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND
RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS THAT PERSONNEL
SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.
The Securities and Exchange Commission (SEC) has adopted Rule 17j-1 under
the Investment Company Act of 1940. This Rule makes it unlawful for certain
persons, including any investment adviser or principal underwriter to a
registered investment company, in connection with the purchase or sale by
such persons of a security held or to be acquired(1) by a registered
investment company:
- to employ any device, scheme or artifice to defraud;
- to make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light
of the circumstances in which they are made, not misleading;
- to engage in any act, practice or course of business that operates or
would operate as a fraud or deceit; or
- to engage in any manipulative practice.
- -----------------
(1) A security is deemed to be "held or to be acquired" if within the most
recent fifteen days it (i) is or has been held by the registered investment
company or (ii) is being or has been considered by the registered
investment company or its investment adviser for purchase by the registered
investment company.
Page 1
<PAGE>
The Rule also requires that every registered investment company and each
investment adviser or principal underwriter for such investment company
shall adopt a written code of ethics containing provisions reasonably
necessary to prevent persons from engaging in acts in violation of the
above standard and shall use reasonable diligence and institute procedures
reasonably necessary to prevent violations of the code.
Accordingly, the Board of Directors of Lincoln Investment Management, Inc.
("LIM") has adopted the following Code of Ethics to be effective for its
directors, officers, and, where applicable, employees on and after March 1,
1998, thereby replacing all previous Codes of Ethics. This Code of Ethics
does not replace, but is intended to supplement, the POLICY STATEMENT ON
CONFLICTS OF INTEREST adopted by the Board of Directors of Lincoln National
Corporation ("LNC").
II. DEFINITIONS
A. "ACCESS PERSON" of a Fund or Adviser includes each of its directors,
officers, Investment Personnel and Advisory Persons.
B. "ADVISER" means Lincoln Investment Management, Inc.
C. "ADVISORY PERSON" of a Fund or Adviser means (i) any employee
(including employees of companies in a control relationship with a
Fund or Adviser) who, in connection with his or her regular functions
or duties, makes, participates in, or obtains information regarding
the purchase or sale of a security, or whose functions relate to the
making of any recommendations with respect to such purchases and
sales; and (ii) any natural person in a control relationship with a
Fund or Adviser who obtains information concerning recommendations
with regard to the purchase or sale of a security.
For purposes of this definition, "Advisory Person" when used with
reference to Lincoln Investment Management, Inc. shall be deemed to
include employees of the Treasurer's Department and Law Division of
Lincoln National Corporation who otherwise satisfy this definition.
D. "BENEFICIAL OWNERSHIP" means, among other things, the powers to (i)
vote or control the voting of securities; (ii) transfer securities or
control their transfer; (iii) receive income from securities or
control the disposition of the income; or (iv) receive or control the
disposition of the proceeds through a liquidation.
Generally speaking, a person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest in a security, is a
"beneficial owner" of the security.
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For example, an Access Person will generally be considered the
beneficial owner of securities held in the name of a spouse, minor
children, or a person not in the immediate family if the person is a
relative sharing the same home or if, by reason of a contract,
understanding, relationship, agreement, or other arrangement, the
Access Person obtains benefits substantially equivalent to ownership.
E. "COMPLIANCE COMMITTEE" of LIM consists of Tom McMeekin, President;
JoAnn Becker, Senior Vice President; Steven R. Brody, Senior Vice
President; Ann Warner, Vice President; J. Michael Keefer, Vice
President and General Counsel of LIM; and Gina Rohrbacher, Compliance
Officer.
The Compliance Committee, with advice from the Law Division, will
identify all Access Persons, Advisory Persons and Investment
Personnel.
F. "CONTROL" means investment discretion in whole or in part of an
account regardless of beneficial ownership to include any controlling
influence over the management or policies of an account and/or
investment company, unless the power is solely the result of an
official position with the company.
G. "CONSIDERED FOR PURCHASE OR SALE" or "BEING PURCHASED OR SOLD" occurs
when (i) a recommendation to purchase or sell a security has been made
and communicated, or (ii) with respect to the person making a
recommendation, the person first seriously considers making such a
recommendation.
H. "FUND" and "FUNDS" means the following entities listed on Exhibit A,
and any other registered investment companies as to which LIM is the
adviser or sub-adviser from time to time.
I. "INVESTMENT PERSONNEL" means portfolio managers, securities analysts
and traders, and those personnel who provide information and advice to
a portfolio manager or who help execute the portfolio manager's
decisions. All Investment Personnel are also considered Advisory
Persons for purposes of this Code of Ethics.
J. "PERSONAL SECURITIES TRANSACTION REPORT" is the SEC required quarterly
report listing all personal securities transactions subject to the
Code in which the Access Person or member(s) of his or her immediate
family has, or by reason of such transaction acquires, any direct or
indirect beneficial interest.
K. "SECURITY" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, a certificate of interest or participation
in any profit-sharing agreement, collateral trust certificate,
preorganization certificate or subscription, transferable share, an
investment contract, voting-trust certificate, certificate of deposit
for a security, fractional undivided interest in oil, gas or other
mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit) or on any group or index
of securities
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(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relation to foreign currency, or, in general, any
interest or participation in, temporary or interim certificate for,
receipt for, guarantees of, or warrant or right to subscribe to or
purchase, any of the foregoing.
For purposes of the Code of Ethics, the following shall not be
considered a Security:
1. U.S. Government Securities
2. Bank Certificate of Deposits
3. Bankers Acceptances
4. Commercial Paper
5. Mutual Funds (shares of open-end registered investment companies)
6. Securities issued or guaranteed by a U.S. Governmental Agency
7. Stock index options and futures contract
8. Nonfinancial Commodities
9. Foreign Currencies
10. Unit Investment Trusts
11. Variable Annuities
12. Receipt of securities as a gift or inheritance. Future
transactions would be subject to the Code of Ethics.
13. IRAs through open-end registered investment companies
L. "WINDOW PERIOD" means a 30-day period commencing on the third trading
day after the release of LNC's: (i) annual financial results; (ii)
Annual Report to shareholders; and (iii) quarterly earnings reports.
III. PROHIBITED TRANSACTIONS
A. The following restrictions apply to all ACCESS PERSONS. Any violation
of any of these restrictions can be expected to result in serious
sanctions, up to and including dismissal of the person or persons
involved.
1. No Access Person of a Fund or Adviser shall engage in any act,
practice or course of conduct which would violate the provisions
of Rule 17j-1.
2. No Access Person of a Fund or Adviser shall purchase or sell,
directly or indirectly, any security in which he or she has, or
by reason of the transaction acquires, any direct or indirect
beneficial ownership and which to his or her actual knowledge at
the time of the purchase or sale (a) is being considered for
purchase or sale by a Fund or any other client of an Adviser; or
(b) is being purchased or sold by a Fund or any other client of
an Adviser, whether pursuant to a program of trading or
otherwise.
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3. No Access Person of a Fund or Adviser shall recommend any
security transaction without first having disclosed his or her
interest, if any, in the transaction or the issuer of the
security, including without limitation:
(a) his or her direct or indirect beneficial ownership of any
securities of the issuer;
(b) any contemplated transaction by the Access Person in such
securities;
(c) any position or other affiliation with the issuer or its
affiliates; and
(d) any present or proposed business relationship between the
issuer or its affiliates and the Access Person or any party
in which the Access Person has a significant interest.
4. No Access Person making any such recommendation may purchase or
sell the security which is the subject of the recommendation
until after he or she has been informed that the Funds and any
other clients of the Adviser considering the recommendation have
deferred or rejected the recommendation. If the recommendation is
approved for a Fund or other clients of the Adviser, the Access
Person must adhere to all trading restrictions outlined in the
Code of Ethics.
5. No Access Person of a Fund or Adviser may reveal to any other
person (except in normal course of his or her duties on behalf of
a Fund or Adviser) any information regarding securities
transactions by a Fund or any other clients of the Adviser or the
consideration of any such securities transactions.
6. No Access Person shall use actual knowledge of a Fund or other
clients' transactions to profit by the market effect of such
transaction. Any pattern of transactions involving parallel
transactions (client buy/Access Person buys or both selling the
same security) or involving opposite transactions (buy/sell or
sell/buy) will be analyzed to determine if there are grounds to
believe that the Code of Ethics has been violated.
7. Each Access Person's personal transactions must be PRE-CLEARED by
using LIM's Trading Compliance System prior to entering any
orders for personal transactions with a registered broker/dealer.
Pre-clearance is only valid on the day the security is cleared.
If the order is not executed the day it is pre-cleared, the
security must be pre-cleared again the following day prior to
placing a personal transaction.
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8. No Access Person may execute a buy or sell order for a personal
account in which he or she has beneficial ownership or control
until the NEXT TRADING DAY following the execution of a
Fund/client trade in that same security.
9. All Access Persons are prohibited from receiving anything of more
than a DE MINIMIS value (not to exceed $100) from any person or
entity that does business with or on behalf of any Fund or
client. Things of value may include, but not be limited to,
travel expenses, special deals or incentives.
10. All Access Persons require PRIOR written approval from the
President of LIM, with advice from the Law Division, before they
may serve on the board of directors of any company in which a
Fund or other client of the Adviser has an investment.
B. The following ADDITIONAL restrictions apply to all INVESTMENT
PERSONNEL. Any violations of any of these requirements can be expected
to result in serious sanctions, up to and including dismissal of the
person or persons involved.
1. All Investment Personnel are prohibited from purchasing any
initial public offering for their personal account.
2. All Investment Personnel are prohibited from purchasing any
private placement without express PRIOR written consent by the
Compliance Committee. All private placement holdings are subject
to disclosure to the Compliance Officer. Investment Personnel who
are the beneficial owners of a private placement must receive
permission from the Compliance Committee prior to any
participation by any such person in the consideration of an
investment in the same issuer.
3. No Investment Personnel may execute a buy or sell order for a
personal account for which he or she has beneficial ownership
within SEVEN CALENDAR DAYS BEFORE OR AFTER a Fund or other client
he or she manages trades in that security.
IV. EXEMPT TRANSACTIONS
The following transactions are EXEMPT from the prohibitions of Section
III.
A. Securities transactions in which the Access Person has no direct or
indirect influence or control or over which the Access Person has
granted full discretion to another;
B. Securities transactions which are not eligible for participation in by
the Funds or any other clients of the Adviser;
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C. Securities transactions which are non-volitional on the part of the
Access Person, the Funds, or any other clients of the Adviser;
D. Securities transactions in the form of stock dividends, dividend
reinvestment, stock splits, mergers, consolidation or other similar
corporate reorganizations or distributions generally applicable to all
holders of the same class of securities;
E. Any acquisition of securities through the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities (to the
extent such rights were acquired from the issuer), and sales of the
rights so acquired;
F. Securities transactions through systematic investment and qualified
retirement plans (e.g., 401(k)).
G. Securities transactions specifically approved by the Compliance
Committee, with advice from the Law Division and the Compliance
Officer, and deemed appropriate because of unusual or unforeseen
circumstances.
V. TRANSACTIONS IN LNC STOCK
Transactions in LNC stock are governed by the restrictions on insider
trading adopted from time to time by Lincoln National Corporation. The
following is a summary of the restrictions on trading in LNC stock:
A. LNC Stock and Stock Options
1. Transaction does not need to be pre-cleared.
2. Report all transactions on quarterly Personal Securities
Transaction Report.
3. Transaction must be during the Window Period for officers.
4. Transaction is subject to insider trading restrictions.
B. EMPLOYEE STOCK PURCHASE PLAN through Smith Barney
1. Transaction does not need to be pre-cleared.
2. Transaction does not need to be reported on quarterly Personal
Securities Transaction Report.
3. Changes to payroll deduction must be within Window Period for
officers.
4. Transaction is subject to insider trading restrictions.
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C. DIVIDEND REINVESTMENT AND CASH INVESTMENT PLAN through LNC
1. Transaction does not need to be pre-cleared.
2. Report transaction on the quarterly Personal Securities
Transactions Report.
3. Additional purchases made through the cash investment portion of
the Plan must be made during the Window Period for officers.
4. Transactions subject to insider trading restrictions.
D. LNC 401(k) Plan
1. Transaction does not need to be pre-cleared.
2. Transaction does not need to be reported on the quarterly
Personal Securities Transaction Report.
3. Transaction must be during the Window Period for officers.
4. Transactions are subject to insider trading restrictions.
VI. REQUIRED DISCLOSURES AND REPORTS
The following disclosures and reports are required to be made by all Access
Persons.
A. All Access Persons must disclose brokerage relationships at the time
of their employment and at the time of opening any new account.
B. All Access Persons MUST direct their brokers to supply to the
Compliance Officer, on a timely basis, duplicate copies of all
confirmations for all securities accounts.
C. The Personal Securities Transaction Report of all transactions subject
to this Code must be filed with the Compliance Officer no later than
TEN (10) DAYS after the end of each calendar quarter. The Report must
include all securities transactions which each Access Person has, or
by reason of such transaction acquires, any direct or indirect
beneficial ownership.
The Report must be dated, signed and contain the following
information:
1. the date of the transaction
2. the name of the security and its cusip number
3. the number of shares or the principal amount of each security
involved
4. the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition)
5. the price at which the transaction was effected
6. the name of the broker, dealer or bank effecting the transaction.
THE PERSONAL SECURITIES TRANSACTION REPORT IS REQUIRED EVEN IF THE
ACCESS PERSON HAS NO PERSONAL SECURITIES TRANSACTIONS DURING THE
QUARTER.
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The manager and department head of an Access Person will be notified
if such person's quarterly Personal Securities Transaction Report is
late. If the Personal Securities Transaction Report is late for ANY
FOLLOWING QUARTERS, the Access Person and his/her manager will receive
a notice stating that the Access Person is in violation of the Code of
Ethics and this violation should be considered unsatisfactory
performance during the next performance review. Violation of the Code
of Ethics can result in serious sanctions by LIM, including possible
termination of employment.
An outside director of a Fund is required to file such reports only if
the director, at the time of the transactions, knew or, in the
ordinary course of fulfilling his or her official duties as director,
should have known that during the 15-day period immediately preceding
or after the date of the transaction the same security was purchased
or sold by the Fund or was being considered for purchase or sale by
the Fund or its Adviser. (However, no director shall be presumed to
know of such matters solely by reason of being a director or serving
on a committee of the Board).
D. If any security involved in a personal transaction is purchased
or sold by a Fund or other client within fifteen days of the
personal transaction, the Compliance Officer will request and the
Access Person must provide additional information relating to the
circumstances surrounding the personal transaction.
E. All Access Persons must certify annually that they have read and
complied with this Code of Ethics and all disclosure and
reporting requirements contained herein.
VII. SUPERVISORY
A. Any question as to whether an employee is an Access Person or
Investment Personnel, or other questions concerning the Code of
Ethics or transactions in personal accounts, should be directed
to the Compliance Officer.
B. The Compliance Officer shall promptly report to the President of
LIM and the Compliance Committee any apparent violations of the
requirements contained in this Code of Ethics. The reports will
be reviewed and a determination will be made whether or not the
Code of Ethics has been violated and what sanctions, if any,
should be imposed.
VIII. CONFIDENTIALITY
All information and reports from any Access Person shall be kept in
strict confidence, subject only to disclosure as required by law or to
the Compliance Committee as deemed necessary for compliance purposes.
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Dated: July, 1998
------------------------------------------------
EXHIBIT A
------------------------------------------------
s:\comprpts\coe\codeethi.doc
- --------------------------------------------------------------------------------
Lincoln National Convertible Securities Fund, Inc.
Lincoln National Income Fund, Inc.
Variable Annuity Fund A
Multi-Fund Variable Annuity
- Lincoln National Social Awareness Fund, Inc.
- Lincoln National Money Market Fund, Inc.
- Lincoln National Managed Fund, Inc.
- Lincoln National Growth Income Fund, Inc.
- Lincoln National Bond Fund, Inc.
- Lincoln National Special Opportunity Fund, Inc.
- Lincoln National Capital Appreciation Fund, Inc.
- Lincoln National Aggressive Growth Fund, Inc.
- Lincoln National International Fund, Inc.
- Lincoln National Global Asset Allocation Fund, Inc.
- Lincoln National Equity Income Fund, Inc.
- Any funds which may be added to the Lincoln family of funds
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CODE OF ETHICS
PUTNAM
It is the personal responsibility of every Putnam employee to avoid any
conduct that could create a conflict, or even the appearance of a conflict,
with our clients, or to do anything that could damage or erode the trust
our clients place in Putnam and its employees.
44156 3/2000
<PAGE>
<TABLE>
<CAPTION>
A Table of Contents
<S> <C>
Overview ..................................................................iii
Preamble ..................................................................vii
Definitions: Code of Ethics.....................................................ix
Section I. Personal Securities Rules for All Employees.........................1
A. Restricted List...........................................1
B. Prohibited Purchases and Sales............................6
C. Discouraged Transactions..................................9
D. Exempted Transactions....................................10
Section II. Additional Special Rules for Personal Securities Transactions
of Access Persons and Certain Investment Professionals.............13
Section III. Prohibited Conduct for All Employees...............................19
Section IV. Special Rules for Officers and Employees of Putnam Europe Ltd......29
Section V. Reporting Requirements for All Employees...........................31
Section VI. Education Requirements for All Employees...........................33
Section VII. Compliance and Appeal Procedures...................................35
Appendix A ...................................................................37
Preamble ...............................................39
Definitions: Insider Trading................................41
Section 1. Rules Concerning Inside Information............43
Section 2. Overview of Insider Trading....................47
Appendix B. Policy Statement Regarding Employee Trades in Shares of Putnam
Closed-End Funds...................................................53
Appendix C. Clearance Form for Portfolio Manager Sales Out of Personal
Account of Securities Also Held by Fund (For compliance with
"Contra-Trading" Rule).............................................55
Appendix D. Procedures for Approval of New Financial Instruments...............57
Index ...................................................................59
</TABLE>
S i
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A Overview
Every Putnam employee is required, as a condition of continued employment,
to read, understand, and comply with the entire Code of Ethics. This
Overview is provided only as a convenience and is not intended to
substitute for a careful reading of the complete document.
It is the personal responsibility of every Putnam employee to avoid any
conduct that could create a conflict, or even the appearance of a conflict,
with our clients, or do anything that could damage or erode the trust our
clients place in Putnam and its employees. This is the spirit of the Code
of Ethics. In accepting employment at Putnam, every employee accepts the
absolute obligation to comply with the letter and the spirit of the Code of
Ethics. Failure to comply with the spirit of the Code of Ethics is just as
much a violation of the Code as failure to comply with the written rules of
the Code.
The rules of the Code cover activities, including personal securities
transactions, of Putnam employees, certain family members of employees, and
entities (such as corporations, trusts, or partnerships) that employees may
be deemed to control or influence.
Sanctions will be imposed for violations of the Code of Ethics. Sanctions
may include bans on personal trading, reductions in salary increases or
bonuses, disgorgement of trading profits, suspension of employment, and
termination of employment.
-- Insider trading:
Putnam employees are forbidden to buy or sell any security while
either Putnam or the employee is in possession of non-public
information ("inside information") concerning the security or the
issuer. A violation of Putnam's insider trading policies may result in
criminal and civil penalties, including imprisonment and substantial
fines.
-- Conflicts of interest:
The Code of Ethics imposes limits on activities of Putnam employees
where the activity may conflict with the interests of Putnam or its
clients. These include limits on the receipt and solicitation of gifts
and on service as a fiduciary for a person or entity outside of
Putnam.
For example, Putnam employees generally may not accept gifts over $50
in total value in a calendar year from any entity or any supplier of
goods or services to Putnam. In addition, a Putnam employee may not
serve as a director of any corporation without prior approval of the
Code of Ethics Officer, and Putnam employees may not be members of
investment clubs.
-- Confidentiality:
Information about Putnam clients and Putnam investment activity and
research is proprietary and confidential and may not be disclosed or
used by any Putnam employee outside Putnam without a valid business
purpose.
S iii
<PAGE>
-- Personal securities trading:
Putnam employees may not buy or sell any security for their own
account without clearing the proposed transaction in advance with the
Code of Ethics Administrator.
Certain securities are excepted from this requirement (e.g., Marsh &
McLennan stock and shares of open-end (not closed-end) Putnam Funds).
The Code of Ethics Officer will permit employees to purchase or sell
up to 1,000 shares of stock of an issuer whose capitalization exceeds
$1 billion, but such purchases or sales must still be cleared.
Clearance must be obtained in advance, between 11:30 a.m. and 4:00
p.m. EST on the day of the trade. Clearance may be obtained between
9:00 a.m. and 4:00 p.m. on the day of the trade for up to 1,000 shares
of stock of an issuer whose capitalization exceeds $1 billion. A
clearance is valid only for the day it is obtained. The Code also
strongly discourages excessive trading by employees for their own
account (i.e., more than 10 trades in any calendar quarter). Trading
in excess of this level will be reviewed with the Code of Ethics
Oversight Committee.
-- Short Selling:
Putnam employees are prohibited from short selling any security,
whether or not it is held in a Putnam client portfolio, except that
short selling against the S&P 100 and 500 indexes and "against the
box" are permitted.
-- Confirmations of trading and periodic account statements:
All Putnam employees must have their brokers send confirmations of
personal securities transactions, including transactions of immediate
family members and accounts over which the employee has investment
discretion, to the Code of Ethics Officer. Employees must contact the
Code of Ethics Administrator to obtain an authorization letter from
Putnam for setting up a personal brokerage account.
-- Quarterly and annual reporting:
Certain Putnam employees (so-called "Access Persons" as defined by the
SEC and in the Code of Ethics) must report all their securities
transactions in each calendar quarter to the Code of Ethics Officer
within 10 days after the end of the quarter. All Access Persons must
disclose all personal securities holdings upon commencement of
employment and thereafter on an annual basis. You will be notified if
these requirements apply to you. If these requirements apply to you
and you fail to report as required, salary increases and bonuses will
be reduced.
iv S
<PAGE>
-- IPOs and private placements:
Putnam employees may not buy any securities in an initial public
offering or in a private placement, except in limited circumstances
when prior written authorization is obtained.
-- Procedures for Approval of New Financial Instruments:
No new types of securities or instruments may be purchased for any
Putnam fund or other client account without the prior approval of the
Risk Management Committee.
-- Personal securities transactions by Access Persons and certain
investment professionals:
The Code imposes several special restrictions on personal securities
transactions by Access Persons and certain investment professionals,
which are summarized as follows:
-- "60-Day Holding Period". No Access Person shall profit from the
purchase and sale, or sale and purchase, of any security or
related derivative security within 60 calendar days.
-- "15-Day" Rule. Before a portfolio manager places an order to BUy
a security for any portfolio he manages, he must SELL from his
personal account any such security or related derivative security
purchased within the preceding 15 calendar days and disgorge any
profit from the sale.
-- "Blackout" Rules. No portfolio manager may sell any security or
related derivative security for her personal account until 15
calendar days have passed since the most recent purchase of that
security or related derivative security by any portfolio she
manages. No portfolio manager may buy any security or related
derivative security for his personal account until 15 calendar
days have passed since the most recent sale of that security or
related derivative security by any portfolio he manages.
-- "Contra-Trading" Rule. No portfolio manager may sell out of her
personal account any security or related derivative security that
is held in any portfolio she manages unless she has received the
written approval of a CIO and the Code of Ethics Officer.
-- No manager may cause a Putnam client to take action for the
manager's own personal benefit.
-- SIMILAR RULES LIMIT PERSONAL SECURITIES TRANSACTIONS BY ANALYSTS,
CO-MANAGERS, AND CHIEF INVESTMENt OFFICERS. PLEASE READ THESE
RULES CAREFULLY. YOU ARE RESPONSIBLE FOR UNDERSTANDING THE
RESTRICTIONS.
This Overview is qualified in its entirety by the provisions of the Code of
Ethics. The Code requires that all Putnam employees read, understand, and comply
with the entire Code of Ethics.
S v
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A Preamble
It is the personal responsibility of every Putnam employee to avoid any
conduct that would create a conflict, or even the appearance of a conflict,
with our clients, or embarrass Putnam in any way. This is the spirit of the
Code of Ethics. In accepting employment at Putnam, every employee also
accepts the absolute obligation to comply with the letter and the spirit of
the Code of Ethics. Failure to comply with the spirit of the Code of Ethics
is just as much a violation of the Code as failure to comply with the
written rules of the Code.
Sanctions will be imposed for violations of the Code of Ethics, including
the Code's reporting requirements. Sanctions may include bans on personal
trading, reductions in salary increases or bonuses, disgorgement of trading
profits, suspension of employment and termination of employment.
Putnam Investments is required by law to adopt a Code of Ethics. The
purpose of the law is to prevent abuses in the investment advisory business
that can arise when conflicts of interest exist between the employees of an
investment adviser and its clients. Having an effective Code of Ethics is
good business practice, as well. By adopting and enforcing a Code of
Ethics, we strengthen the trust and confidence reposed in us by
demonstrating that, at Putnam, client interests come before personal
interests.
Putnam has had a Code of Ethics for many years. The first Putnam Code was
written more than 30 years ago by George Putnam. It has been revised
periodically, and was re-drafted in its entirety in 1989 to take account of
legal and regulatory developments in the investment advisory business.
Since 1989, the Code has been revised regularly to reflect developments in
our business.
The Code that follows represents a balancing of important interests. On the
one hand, as a registered investment adviser, Putnam owes a duty of
undivided loyalty to its clients, and must avoid even the appearance of a
conflict that might be perceived as abusing the trust they have placed in
Putnam. On the other hand, Putnam does not want to prevent conscientious
professionals from investing for their own account where conflicts do not
exist or are so attenuated as to be immaterial to investment decisions
affecting Putnam clients.
When conflicting interests cannot be reconciled, the Code makes clear that,
first and foremost, Putnam employees owe a fiduciary duty to Putnam
clients. In most cases, this means that the affected employee will be
required to forego conflicting personal securities transactions. In some
cases, personal investments will be permitted, but only in a manner which,
because of the circumstances and applicable controls, cannot reasonably be
perceived as adversely affecting Putnam client portfolios or taking unfair
advantage of the relationship Putnam employees have to Putnam clients.
S vii
<PAGE>
The Code contains specific rules prohibiting defined types of conflicts. Because
every potential conflict cannot be anticipated in advance, the Code also
contains certain general provisions prohibiting conflict situations. In view of
these general provisions, it is critical that any individual who is in doubt
about the applicability of the Code in a given situation seek a determination
from the Code of Ethics Officer about the propriety of the conduct in advance.
The procedures for obtaining such a determination are described in Section VII
of the Code.
It is critical that the Code be strictly observed. Not only will adherence to
the Code ensure that Putnam renders the best possible service to its clients, it
will ensure that no individual is liable for violations of law.
It should be emphasized that adherence to this policy is a fundamental condition
of employment at Putnam. Every employee is expected to adhere to the
requirements of this Code of Ethics despite any inconvenience that may be
involved. Any employee failing to do so may be subject to such disciplinary
action, including financial penalties and termination of employment, as
determined by the Code of Ethics Oversight Committee or the Chief Executive
Officer of Putnam Investments.
viii S
<PAGE>
A Definitions: Code of Ethics
The words given below are defined specifically for the purposes of Putnam's
Code of Ethics.
Gender references in the Code of Ethics alternate.
Rule of construction regarding time periods. Unless the context indicates
otherwise, time periods used in the Code of Ethics shall be measured
inclusively, I.E., INCLUDING the dates from and to which the
measurement is made.
Access Persons. Access Persons are (i) all officers of Putnam Investment
Management, Inc. (the investment manager of Putnam's mutual funds),
(ii) all employees within Putnam's Investment Division, and (iii) all
other employees of Putnam who, in connection with their regular
duties, have access to information regarding purchases or sales of
portfolio securities by a Putnam mutual fund, or who have access to
information regarding recommendations with respect to such purchases
or sales.
Code of Ethics Administrator. The individual designated by the Code of
Ethics Officer to assume responsibility for day-to-day,
non-discretionary administration of this Code. The current Code of
Ethics Administrator is Laura Rose, who can be reached at extension
11104.
Code of Ethics Officer. The Putnam officer who has been assigned the
responsibility of enforcing and interpreting this Code. The Code of
Ethics Officer shall be the General Counsel or such other person as is
designated by the President of Putnam Investments. If the Code of
Ethics Officer is unavailable, the Deputy Code of Ethics Officer (to
be appointed by the Code of Ethics Officer) shall act in his stead.
Code of Ethics Oversight Committee. Has oversight responsibility for
administering the Code of Ethics. Members include the Code of Ethics
Officer, the Head of Investments, and other members of Putnam's senior
management approved by the Chief Executive Officer of Putnam.
Immediate family. Spouse, minor children, or other relatives living in the
same household as the Putnam employee.
Policy Statements. The Policy Statement Concerning Insider Trading
Prohibitions attached to the Code as Appendix A and the Policy
Statement Regarding Employee Trades in Shares of Putnam Closed-End
Funds attached to the Code as Appendix B.
Private placement. Any offering of a security not to the public, but to
sophisticated investors who have access to the kind of information
which would be contained in a prospectus, and which does not require
registration with the relevant securities authorities.
Purchase or sale of a security. Any acquisition or transfer of any interest
in the security for direct or indirect consideration, and includes the
writing of an option.
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Putnam. Any or all of Putnam Investments, Inc., and its subsidiaries, any
one of which shall be a "Putnam company."
Putnam client. Any of the Putnam Funds, or any advisory, trust, or other
client of Putnam.
Putnam employee (or "employee"). Any employee of Putnam.
Restricted List. The list established in accordance with Rule 1 of Section
I.A.
Security. Any type or class of equity or debt security and any rights
relating to a security, such as put and call options, warrants, and
convertible securities. Unless otherwise noted, the term "security"
does not include: currencies, direct and indirect obligations of the
U.S. government and its agencies, commercial paper, certificates of
deposit, repurchase agreements, bankers' acceptances, any other money
market instruments, shares of open-end mutual funds (including Putnam
open-end mutual funds), securities of The Marsh & McLennan Companies,
Inc., commodities, and any option on a broad-based market index or an
exchange-traded futures contract or option thereon.
Transaction for a personal account (or "personal securities transaction").
Securities transactions: (a) for the personal account of any employee;
(b) for the account of a member of the immediate family of any
employee; (c) for the account of a partnership in which a Putnam
employee or immediate family member is a general partner or a partner
with investment discretion; (d) for the account of a trust in which a
Putnam employee or immediate family member is a trustee with
investment discretion; (e) for the account of a closely-held
corporation in which a Putnam employee or immediate family member
holds shares and for which he has investment discretion; and (f) for
any account other than a Putnam client account which receives
investment advice of any sort from the employee or immediate family
member, or as to which the employee or immediate family member has
investment discretion.
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A Section I. Personal Securities Rules for All Employees
A. Restricted List
RULE 1
No Putnam employee shall purchase or sell for his personal account any
security without prior clearance obtained through Putnam's Intranet
pre-clearance system or from the Code of Ethics Administrator. No
clearance will be granted for securities appearing on the Restricted
List. Securities shall be placed on the Restricted List in the
following circumstances:
(a) when orders to purchase or sell such security have been entered
for any Putnam client, or the security is being actively
considered for purchase or sale for any Putnam client;
(b) with respect to voting securities of corporations in the banking,
savings and loan, communications, or gaming (i.e., casinos)
industries, when holdings of Putnam clients exceed 7% (for public
utilities, the threshold is 4%);
(c) when, in the judgment of the Code of Ethics Officer, other
circumstances warrant restricting personal transactions of Putnam
employees in a particular security;
(d) the circumstances described in the Policy Statement Concerning
Insider Trading Prohibitions, attached as Appendix A.
Reminder: Securities for an employee's "personal account" include
securities owned by certain family members of a Putnam employee. Thus,
this Rule prohibits certain trades by family members of Putnam
employees. SEE Definitions.
Compliance with this rule does not exempt an employee from complying
with any other applicable rules of the Code, such as those described
in Section III. In particular, Access Persons and certain investment
professionals must comply with the special rules set forth in Section
II.
EXCEPTIONS
A. "Large Cap" Exception. If a security appearing on the Restricted
List is an equity security for which the issuer has a market
capitalization (defined as outstanding shares multiplied by
current price per share) of over $1 billion, then a Putnam
employee may purchase or sell up to 1,000 shares of the security
per day for his personal account. This exception does not apply
if the security appears on the Restricted List in the
circumstances described in subpart (b), (c), or (d) of Rule 1.
B. Investment Grade Or Higher Fixed-Income Exception. If a security
being traded or considered for trade for a Putnam client is a
non-convertible fixed-income security which bears a rating of BBB
(Standard & Poor's) or Baa (Moody's) or any comparable rating or
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higher, then a Putnam employee may purchase or sell that security
for his personal account without regard to the activity of Putnam
clients. This exception does not apply if the security has been
placed on the Restricted List in the circumstances described in
subpart (b), (c), or (d) of Rule 1.
C. Pre-Clearing Transactions Effected by Share Subscription. The
purchase and sale of securities made by subscription rather than
on an exchange are limited to issuers having a market
capitalization of $1 billion or more and are subject to a 1,000
share limit. The following are procedures to comply with Rule 1
when effecting a purchase or sale of shares by subscription:
(a) The Putnam employee must pre-clear the trade on the day he
or she submits a subscription to the issuer, rather than on
the actual day of the trade since the actual day of the
trade typically will not be known to the employee who
submits the subscription. At the time of pre-clearance, the
employee will be told whether the purchase is permitted (in
the case of a corporation having a market capitalization of
$1 billion or more), or not permitted (in the case of a
smaller capitalization issuer).
(b) The subscription for any purchase or sale of shares must be
reported on the employee's quarterly personal securities
transaction report, noting the trade was accomplished by
subscription.
(c) As no brokers are involved in the transaction, the
confirmation requirement will be waived for these
transactions, although the Putnam employee must provide the
Legal and Compliance Department with any transaction
summaries or statements sent by the issuer.
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SANCTION GUIDELINES
A. Failure to Pre-Clear a Personal Trade
1. First violation: One month trading ban with written warning that
a future violation will result in a longer trading ban.
2. Second violation: Three month trading ban and written notice to
Managing Director of the employee's division.
3. Third violation: Six month trading ban with possible longer or
permanent trading ban based upon review by Code of Ethics
Oversight Committee.
B. Failure to Pre-Clear Securities on the Restricted List
1. First violation: Disgorgement of any profit from the transaction,
one month trading ban, and written warning that a future
violation will result in a longer trading ban.
2. Second violation: Disgorgement of any profit from the
transaction, three month trading ban, and written notice to
Managing Director of the employee's division.
3. Third violation: Disgorgement of any profit from the transaction,
and six month trading ban with possible longer or permanent
trading ban based upon review by Code of Ethics Oversight
Committee.
NOTE: These are the sanction guidelines for successive failures to
pre-clear personal trades within a 2-year period. The Code of Ethics
Oversight Committee retains the right to increase or decrease the
sanction for a particular violation in light of the circumstances. The
Committee's belief that an employee intentionally has violated the
Code of Ethics will result in more severe sanctions than outlined in
the guidelines above. The sanctions described in Paragraph B apply to
Restricted List securities that are: (i) small cap stocks (i.e.,
stocks not entitled to the "Large Cap" exception) and (ii) large cap
stocks that exceed the daily 1,000 share maximum permitted under the
"Large Cap" exception. Failure to pre-clear an otherwise permitted
trade of up to 1,000 shares of a large cap security is subject to the
sanctions described above in Paragraph A.
IMPLEMENTATION
A. Maintenance of Restricted List. The Restricted List shall be
maintained by the Code of Ethics Administrator.
B. CONSULTING RESTRICTED LIST. An employee wishing to trade any security
for his personal account shall first obtain clearance through Putnam's
Intranet pre-clearance system. The system may be accessed from your
desktop computer through Internet access software and following the
directions provided in the system. The current address of the
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Intranet pre-clearance system can be obtained from the Code of Ethics
Administrator. Employees may pre-clear all securities between 11:30
a.m. and 4:00 p.m. EST, and may pre-clear purchases or sales of up to
1,000 shares of issuers having a market capitalization of more than $1
billion between 9:00 a.m. and 4:00 p.m. EST. REQUESTS TO MAKE PERSONAL
SECURITIES TRANSACTIONS MAY NOT BE MADE USING THE SYSTEM OR PRESENTED
TO THE CODE OF ETHICS ADMINISTRATOR AFTER 4:00 P.M.
The pre-clearance system will inform the employee whether the security
may be traded and whether trading in the security is subject to the
"Large Cap" limitation. The response of the pre-clearance system as to
whether a security appears on the Restricted List and, if so, whether
it is eligible for the exceptions set forth after this Rule shall be
final, unless the employee appeals to the Code of Ethics Officer,
using the procedure described in Section VII, regarding the request to
trade a particular security.
A CLEARANCE IS ONLY VALID FOR TRADING ON THE DAY IT IS OBTAINED.
TRADES IN SECURITIES LISTED ON ASIAN OR EUROPEAN STOCK EXCHANGES,
HOWEVER, MAY BE EXECUTED WITHIN ONE BUSINESS DAY AFTER PRE-CLEARANCE
IS OBTAINED.
If a security is not on the Restricted List, other classes of
securities of the same issuer (E.G., preferred or convertible
preferred stock) MAY BE ON THE RESTRICTED LIST. It is the employee's
responsibility to identify with particularity the class of securities
for which permission is being sought for a personal investment.
If the Intranet pre-clearance system does not recognize a security, or
if an employee is unable to use the system or has any questions with
respect to the system or pre-clearance, the employee may consult the
Code of Ethics Administrator. The Code of Ethics Administrator shall
not have authority to answer any questions about a security other than
whether trading is permitted. The response of the Code of Ethics
Administrator as to whether a security appears on the Restricted List
and, if so, whether it is eligible for the exceptions set forth after
this Rule shall be final, unless the employee appeals to the Code of
Ethics Officer, using the procedure described in Section VII,
regarding the request to trade a particular security.
C. Removal of Securities from Restricted List. Securities shall be
removed from the Restricted List when: (a) in the case of securities
on the Restricted List pursuant to Rule 1(a), they are no longer being
purchased or sold for a Putnam client or actively considered for
purchase or sale for a Putnam client; (b) in the case of securities on
the Restricted List pursuant to Rule 1(b), the holdings of Putnam
clients fall below the applicable threshold designated in that Rule,
or at such earlier time as the Code of Ethics Officer deems
appropriate; or (c) in the case of securities on the Restricted List
pursuant
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to Rule 1(c) or 1(d), when circumstances no longer warrant
restrictions on personal trading.
COMMENTS
1. Pre-Clearance. Subpart (a) of this Rule is designed to avoid the
conflict of interest that might occur when an employee trades for his
personal account a security that currently is being traded or is
likely to be traded for a Putnam client. Such conflicts arise, for
example, when the trades of an employee might have an impact on the
price or availability of a particular security, or when the trades of
the client might have an impact on price to the benefit of the
employee. Thus, exceptions involve situations where the trade of a
Putnam employee is unlikely to have an impact on the market.
2. Regulatory Limits. Owing to a variety of federal statutes and
regulations in the banking, savings and loan, communications, and
gaming industries, it is critical that accounts of Putnam clients not
hold more than 10% of the voting securities of any issuer (5% for
public utilities). Because of the risk that the personal holdings of
Putnam employees may be aggregated with Putnam holdings for these
purposes, subpart (b) of this Rule limits personal trades in these
areas. The 7% limit (4% for public utilities) will allow the
regulatory limits to be observed.
3. Options. For the purposes of this Code, options are treated like the
underlying security. See Definitions. Thus, an employee may not
purchase, sell, or "write" option contracts for a security that is on
the Restricted List. A securities index will not be put on the
Restricted List simply because one or more of its underlying
securities have been put on the Restricted List. The exercise of an
options contract (the purchase or writing of which was previously
pre-cleared) does not have to be pre-cleared. Note, however, that the
sale of securities obtained through the exercise of options must be
pre-cleared.
4. Involuntary Transactions. "Involuntary" personal securities
transactions are exempted from the Code. Special attention should be
paid to this exemption. (See Section I.D.)
5. Tender Offers. This Rule does not prohibit an employee from tendering
securities from his personal account in response to an any-and-all
tender offer, even if Putnam clients are also tendering securities. A
Putnam employee is, however, prohibited from tendering securities from
his personal account in response to a partial tender offer, if Putnam
clients are also tendering securities.
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B. Prohibited Purchases and Sales
RULE 1
Putnam employees are prohibited from short selling any security,
whether or not the security is held in a Putnam client portfolio.
EXCEPTIONS
Short selling against the S&P 100 and 500 indexes and "against the
box" are permitted.
RULE 2
No Putnam employee shall purchase any security for her personal
account in an initial public offering.
EXCEPTIONS
Pre-existing Status Exception. A Putnam employee shall not be barred
by this Rule or by Rule 1(a) of Section I.A. from purchasing
securities for her personal account in connection with an initial
public offering of securities by a bank or insurance company when the
employee's status as a policyholder or depositor entitles her to
purchase securities on terms more favorable than those available to
the general public, in connection with the bank's conversion from
mutual or cooperative form to stock form, or the insurance company's
conversion from mutual to stock form, provided that the employee has
had the status entitling her to purchase on favorable terms for at
least two years. This exception is only available with respect to the
value of bank deposits or insurance policies that an employee owns
before the announcement of the initial public offering. This exception
does not apply, however, if the security appears on the Restricted
List in the circumstances set forth in subparts (b), (c), or (d) of
Section I.A., Rule 1.
IMPLEMENTATION
A. General Implementation. An employee shall inquire, before any
purchase of a security for her personal account, whether the
security to be purchased is being offered pursuant to an initial
public offering. If the security is offered through an initial
public offering, the employee shall refrain from purchasing that
security for her personal account unless the exception applies.
B. Administration of Exception. If the employee believes the
exception applies, she shall consult the Code of Ethics
Administrator concerning whether the security appears on the
Restricted List and if so, whether it is eligible for this
exception.
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COMMENTS
1. The purpose of this rule is twofold. First, it is designed to
prevent a conflict of interest between Putnam employees and
Putnam clients who might be in competition for the same
securities in a limited public offering. Second, the rule is
designed to prevent Putnam employees from being subject to undue
influence as a result of receiving "favors" in the form of
special allocations of securities in a public offering from
broker-dealers who seek to do business with Putnam.
2. Purchases of securities in the immediate after-market of an
initial public offering are not prohibited, provided they do not
constitute violations of other portions of the Code of Ethics.
For example, participation in the immediate after-market as a
result of a special allocation from an underwriting group would
be prohibited by Section III, Rule 3 concerning gifts and other
"favors."
3. Public offerings subsequent to initial public offerings are not
deemed to create the same potential for competition between
Putnam employees and Putnam clients because of the pre-existence
of a market for the securities.
RULE 3
No Putnam employee shall purchase any security for his personal
account in a limited private offering or private placement.
COMMENTS
1. The purpose of this Rule is to prevent a Putnam employee from
investing in securities for his own account pursuant to a limited
private offering that could compete with or disadvantage Putnam
clients, and to prevent Putnam employees from being subject to
efforts to curry favor by those who seek to do business with
Putnam.
2. Exemptions to the prohibition will generally not be granted where
the proposed investment relates directly or indirectly to
investments by a Putnam client, or where individuals involved in
the offering (including the issuers, broker, underwriter,
placement agent, promoter, fellow investors and affiliates of the
foregoing) have any prior or existing business relationship with
Putnam or a Putnam employee, or where the Putnam employee
believes that such individuals may expect to have a future
business relationship with Putnam or a Putnam employee.
3. An exemption may be granted, subject to reviewing all the facts
and circumstances, for investments in:
(a) Pooled investment funds, including hedge funds, subject to
the condition that an employee investing in a pooled
investment fund would have no involvement in the
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activities or decision-making process of the fund except for
financial reports made in the ordinary course of the fund's
business.
(b) Private placements where the investment cannot relate, or be
expected to relate, directly or indirectly to Putnam or
investments by a Putnam client.
4. Employees who apply for an exemption will be expected to disclose
to the Code of Ethics Officer in writing all facts and
relationships relating to the proposed investment.
5. Limited partnership interests are frequently sold in private
placements. An employee should assume that investment in a
limited partnership is barred by these rules, unless the employee
has obtained, in advance of purchase, a written exemption under
the ad hoc exemption set forth in Section I.D., Rule 2. The
procedure for obtaining an ad hoc exemption is described in
Section VII, Part 4.
6. Applications to invest in private placements will be reviewed by
the Code of Ethics Oversight Committee. This review will take
into account, among other factors, the considerations described
in the preceding comments.
RULE 4
No Putnam employee shall purchase or sell any security for her
personal account OR FOR ANY PUTNAM CLIENT ACCOUNT while in possession
of material, nonpublic information concerning the security or the
issuer.
EXCEPTIONS
NONE. Please read Appendix A, Policy Statement Concerning Insider
Trading Prohibitions.
RULE 5
No Putnam employee shall purchase from or sell to a Putnam client any
securities or other property for his personal account, nor engage in
any personal transaction to which a Putnam client is known to be a
party, or which transaction may have a significant relationship to any
action taken by a Putnam client.
EXCEPTIONS
None.
IMPLEMENTATION
It shall be the responsibility of every Putnam employee to make
inquiry prior to any personal transaction sufficient to satisfy
himself that the requirements of this Rule have been met.
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COMMENT
This rule is required by federal law. It does not prohibit a Putnam
employee from purchasing any shares of an open-end Putnam fund. The
policy with respect to employee trading in closed-end Putnam funds is
attached as Appendix B.
C. Discouraged Transactions
RULE 1
Putnam employees are strongly discouraged from engaging in naked
option transactions for their personal accounts.
EXCEPTIONS
None.
COMMENT
Naked option transactions are particularly dangerous, because a Putnam
employee may be prevented by the restrictions in this Code of Ethics
from "covering" the naked option at the appropriate time. All
employees should keep in mind the limitations on their personal
securities trading imposed by this Code when contemplating such an
investment strategy. Engaging in naked options transactions on the
basis of material, nonpublic information is prohibited. See Appendix
A, Policy Statement Concerning Insider Trading Prohibitions.
RULE 2
Putnam employees are strongly discouraged from engaging in excessive
trading for their personal accounts.
EXCEPTIONS
None.
COMMENTS
1. Although a Putnam employee's excessive trading may not itself
constitute a conflict of interest with Putnam clients, Putnam
believes that its clients' confidence in Putnam will be enhanced
and the likelihood of Putnam achieving better investment results
for its clients over the long term will be increased if Putnam
employees rely on their investment-- as opposed to trading--
skills in transactions for their own account. Moreover, excessive
trading by a Putnam employee for his or her own account diverts
an employee's attention from the responsibility of servicing
Putnam clients, and increases the possibilities for transactions
that are in actual or apparent conflict with Putnam client
transactions.
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2. Although this Rule does not define excessive trading, employees
should be aware that if their trades exceed 10 trades per quarter
the trading activity will be reviewed by the Code of Ethics
Oversight Committee.
D. Exempted Transactions
RULE 1
Transactions which are involuntary on the part of a Putnam employee
are exempt from the prohibitions set forth in Sections I.A., I.B., and
I.C.
EXCEPTIONS
None.
COMMENTS
1. This exemption is based on categories of conduct that the
Securities and Exchange Commission does not consider "abusive."
2. Examples of involuntary personal securities transactions include:
(a) sales out of the brokerage account of a Putnam employee as a
result of bona fide margin call, provided that withdrawal of
collateral by the Putnam employee within the ten days
previous to the margin call was not a contributing factor to
the margin call;
(b) purchases arising out of an automatic dividend reinvestment
program of an issuer of a publicly traded security.
3. Transactions by a trust in which the Putnam employee (or a member
of his immediate family) holds a beneficial interest, but for
which the employee has no direct or indirect influence or control
with respect to the selection of investments, are involuntary
transactions. In addition, these transactions do not fall within
the definition of "personal securities transactions." See
Definitions.
4. A good-faith belief on the part of the employee that a
transaction was involuntary will not be a defense to a violation
of the Code of Ethics. In the event of confusion as to whether a
particular transaction is involuntary, the burden is on the
employee to seek a prior written determination of the
applicability of this exemption. The procedures for obtaining
such a determination appear in Section VII, Part 3.
RULE 2
Transactions which have been determined in writing by the Code of
Ethics Officer before the transaction occurs to be no more than
remotely potentially harmful to Putnam clients because
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the transaction would be very unlikely to affect a highly
institutional market, or because the transaction is clearly not
related economically to the securities to be purchased, sold, or held
by a Putnam client, are exempt from the prohibitions set forth in
Sections I.A., I.B., and I.C.
EXCEPTIONS
N.A.
IMPLEMENTATION
An employee may seek an ad hoc exemption under this Rule by following
the procedures in Section VII, Part 4.
COMMENTS
1. This exemption is also based upon categories of conduct that the
Securities and Exchange Commission does not consider "abusive."
2. The burden is on the employee to seek a prior written
determination that the proposed transaction meets the standards
for an ad hoc exemption set forth in this Rule.
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A Section II. Additional Special Rules for Personal Securities
Transactions of Access Persons and Certain Investment
Professionals
ACCESS PERSONS (INCLUDING ALL INVESTMENT PROFESSIONALS AND OTHER EMPLOYEES
AS DEFINED ON PAGE IX)
RULE 1 ("60-DAY" RULE)
No Access Person shall profit from the purchase and sale, or sale and
purchase, of any security or related derivative security within 60 calendar
days.
EXCEPTIONS
None, unless prior written approval from the Code of Ethics Officer is
obtained. Exceptions may be granted on a case-by-case basis when no abuse
is involved and the equities of the situation support an exemption. For
example, although an Access Person may buy a stock as a long-term
investment, that stock may have to be sold involuntarily due to unforeseen
activity such as a merger.
IMPLEMENTATION
1. The 60-Day Rule applies to all Access Persons, as defined in the
Definitions section of the Code.
2. Calculation of whether there has been a profit is based upon the
MARKET PRICES of the securities. THE CALCULATION IS NOT NET OF
COMMISSIONS OR OTHER SALES CHARGES.
3. As an example, an Access Person would not be permitted to SELL a
security at $12 that he PURCHASED within the prior 60 days for $10.
Similarly, an Access Person would not be permitted to PURCHASE a
security at $10 that she had SOLD within the prior 60 days for $12. If
the proposed transaction would be made at a LOSS, it would be
permitted if the pre-clearance requirements are met. SEE, Section I,
Rule 1.
COMMENTS
1. The prohibition against short-term trading profits by Access Persons
is designed to minimize the possibility that they will capitalize
inappropriately on the market impact of trades involving a client
portfolio about which they might possibly have information.
2. Although Chief Investment Officers, Portfolio Managers, and Analysts
may sell securities at a profit within 60 days of purchase in order to
comply with the requirements of the 15-Day Rule applicable to them
(described below), the profit will have to be disgorged to charity
under the terms of the 15-Day Rule.
3. Access Persons occasionally make a series of transactions in
securities over extended periods of time. For example, an Access
Person bought 100 shares of Stock X on Day 1 at $100 per
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share and then bought 50 additional shares on Day 45 at $95 per share.
On Day 75, the Access Person sold 20 shares at $105 per share. The
question arises whether the Access Person violated the 60-Day Rule.
The characterization of the employee's tax basis in the shares sold
determines the analysis. If, for personal income tax purposes, the
Access Person characterizes the shares sold as having a basis of $100
per share (i.e., shares purchased on Day 1), the transaction would be
consistent with the 60-Day Rule. However, if the tax basis in the
shares is $95 per share (i.e., shares purchased on Day 45), the
transaction would violate the 60-Day Rule.
RULE 2
Access Persons must disclose all personal securities holdings to the Code of
Ethics Officer upon commencement of employment and thereafter on an annual
basis.
EXCEPTIONS
None.
COMMENT
These requirements are mandated by SEC regulations and are designed to
facilitate the monitoring of personal securities transactions. Putnam's Code of
Ethics Administrator will provide Access Persons with the form for making these
reports and the specific information that must be disclosed at the time that the
disclosure is required.
CERTAIN INVESTMENT PROFESSIONALS
RULE 3 ("15-DAY" RULE)
(a) Portfolio Managers: Before a portfolio manager places an order to buy a
security for any Putnam client portfolio that he manages, he shall sell any such
security or related derivative security purchased in a transaction for his
personal account within the preceding fifteen calendar days.
(b) Co-Managers: Before a portfolio manager places an order to buy a security
for any Putnam client he manages, his co-manager shall sell any such security or
related derivative security purchased in transaction for his personal account
within the preceding fifteen calendar days.
(c) ANALYSTS: Before an analyst makes a buy recommendation for a security, he
shall sell any such security or related derivative security purchased in a
transaction for his personal account within the preceding fifteen calendar days.
(d) Chief Investment Officers: The Chief Investment Officer of an investment
group must sell any security or related derivative security purchased in a
transaction for his personal account within
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the preceding fifteen calendar days before any portfolio manager in the CIO's
investment group places an order to buy such security for any Putnam client
account he manages.
EXCEPTIONS
None.
COMMENTS
1. This Rule applies to portfolio managers and Chief Investment Officers with
respect to ANY purchase (no matter how small) in ANY client account managed
or overseen by that portfolio manager or CIO (even so-called "clone
accounts"). In particular, it should be noted that the requirements of this
rule also apply with respect to purchases in client accounts, including
"clone accounts," resulting from "cash flows." To comply with the
requirements of this rule, it is the responsibility of each portfolio
manager and CIO to be aware of the placement of all orders for purchases of
a security by client accounts that he or she manages or oversees for 15
days following the purchase of that security for his or her personal
account.
2. An investment professional who must sell securities to be in compliance
with the 15-Day Rule must absorb any loss AND DISGORGE TO CHARITY ANY
PROFIT resulting from the sale.
3. This Rule is designed to avoid even the appearance of a conflict of
interest between an investment professional and a Putnam client. A more
stringent rule is warranted because, with their greater knowledge and
control, these investment professionals are in a better position than other
employees to create an appearance of manipulation of Putnam client accounts
for personal benefit.
4. "Portfolio manager" is used in this Section as a functional label, and is
intended to cover any employee with authority to authorize a trade on
behalf of a Putnam client, whether or not such employee bears the title
"portfolio manager." "Analyst" is also used in this Section as a functional
label, and is intended to cover any employee who is not a portfolio manager
but who may make recommendations regarding investments for Putnam clients.
RULE 4 ("BLACKOUT RULE")
(a) Portfolio Managers: No portfolio manager shall: (i) sell any security or
related derivative security for her personal account until fifteen calendar days
have elapsed since the most recent purchase of that security or related
derivative security by any Putnam client portfolio she manages or co-manages; or
(ii) purchase any security or related derivative security for her personal
account until fifteen calendar days have elapsed since the most recent sale of
that security or related derivative security from any Putnam client portfolio
that she manages or co-manages.
(b) Analysts: No analyst shall: (i) sell any security or related derivative
security for his personal account until fifteen calendar days have elapsed since
his most recent buy recommendation for that
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security or related derivative security; or (ii) purchase any security or
related derivative security for his personal account until fifteen calendar days
have elapsed since his most recent sell recommendation for that security or
related derivative security.
(c) Chief Investment Officers: No Chief Investment Officer shall: (i) sell any
security or related derivative security for his personal account until fifteen
calendar days have elapsed since the most recent purchase of that security or
related derivative security by a portfolio manager in his investment group; or
(ii) purchase any security or related derivative security for his personal
account until fifteen calendar days have elapsed since the most recent sale of
that security or related derivative security from any Putnam client portfolio
managed in his investment group.
EXCEPTIONS
None.
COMMENTS
1. This Rule applies to portfolio managers and Chief Investment Officers with
respect to ANY transaction (no matter how small) in ANY client account
managed or overseen by that portfolio manager or CIO (even so-called "clone
accounts"). In particular, it should be noted that the requirements of this
rule also apply with respect to transactions in client accounts, including
"clone accounts," resulting from "cash flows." In order to comply with the
requirements of this rule, it is the responsibility of each portfolio
manager and CIO to be aware of all transactions in a security by client
accounts that he or she manages or oversees that took place within the 15
days preceding a transaction in that security for his or her personal
account.
2. This Rule is designed to prevent a Putnam portfolio manager or analyst from
engaging in personal investment conduct that appears to be counter to the
investment strategy she is pursuing or recommending on behalf of a Putnam
client.
3. Trades by a Putnam portfolio manager for her personal account in the "same
direction" as the Putnam client portfolio she manages, and trades by an
analyst for his personal account in the "same direction" as his
recommendation, do not present the same danger, so long as any "same
direction" trades do not violate other provisions of the Code or the Policy
Statements.
RULE 5 ("CONTRA TRADING" RULE)
(a) Portfolio Managers: No portfolio manager shall, without prior clearance,
sell out of his personal account securities or related derivative securities
held in any Putnam client portfolio that he manages or co-manages.
(b) CHIEF INVESTMENT OFFICERS: No Chief Investment Officer shall, without prior
clearance, sell out of his personal account securities or related derivative
securities held in any Putnam client portfolio managed in his investment group.
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EXCEPTIONS
None, unless prior clearance is given.
IMPLEMENTATION
A. Individuals Authorized to Give Approval. Prior to engaging in any such
sale, a portfolio manager shall seek approval, in writing, of the proposed
sale. In the case of a portfolio manager or director, prior written
approval of the proposed sale shall be obtained from a chief investment
officer to whom he reports or, in his absence, another chief investment
officer. In the case of a chief investment officer, prior written approval
of the proposed sale shall be obtained from another chief investment
officer. In addition to the foregoing, prior written approval must also be
obtained from the Code of Ethics Officer.
B. Contents of Written Approval. In every instance, the written approval form
attached as Appendix C (or such other form as the Code of Ethics Officer
shall designate) shall be used. The written approval should be signed by
the chief investment officer giving approval and dated the date such
approval was given, and shall state, briefly, the reasons why the trade was
allowed and why the investment conduct pursued by the portfolio manager,
director, or chief investment officer was deemed inappropriate for the
Putnam client account controlled by the individual seeking to engage in the
transaction for his personal account. Such written approval shall be sent
by the chief investment officer approving the transaction to the Code of
Ethics Officer within twenty-four hours or as promptly as circumstances
permit. Approvals obtained after a transaction has been completed or while
it is in process will not satisfy the requirements of this Rule.
COMMENT
This Rule, like Rule 4 of this Section, is designed to prevent a Putnam
portfolio manager from engaging in personal investment conduct that appears to
be counter to the investment strategy that he is pursuing on behalf of a Putnam
client.
RULE 6
No portfolio manager shall cause, and no analyst shall recommend, a Putnam
client to take action for the portfolio manager's or analyst's own personal
benefit.
EXCEPTIONS
None.
COMMENTS
1. A portfolio manager who trades in, or an analyst who recommends, particular
securities for a Putnam client account in order to support the price of
securities in his personal account, or who
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"front runs" a Putnam client order is in violation of this Rule. Portfolio
managers and analysts should be aware that this Rule is not limited to
personal transactions in securities (as that word is defined in
"Definitions"). Thus, a portfolio manager or analyst who "front runs" a
Putnam client purchase or sale of obligations of the U.S. government is in
violation of this Rule, although U.S. government obligations are excluded
from the definition of "security."
2. This Rule is not limited to instances when a portfolio manager or analyst
has malicious intent. It also prohibits conduct that creates an appearance
of impropriety. Portfolio managers and analysts who have questions about
whether proposed conduct creates an appearance of impropriety should seek a
prior written determination from the Code of Ethics Officer, using the
procedures described in Section VII, Part 3.
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A Section III. Prohibited Conduct for All Employees
RULE 1
All employees must comply with applicable laws and regulations as well as
company policies. This includes tax, antitrust, and political contribution
laws.
EXCEPTIONS
None.
COMMENTS
It should also be noted that the U.S. Foreign Corrupt Practices Act makes
it a criminal offense to make a payment or offer of payment to any non-U.S.
governmental official, political party, or candidate to induce that person
to affect any governmental act or decision, or to assist Putnam's obtaining
or retaining business.
RULE 2
No Putnam employee shall conduct herself in a manner which is contrary to
the interests of, or in competition with, Putnam or a Putnam client, or
which creates an actual or apparent conflict of interest with a Putnam
client.
EXCEPTIONS
None.
COMMENTS
1. This Rule is designed to recognize the fundamental principle that
Putnam employees owe their chief duty and loyalty to Putnam and Putnam
clients.
2. It is expected that a Putnam employee who becomes aware of an
investment opportunity that she believes is suitable for a Putnam
client who she services will present it to the appropriate portfolio
manager, prior to taking advantage of the opportunity herself.
RULE 3
No Putnam employee shall seek or accept gifts, favors, preferential
treatment, or special arrangements of material value from any
broker-dealer, investment adviser, financial institution, corporation, or
other entity, or from any existing or prospective supplier of goods or
services to Putnam or Putnam Funds. Specifically, any gift over $50 in
value, or any accumulation of gifts which in aggregate exceeds $50 in value
from one source in one calendar year, is prohibited. Any Putnam employee
who is offered or receives an item prohibited by this Rule must report the
details in writing to the Code of Ethics Officer.
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EXCEPTIONS
None.
COMMENTS
1. This rule is intended to permit only proper types of customary business
amenities. Listed below are examples of items that would be permitted under
proper circumstances and of items that are prohibited under this rule.
These examples are illustrative and not all-inclusive. Notwithstanding
these examples, a Putnam employee may not, under any circumstances, accept
anything that could create the appearance of any kind of conflict of
interest. For example, acceptance of any consideration is prohibited if it
would create the appearance of a "reward" or inducement for conducting
Putnam business either with the person providing the gift or his employer.
2. This rule also applies to gifts or "favors" of material value that an
investment professional may receive from a company or other entity being
researched or considered as a possible investment for a Putnam client
account.
3. Among items not considered of "material value" which, under proper
circumstances, would be considered permissible are:
(a) Occasional lunches or dinners conducted for business purposes;
(b) Occasional cocktail parties or similar social gatherings conducted for
business purposes;
(c) Occasional attendance at theater, sporting or other entertainment
events conducted for business purposes; and
(d) Small gifts, usually in the nature of reminder advertising, such as
pens, calendars, etc., with a value of no more than $50.
4. Among items which are considered of "material value" and which are
prohibited are:
(a) Entertainment of a recurring nature such as sporting events, theater,
golf games, etc.;
(b) The cost of transportation to a locality outside the Boston
metropolitan area, and lodging while in another locality, unless such
attendance and reimbursement arrangements have received advance
written approval of the Code of Ethics Officer;
(c) Personal loans to a Putnam employee on terms more favorable than those
generally available for comparable credit standing and collateral; and
(d) Preferential brokerage or underwriting commissions or spreads or
allocations of shares or interests in an investment for the personal
account of a Putnam employee.
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5. As with any of the provisions of the Code of Ethics, a sincere belief by
the employee that he was acting in accordance with the requirements of this
Rule will not satisfy his obligations under the Rule. Therefore, an
employee who is in doubt concerning the propriety of any gift or "favor"
should seek a prior written determination from the Code of Ethics Officer,
as provided in Part 3 of Section VII.
RULE 4
No Putnam employee may pay, offer, or commit to pay any amount of consideration
which might be or appear to be a bribe or kickback in connection with Putnam's
business.
EXCEPTIONS
None.
COMMENT
Although the rule does not specifically address political contributions, Putnam
employees should be aware that it is against corporate policy to use company
assets to fund political contributions of any sort, even where such
contributions may be legal. No Putnam employee should offer or agree to make any
political contributions (including political dinners and similar fund-raisers)
on behalf of Putnam, and no employee will be reimbursed by Putnam for such
contributions made by the employee personally.
RULE 5
No contributions may be made with corporate funds to any political party or
campaign, whether directly or by reimbursement to an employee for the expense of
such a contribution. No Putnam employee shall solicit any charitable, political
or other contributions using Putnam letterhead or making reference to Putnam in
the solicitation. No Putnam employee shall personally solicit any such
contribution while on Putnam business.
EXCEPTIONS
None.
COMMENT
1. Putnam has established a political action committee (PAC) that contributes
to worthy candidates for political office. Any request received by a Putnam
employee for a political contribution must be directed to Putnam's Legal
and Compliance Department.
2. This rule does not prohibit solicitation on personal letterhead by Putnam
employees. Nonetheless, Putnam employees should use discretion in
soliciting contributions from individuals or entities who provide services
to Putnam. There should never be a suggestion that any service provider
must contribute to keep Putnam's business.
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RULE 6
No unauthorized disclosure may be made by any employee or former employee of any
trade secrets or proprietary information of Putnam or of any confidential
information. No information regarding any Putnam client portfolio, actual or
proposed securities trading activities of any Putnam client, or Putnam research
shall be disclosed outside the Putnam organization without a valid business
purpose.
EXCEPTIONS
None.
COMMENT
All information about Putnam and Putnam clients is strictly confidential. Putnam
research information should not be disclosed unnecessarily and never for
personal gain.
RULE 7
No Putnam employee shall serve as officer, employee, director, trustee or
general partner of a corporation or entity other than Putnam, without prior
approval of the Code of Ethics Officer.
EXCEPTION
Charitable or Non-profit Exception. This Rule shall not prevent any Putnam
employee from serving as officer, director, or trustee of a charitable or
not-for-profit institution, provided that the employee abides by the spirit of
the Code of Ethics and the Policy Statements with respect to any investment
activity for which she has any discretion or input as officer, director, or
trustee. The pre-clearance and reporting requirements of the Code of Ethics do
not apply to the trading activities of such charitable or not-for-profit
institutions for which an employee serves as an officer, director, or trustee.
COMMENTS
1. This Rule is designed to ensure that Putnam cannot be deemed an affiliate
of any issuer of securities by virtue of service by one of its officers or
employees as director or trustee.
2. Certain charitable or not-for-profit institutions have assets (such as
endowment funds or employee benefit plans) which require prudent
investment. To the extent that a Putnam employee (because of her position
as officer, director, or trustee of an outside entity) is charged with
responsibility to invest such assets prudently, she may not be able to
discharge that duty while simultaneously abiding by the spirit of the Code
of Ethics and the Policy Statements. Employees are cautioned that they
should not accept service as an officer, director, or trustee of an outside
charitable or not-for-profit entity where such investment responsibility is
involved, without seriously considering their ability to discharge their
fiduciary duties with respect to such investments.
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RULE 8
No Putnam employee shall serve as a trustee, executor, custodian, any other
fiduciary, or as an investment adviser or counselor for any account outside
Putnam.
EXCEPTIONS
Charitable or Religious Exception. This Rule shall not prevent any Putnam
employee from serving as fiduciary with respect to a religious or charitable
trust or foundation, so long as the employee abides by the spirit of the Code of
Ethics and the Policy Statements with respect to any investment activity over
which he has any discretion or input. The pre-clearance and reporting
requirements of the Code of Ethics do not apply to the trading activities of
such a religious or charitable trust or foundation.
FAMILY TRUST OR ESTATE EXCEPTION. This Rule shall not prevent any Putnam
employee from serving as fiduciary with respect to a family trust or estate, so
long as the employee abides by all of the Rules of the Code of Ethics with
respect to any investment activity over which he has any discretion.
COMMENT
The roles permissible under this Rule may carry with them the obligation to
invest assets prudently. Once again, Putnam employees are cautioned that they
may not be able to fulfill their duties in that respect while abiding by the
Code of Ethics and the Policy Statements.
RULE 9
No Putnam employee may be a member of any investment club.
EXCEPTIONS
None.
COMMENT
This Rule guards against the danger that a Putnam employee may be in violation
of the Code of Ethics and the Policy Statements by virtue of his personal
securities transactions in or through an entity that is not bound by the
restrictions imposed by this Code of Ethics and the Policy Statements. Please
note that this restriction also applies to the spouse of a Putnam employee and
any relatives of a Putnam employee living in the same household as the employee,
as their transactions are covered by the Code of Ethics (SEE page x).
RULE 10
No Putnam employee may become involved in a personal capacity in consultations
or negotiations for corporate financing, acquisitions or other transactions for
outside companies (whether or not held by any Putnam client), nor negotiate nor
accept a fee in connection with these activities without obtaining the prior
written permission of the president of Putnam Investments.
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EXCEPTIONS
None.
RULE 11
No new types of securities or instruments may be purchased for a Putnam fund or
other client account without the prior approval of the Risk Management
Committee.
EXCEPTIONS
None.
COMMENT
See Appendix D.
RULE 12
No employee may create or participate in the creation of any record that is
intended to mislead anyone or to conceal anything that is improper.
EXCEPTIONS
None.
COMMENT
In many cases, this is not only a matter of company policy and ethical behavior
but also required by law. Our books and records must accurately reflect the
transactions represented and their true nature. For example, records must be
accurate as to the recipient of all payments; expense items, including personal
expense reports, must accurately reflect the true nature of the expense. No
unrecorded fund or asset shall be established or maintained for any reason.
RULE 13
No employee should have any direct or indirect (including by a family member or
close relative) personal financial interest (other than normal investments not
material to the employee in the entity's publicly traded securities) in any
business, with which Putnam has dealings unless such interest is disclosed and
approved by the Code of Ethics Officer.
RULE 14
No employee shall, with respect to any affiliate of Putnam that provides
investment advisory services and is listed below in Comment 4 to this Rule, as
revised from time to time (each an "NPA"),
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(a) directly or indirectly seek to influence the purchase, retention, or
disposition of, or exercise of voting, consent, approval or similar rights with
respect to, any portfolio security in any account or fund advised by the NPA and
not by Putnam,
(b) transmit any information regarding the purchase, retention or disposition
of, or exercise of voting, consent, approval or similar rights with respect to,
any portfolio security held in a Putnam or NPA client account to any personnel
of the NPA,
(c) transmit any trade secrets, proprietary information, or confidential
information of Putnam to the NPA without a valid business purpose,
(d) use confidential information or trade secrets of the NPA for the benefit of
the employee, Putnam, or any other NPA, or
(e) breach any duty of loyalty to the NPA by virtue of service as a director or
officer of the NPA.
COMMENT
1. Sections (a) and (b) of the Rule are designed to help ensure that the
portfolio holdings of Putnam clients and clients of the NPA need not be
aggregated for purposes of determining beneficial ownership under Section
13(d) of the Securities Exchange Act or applicable regulatory or
contractual investment restrictions that incorporate such definition of
beneficial ownership. Persons who serve as directors or officers of both
Putnam and an NPA would take care to avoid even inadvertent violations of
Section (b). Section (a) does not prohibit a Putnam employee who serves as
a director or officer of the NPA from seeking to influence the modification
or termination of a particular investment product or strategy in a manner
that is not directed at any specific securities. Sections (a) and (b) do
not apply when a Putnam affiliate serves as an adviser or subadviser to the
NPA or one of its products, in which case normal Putnam aggregation rules
apply.
2. As a separate entity, any NPA may have trade secrets or confidential
information that it would not choose to share with Putnam. This choice must
be respected.
3. When Putnam employees serve as directors or officers of an NPA, they are
subject to common law duties of loyalty to the NPA, despite their Putnam
employment. In general, this means that when performing their duties as NPA
directors or officers, they must act in the best interest of the NPA and
its shareholders. Putnam's Legal and Compliance Department will assist any
Putnam employee who is a director or officer of an NPA and has questions
about the scope of his or her responsibilities to the NPA.
4. Entities that are currently non-Putnam affiliates within the scope of this
Rule are: Cisalpina Gestioni, S.p.A., PanAgora Asset Management Inc.,
PanAgora Asset Management Ltd., NISSAY ASSET MANAGEMENT CO., LTD., and
THOMAS H. LEE PARTNERS, L.P.
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RULE 15
No employee shall use computer hardware, software, data, Internet, electronic
mail, voice mail, electronic messaging ("e-mail" or "cc: Mail"), or telephone
communications systems in a manner that is inconsistent with their use as set
forth in policy statements governing their use that are adopted from time to
time by Putnam. No employee shall introduce a computer "virus" or computer code
that may result in damage to Putnam's information or computer systems.
EXCEPTIONS
None.
COMMENT
1. INTERNET AND ELECTRONIC MESSAGING POLICIES. As more and more employees of
Putnam Investments use the Internet to connect with Putnam's customers,
vendors, suppliers and other key organizations, it is important that all
Putnam employees understand the appropriate use guidelines and how to
protect assets of Putnam and its clients whenever using the Internet.
Internet access is provided to designated employees to connect with
worldwide information resources for the benefit of the company and its
clients. Such access is not intended for personal use. Employees using the
Internet or any electronic messaging system must do so in a responsible,
ethical and lawful manner.
- - Putnam has adopted a Policy and Guidelines on Internet Use. A copy of this
policy statement is included in the Putnam Employee Handbook and is
available online (you may contact Putnam's Human Resources Department for
the on-line address). Failure to comply with this policy statement is a
violation of Putnam's Code of Ethics.
2. SYSTEM SECURITY POLICY STATEMENT. It is the policy of Putnam Investments to
secure its computer hardware, software, data, electronic mail, voice mail
and Internet access by placing strict controls and restrictions on their
access and use.
- - Putnam has adopted a System Security Policy Statement. This policy
statement governs the use of computer hardware and software, data,
electronic mail, voice mail, Internet and commercial online services,
computer passwords and logon Ids, and workstation security. A copy of this
policy statement is included in the Putnam Employee Handbook and is
available online (you may contact Putnam's Human Resources Department for
the on-line address). Failure to comply with this policy statement is a
violation of Putnam's Code of Ethics.
3. COMPUTER VIRUS POLICY AND PROCEDURE. Putnam has adopted a Computer Virus
Policy and Procedure. This policy sets forth guidelines to prevent computer
viruses, procedures to be followed in the event a computer may be infected
with a virus, and a description of virus symptoms. A copy of this policy
statement is included in the Putnam Employee Handbook and
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is available online (you may contact Putnam's Human Resources Department
for the on-line address). Failure to comply with this policy statement is a
violation of Putnam's Code of Ethics.
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A Section IV. Special Rules for Officers and Employees of Putnam Europe Ltd.
RULE 1
In situations subject to Section I.A., Rule 1 (Restricted List Personal
Securities Transactions), the Putnam Europe Ltd. ("PEL") employee must obtain
clearance not only as provided in that rule, but also from PEL's Compliance
Officer or her designee, who must approve the transaction before any trade is
placed and record the approval.
EXCEPTIONS
None.
IMPLEMENTATION
Putnam's Code of Ethics Administrator in Boston (the "Boston Administrator") has
also been designated the Assistant Compliance Officer of PEL and has been
delegated the right to approve or disapprove personal securities transactions in
accordance with the foregoing requirement. Therefore, approval from the Code of
Ethics Administrator for PEL employees to make personal securities investments
constitutes approval under the Code of Ethics and also for purposes of
compliance with IMRO, the U.K. self-regulatory organization that regulates PEL.
The position of London Code of Ethics Administrator (the "London Administrator")
has also been created (Jane Barlow is the current London Administrator). All
requests for clearances must be made by e-mail to the Boston Administrator
copying the London Administrator. The e-mail must include the number of shares
to be bought or sold and the name of the broker(s) involved. Where time is of
the essence clearances can be made by telephone to the Boston Administrator but
they must be followed up by e-mail.
Both the Boston and London Administrators will maintain copies of all clearances
for inspection by senior management and regulators.
RULE 2
No PEL employee may trade with any broker or dealer unless that broker or dealer
has sent a letter to the London Administrator agreeing to deliver copies of
trade confirmations to PEL. No PEL employee may enter into any margin or any
other special dealing arrangement with any broker-dealer without the prior
written consent of the PEL Compliance Officer.
EXCEPTIONS
None.
IMPLEMENTATION
PEL employees will be notified separately of this requirement once a year by the
PEL Compliance Officer, and are required to provide an annual certification of
compliance with the Rule.
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All PEL employees must inform the London Administrator of the names of all
brokers and dealers with whom they trade prior to trading. The London
Administrator will send a letter to the broker(s) in question requesting them to
agree to deliver copies of confirms to PEL. The London Administrator will
forward copies of the confirms to the Boston Administrator. PEL employees may
trade with a broker only when the London Administrator has received the signed
agreement from that broker.
RULE 3
For purposes of the Code of Ethics, including Putnam's Policy Statement on
Insider Trading Prohibitions, PEL employees must also comply with Part V of the
Criminal Justice Act 1993 on insider dealing.
EXCEPTIONS
None.
IMPLEMENTATION
To ensure compliance with U.K. insider dealing legislation, PEL employees must
observe the relevant procedures set forth in PEL's Compliance Manual, a copy of
which is sent to each PEL employee, and sign an annual certification as to
compliance.
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A Section V. Reporting Requirements for All Employees
RULE 1
Each Putnam employee shall ensure that broker-dealers send all confirmations of
securities transactions for his personal accounts to the Code of Ethics Officer.
(For the purpose of this Rule, "securities" shall include securities of The
Marsh & McLennan Companies, Inc., and any option on a security or securities
index, including broad-based market indexes.)
EXCEPTIONS
None.
IMPLEMENTATION
1. Putnam employees must instruct their broker-dealers to send confirmations
to Putnam and must follow up with the broker-dealer on a reasonable basis
to ensure that the instructions are being followed. Putnam employees should
contact the Code of Ethics Administrator to obtain a letter from Putnam
authorizing the setting up of a personal brokerage account. Confirmations
should be submitted to the Code of Ethics Administrator. (Specific
procedures apply to employees of Putnam Europe Ltd. ("PEL"). Employees of
PEL should contact the London Code of Ethics Administrator.) Failure of a
broker-dealer to comply with the instructions of a Putnam employee to send
confirmations shall be a violation by the Putnam employee of this Rule.
COMMENTS
1. "Transactions for personal accounts" is defined broadly to include more
than transaction in accounts under an employee's own name. See Definitions.
2. A confirmation is required for all personal securities transactions,
whether or not exempted or excepted by this Code.
3. To the extent that a Putnam employee has investment authority over
securities transactions of a family trust or estate, confirmations of those
transactions must also be made, unless the employee has received a prior
written exception from the Code of Ethics Officer.
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RULE 2
Every Access Person shall file a quarterly report, within ten calendar days of
the end of each quarter, recording all purchases and sales of any securities for
personal accounts as defined in the Definitions. (For the purpose of this Rule,
"securities" shall include securities of The Marsh & McLennan Companies, Inc.,
and any option on a security or securities index, including broad-based market
indexes.)
EXCEPTIONS
None.
IMPLEMENTATION
All employees required to file such a report will receive a blank form at the
end of the quarter from the Code of Ethics Administrator. The form will specify
the information to be reported. The form shall also contain a representation
that employees have complied fully with all provisions of the Code of Ethics.
COMMENT
1. The date for each transaction required to be disclosed in the quarterly
report is the trade date for the transaction, not the settlement date.
2. If the requirement to file a quarterly report applies to you and you fail
to report within the required 10-day period, salary increases and bonuses
will be reduced in accordance with guidelines stated in the form.
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A Section VI. Education Requirements for All Employees
Every Putnam employee has an obligation to fully understand the requirements of
the Code of Ethics. The Rules set forth below are designed to enhance this
understanding.
RULE 1
A copy of the Code of Ethics will be distributed to every Putnam employee
periodically. All Access Persons will be required to certify periodically that
they have read, understood, and will comply with the provisions of the Code of
Ethics, including the Code's Policy Statement Concerning Insider Trading
Prohibitions.
RULE 2
Every investment professional will attend a meeting periodically at which the
Code of Ethics will be reviewed.
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A Section VII. Compliance and Appeal Procedures
1. Assembly of Restricted List. The Code of Ethics Administrator will
coordinate the assembly and maintenance of the Restricted List. The
list will be assembled each day by 11:30 a.m. EST. No employee may
engage in a personal securities transaction without prior clearance on
any day, even if the employee believes that the trade will be subject
to an exception. Note that pre-clearance may be obtained after 9:00
a.m. for purchases or sales of up to 1,000 shares of issuers having a
market capitalization in excess of $1 billion.
2. Consultation of Restricted List. It is the responsibility of each
employee to pre-clear through the Intranet pre-clearance system or
consult with the Code of Ethics Administrator prior to engaging in a
personal securities transaction, to determine if the security he
proposes to trade is on the Restricted List and, if so, whether it is
subject to the "Large Cap" limitation. The Intranet pre-clearance
system and the Code of Ethics Administrator will be able to tell an
employee whether a security is on the Restricted List. No other
information about the Restricted List is available through the
Intranet pre-clearance system. The Code of Ethics Administrator shall
not be authorized to answer any questions about the Restricted List,
or to render an opinion about the propriety of a particular personal
securities transaction. Any such questions shall be directed to the
Code of Ethics Officer.
3. Request for Determination. An employee who has a question concerning
the applicability of the Code of Ethics to a particular situation
shall request a determination from the Code of Ethics Officer before
engaging in the conduct or personal securities transaction about which
he has a question.
If the question pertains to a personal securities transaction, the
request shall state for whose account the transaction is proposed, the
relationship of that account to the employee, the security proposed to
be traded, the proposed price and quantity, the entity with whom the
transaction will take place (if known), and any other information or
circumstances of the trade that could have a bearing on the Code of
Ethics Officer's determination. If the question pertains to other
conduct, the request for determination shall give sufficient
information about the proposed conduct to assist the Code of Ethics
Officer in ascertaining the applicability of the Code. In every
instance, the Code of Ethics Officer may request additional
information, and may decline to render a determination if the
information provided is insufficient.
The Code of Ethics Officer shall make every effort to render a
determination promptly.
No perceived ambiguity in the Code of Ethics shall excuse any
violation. Any person who believes the Code to be ambiguous in a
particular situation shall request a determination from the Code of
Ethics Officer.
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4. Request for Ad Hoc Exemption. Any employee who wishes to obtain an ad
hoc exemption under Section I.D., Rule 2, shall request from the Code
of Ethics Officer an exemption in writing in advance of the conduct or
transaction sought to be exempted. In the case of a personal
securities transaction, the request for an ad hoc exemption shall give
the same information about the transaction required in a request for
determination under Part 3 of this Section, and shall state why the
proposed personal securities transaction would be unlikely to affect a
highly institutional market, or is unrelated economically to
securities to be purchased, sold, or held by any Putnam client. In the
case of other conduct, the request shall give information sufficient
for the Code of Ethics Officer to ascertain whether the conduct raises
questions of propriety or conflict of interest (real or apparent).
The Code of Ethics Officer shall make every effort to promptly render
a written determination concerning the request for an ad hoc
exemption.
5. Appeal to Code of Ethics Officer with Respect to Restricted List. If
an employee ascertains that a security that he wishes to trade for his
personal account appears on the Restricted List, and thus the
transaction is prohibited, he may appeal the prohibition to the Code
of Ethics Officer by submitting a written memorandum containing the
same information as would be required in a request for a
determination. The Code of Ethics Officer shall make every effort to
respond to the appeal promptly.
6. Information Concerning Identity of Compliance Personnel. The names of
Code of Ethics personnel are available by contacting the Legal and
Compliance Department.
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Appendix A
POLICY STATEMENT CONCERNING
INSIDER TRADING PROHIBITIONS
PIV
S
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A PREAMBLE
Putnam has always forbidden trading on material nonpublic information
("inside information") by its employees. Tougher federal laws make it
important for Putnam to restate that prohibition in the strongest possible
terms, and to establish, maintain, and enforce written policies and
procedures to prevent the misuse of material nonpublic information.
Unlawful trading while in possession of inside information can be a crime.
Today, federal law provides that an individual convicted of trading on
inside information go to jail for some period of time. There is also
significant monetary liability for an inside trader; the Securities and
Exchange Commission can seek a court order requiring a violator to pay back
profits and penalties of up to three times those profits. In addition,
private plaintiffs can seek recovery for harm suffered by them. The inside
trader is not the only one subject to liability. In certain cases,
"controlling persons" of inside traders (including supervisors of inside
traders or Putnam itself) can be liable for large penalties.
Section 1 of this Policy Statement contains rules concerning inside
information. Section 2 contains a discussion of what constitutes unlawful
insider trading.
Neither material nonpublic information nor unlawful insider trading is easy
to define. Section 2 of this Policy Statement gives a general overview of
the law in this area. However, the legal issues are complex and must be
resolved by the Code of Ethics Officer. If an employee has any doubt as to
whether she has received material nonpublic information, she must consult
with the Code of Ethics Officer prior to using that information in
connection with the purchase or sale of a security for his own account or
the account of any Putnam client, or communicating the information to
others. A simple rule of thumb is if you think the information is not
available to the public at large, don't disclose it to others and don't
trade securities to which the inside information relates. If an employee
has failed to consult the Code of Ethics Officer, Putnam will not excuse
employee misuse of inside information on the ground that the employee
claims to have been confused about this Policy Statement or the nature of
the information in his possession.
If Putnam determines, in its sole discretion, that an employee has failed
to abide by this Policy Statement, or has engaged in conduct that raises a
significant question concerning insider trading, he will be subject to
disciplinary action, including termination of employment.
THERE ARE NO EXCEPTIONS TO THIS POLICY STATEMENT AND NO ONE IS EXEMPT.
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A Definitions: Insider Trading
Gender references in Appendix A alternate.
Code of Ethics Administrator. The individual designated by the Code of Ethics
Officer to assume responsibility for day-to-day, non-discretionary
administration of this Policy Statement.
Code of Ethics Officer. The Putnam officer who has been assigned the
responsibility of enforcing and interpreting this Policy Statement. The
Code of Ethics Officer shall be the General Counsel or such other person
as is designated by the President of Putnam Investments. If he is
unavailable, the Deputy Code of Ethics Officer (to be appointed by the
Code of Ethics Officer) shall act in his stead.
Immediate family. Spouse, minor children or other relatives living in the same
household as the Putnam employee.
Purchase or sale of a security. Any acquisition or transfer of any interest in
the security for direct or indirect consideration, including the writing of
an option.
Putnam. Any or all of Putnam Investments, Inc., and its subsidiaries, any one of
which shall be a "Putnam company."
Putnam client. Any of the Putnam Funds, or any advisory or trust client of
Putnam.
Putnam employee (or "employee"). Any employee of Putnam.
Security. Anything defined as a security under federal law. The term includes
any type of equity or debt security, any interest in a business trust or
partnership, and any rights relating to a security, such as put and call
options, warrants, convertible securities, and securities indices. (Note:
The definition of "security" in this Policy Statement varies significantly
from that in the Code of Ethics. For example, the definition in this
Policy Statement specifically includes securities of The Marsh & McLennan
Companies, Inc.)
Transaction for a personal account (or "personal securities transaction").
Securities transactions: (a) for the personal account of any employee; (b)
for the account of a member of the immediate family of any employee; (c)
for the account of a partnership in which a Putnam employee or immediate
family member is a partner with investment discretion; (d) for the account
of a trust in which a Putnam employee or immediate family member is a
trustee with investment discretion; (e) for the account of a closely-held
corporation in which a Putnam employee or immediate family member holds
shares and for which he has investment discretion; and (f) for any account
other than a Putnam client account which receives investment advice of any
sort from the employee or immediate family member, or as to which the
employee or immediate family member has investment discretion.
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Officers and employees of Putnam Europe Ltd. ("PEL") must also consult the
relevant procedures on compliance with U.K. insider dealing legislation set
forth in PEL's Compliance Manual (see Rule 3 of Section IV of the Code of
Ethics).
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A Section 1. Rules Concerning Inside Information
RULE 1
No Putnam employee shall purchase or sell any security listed on the Inside
Information List (the "Red List") either for his personal account or for a
Putnam client.
IMPLEMENTATION
When an employee contacts the Code of Ethics Administrator seeking clearance for
a personal securities transaction, the Code of Ethics Administrator's response
as to whether a security appears on the Restricted List will include securities
on the Red List.
COMMENT
This Rule is designed to prohibit any employee from trading a security while
Putnam may have inside information concerning that security or the issuer. Every
trade, whether for a personal account or for a Putnam client, is subject to this
Rule.
RULE 2
No Putnam employee shall purchase or sell any security, either for a personal
account or for the account of a Putnam client, while in possession of material,
nonpublic information concerning that security or the issuer, without the prior
written approval of the Code of Ethics Officer.
IMPLEMENTATION
In order to obtain prior written approval of the Code of Ethics Officer, a
Putnam employee should follow the reporting steps prescribed in Rule 3.
COMMENTS
1. Rule 1 concerns the conduct of an employee when Putnam possesses material
nonpublic information. Rule 2 concerns the conduct of an employee who
herself possesses material, nonpublic information about a security that is
not yet on the Red List.
2. If an employee has any question as to whether information she possesses is
material and/or nonpublic information, she must contact the Code of Ethics
Officer in accordance with Rule 3 prior to purchasing or selling any
security related to the information or communicating the information to
others. The Code of Ethics Officer shall have the sole authority to
determine what constitutes material, nonpublic information for the
purposes of this Policy Statement. An employee's mistaken belief that the
information was not material nonpublic information will not excuse a
violation of this Policy Statement.
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RULE 3
Any Putnam employee who believes he may have received material, nonpublic
information concerning a security or the issuer shall immediately report the
information to the Code of Ethics Officer and to no one else. After reporting
the information, the Putnam employee shall comply strictly with Rule 2 by not
trading in the security without the prior written approval of the Code of Ethics
Officer and shall: (a) take precautions to ensure the continued confidentiality
of the information; and (b) refrain from communicating the information in
question to any person.
EXCEPTION
This rule shall not apply to material, nonpublic information obtained by Putnam
employees who are directors or trustees of publicly traded companies, to the
extent that such information is received in their capacities as directors or
trustees, and then only to the extent such information is not communicated to
anyone else within the Putnam organization.
IMPLEMENTATION
1. In order to make any use of potential material, nonpublic information,
including purchasing or selling a security or communicating the information
to others, an employee must communicate that information to the Code of
Ethics Officer in a way designed to prevent the spread of such information.
Once the employee has reported potential material, nonpublic information to
the Code of Ethics Officer, the Code of Ethics Officer will evaluate
whether information constitutes material, nonpublic information, and
whether a duty exists that makes use of such information improper. If the
Code of Ethics Officer determines either (a) that the information is not
material or is public, or (b) that use of the information is proper, he
will issue a written approval to the employee specifically authorizing
trading while in possession of the information, if the employee so
requests. If the Code of Ethics Officer determines (a) that the information
may be nonpublic and material, and (b) that use of such information may be
improper, he will place the security that is the subject of such
information on the Red List.
2. An employee who reports potential inside information to the Code of Ethics
Officer should expect that the Code of Ethics Officer will need significant
information to make the evaluation described in the foregoing paragraph,
including information about (a) the manner in which the employee acquired
the information, and (b) the identity of individuals to whom the employee
has revealed the information, or who have otherwise learned the
information. The Code of Ethics Officer may place the affected security or
securities on the Red List pending the completion of his evaluation.
3. If an employee possesses documents, disks, or other materials containing
the potential inside information, an employee must take precautions to
ensure the confidentiality of the information in question. Those
precautions include (a) putting documents containing such information out
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of the view of a casual observer, and (b) securing files containing such
documents or ensuring that computer files reflecting such information are
secure from viewing by others.
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A Section 2. Overview of Insider Trading
A. Introduction
This section of the Policy Statement provides guidelines for
employees as to what may constitute inside information. It is
possible that in the course of her employment, an employee may receive
inside information. No employee should misuse that information, either
by trading for her own account or by communicating the information to
others.
B. What constitutes unlawful insider trading?
The basic definition of unlawful insider trading is trading on
material, nonpublic information (also called "inside information")
by an individual who has a duty not to "take advantage" of the
information. What does this definition mean? The following sections
help explain the definition.
1. What is material information?
Trading on inside information is not a basis for liability unless
the information is material. Information is "material" if a
reasonable person would attach importance to the information in
determining his course of action with respect to a security.
Information which is reasonably likely to affect the price of a
company's securities is "material," but effect on price is not
the sole criterion for determining materiality. Information that
employees should consider material includes but is not limited
to: dividend changes, earnings estimates, changes in previously
released earnings estimates, reorganization, recapitalization,
asset sales, plans to commence a tender offer, merger or
acquisition proposals or agreements, major litigation, liquidity
problems, significant contracts, and extraordinary management
developments.
Material information does not have to relate to a company's
business. For example, a court considered as material certain
information about the contents of a forthcoming newspaper column
that was expected to affect the market price of a security. In
that case, a reporter for The Wall Street Journal was found
criminally liable for disclosing to others the dates that reports
on various companies would appear in the Journal's "Heard on the
Street" column and whether those reports would be favorable or
not.
2. What is nonpublic information?
Information is nonpublic until it has been effectively
communicated to, and sufficient opportunity has existed for it to
be absorbed by, the marketplace. One must be able to point to
some fact to show that the information is generally public. For
example, information found in a report filed with the Securities
and Exchange Commission, or
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appearing in Dow Jones, Reuters Economic Services, The Wall
Street Journal, or other publications of general circulation
would be considered public.
3. Who has a duty not to "take advantage" of inside information?
Unlawful insider trading occurs only if there is a duty not to
"take advantage" of material nonpublic information. When there is
no such duty, it is permissible to trade while in possession of
such information. Questions as to whether a duty exists are
complex, fact-specific, and must be answered by a lawyer.
a. Insiders and Temporary Insiders. Corporate "insiders" have a
duty not to take advantage of inside information. The
concept of "insider" is broad. It includes officers,
directors, and employees of a corporation. In addition, a
person can be a "temporary insider" if she enters into a
special confidential relationship with a corporation and as
a result is given access to information concerning the
corporation's affairs. A temporary insider can include,
among others, accounting firms, consulting firms, law firms,
banks and the employees of such organizations. Putnam would
generally be a temporary insider of a corporation it advises
or for which it performs other services, because typically
Putnam clients expect Putnam to keep any information
disclosed to it confidential.
EXAMPLE
An investment adviser to the pension fund of a large
publicly-traded corporation, Acme, Inc., learns from an Acme
employee that Acme will not be making the minimum required
annual contribution to the pension fund because of a serious
downturn in Acme's financial situation. The information
conveyed is material and nonpublic.
COMMENT
Neither the investment adviser, its employees, nor clients
can trade on the basis of that information, because the
investment adviser and its employees could be considered
"temporary insiders" of Acme.
b. Misappropriators. Certain people who are not insiders (or
temporary insiders) also have a duty not to deceptively take
advantage of inside information. Included in this category
is an individual who "misappropriates" (or takes for his own
use) material, nonpublic information in violation of a duty
owed either to the corporation that is the subject of inside
information or some other entity. Such a misappropriator can
be held liable if he trades while in possession of that
material, nonpublic information.
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EXAMPLE
The chief financial officer of Acme, Inc., is aware of
Acme's plans to engage in a hostile takeover of Profit, Inc.
The proposed hostile takeover is material and nonpublic.
COMMENT
The chief financial officer of Acme cannot trade in Profit,
Inc.'s stock for his own account. Even though he owes no
duty to Profit, Inc., or its shareholders, he owes a duty to
Acme not to "take advantage" of the information about the
proposed hostile takeover by using it for his personal
benefit.
c. Tippers and Tippees. A person (the "tippee") who receives
material, nonpublic information from an insider or
misappropriator (the "tipper") has a duty not to trade while
in possession of that information if he knew or should have
known that the information was provided by the tipper for an
improper purpose and in breach of a duty owed by the tipper.
In this context, it is an improper purpose for a person to
provide such information for personal benefit, such as
money, affection, or friendship.
EXAMPLE
The chief executive officer of Acme, Inc., tells his
daughter that negotiations concerning a previously-announced
acquisition of Acme have been terminated. This news is
material and, at the time the father tells his daughter,
nonpublic. The daughter sells her shares of Acme.
COMMENT
The father is a tipper because he has a duty to Acme and its
shareholders not to "take advantage" of the information
concerning the breakdown of negotiations, and he has
conveyed the information for an "improper" purpose (here,
out of love and affection for his daughter). The daughter is
a "tippee" and is liable for trading on inside information
because she knew or should have known that her father was
conveying the information to her for his personal benefit,
and that her father had a duty not to "take advantage" of
Acme information.
A person can be a tippee even if he did not learn the
information directly from the tipper, but learned it from a
previous tippee.
EXAMPLE
An employee of a law firm which works on mergers and
acquisitions learns at work about impending acquisitions.
She tells her friend and her friend's stockbroker about
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the upcoming acquisitions on a regular basis. The
stockbroker tells the brother of a client on a regular
basis, who in turn tells two friends, A and B. A and B buy
shares of the companies being acquired before public
announcement of the acquisition, and regularly profit from
such purchases. A and B do not know the employee of the law
firm. They do not, however, ask about the source of the
information.
COMMENT
A and B, although they have never heard of the tipper, are
tippees because they did not ask about the source of the
information, even though they were experienced investors,
and were aware that the "tips" they received from this
particular source were always right.
C. Who can be liable for insider trading? The categories of individuals
discussed above (insiders, temporary insiders, misappropriators or tippees)
can be liable if they trade while in possession of material nonpublic
information.
In addition, individuals other than those who actually trade on inside
information can be liable for trades of others. A tipper can be liable if
(a) he provided the information in exchange for a personal benefit in
breach of a duty and (b) the recipient of the information (the "tippee")
traded while in possession of the information.
Most importantly, a controlling person can be liable if the controlling
person "knew or recklessly disregarded" the fact that the controlled person
was likely to engage in misuse of inside information and failed to take
appropriate steps to prevent it. Putnam is a "controlling person" of its
employees. In addition, certain supervisors may be "controlling persons" of
those employees they supervise.
EXAMPLE
A supervisor of an analyst learns that the analyst has, over a long period
of time, secretly received material inside information from Acme, Inc.'s
chief financial officer. The supervisor learns that the analyst has engaged
in a number of trades for his personal account on the basis of the inside
information. The supervisor takes no action.
COMMENT
Even if he is not liable to a private plaintiff, the supervisor can be
liable to the Securities and Exchange Commission for a civil penalty of up
to three times the amount of the analyst's profit. (Penalties are discussed
in the following section.)
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D. Penalties for Insider Trading
Penalties for misuse of inside information are severe, both for individuals
involved in such unlawful conduct and their employers. A person who
violates the insider trading laws can be subject to some or all of the
penalties below, even if he does not personally benefit from the violation.
Penalties include:
-- jail sentences (of which at least one to three years must be served)
-- criminal penalties for individuals of up to $1,000,000, and for
corporations of up to $2,500,000
-- injunctions permanently preventing an individual from working in the
securities industry
-- injunctions ordering an individual to pay over profits obtained from
unlawful insider trading
-- civil penalties of up to three times the profit gained or loss avoided
by the trader, even if the individual paying the penalty did not trade
or did not benefit personally
-- civil penalties for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of profit gained
or loss avoided
-- damages in the amount of actual losses suffered by other participants
in the market for the security at issue.
Regardless of whether penalties or money damages are sought by others, Putnam
will take whatever action it deems appropriate (including dismissal) if Putnam
determines, in its sole discretion, that an employee appears to have committed
any violation of this Policy Statement, or to have engaged in any conduct which
raises significant questions about whether an insider trading violation has
occurred.
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A APPENDIX B. Policy Statement Regarding Employee Trades in Shares of
Putnam Closed-end Funds
1. Pre-clearance for all employees
Any purchase or sale of Putnam closed-end fund shares by a Putnam employee must
be pre-cleared by the Code of Ethics Officer or, in his absence, the Deputy Code
of Ethics Officer. A list of the closed-end funds can be obtained from the Code
of Ethics Administrator. Trading in shares of closed-end funds is subject to all
the rules of the Code of Ethics.
2. Special Rules Applicable to Managing Directors of Putnam Investment
Management, Inc. and officers of the Putnam Funds
Please be aware that any employee who is a Managing Director of Putnam
Investment Management, Inc. (the investment manager of the Putnam mutual funds)
and officers of the Putnam Funds will not receive clearance to engage in any
combination of purchase and sale or sale and purchase of the shares of a given
closed-end fund within six months of each other. Therefore, purchases should be
made only if you intend to hold the shares more than six months; no sales of
fund shares should be made if you intend to purchase additional shares of that
same fund within six months.
You are also required to file certain forms with the Securities and Exchange
Commission in connection with purchases and sales of Putnam closed-end funds.
Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer for
further information.
3. Reporting by all employees
As with any purchase or sale of a security, duplicate confirmations of all such
purchases and sales must be forwarded to the Code of Ethics Officer by the
broker-dealer utilized by an employee. If you are required to file a quarterly
report of all personal securities transactions, this report should include all
purchases and sales of closed-end fund shares.
Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer if
there are any questions regarding these matters.
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A Appendix C. Clearance Form for Portfolio Manager Sales Out of Personal
Account of Securities Also Held by Fund (For compliance with
"Contra-Trading" Rule)
TO: Code of Ethics Officer
FROM:
------------------------------------------
DATE:
------------------------------------------
RE: Personal Securities Transaction of
------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This serves as prior written approval of the personal securities transaction
described below:
NAME OF PORTFOLIO MANAGER CONTEMPLATING PERSONAL TRADE:
- --------------------------------------------------------------------------------
SECURITY TO BE TRADED:
- --------------------------------------------------------------------------------
AMOUNT TO BE TRADED:
------------------------------------------------------------
FUND HOLDING SECURITIES:
--------------------------------------------------------
AMOUNT HELD BY FUND:
------------------------------------------------------------
REASON FOR PERSONAL TRADE:
------------------------------------------------------
SPECIFIC REASON SALE OF SECURITIES IS INAPPROPRIATE FOR FUND:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please attach additional sheets if necessary.)
APPROVED: DATE:
------------------------------ -----------------------------------
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A Appendix D. Procedures for Approval of New Financial Instruments
1. Summary
a. The Putnam Risk Management Committee ("RMC") has adopted
procedures for the introduction of new instruments and
securities, focusing on, but not limited to, derivatives.
b. No new types of securities or instruments may be purchased for
any Putnam fund or other client account without the approval of
the RMC.
c. The RMC publishes from time to time a list of approved
derivatives. The purchase of any derivative not listed is
prohibited without specific authorization from the RMC.
2. Procedures
a. Introduction. The purchase and sale of financial instruments that
have not been used previously at Putnam raise significant
investment, business, operational, and compliance issues. In
order to address these issues in a comprehensive manner, the RMC
has adopted the following procedures for obtaining approval of
the use of new instruments or investments. In addition, to
provide guidance regarding the purchase of derivatives, the RMC
publishes from time to time a list of approved derivatives. Only
derivatives listed may be used for Putnam funds or accounts
unless specifically authorized by the RMC.
b. Process of approval. An investment professional wishing to
purchase a new type of investment should discuss it with the
Investment Division's Administrative office (the current contact
is Julie Malloy). Investment Division Administration will
coordinate a review of a new instrument by appropriate RMC
members from an investment, operational and compliance
perspective, including the review of instruments by the
Administrative Services Division of PFTC. Based on this review,
the RMC will then approve or disapprove the proposed new
investment. Investment professionals must build in adequate time
for this review before planned use of a new instrument. Further,
the approval of the RMC is only a general one. Individual fund
and account guidelines must be reviewed in accordance with
standard compliance procedures to determine whether purchase is
permitted. In addition, if the instrument involves legal
documentation, that documentation must be reviewed and be
completed before trading. The RMC may prepare a compliance and
operational manual for the new derivative.
3. Violations
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a. Putnam's Operating Committee has determined that adherence to
rigorous internal controls and procedures for novel securities
and instruments is necessary to protect Putnam's business
standing and reputation. Violation of these procedures will be
treated as violation of both compliance guidelines and Putnam's
Code of Ethics. The RMC encourages questions and expects that
these guidelines will be interpreted conservatively.
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A Index
"15-Day Rule"
for transactions by managers, analysts and CIOs, 14
"60-Day Rule", 13
Access Persons
definition, ix
special rules on trading, 13, 32
Analysts
special rules on trading by, 13
Appeals
Procedures, 35
Bankers'acceptances
excluded from securities, x
Blackout rule
on trading by portfolio managers, analysts and CIOs, 16
Bribes, 21
CDs
excluded from securities, x
Clearance
how long pre-clearance is valid, 4
required for personal securities transactions, 1
Closed-end funds
rules on trading, 53
Commercial paper
excluded from securities, x
Commodities (other than securities indices)
excluded from securities, x
Computer use
compliance with corporate policies required, 26
Confidentiality
required of all employees, 22
Confirmations
of personal transactions required, 31
Conflicts of interest
with Putnam and Putnam clients prohibited, 19
Contra-trading rule
transactions by managers and CIOs, 17
Convertible securities
defined as securities, x
Currencies
excluded as securities, x
Director
serving as for another entity prohibited, 22
Employee
serving as for another entity prohibited, 22
Excessive trading (over 10 trades)
by employees strongly discouraged, 10
Exemptions
basis for, 10
Family members
covered in personal securities transactions, x, 41
Fiduciary
serving as for another entity prohibited, 23
Gifts
restrictions on receipt of by employees, 19
Holdings
disclosure of by Access Persons, 14
Initial public offerings/IPOs
purchases in prohibited, 6
Insider trading
policy statement and explanations, 37
prohibited, 9
Investment clubs
prohibited, 24
Investment Grade Exception
for clearance of fixed income securities on Restricted List, 2
Involuntary personal securities transactions
exempted, 10
exemption defined, 6
Large Cap exception
for clearance of securities on Restricted List, 1
Marsh & McLennan Companies stock
excluded from securities, x
Money market instruments
excluded from securities, x
Mutual fund shares (open end)
excluded from securities, x
Naked options
by employees discouraged, 9
New financial instruments
procedures for approval, 57
Non-Putnam affiliates (NPAs)
transactions and relationships with, 25
Officer
serving as for another entity prohibited, 22
Options
defined as securities, x
relationship to securities on Restricted or Red Lists, 5
Partner
serving as general partner of another entity prohibited, 22
Partnerships
covered in personal securities transactions, x, 41
Personal securities transaction
defined, x, 41
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Pink sheet reports
quarterly reporting requirements, 32
Political contributions, 21
Portfolio managers
special rules on trading by, 13
Private offerings or placements
purchases of prohibited, 7
Putnam Europe Ltd.
special rules for, 29
Repurchase agreements
excluded from securities, x
Sale
defined, x, 41
Sanctions, vii
for failure to pre-clear properly, 3
Shares by Subscription
procedures to preclear the purchase and sales of Shares by Subscription, 2
Short sales
by employees prohibited conduct, 6
Solicitations
by Putnam employees restricted, 21
Tender offers
partial exemption from clearance rules, 6
Trustee
serving as for another entity prohibited, 22
Trusts
covered in personal securities transactions, x, 41
U.S. government obligations
excluded from securities, x
Warrants
defined as securities, x
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PC Docs 12752 3/8/99
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 |
|
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
|
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life|
| | assurance & pension products |
|
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
|
|--|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. |
| |--| (fka Financial Services Department, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| | | Financial Investments, Inc. |
| |--| (fka 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 Life and Annuity Distributors, Inc. |
|--| (fka Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Lincoln Financial Advisors Corporation |
| | | (fka LNC Equity Sales Corporation) |
| | | 100% - Indiana - Broker-Dealer |
| |
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | | Inc. ("LLAD")has subsidiaries of which LLAD 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 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>
| |
| 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 - Mktg & Admin Services|
| | | | |
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Holding Company |
| | | | | | ________________________________________
| | | | | |--|Delaware Management Business Trust |
| | | | | | |100% - Delaware - Investment Advisor |
| | | | | | |consists of: |
| | | | | | |Delaware Management Company Series |
| | | | | | | and Delaware Investment Advisers
Series |
| | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-MutualFund Distrib. |
| | | | | | |& Broker/Dealer |
| | | | | | |1%Equity-Delaware Capital |
| | | | |Management, Inc. |
| | | | |1% Equity-Delaware Distributors, |
| | | | |Inc.(G.P) |
| | | | | |
| | | | | |--| 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 |
<PAGE>
| |
| 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.|
| | | | | |(G.P) |
| | | | | |
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(fka 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 |
| | | | | |
| | | | |__| Retirement Financial Services, Inc. |
| | | | | |(fka Delaware Investment & Retirement
| | | | | | Services,Inc.) |
| | | | | | 100% - Delaware - Registered Transfer
| | | | | | Agent & I/A |
| | |
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | |
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | |
| | | | Vantage Global Advisors, Inc. |
| | |--| (fka Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
<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. |
| |--| (fka 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|
| | |
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| |
| |--|Lincoln National Insurance Associates, Inc.|
| | | (fka Cigna Associates, Inc.) |
| | | 100% - Connecticut - Insurance Agency |
| | |
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | | 100% - Alabama - Insurance Agency |
| | |
| | | | Lincoln National Insurance Associates of Massachusetts,|
| | | | Inc. (fka Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| |
| |--|Sagemark Consulting, Inc. |
| | | (fka 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. |
| |--| (fka Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (fka Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| 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 |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Reinsurance Company Limited |
| | (fka 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.) |
| |
| | | 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 |
| | | (fka One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| |
| |--| 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 |
| | | (fka: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln ISA Management Limited |
| | | | (fka Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln Milldon Limited |
| | | |(fka: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | |
| | |--| Lincoln Management Services Limited |
| | | |(fka: 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 |
<PAGE>
| 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 |
<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 (fka Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | |
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| |
| |--| Lincoln Independent Limited |
| | |(fka: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | |
| |--| Lincoln Investment Management Limited |
| | |(fka: 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 Independent (Jersey) Limited |
| | | (fka 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 |
|--| (fka 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 LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) 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.
(fka: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (fka: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (fka: 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.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (fka Laurentian
Financial Group PLC); Lincoln Milldon Limited (fka Laurentian Milldon
Limited); Lincoln Management Services Limited (fka 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.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
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 Partners 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.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
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.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Southwest Financial Group, Inc. -- company's term of
existence expired July 18, 1998.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL EQUITY-INCOME 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.
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<S><C>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Annual Reports Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance 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 Bank Division years in an easily accessible
confirmations, and Trust place
and Notification Company
of Securities
Transaction
SECURITIES IN PHYSICAL POSSESSION
Securities State Mutual Funds Permanently, the first two
Ledger Street Bank Division years in an easily accessible
and Trust place
Company
Portfolio State Mutual Funds Permanently, the first two
Listings Street Bank Division years in an easily accessible
and Trust place
Company
SECURITIES BORROWED AND LOANED
Their files State Mutual Funds Permanently, the first two
Street Bank Division years in an easily accessible
and Trust place
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
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
(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.
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 Finance 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 Bank Division years in an easily accessible
Securities and Trust place
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 Secretary Cindy Rose Permanently, the first two
charter, cer- years in an easily accessible
tificate of place
incorporation.
Bylaws and Secretary Cindy Rose Permanently, the first two
minute books. years in an easily accessible
place
(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 Bank Division years in an easily accessible
AOS Trading and Trust place
System) 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 Bank Division years in an easily accessible
AOS S-T and Trust place
System) 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 Notification Delaware Fund Accounting Six years, the first two
years in an easily accessible
place
(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 Products and Distribution, Six years, the first two
Agreements Division LNL Law Division 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
</TABLE>
March 24, 2000
