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As filed with the Securities and Exchange Commission on April 17, 1998
Registration No. 33-38335
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 10 [X]
(Check appropriate box or boxes)
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LINCOLN NATIONAL INTERNATIONAL FUND, INC.
(Exact name of registrant as specified in charter)
1300 South Clinton Street
Fort Wayne, Indiana 46802
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (219)455-2000
Jack D. Hunter, Esq.
200 East Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
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Copies of all communications to
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.,
Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
Bruce Rosenblum, Esq.
Fiscal year-end: December 31
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1998 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on 5/1/98 pursuant to paragraph (a)(1)
---
75 days after filing pursuant to paragraph (a)(2)
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on __________ pursuant to paragraph (a)(2) of Rule 485.
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<PAGE>
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 9 TO THE REGISTRATION STATEMENT
AND AMENDMENT NO. 10
on Form N-1A
This Registration Statement consists of the following papers and documents:
Facing Sheet
Contents Sheet
Cross-reference Sheet
Part A-
Prospectus
Part B-
Statement of Additional Information
Part C-
Items 24 through 32.
Signatures.
Exhibit Index.
Exhibits
<PAGE>
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
Item Number - Part A Location in Prospectus
- --------------------- ----------------------
1. Cover Page Preface
2. Synopsis Not Applicable
3. Condensed Financial
Information Preface
4. General Description of Description of the Fund; Investment
Registrant Policies and Techniques; Investment
Restrictions; Strategic Portfolio
Transactions (Prospectus and
Appendix)
5. Management of the Fund Description of the Fund; Investment
Policies and Techniques; Management
of the funds (Appendix)
5A. Management's Discussion Management Discussion of Fund
of Fund Performance Performance (Appendix)
6. Capital Stock and Other Description of Shares; Sales and
Securities Redemption of Shares; General
Securities Information; Distribution
and Federal Income Tax Considerations
(All in Appendix)
7. Purchase of Securities Net Asset Value; Purchase of
Being Offered Securities Being Offered; Sale and
Redemption of Shares (All in Appendix)
8. Redemption or Repurchase Sale and Redemption of Shares
(Appendix)
9. Legal Proceedings Not Applicable
<PAGE>
Location in Statement of
Item Number - Part B Additional Information
- --------------------- ------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information General Information and History
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
14. Management of the Directors and Officers (Appendix)
Fund
15. Control Persons and See "Management of the Funds" and
Principal "Description of Shares" in the
Prospectus Appendix
16. Investment Advisory Investment Advisor and Sub-Advisor;
and Other Services Custodian; Independent Auditors (All in
Appendix)
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Not Applicable
Other Securities
19. Purchase, Redemption Purchase of Securities Being Offered;
and Pricing of Sale and Redemption of Shares; and
Securities Being Offered Net Asset Value; all in the Prospectus
Appendix
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Not Applicable (See the SAI for the
Performance Data Variable Annuity Account on Form
N-4.)
23. Financial Statements Financial Statements
<PAGE>
PREFACE TO THE MULTI FUND-REGISTERED TRADEMARK- PROSPECTUSES
THE PREFACE AND DIRECTORY ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING
FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (AG)
Lincoln National Bond Fund, Inc. (B)
Lincoln National Capital Appreciation Fund, Inc. (CA)
Lincoln National Equity-Income Fund, Inc. (E-I)
Lincoln National Global Asset Allocation Fund, Inc. (GAA)
Lincoln National Growth and Income Fund, Inc. (GI)
Lincoln National International Fund, Inc. (I)
Lincoln National Managed Fund, Inc. (M)
Lincoln National Money Market Fund, Inc. (MM)
Lincoln National Social Awareness Fund, Inc. (SA)
Lincoln National Special Opportunities Fund, Inc. (SO)
Shares of all the FUNDS are sold to Lincoln National Life Insurance Co. (LINCOLN
LIFE) for allocation to its Variable Annuity Account C (THE VARIABLE ANNUITY
ACCOUNT [VAA]) to fund VARIABLE ANNUITY CONTRACTS and for allocation to its
Variable Life Account K to fund variable life insurance contracts.
To fund its variable life contracts, Variable Life Account D buys shares of the
Bond, Growth and Income, Managed, Money Market and Special Opportunities Funds.
To fund its variable life contracts, Variable Life Account G buys shares of the
Growth and Income and Special Opportunities Funds.
Each of these Variable Life and Annuity Accounts may be referred to as a
VARIABLE ACCOUNT. For each FUND listed above, see Description of the fund in its
Prospectus for a statement of that FUND'S investment objective. Each of these
FUNDS is referred to individually as a FUND; collectively, as the FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THESE PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
These Prospectuses set forth concisely the information about each FUND that you
ought to know before investing. Please read and keep this Prospectus booklet for
future reference.
A separate STATEMENT OF ADDITIONAL INFORMATION (SAI) for each FUND has been
filed with the SEC. By this reference, each SAI, dated May 1, 1998, is
incorporated into the Prospectus of the FUND with which it is registered. A free
copy will be provided upon request. Either write Lincoln National Life Insurance
Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN (454-6265).
The Financial Highlights table of each FUND contains per-share data calculated
on the basis of a share outstanding throughout the period, together with
financial ratios and other supplemental data. The Financial Highlights table is
incorporated by reference to the FUND'S 1997 Annual Report. A copy of the Annual
Report will be provided on request and without charge. Either write Lincoln
National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call
1-800-4LINCOLN (454-6265).
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES, IN CONNECTION WITH THE OFFERS CONTAINED IN THEM. IF ANY ARE GIVEN
OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND(S) IN QUESTION. THESE PROSPECTUSES DO NOT CONSTITUTE
OFFERS BY THE FUNDS TO SELL, OR SOLICITATIONS OF ANY OFFERS TO BUY, ANY OF THE
SECURITIES OFFERED BY THEM IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUNDS TO MAKE THOSE OFFERS.
Prospectuses dated May 1, 1998
27
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE 27
DESCRIPTION OF THE FUND
Aggressive Growth Fund 29
Bond Fund 35
Capital Appreciation Fund 39
Equity-Income Fund 43
Global Asset Allocation Fund 47
Growth and Income Fund 53
International Fund 55
Managed Fund 59
Money Market Fund 63
Social Awareness Fund 65
Special Opportunities Fund 69
- --------------------------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Aggressive Growth Fund 29
Bond Fund 35
Capital Appreciation Fund 39
Equity-Income Fund 43
Global Asset Allocation Fund 47
Growth and Income Fund 53
International Fund 55
Managed Fund 59
Money Market Fund 63
Social Awareness Fund 65
Special Opportunities Fund 69
- --------------------------------------------------------
INVESTMENT RESTRICTIONS
Aggressive Growth Fund 32
Bond Fund 37
Capital Appreciation Fund 41
Equity-Income Fund 45
Global Asset Allocation Fund 50
Growth and Income Fund 53
International Fund 57
Managed Fund 61
Money Market Fund 64
Social Awareness Fund 66
Special Opportunities Fund 70
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth Fund 32
Bond Fund 37
Capital Appreciation Fund 42
Equity-Income Fund 46
Global Asset Allocation Fund 50
Growth and Income Fund 54
International Fund 58
Managed Fund 61
Money Market Fund 64
Social Awareness Fund 66
Special Opportunities Fund 71
- --------------------------------------------------------
APPENDIX -- CONTAINS IMPORTANT INFORMATION
FOR ALL FUNDS
Net asset value 73
Management of the funds 73
Purchase of securities being offered 75
Sale and redemption of shares 76
Distributions and federal income tax
considerations 76
Management discussion of fund performance 76
Description of shares 76
Strategic portfolio transactions --
additional information 77
Foreign investments 79
General information 80
Statement of Additional Information
Table of contents -- 11 underlying funds 83
</TABLE>
28
<PAGE>
LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
DESCRIPTION OF THE FUND
The International Fund (FUND) is an open-end diversified management investment
company whose investment objective is long-term capital appreciation. The
objective is pursued through a strategic policy of investing primarily in a
portfolio of equity and equity-linked securities issued outside the United
States. The FUND is primarily designed to provide an investment program for
investors seeking to take advantage of significant opportunities in foreign
capital markets. This objective and strategic policy are fundamental and cannot
be changed without the affirmative vote of a majority of the outstanding voting
securities of the FUND. See General information in the Appendix. There is no
assurance that the objective of the FUND will be achieved.
The FUND was originally incorporated in Maryland in 1986, and was intended for
use with a different objective. It remained inactive until 1990, at which time
it changed to the current objective and its name was changed accordingly.
Portfolio trading began in 1991. See General information and history in the SAI.
PORTFOLIO MANAGER
Delaware International Advisers Ltd. (DIAL) assumed portfolio management
responsibility for the FUND on May 1, 1998 by replacing the FUND'S previous
sub-advisor. DIAL, a company formed under the laws of England, is an indirect
wholly-owned subsidiary of Lincoln National Corporation, a publicly held
insurance holding company organized under Indiana law. Founded in 1990, DIAL
manages and services international and global portfolios. As of December 31,
1997, DIAL had assets under management of $7.75 billion. Clive A. Gillmore and
Elizabeth A. Desmond, who have each been Senior Portfolio Managers and Directors
of DIAL since 1990 and 1991, respectively, have primary responsibility for
making day-to-day investment decisions for the FUND. Gillmore has been active in
investment management since 1982, and was a founder member of DIAL in 1990. He
is a graduate of the University of Warwick. Ms. Desmond has been active in
investment management since 1987, and with DIAL since 1991. She holds a Masters
degree in East Asian studies from Stanford University.
The switch to DIAL will not result in any material change to the investment
policies and techniques, described below, utilized by the FUND. However, because
of its particular management style when implementing these policies and
techniques DIAL expects that during its first year as sub-advisor it will
restructure the FUND'S portfolio by replacing approximately 90% of the
securities held by the FUND. This restructuring could adversely impact the
FUND'S performance as a result of increased FUND brokerage commissions and other
transaction costs and losses associated with liquidating foreign securities. For
a more detailed discussion of the possible impact on the FUND'S performance see
Portfolio Turnover in this prospectus.
INVESTMENT POLICIES AND TECHNIQUES
In recent years activity in securities markets outside the United States has
increased dramatically, providing a whole new panorama of investment
opportunities. This phenomenon, identified as the internationalization of the
securities markets, has been the catalyst to the establishment of the FUND.
The FUND will pursue the following general investment policies. These general
policies are not fundamental, and thus may be changed by the fund's Board of
Directors without your approval. However, you will be notified of any material
changes, additions or deletions.
ASSET MIX AND ALLOCATION
The FUND may invest anywhere outside the United States. There is no requirement
that the FUND allocate any specific percentage of its assets to issuers located
in any one country. Under normal circumstances the FUND anticipates that at
least 65% of its overall assets will be invested in equity and equity-linked
securities, and those securities will be allocated in at least five different
countries. See, however Foreign investments-diversification in the SAI Appendix.
The FUND at times may invest in equity securities of issuers domiciled in
developing countries. Although there is no universally accepted definition of a
developing country, it is generally considered to be one which is in the initial
stages of its industrialization cycle and which has a low per capita gross
national product. Investment in these countries may take the form of direct
purchase of securities of the issuers themselves (including governmental
entities), or of participation in so-called country funds. Country funds are
investment vehicles established by the country for the purpose of receiving
investment funds from abroad, while at the same time maintaining some level of
government control over the use of those funds. The FUND does not anticipate
having more than 10% of its total assets invested in developing countries at any
one time.
54
<PAGE>
When warranted by prevailing political, economic, market or currency conditions,
up to 35% of the FUND'S overall assets may be invested either in non-U.S. debt
securities or in non-U.S. money market instruments, or in a combination of both
(including securities of a national, regional or local character issued by
governments other than the United States). If in debt securities, no more than
5% of the FUND'S overall assets may be rated as other than high-grade. The term
other than high-grade, for purposes of this Prospectus, means those bonds
receiving a Standard and Poor's Corp. rating of BBB or lower, or a Moody's
Investors Service rating of Baa or lower, or their equivalents from other rating
services in the United States or abroad. Bonds rated lower than BBB or Baa are
commonly known as junk bonds. Generally speaking, these instruments bear a
greater element of risk than those rated in the top three categories. That risk
can involve increased market price volatility stemming from the sensitivity of
interest rates, concerns over creditworthiness, and availability of quotations
on the secondary market, in addition to the special risk factors associated with
foreign securities. See Foreign investments in the Prospectus Appendix and Risk
factors and special considerations in the FUND'S SAI.
Allocation of the FUND'S assets among issuers located in foreign countries is a
dynamic process based upon a continuing analysis of such factors as the economic
and political conditions in different areas of the world. Other factors include
the growth potential of the different non-U.S. securities markets; currency and
exchange considerations; and the availability of attractively priced securities
within the respective foreign markets. The FUND'S directors, as advised by the
ADVISOR and sub-advisor, will bear the responsibility for the FUND'S investment
program. See Management of the fund in the Appendix.
The FUND may, for temporary defensive purposes, invest without limit in high
quality debt securities issued by entities organized in the United States or any
foreign country, denominated in U.S. dollars or in the currency of any foreign
country. These investments may include short-term (less than 12 months to
maturity) and medium-term (not greater than five years to maturity) obligations
issued or guaranteed by the U.S. Government or the government of a foreign
country, or by their respective agencies or instrumentalities. Other investments
may include certificates of deposit and bankers acceptances of U.S. and foreign
banks; commercial paper rated at least Prime-1 by Moody's Investors Service or A
or better by Standard & Poor's Corp. or, if unrated, of comparable quality as
determined by LINCOLN INVESTMENT; and repurchase agreements with banks and
broker-dealers with respect to such securities. In all markets, selection of
securities is designed to achieve steady growth in the portfolio, through a
value-oriented approach in which emphasis is placed on identifying well-managed
companies representing exceptional values in terms of such factors as assets,
earnings and growth potential. No assurance is given that the FUND will achieve
its objective, and upon redemption, shares may be worth more or less than their
value at the time of investment.
To facilitate overseas securities transactions, the FUND may hold a portion of
its assets in foreign-currency-denominated cash or cash equivalents and foreign
government securities. The amount held in cash may range between 2% and 15%,
although the FUND anticipates that under normal circumstances approximately 3%
to 4% would be held in cash. The amount held in cash equivalents, combined with
all other non-U.S. debt securities and money market instruments, would not
exceed the 35% limitation previously discussed. For purposes of your redemptions
and other required transactions of the VARIABLE ACCOUNT, a portion of the FUND'S
assets will be held in U.S. dollar-denominated cash or cash equivalents. See the
Prospectus for the VARIABLE ACCOUNT, at the front of this booklet, for an
explanation of transactions required at the VARIABLE ACCOUNT level.
DEFINITIONS OF EQUITY AND EQUITY-LINKED SECURITIES
In making purchases for its portfolio, the FUND may consider equity and equity
linked securities to include common stock, convertible and non-convertible
preferred stock, whether voting or non-voting, convertible bonds, bonds with
warrants, unattached warrants, rights to equity and equity-linked securities and
Depositary Receipts given for those securities. The term equity-linked
securities refers both to debt securities convertible into equity and to
securities such as warrants, options and futures, the prices of which reflect
the value of the equity securities receivable upon exercise or settlement.
Depositary Receipts consist of American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs), and involve investing indirectly in the underlying
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 underlying security. EDRs, which are in bearer
form, are designed for use in the European securities markets.
FOREIGN INVESTMENTS
Foreign investments can involve risks not present in domestic investments. They
can be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, and costs may be incurred in connection with
conversions between currencies. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing, and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
55
<PAGE>
There is generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the United States. Securities of some
foreign companies are less liquid or subject to more price volatility than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities can involve other risks different from those affecting investments in
securities of U.S. companies, including local political or economic
developments, expropriation or nationalization of assets and imposition of
withholding taxes on dividend or interest payments.
With respect to foreign debt obligations, it may be more difficult for the FUND
to obtain or to enforce a judgment against the issuers of such securities in the
event of a default. To hedge against possible variations in foreign exchange
rates pending the settlement of transactions in foreign securities, the fund may
deal in foreign currency forward contracts. Foreign securities, like other
assets of the FUND, will be held by the FUND'S custodian or by a sub-custodian.
See Foreign investments in the Prospectus Appendix and Risk factors and special
considerations in the FUND'S SAI, for an expanded discussion of these and other
risk factors.
WARRANTS
The FUND may invest in warrants of issues consistent with its objective.
Warrants are a type of security, usually issued together with another security
of an issuer, that entitles the holder to buy a fixed amount of common or
preferred stock of such issuer at a specified price for a fixed period of time
(which may be in perpetuity). Warrants are commonly issued attached to other
securities of the issuer as a method of making such securities more attractive
and are usually detachable and thus may be bought or sold separately from the
issued security. Warrants can be a speculative instrument. The value of a
warrant may decline because of a decrease in the value of the underlying stock,
the passage of time or a change in perception as to the potential of the
underlying stock or any other combination. If the market price of the underlying
stock is below the exercise price set forth in the warrant on the expiration
date, the warrant will expire worthless. Warrants generally are freely
transferable and are traded on the major stock exchanges.
PORTFOLIO TURNOVER
The FUND'S annual portfolio turnover rate, which is not a matter of fundamental
policy, is expected typically to average approximately 50% (For example, a rate
of portfolio turnover of 100% would occur if all of the FUND'S portfolio were
replaced in a period of one year.) As a result of the switch to DIAL as the new
sub-adviser to the FUND, however, the portfolio turnover rate is expected to be
approximately 125% during DIAL's first year as sub-advisor as the FUND'S
portfolio is restructured. High portfolio turnover may involve corresponding
greater brokerage commissions and other transaction costs, as well as losses
associated with the difference in bid and ask prices of the individual
securities bought and sold, all of which are borne directly by the FUND. See
Portfolio transactions and brokerage in the SAI. DIAL estimates that the adverse
impact of this one-time increase in the FUND'S portfolio turnover rate may
decrease the FUND'S total return approximately one or two percent over what it
otherwise would be. DIAL has advised the FUND that in restructuring the FUND'S
portfolio, DIAL will attempt where possible to minimize the FUND'S transaction
costs.
As a general matter, portfolio turnover will not be a limiting factor when
prudent strategy dictates more frequent trading. Additionally, the actual
turnover rate will vary, depending upon the volatility of worldwide equity
markets, changing economic conditions and the resultant changes in geographic
allocation and individual security selection. During 1997 the FUND'S portfolio
turnover was 77.58% and in 1996 it was 68.6%.
INVESTMENT RESTRICTIONS
The Investment restrictions have been adopted by the FUND as fundamental. See
General information in the Appendix. For purposes of the following restrictions:
(1) all percentage limitations apply immediately after the making of an
investment; and (2) any subsequent change in any applicable percentage resulting
from market fluctuations does not require elimination of any security from the
portfolio.
The FUND may not:
1. Borrow money, except for temporary or emergency purposes and not exceeding
5% (taken at the lower of cost or current value) of its total assets (not
including the amounts borrowed);
2. Acquire more than 10% of the voting securities of any one issuer;
3. Invest in the securities of a single issuer, unless the following conditions
are met: At least 75% of the value of the FUND'S total assets must be
represented by: (a) U.S. Government obligations, cash and cash items, (b)
securities of other investment companies, and (c) securities of issuers as
to each of which, at the time the investment was made, the FUND'S investment
in the issuer did not exceed 5% of the FUND'S total assets. The FUND does
not anticipate that any more than 15% of the FUND'S total assets would be
invested in the securities of a single issuer at any time, other than those
of the U.S. Government, its agencies and instrumentalities;
56
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4. Invest more than 10% of its total assets in securities (including repurchase
agreements maturing in more than 7 days) which are subject to legal or
contractual conditions upon resale, are not listed on a securities exchange,
or are otherwise not readily marketable; and/or
5. Invest more than 25% of its assets in any one industry. For purposes of this
restriction, gas, electric, water and telephone utilities are treated as
separate industries; also, the term industry does not include the U.S.
Government, or its agencies or instrumentalities. However, a foreign
government (including its agencies, instrumentalities, or a country fund) is
deemed to be one industry.
A complete listing of the FUND'S investment restrictions can be found in the
SAI.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the FUND has considerable discretion in the selection
of appropriate FUND investments. In the exercise of that discretion, the
portfolio manager may, at any given time, invest a portion of the FUND'S assets
in one or more strategic portfolio transactions which we define as derivative
transactions and cash enhancement transactions.
For your convenience, in the Appendix, we have included a basic discussion of
these special financial arrangement transactions and some of the risks
associated with them. Note also that the SAI booklet for the 11 FUNDS contains
definitions of the more commonly used derivative transactions, technical
explanations of how these transactions will be used and the limits on their use.
You should consult your financial counselor if you have specific questions.
THE INTERNATIONAL FUND IS AUTHORIZED:
a) for derivative transactions, to: engage in forward commitments and foreign
currency forward contracts.
b) for cash enhancement transactions, to: lend portfolio securities (up to 25%
of assets); engage in repurchase transactions (up to 5% of assets). Collateral
will be continually maintained at no less than 102% of the value of the loaned
securities or of the repurchase price, as applicable.
57
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APPENDIX -- CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National
Aggressive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond
Fund, Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation Fund), Lincoln National Equity-Income Fund, Inc.
(Equity-Income Fund), Lincoln National Global Asset Allocation Fund, Inc.
(Global Asset Allocation Fund), Lincoln National Growth and Income Fund, Inc.
(Growth and Income Fund), Lincoln National International Fund, Inc.
(International Fund), Lincoln National Managed Fund, Inc. (Managed Fund),
Lincoln National Money Market Fund, Inc. (Money Market Fund), Lincoln National
Social Awareness Fund, Inc. (Social Awareness Fund), and Lincoln National
Special Opportunities Fund, Inc. (Special Opportunities Fund). Unless otherwise
indicated, the following information applies to each FUND.
NET ASSET VALUE
Each FUND'S net asset value per share is determined as of close of business
(currently 4:00 p.m., New York Time) on the New York Stock Exchange (NYSE) on
each day it is open for trading. The net asset value per share for all FUNDS
except the Money Market Fund is determined by adding the values of all
securities and other assets, subtracting liabilities (including dividends
payable) and dividing by the number of shares outstanding. Debt securities and
other assets of the FUND, other than equity securities, for which market
quotations are readily available, are valued at their bid quotations.
When market quotations are not readily available, debt securities and other
assets are valued at their fair value as determined in good faith. This
valuation is made by or under the authority of each FUND'S Board of Directors
and it may include the use of valuations furnished by outside sources, including
pricing services which utilize electronic data processing techniques for valuing
normal institutional-size trading units of debt securities. The value of equity
securities is based on the last sale prices of those securities on national
securities exchanges or over-the-counter, or in the absence of recorded sales,
at the average of readily available closing bid and asked prices on exchanges or
over-the-counter. In the absence of readily available closing bid and asked
prices, equity securities will be valued at fair value. See the SAI Appendix for
a discussion of the methodology utilized to value short-term investments (other
than for the Money Market Fund), options, futures and options thereon, and
foreign securities.
MONEY MARKET FUND. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, under Rule 2a-7, as
amended (the Rule) under the Investment Company Act of 1940 (1940 Act). Under
the Rule, the FUND'S net asset value using the amortized cost method must fairly
reflect market value. The Board of Directors of the FUND has established
procedures to assist FUND management and the INVESTMENT ADVISOR in complying
with the requirements of the Rule, which imposes specific standards for the
maturity, quality and diversification of portfolio securities. The Rule also
assigns certain specific duties to FUND management and the Board.
MANAGEMENT OF THE FUNDS
The business and affairs of each FUND are managed under the direction of its
Board of Directors. The Board has the power to amend the bylaws of each FUND, to
declare and pay dividends and to exercise all the powers of the FUND except
those granted to the shareholder. LINCOLN LIFE is the sole shareholder of each
FUND.
INVESTMENT ADVISOR. LINCOLN INVESTMENT is the INVESTMENT ADVISOR to the FUNDS
and is headquartered at 200 East Berry Street, Fort Wayne, Indiana 46802.
LINCOLN INVESTMENT (THE ADVISOR) is registered with the Securities and Exchange
Commission (the Commission or SEC) as an INVESTMENT ADVISOR and has acted as an
INVESTMENT ADVISOR to mutual funds for over 40 years. The ADVISOR also acts as
INVESTMENT ADVISOR to Lincoln National Convertible Securities Fund, Inc., and
Lincoln National Income Fund, Inc., closed-end investment companies, and also
acts as sub-adviser to two of the series of Delaware Group Adviser Funds, Inc.,
an open-end series investment company.
The ADVISOR is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. Through its
subsidiaries, LNC provides life insurance and annuities, property-casualty
insurance, reinsurance and financial services. Directors, officers and employees
of the ADVISOR and each FUND are permitted to engage in personal securities
transactions subject to restrictions and procedures set forth in the Code of
Ethics adopted by the ADVISOR and each FUND. Such restrictions and procedures
include substantially all of the recommendations of the Advisory Group of the
Investment Company Institute and comply with SEC rules and regulations.
Under advisory agreements described in the Prospectus for the VARIABLE ACCOUNT,
the ADVISOR provides portfolio management and investment advice to the FUNDS and
administers their other affairs, subject to the supervision of each FUND'S Board
of Directors.
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<PAGE>
As compensation for its services to each FUND, the advisor is paid a monthly
investment advisory fee at an annual rate based on the average daily net asset
value of each FUND, as shown in the following chart:
<TABLE>
<CAPTION>
FUND ...OF AVERAGE DAILY NET ASSET VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Aggressive Growth .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; .65 of 1% of the excess over $400 million
Capital Appreciation* .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Equity-Income* .75 of 1% of the first $500 million; .70 of 1% of the excess over
$500 million
Global Asset Allocation .75 of 1% of the first $200 million; .70 of 1% of the next $200
million; and .68 of 1% of the excess over $400 million
International .90 of 1% of the first $200 million; .75 of 1% of the next $200
million; and .60 of 1% in excess over $400 million
All other FUNDS .48 of 1% of the first $200 million; .40 of 1% of the next $200
million; and .30 of 1% in excess over $400 million
</TABLE>
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1997 RATIO OF THE
ADVISOR'S
COMPENSATION TO 1997 RATIO OF TOTAL
AVERAGE EXPENSES
FUND NET ASSETS TO AVERAGE NET ASSETS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Aggressive Growth .73% .81%
Bond .46 .53
Capital Appreciation* .75 .84
Equity-Income* .75 .82
Global Asset Allocation .72 .89
Growth and Income .32 .35
International .79 .93
Managed .37 .42
Money Market .48 .59
Social Awareness .36 .41
Special Opportunities .37 .42
</TABLE>
* The management fees for the Capital Appreciation and the Equity-Income funds
have been decreased effective May 1, 1998 and January 1, 1998 respectively, and
the expense information in this table has been restated to reflect current fees.
Expenses specifically assumed by each FUND include: compensation and expenses of
Directors of the FUND who are not interested persons of the FUND as defined in
the 1940 Act; registration, filing, printing, and other fees in connection with
filings with regulatory authorities, including the costs of printing and mailing
updated Prospectuses and SAIs provided to current CONTRACT OWNERs; fees and
expenses of independent auditors; the expenses of printing and mailing proxy
statements and shareholder reports; custodian and transfer agent charges;
brokerage commissions and securities and options transaction costs incurred by
the FUND; taxes and corporate fees; fees for accounting, valuation and related
services; legal fees incurred in connection with the affairs of the FUND (other
than legal services provided by personnel of the ADVISOR or its affiliated
companies); the fees of any trade association of which the FUND is a member; and
expenses of shareholder and Director meetings.
SUB-ADVISORS. As ADVISOR, LINCOLN INVESTMENT is primarily responsible for
investment decisions affecting each of the FUNDS. However, LINCOLN INVESTMENT
has entered into sub-advisory agreements with several professional investment
management firms. These firms provide some or substantially all of the
investment advisory services required by a number of the FUNDS, including day-
to-day investment management of those FUNDS' portfolios. Each sub-advisor makes
investment decisions for its respective fund in accordance with that FUND'S
investment objectives and places orders on behalf of that FUND to effect those
decisions. See the following tables for more information about the sub-advisors
and their fees:
73
<PAGE>
<TABLE>
<CAPTION>
DATE OF ANNUAL FEE RATE BASED ON AVERAGE DAILY NET ASSET
FUND SUB-ADVISOR AGREEMENT VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Aggressive Lynch & Mayer 12/20/93 .50 of 1% of the first $150 million .35 of 1% of the
Growth 520 Madison Avenue excess over $150 million
New York, NY 10022
Capital Janus 1/1/94; .55 of 1% of the first $100 million .50 of 1% of the
Appreciation 100 Fillmore Street Amended next $400 million; and .45 of 1% of the excess over
Denver, CO 80206 5/1/98 $500 million
Equity Income Fidelity 12/20/93 .48 of 1%
82 Devonshire Street Amended
Boston, MA 02108 1/1/98
Global Asset Putnam 6/8/87 the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation One Post Office first $200 million; .42 of 1% of the next $200
Square million; and .40 of 1% of any excess over $400
Boston, MA 02104 million
International Delaware 4/27/98 .50 of 1% of the first $200 million; .40 of 1% of the
International next $200 million; and .35 of 1% of any excess over
Advisers, Ltd. $400 million
80 Cheapside,
London, England
EC2V 6EE
- -------------
<CAPTION>
ANNUAL FEE RATE BASED ON MARKET VALUE OF SECURITIES
HELD IN THE PORTFOLIO OF EACH RESPECTIVE CLIENT FUND
DATE OF AT THE CLOSE OF BUSINESS ON THE LAST TRADING DAY OF
FUND SUB-ADVISOR AGREEMENT EACH CALENDAR QUARTER
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Vantage 8/21/85 .20 of 1%
Income 630 5th Avenue
New York, NY 10111
Managed Vantage 8/21/85 .20 of 1%
(STOCK PORTFOLIO
ONLY)
Social Vantage 4/30/88 .20 of 1%
Awareness
Special Vantage 8/21/85 .20 of 1%
Opportunities
</TABLE>
No additional compensation from the assets of the FUNDS will be assessed as a
result of the sub-advisory agreements; the sub-advisors are paid by LINCOLN
INVESTMENT. (There is no sub-advisor for the Bond and Money Market Funds.)
SERVICE MARKS. The service mark for the FUNDS and the name Lincoln National have
been adopted by the FUNDS with the permission of LNC, and their continued use is
subject to the right of LNC to withdraw this permission in the event the advisor
should not be the INVESTMENT ADVISOR of the FUNDS.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund and
Putnam with the Global Asset Allocation Fund. The continued use of these names
is subject to the right of the respective sub-advisor to withdraw its permission
in the event it ceases to be the sub-advisor to the particular FUND it advises.
PURCHASE OF SECURITIES BEING OFFERED
Shares of the FUNDS' common stock ($0.01 par value) will be sold to LINCOLN LIFE
for allocation to the VARIABLE ANNUITY ACCOUNT (VAA), which has been established
for the purpose of funding VARIABLE ANNUITY CONTRACTS; shares in the FUNDS will
also be sold to LINCOLN LIFE for allocation to one or more of the variable life
accounts, which have been established for the purpose of funding variable life
insurance contracts. Shares of each FUND are sold and redeemed at their net
asset value per share determined daily. See Sale and redemption of shares. Also
see Net asset value. The FUNDS' shares are sold to LINCOLN LIFE for the VARIABLE
ACCOUNTS on a no-load basis -- that is, without the imposition of a sales
charge.
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<PAGE>
SALE AND REDEMPTION OF SHARES
The shares of each FUND are sold and redeemed by the FUND at their net asset
value per share next determined after receipt by LINCOLN LIFE of a purchase or
redemption order in acceptable form. Redemption of FUND shares held by LINCOLN
LIFE for its own account will be effected at the FUND'S net asset value per
share next determined after receipt of the redemption request by the FUND. The
value of shares redeemed may be more or less than original cost, depending upon
the market value of the portfolio securities at the time of redemption. Payment
for shares redeemed will be made within seven days after the redemption request
is received in proper form by the FUNDS. However, the right to redeem FUND
shares may be suspended or payment postponed for any period during which (1)
trading on the NYSE is restricted as determined by the Commission, or the NYSE
is closed for other than weekends and holidays; (2) an emergency exists, as
determined by the Commission, as a result of which (a) disposal by each FUND of
securities owned by it is not reasonably practicable, or (b) it is not
reasonably practicable for each FUND to determine fairly the value of its net
assets; or (3) the Commission by order so permits for the protection of
shareholders of the FUNDS.
DISTRIBUTION AND FEDERAL INCOME TAX CONSIDERATIONS
Each FUND'S policy is to distribute, at least once a year, substantially all of
its net investment income. Net realized capital gains may only be distributed
annually. These distributions, when paid to LINCOLN LIFE for the VARIABLE
ACCOUNTS, will be reinvested automatically in additional shares of that FUND, at
its net asset value per share.
Each FUND intends to qualify and has elected to be taxed as a regulated
investment company under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the CODE). If a FUND qualifies as a regulated
investment company and complies with the provisions of the CODE relieving
regulated investment companies which distribute substantially all of their net
income (both ordinary income and capital gain) from Federal income tax and the
4% nondeductible Federal excise tax, the FUNDS will be relieved of those taxes
on the amounts distributed. See the SAI for a more complete discussion.
Each FUND is subject to asset diversification requirements under Section 817(h)
of the code and the related regulation that the United States Treasury
Department has adopted. Each FUND intends to comply with these diversification
requirements.
Since the sole shareholder of the FUNDS is LINCOLN LIFE, there is no discussion
here about the Federal income tax consequences at the shareholder level. For
information concerning the Federal income tax consequences to holders of annuity
or life insurance contracts, including the failure of a FUND to comply with the
diversification requirements discussed above, see the Prospectus for the
VARIABLE ACCOUNT at the front of this booklet.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
In the Annual Report for the FUNDS, the portfolio manager for each FUND
discusses that FUND'S performance for the previous fiscal year and the factors
which affected that performance. We will send you a copy of the Annual Report
free upon request.
DESCRIPTION OF SHARES
The authorized capital stock of each FUND consists of 50 million shares of
common stock (150 million for the Growth and Income Fund and 100 million each
for the Equity-Income Fund, International Fund, Social Awareness Fund and
Managed Fund), $0.01 par value. As of March 1, 1998, each FUND had the following
number of shares issued and outstanding:
<TABLE>
<S> <C>
Aggressive Growth 24,053,290
Bond 23,710,935
Capital Appreciation 29,127,492
Equity-Income 42,380,182
Global Asset Allocation 30,669,482
Growth and Income 91,450,856
International 31,597,979
Managed 49,579,824
Money Market 9,274,413
Social Awareness 39,436,497
Special Opportunities 27,558,445
</TABLE>
FUND shares will be owned by LINCOLN LIFE and will be held by it in the VARIABLE
ACCOUNTS. As sole shareholder of each FUND, LINCOLN LIFE may be deemed to be a
control person as that term is defined under the 1940 Act. However, as stated in
the Prospectuses for the VARIABLE ACCOUNTS, LINCOLN LIFE provides to CONTRACT
OWNERS of the VARIABLE ACCOUNTS the right to direct the voting of FUND shares at
shareholder meetings, to the extent provided by law. LINCOLN LIFE will vote for
or against any proposition, or will abstain from voting, any FUND shares
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<PAGE>
attributable to a contract for which no timely voting instructions are received,
and any FUND shares held by LINCOLN LIFE for its own account, in proportion to
the voting instructions that it received with respect to all contracts
participating in that FUND. However, if the 1940 Act or any regulation under it
should change, and as a result LINCOLN LIFE determines it is permitted to vote
FUND shares in its own right, it may elect to do so.
All the shares of each FUND are of the same class with equal rights and
privileges. Each full share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote, on all matters subjected to a vote
of the shareholder. All shares, full and fractional, participate proportionately
in any dividends and capital gains distributions and, in the event of
liquidation, in that FUND'S net assets remaining after satisfaction of
outstanding liabilities.
When issued, each share is fully-paid and non-assessable and the shareholder has
no preemptive or conversion rights. FUND shares have non-cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
In that event the holders of the remaining shares so voting will not be able to
elect any directors. Shares may be redeemed as set forth under Sale and
redemption of shares.
The Bylaws of the FUNDS allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as: (1)
a majority of the Directors then in office have at some point been elected by
the shareholder and, if any vacancy is filled by vote of the Board of Directors,
then immediately after filling the vacancy at least two thirds of the Directors
shall have been elected by the shareholder; (2) there is no change in the
independent auditor of the FUNDS; (3) there is no material change to the
investment advisory and/or sub-advisory agreements and/or fundamental policies;
and (4) a shareholder vote is not required with respect to a distribution
agreement. In adopting this procedure for dispensing with annual meetings that
are a formality, the Directors of the FUNDS have undertaken to comply with the
requirements of Section 16(c) of the 1940 Act. That Section protects CONTRACT
OWNERS by providing a procedure by which they may require management to convene
a meeting of the shareholder to vote on removal of one or more Directors. The
Directors also have agreed to facilitate communication among CONTRACT OWNERS for
the purpose of calling those meetings. Further information about these
procedures is available from FUND management.
STRATEGIC PORTFOLIO TRANSACTIONS -- ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management
philosophies many of the FUNDS engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to seek to increase the FUND'S overall
value (or, depending on the condition of the securities markets, at least to
slow its decrease). Cash enhancement transactions are designed to make some
extra money for the FUND when it has excess cash, or to help the FUND obtain
some cash for temporary purposes when needed. See the Prospectus for each FUND
for a listing of the kinds of transactions in which each FUND may engage.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one or more indices of asset values. The following types are
currently in fairly common use in the investment community, although not
every FUND will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps;
stock index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs); interest rate swaps and their related
transactions (e.g., caps, floors, collars and corridors); and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest rate
swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED IN THE SAI APPENDIX.
Although they may be structured in complex combinations, derivative transactions
in which the FUNDS engage generally fall into two broad categories: options
contracts or forward contracts. The combined forms are constantly evolving. In
fact, variations on the types listed previously may come into use after the date
of these Prospectuses. Therefore, where the Prospectus for a particular FUND
discloses the intent of that FUND to engage in any of the types listed, that
FUND hereby
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<PAGE>
reserves the right to engage in related variations on those transactions.
The FUNDS intend to engage in derivative transactions only defensively. Examples
of this defensive use might be: to hedge against a perceived decrease in a
FUND'S asset value; to control transaction costs associated with market timing
(E.G., by using futures on an unleveraged basis); and to lock in returns,
spreads, or currency exchange rates in anticipation of future cash market
transactions.
There is no discussion here of asset-backed or mortgage-backed securities (such
as collateralized mortgage obligations, structured notes, inverse floaters,
principal-only or interest-only securities, etc.). See the Prospectus and SAI
for the Capital Appreciation and Equity-Income FUNDS, which are authorized to
engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some derivatives
involve more of these risks than others. We briefly describe the most
common ones here; however, this is not an exhaustive list. Consult your
financial counselor if you have additional questions.
CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one counterparty
has received payment in one indicated currency and the time the other
counterparty(ies) receive payment in the others, those awaiting payment
are exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in particular
jurisdictions or against a financially troubled entity; or will be subject
to regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a FUND will be unable to control
its losses if a liquid secondary market for a financial instrument does
not exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundamental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a market
segment, to a settlement system, etc.) might cause widespread difficulties
at other firms, in other market segments, or in the financial system as a
whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's ability
to correctly predict the direction of stock prices and interest rates, and
other economic factors. Options and futures trading may fail as hedging
techniques in cases where the price movements of the securities underlying
the options and futures do not follow the price movements of the portfolio
securities subject to the hedge. The loss from investing in futures
transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular fund, please consult your
financial counselor if you have questions about the risks associated with
that FUND'S use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each FUND, that FUND'S
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each FUND, refer to the SAI booklet.
D. Increased government scrutiny
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Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the Comptroller
of the Currency), and by self-regulatory agencies (such as the NASD).
Should legislation or regulatory initiatives be enacted resulting in
additional restrictive requirements for derivative transactions, LINCOLN
LIFE and the FUNDS reserve the right to make all necessary changes in the
CONTRACTS and the Registration Statements for the FUNDS, respectively, to
comply with those requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the fund. They are
discussed more fully in the SAI.
A. Lending of portfolio securities
Any FUND authorized to do so may make secured loans of its portfolio
securities, in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the FUND'S total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to 102%
of the value of the securities lent.
The borrower pays the FUND an amount equal to any dividends or interest
received on securities lent. The FUND retains all or a portion of the
interest received on securities lent. The FUND also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the FUND retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of
those securities -- including the FUND -- to vote or consent on matters
which could materially affect the holders' investment. The FUND may also
call in the loaned securities in order to sell them. None of the FUNDS'
portfolio securities will be loaned to LINCOLN INVESTMENT, to any
sub-advisor, or to any of their respective affiliates. The FUND may pay
reasonable finder's fees to persons unaffiliated with it in connection
with the arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. Repos. From time to time, the FUNDS may enter into Repo transactions.
In a typical Repo transaction, the FUND involved buys U.S. Government
or other money market securities from a financial institution (such as
a bank, broker, or savings and loan association). At the same time, as
part of the arrangement, the FUND obtains an agreement from the seller
to repurchase those same securities from the FUND at a specified price
on a fixed future date.
The repurchase date is normally not more than seven days from the date
of purchase. Repurchase agreements maturing in more than seven days
will be considered illiquid and subject to the FUNDS restriction on
illiquid securities.
2. Reverse repos. A FUND may also be authorized to enter into Reverse
Repo transactions. This simply means the FUND is on the reverse side of
a Repo transaction. That is, the FUND is the Seller of some of its
portfolio securities, subject to buying them back at a set price and
date.
Authorized FUNDS will engage in Reverse Repos for temporary purposes,
such as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the FUND by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse
repo transaction is considered to be the borrowing of money by the
FUND. FUNDS authorized to engage in Repos as buyers are not necessarily
authorized to do Reverse Repos.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; reduced availability of public information concerning issuers; and
the fact that foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. With respect
to certain foreign countries, there is also the possibility of expropriation,
nationalization, confiscatory taxation, and limitations on the use or removal of
cash or other assets of a FUND, including the withholding of interest payments
or dividends. These risks may be particularly great in so-called developing or
undeveloped countries, sometimes referred to as Emerging Markets.
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In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a FUND'S foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The FUNDS will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a FUND
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries that in the United States. There may be difficulty
in enforcing legal rights outside the United States. For example, in the event
of default on any foreign debt obligations, it may be more difficult or
impossible for the FUND to obtain or to enforce a judgment against the issuers
of these securities. The ADVISOR or sub-advisor will take all these factors into
consideration in managing a FUND'S foreign investments.
Certain state insurance regulations impose additional restrictions on the extent
to which a FUND may invest in foreign securities. See the SAI.
The share price of a FUND that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a FUND'S
investments abroad, changes in a FUND'S share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the FUND invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the FUND.
FOREIGN CURRENCIES
When an ADVISOR or sub-advisor believes that a currency in which a portfolio
security or securities is denominated or exposed may suffer a decline against
the U.S. dollar, it may hedge that risk by entering into a forward contract to
sell an amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in or exposed to that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a FUND may hold various foreign currencies,
the value of the net assets of that FUND as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold. Some foreign currency values
may be volatile, and there is the possibility of government controls on currency
exchange or governmental intervention in currency markets which could adversely
affect the FUND.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a FUND'S ADVISOR or
sub-advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the FUND'S assets denominated in or exposed
to that currency), or by participating in options or futures contracts with
respect to that currency. If the ADVISOR or sub-advisor believes that a
particular currency may decline relative to the U.S. dollar, the FUND may also
enter into contracts to sell that currency (up to the value of the FUND'S assets
denominated in or exposed to that currency) in exchange for another currency
that the ADVISOR or sub-advisor expects to remain stable or to appreciate
relative to the U.S. dollar. This technique is known as currency cross-hedging.
Refer to the Prospectus for each FUND to determine which FUNDS may engage in
these transactions.
These strategies are intended to minimize the effect of currency appreciation as
well as depreciation, but do not protect against a decline in the underlying
value of the hedged security. In addition, these strategies may reduce or
eliminate the opportunity to profit from increases in the value of the original
currency and may adversely impact the FUND'S performance if the ADVISOR or
sub-advisor's projection of future exchange rates is inaccurate. See Strategic
portfolio transactions.
Additionally, several European countries are participating in the European
Economic and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro". It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. FUNDS investing in securities of
participating countries could be adversely affected if the computer systems used
by their major service providers are not properly prepared to
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handle both the imminent implementation of this single currency and the prospect
of the adoption of the Euro by additional countries in the future. These FUNDS
are taking steps to obtain satisfactory assurances that their major service
providers are, in turn, taking steps reasonably designed to address these
matters with respect to the computer systems they use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of any FUND.
GENERAL INFORMATION
Your inquiries should be directed to Lincoln National Life Insurance Co., at
P.O. Box 2340, Fort Wayne, Indiana 46801; or, you may call 1-800-4LINCOLN
(454-6265).
The FUNDS will issue unaudited semiannual reports showing current investments in
each FUND and other information; and annual financial statements audited by
their independent auditors. In 1998, in response to certain changes to the
federal securities laws, the Board of Directors of each FUND recommended, and
shareholders of each FUND approved, changes to the fundamental policies for
certain of the FUNDS. The Board of Directors of each FUND also changed or
eliminated certain non-fundamental policies of certain FUNDS.
Under the 1940 Act a fundamental policy of a fund may not be changed without the
affirmative vote of a majority of the fund's outstanding shares.
As used in this Prospectus, the term majority of the FUND'S outstanding shares
means the vote of: (1) 67% or more of each FUND'S shares present at a meeting,
if the holders of more than 50% of the outstanding shares of each FUND are
present or represented by proxy, or (2) more than 50% of each FUND'S outstanding
shares, whichever is less.
These Prospectuses do not contain all the information included in their
Registration Statements filed with the Commission. The Registration Statements,
including the exhibits filed with them, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Prospectuses about
the contents of any CONTRACT or other document referred to in them are not
necessarily complete. In each instance, reference is made to the copy of that
CONTRACT or other document filed as an exhibit to the Registration Statement of
which the particular Prospectus forms a part, and each statement is qualified in
all respects by that reference.
The use of FUNDS by both variable annuity and variable life insurance separate
accounts is known as mixed funding. Due to differences in redemption rates, tax
treatment, or other considerations, the interests of CONTRACT OWNERS under the
VARIABLE LIFE ACCOUNTS may conflict with those of CONTRACT OWNERS under the
variable annuity account, in those cases where mixed funding occurs. For
example, violation of the federal tax laws by one VARIABLE ACCOUNT investing in
the FUNDS could cause the contracts and Policies funded through another VARIABLE
ACCOUNT to lose their tax-deferred status, unless remedial action were taken.
The Board of Directors of each FUND will monitor for any material conflicts and
determine what action, if any, should be taken.
Should any conflict arise which requires that a substantial amount of assets be
withdrawn from any of the FUNDS, orderly portfolio management could be
disrupted, to the detriment of those CONTRACT OWNERS still investing in that
FUND. Also, if that FUND believes that any portfolio has become so large as to
materially impair investment performance, then the FUND will examine other
investment options.
LINCOLN LIFE performs the dividend and transfer functions for the FUNDS.
PREPARING FOR YEAR 2000
THE 'YEAR 2000' ISSUE. Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. This 'year 2000 issue' affects virtually all companies and
organizations.
Lincoln Life is responsible, as part of its year 2000 updating process, for the
updating of FUND-related computer systems. An affiliate of Lincoln Life,
Delaware Service Company (Delaware), provides substantially all of the necessary
accounting and valuation services for the FUNDS. Delaware, for its part, is
responsible for updating all of its computer systems, including those which
serve the FUNDS, to accommodate the year 2000. Lincoln Life and Delaware have
begun formal discussions with each other to assess the requirements for their
respective systems to interface properly in order to facilitate the accurate and
orderly operation of the FUND beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every aspect
of the businesses of Lincoln Life, Delaware, and the FUNDS (the Companies). The
computer systems of Lincoln Life and Delaware (including those computer systems
which serve the FUNDS) and their interfaces with the computer systems of
vendors, suppliers, customers and other business partners are particularly
vulnerable. The inability to properly recognize date-sensitive electronic
information and to transfer data between systems could cause errors or even
complete failure of systems, which would result in a temporary inability to
process transactions correctly and
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engage in normal business activities for the FUNDS. Lincoln Life and Delaware,
respectively, are redirecting significant portions of their internal information
technology efforts and are contracting, as needed, with outside consultants to
help update their systems to accommodate the year 2000. Also, in addition to the
discussions with each other noted above, Lincoln Life and Delaware have
respectively initiated formal discussions with other critical parties that
interface with their systems to gain an understanding of the progress by those
parties in addressing year 2000 issues. While Lincoln Life and Delaware are
making substantial efforts to address their own systems (including those which
serve the FUNDS) and the systems with which they interface, it is not possible
to provide assurance that operational problems will not occur. Lincoln Life and
Delaware presently believe that, with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
year 2000 issue will not pose significant operations problems for their
respective computer systems. In addition, the Companies are incorporating
potential issues surrounding year 2000 into their contingency planning process,
in the event that, despite these substantial efforts, there are unresolved year
2000 problems. If the remediation efforts noted above are not completed timely
or properly, the year 2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life, Delaware, the FUNDS, or all of
them.
The cost of addressing year 2000 issues and the timeliness of completion will be
closely monitored by management for Lincoln Life, Delaware and the FUNDS and,
for each company, will be based on its management's best estimates which are
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. Nevertheless, there can be no guarantee by Lincoln Life, by Delaware or
by the FUNDS that estimated costs will be achieved, and actual results could
differ significantly from those anticipated. Specific factors that might cause
such differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems, and other uncertainties.
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STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS -- 11 UNDERLYING
FUNDS*
<TABLE>
<CAPTION>
ITEM ITEM
- ------------------------------------------------ ------------------------------------------------
<S> <C>
General Information and History Appendix
Investment objective Investment advisor and sub-advisor
Investment policies and techniques Directors and officers
Investment restrictions Investment policies and techniques
Portfolio transactions and brokerage (continued): options, futures, securities
Determination of net asset value valuation, securities lending, repurchase and
reverse repurchase agreements
Custodian
Independent auditors
Financial statements
Bond and commercial paper ratings
U.S. Government obligations
Taxes
State requirements
Derivative transactions -- definitions
*NOTE: THIS IS A GENERIC TABLE. THERE ARE
VARIATIONS IN THE CONTENTS OF THE SAI FROM FUND
TO FUND.
</TABLE>
- --------------------------------------------------------------------------------
Please send me a free copy of the current Statement of Additional Information
for Lincoln National Life Insurance Co. Variable Annuity Account C:
(Please Print)
Name: __________________________________________________________________________
Address: _______________________________________________________________________
City _________________________________ State ____________________ Zip __________
Mail to Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana
46081
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THIS PAGE WAS INTENTIONALLY LEFT BLANK.
84
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LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should be read in conjunction with the Prospectus
of Lincoln National International Fund, Inc. (FUND) dated
May 1, 1998. You may obtain a copy of the FUND'S Prospectus
on request and without charge. Please write Lincoln
National Life Insurance Co., P.O. Box 2340, Fort Wayne,
Indiana 46801 or call 1-800-4LINCOLN (454-6265).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
- --------------------------------------------------
GENERAL INFORMATION AND HISTORY IF-2
- --------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND
PRACTICES IF-2
- --------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS IF-6
- --------------------------------------------------
DETERMINATION OF NET ASSET VALUE IF-7
- --------------------------------------------------
INVESTMENT RESTRICTIONS IF-7
- --------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE IF-8
- --------------------------------------------------
THE EAFE(SM) AND OTHER UNMANAGED INDICES IF-9
- --------------------------------------------------
APPENDIX
Investment advisor and sub-advisor A-1
- --------------------------------------------------
Directors and officers A-3
- --------------------------------------------------
Investment policies and techniques
(continued): options, futures, securities
valuation, securities lending, repurchase
and reverse repurchase agreements A-4
- --------------------------------------------------
<CAPTION>
PAGE
- --------------------------------------------------
<S> <C>
Custodian A- 9
- --------------------------------------------------
Independent auditors A- 9
- --------------------------------------------------
Financial statements A- 9
- --------------------------------------------------
Bond and commercial paper ratings A- 9
- --------------------------------------------------
U.S. Government obligations A-11
- --------------------------------------------------
Taxes A-12
- --------------------------------------------------
State requirements A-12
- --------------------------------------------------
Derivative transactions-definitions A-12
- --------------------------------------------------
</TABLE>
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1998.
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GENERAL INFORMATION AND HISTORY
The FUND was originally incorporated in Maryland in January, 1986, under the
name of Lincoln National Real Estate Fund, Inc. It remained dormant under that
name until May, 1990, when the name was changed to Lincoln National
International Fund, Inc., in order to provide an investment vehicle for
CONTRACTOWNERS of the VARIABLE ACCOUNT who desire to take advantage of
investment opportunities outside the United States.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The investment objective of the FUND is long-term capital appreciation,
implemented through a strategic policy of investing primarily in a portfolio of
equity and equity-linked securities issued outside the United States. The FUND'S
investment objective and strategic policy are fundamental and cannot be changed
without the affirmative vote of a majority of the outstanding voting securities
of the FUND. See General information in the Prospectus. There can be no
assurance that the objective of the FUND will be achieved.
This FUND invests principally in high-grade common stocks of established
companies domiciled outside the U.S., with the objective of maximizing
longer-term total return. The primary risk is that associated with common stock
investing, and the shares will fluctuate in value with the common stock market
in the country where issued. Secondary risks are those generally associated with
investments outside the U.S. (See Foreign investments in the Prospectus.)
Because the policy of this FUND is to emphasize investment in established
companies, it is expected that the volatility will be in line with broad
international stock market indices which are comparable to U.S. indices as the
Dow Jones Industrial Average and the Standard & Poor's 500 Index (S&P 500).
The FUND pursues its investment objective by investing primarily in a portfolio
of common stock and securities convertible into common stock. (See Description
of the FUND and Investment policies and techniques in the Prospectus.)
References to ADVISOR in this SAI include both Lincoln Investment Management,
Inc. (LINCOLN INVESTMENT) and Clay Finlay Inc., until May 1, 1998, and Delaware
International Advisers, Ltd. thereafter.
Type of equity and equity-linked securities in which the FUND may invest. As
discussed in the Prospectus, the FUND seeks to achieve its investment objective
through investment primarily in equity and equity-linked securities. In addition
to investing directly in equity securities, the FUND may invest in American
Depositary Receipts (ADRs) and European Depositary Receipts (EDRs). Generally,
ADRs in registered form are U.S. dollar denominated securities designed for use
in the U.S. securities markets, which represent and may be converted into the
underlying foreign security. EDRs are typically issued in bearer form and are
designed for use in the European securities markets. No more than 5% of the
FUND'S assets will be invested in unsponsored ADRs or EDRs. Issuers of the stock
of such unsponsored ADRs and EDRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.
INVESTMENT COMPANY SHARES. The FUND also may purchase shares of investment
companies or trusts which invest principally in securities in which the FUND is
authorized to invest. The purchase of the stock of these investment companies
(called country FUNDS) currently is the preferred, if not only, mechanism
through which the FUND may invest in securities of companies in certain
countries (India, Taiwan, Brazil, Chile, Argentina and Korea, as of the date of
this Prospectus) and the only means, in some cases, by which the FUND may invest
in securities of South Korean and Argentina companies, other than through the
purchase of South Korean convertible securities or through the purchase of
securities with the prior approval of the Ministry of Finance. The return on the
FUND'S investments in investment companies will be reduced by the operating
expenses, including investment advisory and administrative fees, of such
companies. The FUND'S investment in an investment company may require the
payment of a premium above the net asset value of the investment company's
shares, and the market price of the investment company thereafter may decline
without any change in the value of the investment company's assets. The FUND,
however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium. Under the Investment Company Act of
1940 (1940 Act), the FUND may not invest more than 10% of its assets in
investment companies or more than 5% of its total assets in the securities of
any one investment company, nor may it own more than 3% of the outstanding
voting securities of any such company. (See Investment restrictions.) To the
extent the FUND invests in securities in bearer form it may be more difficult to
recover securities in the event such securities are lost or stolen.
If the FUND invests in an entity which is classified as a Passive Foreign
Investment Co. (PFIC) for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the FUND
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury is
IF-2
<PAGE>
currently considering various solutions to this problem and, in any event, it is
not anticipated that any taxes on the FUND with respect to investments in PFIC's
would be significant.
TYPE OF FOREIGN DEBT SECURITIES IN WHICH THE FUND MAY INVEST. As discussed in
the Prospectus, the FUND may invest up to 35% of its total assets in non-U.S.
debt securities and non-U.S. money-market instruments, without equity features.
These investments may include bonds denominated in any currency, issued by
foreign governments (including their agencies and instrumentalities); and debt
instruments denominated in any currency, issued by private and public entities
(including multinational lending institutions and supranational institutions)
which have been determined by the FUND'S INVESTMENT ADVISOR or sub-advisor to be
of comparable credit quality to securities rated in the three highest categories
by Moody's Investors Service, Inc. or Standard & Poor's Corp.
PRIVATE PLACEMENTS. The FUND may invest up to 10% of its total assets in
securities which are subject to restriction on resale because they have not been
registered under the Securities Act of 1933, or which are otherwise not readily
marketable. These securities are generally referred to as private placements or
restricted securities. Limitations on the resale of such securities may have an
adverse effect on their marketability, and may prevent the FUND from disposing
of them promptly at reasonable prices. The FUND may have to bear the expense of
registering such securities for resale and risk the substantive delays in
effecting such registration. However, the FUND may avail itself of Rule 144A of
the Securities Act of 1933 which permits the FUND to purchase securities which
have been privately placed and resell such securities to certain qualified
institutional buyers without restriction. The Board of Directors will carefully
monitor the FUND'S investments in these securities, focusing on such factors,
among others, as valuation, liquidity and availability of information.
Securities of foreign issuers often have not been registered in the United
States. Accordingly, if the FUND wishes to sell unregistered foreign securities
in the United States, it will avail itself of Rule 144A.
CONVERTIBLE SECURITIES. The FUND may invest in fixed-income securities which are
convertible into common stock. Convertible securities rank senior to common
stocks in a corporation's capital structure and, therefore, entail less risk
than the corporation's common stock. The value of a convertible security is a
function of its investment value (its value as if it did not have a conversion
privilege), and its conversion value (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater than its
conversion value, its price will be primarily a reflection of such investment
value and its price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security (the credit
standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the FUND
at varying price levels above their investment values and/or their conversion
values in keeping with the FUND'S objectives.
FOREIGN CURRENCY TRANSACTIONS. When the FUND agrees to purchase or sell a
security in a foreign market it will generally be obligated to pay or be
entitled to receive, a specified amount of foreign currency. The FUND'S
custodian will conduct its foreign currency exchange transactions either on a
spot basis (i.e., cash) at the spot rate prevailing in the foreign currency
exchange market, or through entering into foreign currency forward contracts to
purchase or sell foreign currencies. The FUND may enter into foreign currency
forward contracts in order to lock in the U.S. dollar amount it must pay or
expects to receive for a security it has agreed to buy or sell. A foreign
currency forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
Such foreign currency forward contracts will only be entered into with United
States banks and their foreign branches. A foreign currency forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
When management of the FUND believes that the currency of a particular foreign
country may suffer an increase against the U.S. dollar from the time the FUND
agrees to purchase a security until it is required to make payment, or a decline
against the U.S. dollar from the time the FUND agrees to sell a security until
the buyer is required to make payment, the FUND may enter into a foreign
currency forward contract to buy or sell, for a fixed amount of dollars, the
amount of foreign currency approximating the amount of foreign currency the FUND
will be required to pay or expects to receive. The FUND'S custodian bank will
place cash, U.S. Government securities, debt securities or equity securities in
a separate
IF-3
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account of the FUND in an amount equal to the value of the FUND'S total assets
committed to the consummation of any such contract in such account and if the
value of the securities placed in the separate account declines, additional cash
or securities will be placed in the account on a daily basis so that the value
of the account will equal the amount of the FUND'S commitments with respect to
such contracts. If, rather than cash, portfolio securities are used to secure
such a foreign currency forward contract, at the maturity of the foreign
currency forward contract for delivery by the FUND of a foreign currency, the
FUND may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an offsetting contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of foreign currency.
The FUND'S use of forward contracts will not eliminate fluctuations in the
underlying prices of the securities which the FUND owns or intends to purchase
or sell. They simply establish a rate of exchange for a future point in time.
Additionally, while this technique tends to minimize the risk of loss due to a
decline in the value of the hedged currency, their use tends to limit any
potential gain which might result from the increase in value of such currency.
In addition such transactions involve costs and may result in losses.
Although the FUND values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Indeed it may hold a number of foreign currencies on a regular
basis. It will, however, convert some foreign currency to U.S. dollars from time
to time, and vice versa. For example, in the event of a purchase the FUND may
convert U.S. dollars or other currencies to the currency of the country in which
the securities are issued. In the event of a sale, the FUND may hold the
proceeds in the currency of the country in which the security was issued, or
convert it to U.S. dollars, or to currencies of other countries. Investors
should take note of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the FUND at
one rate, while offering a lesser rate of exchange should the FUND desire to
resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
from futures contracts that are not regulated futures contracts, and from
unlisted options will be treated as ordinary income or loss under Code Section
988. Also, certain foreign exchange gains or losses derived with respect to
foreign fixed-income securities are also subject to Section 988 treatment. In
general, therefore, Code Section 988 gains or losses will increase or decrease
the amount of the FUND'S investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the FUND'S net capital gain. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the FUND would not be able to make any ordinary dividend
distributions.
LENDING OF SECURITIES. Consistent with applicable regulatory requirements and
procedures adopted by the Board of Directors, the FUND may lend its portfolio
securities to brokers, dealers and other financial institutions, in order to
realize additional income. Such loans must be callable at any time by the FUND
(subject to notice provisions described below), and be at all times secured by
cash or cash equivalents, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least 102% of the market
value, determined daily, of the loaned securities. The advantage of such loans
is that the FUND continues to receive the income on the loaned securities while
at the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice, or by the
FUND on four business days' notice. If the borrower fails to deliver the loaned
securities within four days after receipt of notice, the FUND could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases, even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
FUND'S management to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities to the FUND. Any gain or loss in
the market price during the loan period would inure to the FUND. The FUND will
pay reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. The creditworthiness of firms to which the FUND lends
its portfolio securities will be monitored on an ongoing basis by the Board of
Directors or its delegate. The FUND will not loan its portfolio securities to
the advisor, the sub-advisor, or any affiliate thereof.
Although voting or consent rights which accompany loaned securities pass to the
borrower, the FUND will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
by the FUND if the matters involved would have a material effect on the FUND'S
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investment in such loaned securities. The FUND will not lend portfolio
securities with a value in excess of 25% of its total assets at the time of the
loan.
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it may be
invested by the FUND in repurchase agreements in an amount up to 5% of its total
assets (taken at current value), until such time as it may otherwise be invested
or used for payments of obligations of the FUND. These agreements, which may be
viewed as a type of secured lending by the FUND, typically involve the
acquisition by the FUND of government securities or other securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the FUND will sell back to the
institution, and that the institution will repurchase, the underlying security
(collateral) at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. The FUND will accrue interest
from the institution until the time when the repurchase is to occur. Although
such date is deemed by the FUND to be the maturity date of a repurchase
agreement, the maturities of securities subject to repurchase agreements are not
subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the FUND follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well capitalized and well established financial institutions under
guidelines established and monitored by the Directors of the FUND or its
delegate. In addition, the collateral will be maintained in a segregated account
and will be marked-to-market daily to determine that the full value of the
collateral, as specified in the agreement, does not decrease below 102% of the
purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to maintain full
collateralization. In the event of a default or bankruptcy by a selling
financial institution, the FUND will seek to liquidate such collateral. However,
the exercise of the FUND'S right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
FUND could suffer a loss. It is the current policy of the FUND not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the FUND, amount to
more than 10% of its total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, the FUND may purchase securities on
a when-issued or delayed delivery basis and may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
this period. While the FUND will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring the
securities, the FUND may sell the securities before the settlement date, if it
is deemed advisable. At the time the FUND makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the FUND will record the
transaction and thereafter reflect the value, each day, of such security in
determining the net asset value of the FUND. At the time of delivery of the
securities, the value may be more or less than the purchase price. The FUND will
also establish a segregated account with the FUND'S custodian bank in which it
will continuously maintain cash or U.S. Government securities or other high
grade debt portfolio securities equal in value to commitments for such
when-issued or delayed delivery securities; subject to this requirement, the
FUND may purchase securities on such basis without limit. An increase in the
percentage of the FUND'S assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the FUND'S
net asset value. The FUND'S management and the Directors do not believe that the
FUND'S net asset value or income will be adversely affected by its purchases of
securities on such basis.
ADDITIONAL INFORMATION ABOUT FORWARD COMMITMENTS. The FUND may make contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time (forward commitments) if the FUND holds, and maintains until the
settlement date in a segregated account, cash or high-grade debt obligations in
an amount sufficient to meet the purchase price, or if the FUND enters into
offsetting contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines before the settlement
date, which risk is in addition to the risk of decline in value of the FUND'S
other assets. Where such purchases are made through dealers, the FUND relies on
the dealer to consummate the sale. The dealer's failure to do so may result in
the loss to the FUND of an advantageous yield 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.
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RISK FACTORS AND SPECIAL CONSIDERATIONS
FOREIGN SECURITIES. The FUND is authorized to invest in Eastern European
countries; however, it does not presently intend to invest more than 5% of its
assets in those securities. Investments in Eastern Europe are speculative and
involve a high degree of risk of loss. The emergence of Eastern European capital
markets is in part a function of the demise of the Soviet Union. Should a
repressive central government re-emerge in the region, there is no assurance
that the Eastern European markets would continue to constitute a viable
investment opportunity for the FUND, and there may be a high degree of risk of
expropriation without compensation.
The governments of a number of Eastern European countries previously
expropriated large quantities of private property, and the claims of many
property owners against those governments were never finally settled. Since the
Communist Party was responsible for such expropriation, if it should re-surface
there is no assurance that expropriation would not occur again. If it were to
reoccur, the FUND could lose all or a substantial portion of its investments in
those countries.
Further, no accounting standards comparable to U.S. models exist in Eastern
European countries. Finally, even though certain Eastern European currencies may
be convertible into United States dollars and other hard currencies, the
conversion rates may be artificial when compared to actual market values, and
this may have an adverse impact on the FUND.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the FUND'S
assets invested in such countries. These authorities may not be qualified to act
as foreign custodians under the 1940 Act and as a result, the FUND would not be
able to invest in the countries in the absence of exemptive relief from the
Securities and Exchange Commission (SEC). In addition, the risk of loss through
government confiscation may be increased in such countries.
RISKS OF DEBT SECURITIES. The FUND may invest up to 5% of its assets in bonds
rated below Baa by Moody's Investor Service Inc. (Moody's) or BBB by Standard &
Poor's Corp. Securities rated less than Baa by Moody's or BBB by Standard and
Poor's Corp. are classified as non-investment grade securities (high yield
bonds, commonly known as Junk bonds) and are considered speculative by those
rating agencies. It is the FUND'S policy not to rely exclusively on ratings
issued by credit rating agencies but to supplement those ratings with ADVISOR'S
and/or the sub-advisor's own independent and ongoing review of credit quality.
These bonds may be issued as a consequence of corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events or by smaller or highly leveraged companies. Since the market for high
yield bonds is relatively new, many of the outstanding bonds have not endured a
major economic downturn, and a long-term track record on defaults does not exist
for this market. When economic conditions appear to be deteriorating, these
bonds may decline in market value regardless of prevailing interest rates, due
to heightened investor concerns over credit quality. In those periods the
ability of highly leveraged issuers to service principal and interest payments,
to meet their business goals, or obtain additional financing could be adversely
affected. Therefore, the market for these bonds may be less liquid than for
investment grade bonds, and their prices more volatile. In addition, there may
at times be significant disparities in the prices quoted for these bonds by
various dealers, making it difficult for the FUND to rely on those quotes.
Prices for high yield bonds may also be affected by legislative and regulatory
developments. For example, new federal rules require that savings and loans
gradually reduce their holding of high yield securities. Also, from time to time
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation, if enacted, may
depress the prices of outstanding high yield bonds.
Debt securities rated in the lowest categories by Moody's are of poor standing
and there may be present elements of danger with respect to principal or
interest. Debt securities rated in the lowest category by Standard and Poor's
Corp. have a currently identifiable vulnerability to default and are dependent
upon favorable business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse business
conditions they are not likely to have the capacity to pay interest and repay
principal.
RIGHTS AND WARRANTS. As mentioned in the Prospectus, the FUND may invest in
rights and warrants which entitle the holder to buy equity securities at a
specified price for a specific period of time. Rights and warrants do not
entitle a holder to dividends or voting rights with respect to the securities
which may be purchased, nor do they represent any rights to the assets of the
issuing company. The value of a right or warrant may be more volatile than the
value of the underlying securities. Also, their value does not necessarily
change with the value of the underlying securities and a right or warrant ceases
to have value if it is not exercised before the expiration date. Rights and
warrants purchased by the FUND which expire without being exercised will result
in a loss to the FUND.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the FUND to maintain
its securities and cash in the custody of certain eligible banks and securities
IF-6
<PAGE>
depositories. The FUND'S portfolio of securities of issuers located outside the
United States will be held by its sub-custodians who will be approved by the
directors in accordance with those Rules. Approval under the Rules will be given
following a consideration of a number of factors, including, but not limited to,
the reliability and financial stability of the institution; the ability of the
institution to perform custodial services for the FUND; the reputation of the
institution in its national market; the political and economic stability of the
country in which the institution is located; and the risks of potential
nationalization or expropriation of the FUND'S assets. However, no assurances
can be given that the directors' appraisal of the risks in connection with
foreign custodial arrangements will always be correct or that expropriation,
nationalization, freezes (including currency blockage), or confiscations of
assets that would affect assets of the FUND will not occur, and shareholders
bear the risk of losses arising from those or other similar events.
ADDITIONAL RISKS. Securities in which the FUND may invest, whether in the United
States or in another country, are subject to the provisions of bankruptcy,
insolvency or other laws affecting the rights and remedies of creditors in the
country where issued, including the laws, if any, which may be enacted extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations.
DETERMINATION OF NET ASSET VALUE
As explained in the Prospectus, the FUND'S net asset value per share will be
determined on those days on which the New York Stock Exchange (NYSE) is open for
trading. In addition to being closed on weekends, the NYSE, through its most
current announcement--which is subject to change--states that in 1998 it will be
closed on the following U.S. holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. It may also be closed on other days.
Although the Directors expect the same holiday schedule to be observed in the
future, the NYSE may modify its holiday schedule at any time. To the extent that
the FUND'S securities are traded in other markets on days when the NYSE is
closed, the FUND'S NAV may be affected on days when investors do not have access
to the FUND to purchase or redeem shares.
Since the FUND intends under normal conditions to invest virtually exclusively
in securities issued outside the United States, investors should be aware that
trading in securities on exchanges and over-the-counter markets in Europe, the
Far East and elsewhere is normally completed at various times other than the
current closing time of the NYSE. Furthermore, trading on foreign exchanges may
take place on days on which the NYSE is closed; and, conversely, there may be no
trading in some markets on days when the NYSE is open. Consequently, the
calculation of the FUND'S net asset value per share may not always occur
contemporaneously with the determination of the most current market prices of
the individual portfolio securities included in that calculation. In addition,
the value of the net assets held by the FUND may be significantly affected on
days when the investor has no access to the FUND for purposes of purchase or
redemption.
INVESTMENT RESTRICTIONS
The following investment restrictions (which include those listed in the
Prospectus) have been adopted by the FUND as fundamental policies. Under the
1940 Act, a fundamental policy may not be changed without the affirmative vote
of a majority of the outstanding voting securities of the FUND, as defined in
the 1940 Act. See General information in the Prospectus. For purposes of the
following restrictions: (1) all percentage limitations apply immediately after
the making of an investment; and (2) any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any security from the portfolio.
The FUND may not:
1. Invest more than 25% of its total assets in the securities of issuers in any
one industry. For purposes of this restriction, gas, electric, water and
telephone utilities are treated as separate industries.
2. Invest in the securities of a single issuer, unless the following conditions
are met: At least 75% of the value of the FUND'S total assets must be
represented by: (a) U.S. Government obligations, cash and cash items, (b)
securities of other investment companies, and (c) securities of issuers as
to each of which, at the time the investment was made, the FUND'S investment
in the issuer did not exceed 5% of the FUND'S total assets. The FUND does
not anticipate that any more than 15% of the FUND'S total assets would be
invested in the securities of a single issuer at any time, other than those
of the U.S. Government, its agencies and instrumentalities.
3. Purchase or sell real estate or interests therein (including real estate
limited partnership programs), although it may purchase securities of
issuers which engage in real estate operations or securities which are
secured by interests in real estate.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed 25% of
its
IF-7
<PAGE>
total assets at any one time. See Investment policies and techniques in the
Prospectus. The purchase of debt securities and the entry into repurchase
agreements are not considered the making of loans.
5. Purchase puts, calls or combinations thereof.
6. Underwrite the securities of other issuers, except insofar as the FUND may
be deemed an underwriter under the Securities Act of 1933 in disposing of
portfolio securities.
7. Invest more than 10% of its total assets in securities (including repurchase
agreements maturing in more than seven days) which are subject to legal or
contractual restrictions upon resale, are not listed on a securities
exchange, or are otherwise not readily marketable.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
9. Make short sales of securities.
10. Purchase or sell commodities or commodity futures contracts.
11. Purchase securities of other investment companies, except to the limited
extent described under Investment objective and strategic policy, and in
connection with an acquisition, merger, consolidation or reorganization.
12. Invest in companies for the purpose of, or with the effect of, acquiring
control.
13. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 20 in
the Prospectus.
14. Issue senior securities as defined in the 1940 Act except insofar as the
FUND may be deemed to have issued a senior security by borrowing money in
accordance with restriction 20. (For purposes of this restriction,
collateral arrangements for entering into repurchase agreements and lending
portfolio securities are not deemed to be the issuance of a senior
security.)
15. Hold more than 10% of the outstanding voting securities of any one issuer.
16. Invest more than 10% of its total assets in investment companies or more
than 5% of its total assets in the securities of any one investment company,
nor may it own more than 3% of the outstanding voting securities of any such
company.
17. Borrow money, except for temporary or emergency purposes and not exceeding
5% (taken at the lower of cost or current value) of its total assets (not
including the amounts borrowed).
PORTFOLIO TRANSACTIONS AND BROKERAGE
The ADVISOR is responsible for decisions to buy and sell securities for the
FUND, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a net basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
The ADVISOR currently provides investment advice to a number of other clients.
See Investment ADVISOR and sub-advisor in the Appendix. It will be the practice
of the ADVISOR to allocate purchase and sale transactions among the FUND and
others whose assets it manages in such manner as it deems equitable. In making
such allocations, major factors to be considered are investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the FUND and other client accounts. Securities of the same issuer
may be purchased, held, or sold at the same time by the FUND or other accounts
or companies for which the ADVISOR provides investment advice (including
affiliates of the advisor). On occasions when the ADVISOR deems the purchase or
sale of a security to be in the best interest of the FUND, as well as other
clients of the advisor, the advisor, to the extent permitted by applicable laws
and regulations, may aggregate such securities to be sold or purchased for the
FUND with those to be sold or purchased for other clients in order to obtain
best execution and lower brokerage commissions, if any. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the ADVISOR in the manner it
considers to be equitable and consistent with its fiduciary obligations to all
such clients, including the FUND. In some instances, the procedures may impact
the price and size of the
IF-8
<PAGE>
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 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 by the FUND in
the light of facts and circumstances deemed relevant from time to time, and, in
that connection, will receive reports from the ADVISOR and published data
concerning transaction costs incurred by institutional investors generally. The
nature of the research services provided to the ADVISOR by brokerage firms
varies from time to time but generally includes current and historical financial
data concerning particular companies and their securities; information and
analysis concerning securities markets and economic and industry matters; and
technical and statistical studies and data dealing with various investment
opportunities, risks and trends, all of which the ADVISOR regards as a useful
supplement to its own internal research capabilities. The ADVISOR may from time
to time direct trades to brokers which have provided specific brokerage or
research services for the benefit of the ADVISOR'S clients; in addition the
ADVISOR may allocate trades among brokers that generally provide superior
brokerage and research services. During 1997, the ADVISOR directed transactions
totaling approximately $708,027,405 to these brokers and paid commissions of
approximately $119,005 in connection with these transactions. Research services
furnished by brokers are used for the benefit of all of the ADVISOR'S clients
and not solely or necessarily for the benefit of the FUND. The ADVISOR believes
that the value of research services received is not determinable and does not
significantly reduce its expenses. The FUND does not reduce its fee to the
ADVISOR by any amount that might be attributable to the value of such services.
The aggregate amount of brokerage commissions paid by the FUND in 1995, 1996 and
1997 was $975,265, $1,556,397, and $1,751,175 respectively.
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.
THE EAFE(SM) AND OTHER UNMANAGED INDICES
The FUND may compare its investment results to various unmanaged indices of
foreign equity securities, including, but not by way of limitation, that family
of indices maintained by Morgan Stanley & Co. Incorporated, New York, New York,
under the name Morgan Stanley Capital International (MSCI). In particular, the
FUND may compare its results, as appropriate, with one or more of the 20 MSCI
National Indices, and with its EAFE(sm) Index. EAFE(sm) is an aggregate index
produced from the results of those National Indices from Europe, Australia and
the Far East. It excludes the MSCI indices for the United States and Canada.
IF-9
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
IF-10
<PAGE>
APPENDIX
(NOTE: THIS IS UNIFORM INFORMATION FOR THE 11 FUNDS. SEE EACH FUND'S SAI FOR
INFORMATION SPECIFIC TO THAT FUND.)
THIS APPENDIX CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL AGGRESSIVE GROWTH
FUND, INC. (AGGRESSIVE GROWTH FUND), LINCOLN NATIONAL BOND FUND, INC. (BOND
FUND), LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL APPRECIATION
FUND), LINCOLN NATIONAL EQUITY-INCOME FUND, INC. (EQUITY-INCOME FUND), LINCOLN
NATIONAL GLOBAL ASSET ALLOCATION FUND, INC. (GLOBAL ASSET ALLOCATION FUND),
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC. (GROWTH AND INCOME FUND), LINCOLN
NATIONAL INTERNATIONAL FUND, INC. (INTERNATIONAL FUND), LINCOLN NATIONAL MANAGED
FUND, INC. (MANAGED FUND), LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY
MARKET FUND), LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS
FUND), AND LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL
OPPORTUNITIES FUND). UNLESS OTHERWISE INDICATED, THE FOLLOWING INFORMATION
APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
LINCOLN INVESTMENT Management, Inc. (LINCOLN INVESTMENT) is the investment
ADVISOR to the FUNDS and is headquartered at 200 E. Berry Street, Fort Wayne,
Indiana 46802. LINCOLN INVESTMENT (THE ADVISOR) is a subsidiary of Lincoln
National Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis,
insurance and financial services. LINCOLN INVESTMENT is registered with the
Securities and Exchange Commission (SEC) as an INVESTMENT ADVISOR and has acted
as an INVESTMENT ADVISOR to mutual funds for over 40 years. The ADVISOR also
acts as INVESTMENT ADVISOR to Lincoln National Income Fund, Inc. (a closed-end
investment company whose investment objective is to provide a high level of
current income from interest on fixed-income securities) and Lincoln National
Convertible Securities Fund, Inc. (a closed-end investment company whose
investment objective is a high level of total return on its assets through a
combination of capital appreciation and current income) and to other clients,
and also acts as sub-adviser to two of the series of Delaware Group Adviser
Funds, Inc. (the Corporate Income Fund and the Federal Bond Fund of that retail
mutual fund complex).
Under Advisory Agreements with the FUNDS, the ADVISOR provides portfolio
management and investment advice to the FUNDS and administers its other affairs,
subject to the supervision of the funds' Board of Directors. The advisor, at its
expense, will provide office space to the FUNDS and all necessary office
facilities, equipment and personnel and will make its officers and employees
available to the FUNDS as appropriate. In addition, the ADVISOR will pay all
expenses incurred by it or by the FUNDS in connection with the management of
each FUND'S assets or the administration of its affairs, other than those
assumed by the FUNDS, as described in the Appendix to the Prospectus. LINCOLN
LIFE has paid the organizational expenses of all the FUNDS. The rates of
compensation to the ADVISOR and the sub-advisors are set forth in the Appendix
to the Prospectus.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $2,109,952 $1,428,803 $ 725,544
Bond Fund 1,221,295 1,188,030 1,061,701
Capital Appreciation Fund 2,940,632 1,549,656 726,011
Equity-Income Fund 6,053,404 3,303,336 1,457,623
Global Asset Allocation Fund 2,808,358 2,072,722 1,570,876
Growth and Income Fund 9,714,765 7,063,276 5,077,981
International Fund 3,741,563 3,319,701 2,770,197
Managed Fund 2,873,786 2,480,524 2,120,656
Money Market Fund 451,243 417,468 385,019
Social Awareness Fund 3,355,544 1,877,030 1,048,366
Special Opportunities Fund 2,824,015 2,274,229 1,809,514
</TABLE>
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.
The current advisory agreements between the ADVISOR and the FUNDS will remain in
effect from year to year if approved annually by: (1) the Board of Directors of
each FUND or by the vote of a majority of the outstanding voting securities of
each FUND, and (2) a vote of a majority of the directors who are not interested
persons of the FUNDS or the advisor, cast in person at a meeting called for the
purpose of voting on such approval. The advisory agreement may be terminated
without penalty at any time, on 60 days' written notice by: (1) the Board of
Directors of each FUND, (2) vote of a majority of the outstanding voting
securities of each FUND or (3) the advisor. The advisory agreement terminates
automatically in the event of assignment.
In like manner, the current sub-advisory agreement will remain in effect from
year to year if approved annually by the Board of Directors of the applicable
FUNDS or by the vote of a majority of the outstanding voting securities of those
FUNDS. The sub-advisory agreements may be terminated without penalty at any
time, on 60 days' written notice, by: (1) the Board of Directors of the
applicable FUND, (2) vote of the majority of the outstanding voting securities
of the applicable FUND, (3) the sub-advisor, or (4) the advisor. The
sub-advisory agreements terminate automatically in the event of assignment.
During the last three years each SUB-ADVISOR received the following amounts for
investment sub-advisory services. LINCOLN INVESTMENT, not the FUND, pays all
sub-advisory fees owed.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $1,229,800 $ 893,059 $ 483,982
Bond Fund N/A N/A N/A
Capital Appreciation Fund 2,072,388 1,117,383 545,800
Equity-Income Fund 4,781,931 2,612,405 1,152,337
Global Asset Allocation Fund 1,724,369 1,284,185 1,034,321
Growth and Income Fund 6,155,225 4,440,325 3,108,208
International Fund 1,503,294 1,326,484 1,146,153
Managed Fund 974,080 820,633 672,474
Money Market Fund N/A N/A N/A
Social Awareness Fund 1,901,560 923,516 462,593
Special Opportunities Fund 1,519,961 1,168,134 868,019
</TABLE>
A-2
<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
45
1300 S. Clinton Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--Investments, Northwestern
DIRECTOR, age 64 University
1776 Sherwood Road
Des Plaines, IL 60016
- ------------------------------------------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Regional Vice President/Chief Financial Officer (formerly Vice
DIRECTOR, age 56 President--Finance; Regional Controller of Finance), St. Joseph Medical
700 Broadway Center, Fort Wayne, Indiana
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and Development,
DIRECTOR, age 46 Lincoln National Corporation; Director, Lincoln Life and Annuity Company
1300 S. Clinton St. of New York (formerly Executive Vice President, LINCOLN INVESTMENT
Fort Wayne, IN 46802 Management, Inc.)
- ------------------------------------------------------------------------------------------------------------------
KENNETH G. STELLA President, Indiana Hospital and Health Association
DIRECTOR, age 54
One America Square
Indianapolis, IN 46282
- ------------------------------------------------------------------------------------------------------------------
* JANET C. WHITNEY Vice President and Treasurer, Lincoln National Corp. (formerly Vice
TREASURER, age 49 President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
* CYNTHIA A. ROSE Assistant Secretary, Lincoln National Life Insurance Co.
SECRETARY, age 43
200 East Berry Street
Fort Wayne, IN 46802
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested persons of the FUNDS, as defined in the 1940 Act. Directors' fees
of $250 per meeting are paid by each FUND to each director who is not an
interested person of the FUND. During 1997, each FUND paid $1,000 in director's
fees to each such director, plus out of pocket expenses to attend meetings.
During 1997, the FUND complex paid each of these directors aggregate fees of
$11,000. Mr. Stanley R. Nelson, a director who retired in 1997, received $750 in
director fees from each FUND and aggregate fees of $8,250 from the FUND complex.
Mr. Stella became a director in 1998 and thus received no fees during 1997.
A-3
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to the Bond, Growth and Income, Managed, Social
Awareness and Special Opportunities Funds. Neither the International Fund nor
the Money Market Fund has sought the authority to engage either in options or in
futures trading. (NOTE: The Aggressive Growth, Capital Appreciation,
Equity-Income and Global Asset Allocation Funds have their own respective
discussions of the strategic portfolio transactions in which they may engage.)
OPTIONS TRADING
The FUND may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the FUND'S
portfolio. The FUND may not purchase or write put or covered call options in an
aggregate cost exceeding 30% of the value of its total assets. The FUND would
invest in options in standard contracts which may be quoted on NASDAQ, or on
national securities exchanges. Currently options are traded on numerous
securities and indices including, without limitation, the Standard and Poor's
100 Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), and the NYSE
Beta Index.
A. In General. Put and call options are generally short-term contracts with
durations of nine months or less. The INVESTMENT ADVISOR will generally
write covered call options when it anticipates declines in the market value
of the portfolio securities and the premiums received may offset to some
extent the decline in the FUND'S net asset value. On the other hand, writing
put options may be a useful portfolio investment strategy when the FUND has
cash or other reserves and it intends to purchase securities but expects
prices to increase.
Generally, the risk to the FUND in writing options is that the investment
ADVISOR'S assumption about the price trend of the underlying security may prove
inaccurate. If the FUND wrote a put, expecting the price of a security to
increase, and it decreases, or if the FUND wrote a call, expecting the price to
decrease but it increased, the FUND could suffer a loss if the premium received
in each case did not equal the difference between the exercise price and the
market price.
B. Call Options. The FUND may write only call options which are covered,
meaning that the FUND either owns the underlying security or has an absolute
and immediate right to acquire that security, without additional cash
consideration, upon conversion or exchange of other securities currently
held in its portfolio. In addition, the FUND will not, before the expiration
of a call option, permit the call to become uncovered. If the FUND writes a
call option, the purchaser of the option has the right to buy (and the FUND
has the obligation to sell) the underlying security at the exercise price
throughout the term of the option. The amount paid to the FUND by the
purchaser of the option is the premium. The FUND'S obligation to deliver the
underlying security against payment of the exercise price would terminate
either upon expiration of the option or earlier if the FUND were to effect a
closing purchase transaction through the purchase of an equivalent option on
an exchange. The FUND would not be able to effect a closing purchase
transaction after it had received notice of exercise.
In order to write a call option, the FUND is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corp. (OCC) and the various exchanges. The FUND may not purchase call
options except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing purchase transaction may be greater than
the premium received by the FUND for writing the option.
Generally, the INVESTMENT ADVISOR (THE ADVISOR) intends to write listed covered
calls during periods when it anticipates declines in the market values of
portfolio securities and the premiums received (net of transaction costs) may
offset to some extent the decline in the FUND'S net asset value occasioned by
such declines in market value. The ADVISOR will generally not write listed
covered call options when it anticipates that the market value of the FUND'S
portfolio securities will increase.
If the ADVISOR decides that at a price higher than the current value a portfolio
security would be overvalued and should be sold, the FUND may write a call
option on the security at that price. Should the security subsequently reach
that price and the option be exercised, the FUND would, in effect, have
increased the selling price of that security, which it would have sold at that
price in any event, by the amount of the premium. In the event the market price
of the security declined and the option were not exercised, the premium would
offset all or some portion of that decline. It is possible, of course, that the
price of the security could increase beyond the exercise price; in that event,
the FUND would forego the opportunity to sell the security at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgment of the
advisor, the market price of a security is overvalued and it should be sold, the
FUND may elect to write a call with an exercise price substantially below the
current market price. So long as the value of the underlying security remains
above the exercise price during the term of the option, the option will be
exercised, and the FUND will be required to sell
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the security at the exercise price. If the sum of the premium and the exercise
price exceeds the market price of the security at the time the call is written,
the FUND would, in effect, have increased the selling price of the security. The
FUND would not write a call under these circumstances if the sum of the premium
and the exercise price were less than the current market price of the security.
In summary, a principal reason for writing calls on a securities portfolio is to
attempt to realize, through the receipt of premium income, a greater return than
would be earned on the securities alone. A covered call writer, such as the
FUND, which owns the underlying security has, in return for the premium, given
up the opportunity for profit from a price increase in the underlying security
above the exercise price, but has retained the risk of loss should the price of
the security decline. Unlike one who owns securities not subject to a call, the
FUND as a call writer may be required to hold such securities until the
expiration of the call option or until the FUND engages in a closing purchase
transaction at a price that may be below the prevailing market.
C. Put Options. The FUND may also write put options. If the FUND writes a put
option, it is obligated to purchase a given security at a specified price at
any time during the term of the option. The rules regarding the writing of
put options are generally comparable to those described above with respect
to call options.
Writing put options may be a useful portfolio investment strategy when the FUND
has cash or other reserves available for investment as a result of sales of FUND
shares or because the ADVISOR believes a more defensive and less fully invested
position is desirable in light of market conditions. If the FUND wishes to
invest its cash or reserves in a particular security at a price lower than
current market value, it may write a put option on that security at an exercise
price which reflects the lower price it is willing to pay. The buyer of the put
option generally will not exercise the option unless the market price of the
underlying security declines to a price near or below the exercise price. If the
FUND writes a put option, the price of the underlying security declines and the
option is exercised, the premium, net of transaction charges, will reduce the
purchase price paid by the FUND for the security. Of course, the price of the
security may continue to decline after exercise of the put options, in which
event the FUND would have foregone an opportunity to purchase the security at a
lower price, or the option might never be exercised.
If, before the exercise of a put, the ADVISOR determines that it no longer
wishes to invest in the security on which the put has been written, the FUND may
be able to effect a closing purchase transaction on an exchange by purchasing a
put of the same series as the one which it has previously written. The cost of
effecting a closing purchase transaction may be greater than the premium
received on writing the put option, and there is no guarantee that a closing
purchase transaction can be effected. The FUND may purchase put options only in
connection with a closing transaction.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the FUND as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of the position in the underlying security), the
FUND as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
At the time a put option is written, the FUND will be required to establish, and
will maintain until the put is exercised or has expired, a segregated account
with its custodian consisting of cash or short-term U.S. Government securities
equal in value to the amount which the FUND will be obligated to pay upon
exercise of the put. Principal factors affecting the market value of a put or
call option include supply and demand, interest rates, the current market price
and price volatility of the underlying security and the time remaining until the
expiration date. In addition, there is no assurance that the FUND will be able
to effect a closing transaction at a favorable price. If the FUND cannot enter
into such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on the
security. If a substantial number of covered options written by the FUND are
exercised, the FUND'S rate of portfolio turnover could exceed historic levels.
This could result in higher transaction costs, including brokerage commissions.
The FUND will pay brokerage commissions in connection with the writing and
purchasing of options to close out previously written options. Such brokerage
commissions are normally higher than those applicable to purchases and sales of
portfolio securities.
FUTURES CONTRACTS AND OPTIONS THEREON
A. In General. The FUND may buy and sell financial futures contracts (futures
contracts) and related options thereon solely for hedging purposes. The FUND
may sell a futures contract or purchase a put option on that futures
contract to protect the value of the FUND'S portfolio in the event the
INVESTMENT ADVISOR anticipates declining security prices. Similarly, if
security prices are expected to rise, the FUND may purchase a futures
contract or a call option thereon. (For certain limited purposes, as
explained later, the FUND is also authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge.)
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The FUND will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid or option
premiums exceeds 5% of the FUND'S total assets. In addition the FUND will not
hedge more than 1/3 of its net assets.
B. Futures contracts. The FUND may purchase and sell financial futures
contracts (futures contracts) as a hedge against fluctuations in the value
of securities which are held in the FUND'S portfolio or which the FUND
intends to purchase. The FUND will engage in such transactions consistent
with the FUND'S investment objective. Currently, futures contracts are
available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
There are a number of reasons why entering into futures contracts for hedging
purposes can be beneficial to the FUND. First, futures markets may be more
liquid than the corresponding cash markets on the underlying securities. Such
enhanced liquidity results from the standardization of the futures contracts and
the large transaction volumes. Greater liquidity permits a portfolio manager to
effect a desired hedge both more quickly and in greater volume than would be
possible in the cash market. Second, a desired sale and subsequent purchase can
generally be accomplished in the futures market for a fraction of the
transaction costs that might be incurred in the cash market.
The purpose of selling a futures contract is to protect the FUND'S portfolio
from fluctuation in asset value resulting from security price changes. Selling a
futures contract has an effect similar to selling a portion of the FUND'S
portfolio securities. If security prices were to decline, the value of the
FUND'S futures contracts would increase, thereby keeping the net asset value of
the FUND from declining as much as it otherwise might have. In this way, selling
futures contracts acts as a hedge against the effects of declining prices.
However, an increase in the value of portfolio securities tends to be offset by
a decrease in the value of corresponding futures contracts.
Similarly, when security prices are expected to rise, futures contracts may be
purchased to hedge against anticipated subsequent purchases of portfolio
securities at higher prices. By buying futures, the FUND could effectively hedge
against an increase in the price of the securities it intends to purchase at a
later date in order to permit the purchase to be effected in an orderly manner.
At that time, the futures contracts could be liquidated at a profit if prices
had increased as expected, and the FUND'S cash position could be used to
purchase securities.
When a purchase or sale of a futures contract occurs, a deposit of high-quality,
liquid securities called initial margin is made by both buyer and seller with a
custodian for the benefit of the broker. Unlike other types of margin, a futures
margin account does not involve any loan or borrowing but is merely a good faith
deposit that must be maintained in a minimum amount of cash or U.S. Treasury
bills. All futures positions, both long and short, are marked-to-market daily,
with cash payments called variation margin being made by buyers and sellers to
the custodian, and passed through to the sellers and buyers, to reflect daily
changes in the contract values.
Most futures contracts are typically canceled or closed out before the scheduled
settlement date. The closing is accomplished by purchasing (or selling) an
identical futures contract to offset a short (or long) position. Such an
offsetting transaction cancels the contractual obligations established by the
original futures transaction. Other financial futures contracts call for cash
settlements rather than delivery of securities.
If the price of an offsetting futures transaction varies from the price of the
original futures transaction, the hedger will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
realized loss or gain on the hedged securities position, but may not always or
completely do so.
The FUND will not enter into any futures contract if, immediately thereafter,
the aggregate initial margin for all existing futures contracts and options
thereon and for premiums paid for related options would exceed 5% of the FUND'S
total assets. The FUND will not purchase or sell futures contracts or related
options if immediately thereafter more than 1/3 of its net assets would be
hedged.
C. Risks and limitations involved in futures hedging. There are a number of
risks associated with futures hedging. Changes in the price of a futures
contract generally parallel but do not necessarily equal changes in the
prices of the securities being hedged. The risk of imperfect correlation
increases as the composition of the FUND'S securities portfolio diverges
from the securities that are the subject of the futures contract. Because
the change in the price of the futures contract may be more or less than the
change in the prices of the underlying securities, even a correct forecast
of price changes may not result in a successful hedging transaction. Another
risk is that the INVESTMENT ADVISOR could be incorrect in its expectation as
to the direction or extent of various market trends or the time period
within which the trends are to take place.
The FUND intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. There can be no assurance that a liquid
market will always exist for any particular contract at any particular time.
Accordingly, there can be no assurance that it will always be possible to close
a futures position when such closing is desired and, in the event of adverse
price movements, the FUND would
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continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been sold to hedge portfolio
securities, such securities will not be sold until the offsetting futures
contracts can be executed. Similarly, in the event futures have been bought to
hedge anticipated securities purchases, such purchases will not be executed
until the offsetting futures contracts can be sold.
Successful use of futures contracts by the FUND is also subject to the ability
of the INVESTMENT ADVISOR to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. For example,
if the FUND has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and prices
of such securities increase instead, the FUND will lose part or all of the
benefit of the increased value of its securities because it will have offsetting
losses in its futures positions. In addition, in such situations, if the FUND
has insufficient cash to meet daily variation margin requirements, it may have
to sell securities to meet such requirements. Such sale of securities may be,
but will not necessarily be, at increased prices that reflect the rising market.
The FUND may have to sell securities at a time when it is disadvantageous to do
so. Where futures are purchased to hedge against a possible increase in the
price of securities before the FUND is able to invest its cash in an orderly
fashion, it is possible that the market may decline instead; if the FUND then
concludes not to invest in securities at that time because of concern as to
possible further market decline or for other reasons, the FUND will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities purchased.
The selling of futures contracts by the FUND and use of related transactions in
options on futures contracts (discussed later) are subject to position limits,
which are affected by the activities of the investment advisor.
The hours of trading of futures contracts may not conform to the hours during
which the FUND may trade securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the securities markets that cannot be reflected in the futures
markets.
Pursuant to Rule 4.5 under the Commodity Exchange Act, investment companies
registered under the 1940 Act are exempted from the definition of commodity pool
operator in the Commodity Exchange Act, subject to compliance with certain
conditions. The exemption is conditioned upon a requirement that all of the
investment company's commodity futures transactions constitute bona fide hedging
transactions (except on an unleveraged basis, as described in (F.) With respect
to long positions assumed by the FUND, the FUND will segregate with its
custodian an amount of cash and other assets permitted by Commodity Futures
Trading Commission (CFTC) regulations equal to the market value of the futures
contracts and thereby insure that the use of futures contracts is unleveraged.
The FUND will use futures in a manner consistent with these requirements.
D. Options on futures contracts. The FUND only intends to engage in options on
futures contracts for bona fide hedging purposes in compliance with CFTC
regulations. An option on a futures contract gives the purchaser the right,
but not the obligation, to assume a position in a futures contract (which
position may be a long or short position) at a specified exercise price at
any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (which
position may be a long or short position). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account that represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
The FUND will be required to deposit initial and variation margin with respect
to put and call options on futures contracts written by it pursuant to the
FUND'S futures commissions merchants' requirements similar to those applicable
to the futures contracts themselves, described previously.
E. Risks of futures transactions. The FUND'S successful use of futures
contracts and options thereon depends upon the ability of its investment
ADVISOR to predict movements in the securities markets and other factors
affecting markets for securities and upon the degree of correlation between
the prices of the futures contracts and the prices of the securities being
hedged. As a result, even a correct forecast of price changes may not result
in a successful hedging transaction. Although futures contracts and options
thereon may limit the FUND'S exposure to loss, they may also limit the
FUND'S potential for capital gains. For example, if the FUND has hedged
against the possibility of decrease in prices which would adversely affect
the price of securities in its portfolio and prices of such securities
increase instead, the FUND will lose part or all of the benefit of the
increased value of its securities because it will have offsetting losses in
its futures positions. Although the FUND will enter into futures contracts
only where there appears to be a liquid market,
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there can be no assurance that such liquidity will always exist.
F. The FUND also is authorized, subject to the limitations set out in the
Prospectus, to purchase futures contracts on an unleveraged basis, when not
intended as an anticipatory hedge. When a contract is purchased on this
basis the investment company establishes a segregated account, composed of
cash and/or cash equivalents, equal to the total value of the contract (less
margin on deposit). As with other futures trading, these purchases must not
be for speculative purposes.
The ability to engage in these purchases on an unleveraged basis can
significantly decrease transaction costs to the FUNDS in certain instances. For
example, if an inordinately large deposit should occur on a single day, the
sheer volume of securities purchases required for that day may place the FUND at
a market disadvantage by requiring it to purchase particular securities in such
volume that its own buying activity could cause prices to increase. In addition,
if this deposit had involved market-timing and as a result there subsequently
were an oversized withdrawal, the FUND could again suffer market disadvantage,
this time because the volume of sales could, for the same reason, force prices
of particular securities to decrease. The FUND, by buying a futures contract
(followed by the appropriate closing transaction) instead of purchasing
securities could achieve considerable savings in transaction costs without
departing from FUND objectives. Furthermore, as stated in (C.), price changes in
a futures contract generally parallel price changes in the securities that the
FUND might otherwise have purchased. Thus, purchase of a futures contract on an
unleveraged basis allows the FUND to comply with its objective while at the same
time achieving these lower transaction costs.
VALUATION OF PORTFOLIO SECURITIES
SHORT-TERM INVESTMENTS. For FUNDS (other than the Money Market FUND) that own
short-term investments which mature in less than 60 days, these instruments are
valued at amortized cost. Such securities acquired with a remaining maturity of
61 days or more are valued at their fair value until the sixty-first day prior
to maturity; thereafter, their cost for valuation purposes is deemed to be their
fair value on such sixty-first day.
OPTIONS TRADING. For those FUNDS engaging in options trading, FUND investments
underlying call options will be valued as described previously. Options are
valued at the last sale price or, if there has been no sale that day, at the
mean of the last bid and asked price on the principal exchange where the option
is traded, as of the close of trading on the NYSE. The FUND'S net asset value
will be increased or decreased by the difference between the premiums received
on writing options and the cost of liquidating those positions measured by the
closing price of those options on the exchange where traded.
FUTURES CONTRACTS AND OPTIONS THEREON. For those FUNDS buying and selling
futures contracts and related options thereon, the futures contracts and options
are valued at their daily settlement price.
FOREIGN SECURITIES. For FUNDS investing in foreign securities, the value of a
foreign portfolio security held by a FUND is determined based upon its closing
price or upon the mean of the closing bid and asked prices on the foreign
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that FUND'S portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market rates,
as computed by the custodian of the FUND'S assets.
However, trading on foreign exchanges may take place on dates or at times of day
when the NYSE is not open; conversely, overseas trading may not take place on
dates or at times of day when the NYSE is open. Any of these circumstances could
affect the net asset value of FUND shares on days when the investor has no
access to the FUND. There are more detailed explanations of these circumstances
in the SAI for the various FUNDS. See the Preface to this Prospectus booklet for
information about how to obtain a copy of the SAI booklet.
LENDING OF PORTFOLIO SECURITIES
As described in the Prospectus, the FUNDS may from time to time lend securities
from their portfolios to brokers, dealers and financial institutions and receive
collateral from the borrower, in the form of cash (which may be invested in
short-term securities), U.S. Government obligations or certificates of deposit.
Such collateral will be maintained at all times in an amount equal to at least
102% of the current market value of the loaned securities, and will be in the
actual or constructive possession of the particular FUND during the term of the
loan. The FUND will maintain the incidents of ownership of the loaned securities
and will continue to be entitled to the interest or dividends payable on the
loaned securities. In addition, the FUND will receive interest on the amount of
the loan. The loans will be terminable by the FUND at any time and will not be
made to any affiliates of the FUND or the advisor. The FUND may pay reasonable
finder's fees to persons unaffiliated with it in connection with the arrangement
of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made to firms deemed by the ADVISOR to be creditworthy.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The FUNDS may make short-term investments in repurchase agreements. A repurchase
agreement typically involves the purchase by the FUND of securities (U.S.
Government or other money market securities) from a financial institution such
as a bank, broker-dealer or savings and loan association, coupled with an
agreement by the seller to repurchase the same securities from the FUND at the
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The difference between the purchase price to the
FUND and the resale price to the seller represents the interest earned by the
FUND which is unrelated to the coupon rate or maturity of the purchased
security. If the seller defaults, the FUND may incur a loss if the value of the
collateral securing the repurchase agreement declines, or the FUND may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by the FUND may be delayed or limited and a loss may be incurred if
the collateral securing the repurchase agreement declines in value during the
bankruptcy proceedings. The Board of Directors of the FUNDS or its delegate will
evaluate the creditworthiness of all entities, including banks and
broker-dealers, with which they propose to enter into repurchase agreements.
These transactions will be fully collateralized; and the collateral for each
transaction will be in the actual or constructive possession of the particular
FUND during the terms of the transaction, as provided in the agreement.
In a reverse repurchase agreement, the FUND involved sells a portfolio security
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the FUNDS will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The FUND will enter into reverse repurchase
agreements only with parties that the ADVISOR or sub-advisor deems creditworthy.
Reverse repurchase agreements are considered to be borrowing transactions, and
thus are subject to the FUND'S limitation on borrowing. Not every FUND is
authorized to enter into reverse repurchase agreements.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities Funds are
currently held in custody by The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, NY 11245. Chase Manhattan agreed to act as custodian for each
FUND pursuant to a Custodian Agreement dated March 30, 1998.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation and International Funds are
held in custody by State Street Bank and Trust Co., 225 Franklin Street, Boston,
Massachusetts 02110. State Street agreed to act as custodian for these FUNDS
pursuant to Custodian Contracts effective July 21, 1987 for the Global Asset
Allocation Fund, April 29, 1991 for the International Fund, and December 6, 1993
for the other three FUNDS.
Under these Agreements, the respective custodians shall (1) receive and disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit receipts to be executed; (6) register securities; and (7)
deliver to the FUNDS proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each FUND'S Board of Directors has engaged Ernst & Young LLP, Two Commerce
Square, Suite 4000, 2001 Market Street, Philadelphia, PA 19103, to be the
independent auditors for the FUND. In addition to the audit of the 1997
financial statements of the FUNDS, other services provided include review and
consultation connected with filings of annual reports and registration
statements with the Securities and Exchange Commission (SEC); consultation on
financial accounting and reporting matters; and meetings with the Audit
Committee.
FINANCIAL STATEMENTS
The audited financial statements and the report of Ernst & Young LLP,
Independent Auditors, for the FUNDS are incorporated by reference to the FUNDS'
1997 Annual Report. We will provide a copy of the Annual Report on request and
without charge. Either write Lincoln National Life Insurance Co., P.O. Box 2340,
Fort Wayne, Indiana 46801 or call: 1-800-4LINCOLN (452-6265).
BOND AND COMMERCIAL PAPER RATINGS
Certain of the funds' investment policies and restrictions include references to
bond and commercial paper ratings. The following is a discussion of the rating
categories of Moody's Investors Service, Inc. and Standard & Poor's Corp.
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MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S CORP.
AAA -- This is the highest rating assigned by Standard & Poor's Corp. to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than for
bonds in the A category and higher.
BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1 -- Highest Quality;
Prime 2 -- Higher Quality;
Prime 3 -- High Quality.
(The FUND will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORP.
A Standard & Poor's Corp. commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The FUND will invest in commercial paper rated in the A Categories, as
follows:
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The FUND
will not invest in commercial paper rated A-3).
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A -- 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A -- 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT
OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of two to ten years and
Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). Obligations supported by the credit of the instrumentality include
securities issued by government-sponsored corporations whose stock is publicly
held (for example, the Federal National Mortgage Association, and the Student
Loan Marketing Association). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk than
other government obligations.
TAXES
Each FUND intends to qualify and has elected to be taxed as a regulated
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the CODE). If a FUND qualifies as a regulated investment
company and complies with the provisions of the CODE relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from Federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each FUND must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
which are not directly related to the FUND'S principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its investing in such
stocks, securities, or currencies.
The Federal tax laws impose a 4% nondeductible excise tax on each regulated
investment company with respect to an amount, if any, by which such company does
not meet distribution requirements specified in such tax laws, unless certain
exceptions apply. Each FUND intends to comply with such distribution
requirements or qualify under one or more exceptions, and thus does not expect
to incur the 4% nondeductible excise tax.
Since the sole shareholder of each FUND will be LINCOLN LIFE, no discussion is
stated herein as to the Federal income tax consequences at the shareholder
level.
The discussion of Federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the CODE and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service (IRS). These
interpretations can be changed at any time. The above discussion covers only
Federal tax considerations with respect to the FUND. State and local taxes vary.
STATE REQUIREMENTS
The California Department of Insurance has established the following guidelines
for an underlying portfolio of a VARIABLE ACCOUNT. The FUNDS intend to comply
with these guidelines:
BORROWING
The borrowing limit for any FUND is 33 1/3 percent of total assets. Entering
into a reverse repurchase agreement shall be considered "borrowing" as that term
is used herein.
FOREIGN INVESTMENTS -- DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom,
A-11
<PAGE>
Japan, the United States, France, Canada, and Australia. Second-tier
countries are all countries not in the first or third tier. Third-tier
countries are countries identified as "emerging" or "developing" by the
International Bank for Reconstruction and Development ("World Bank") or
International Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the FUND must accurately describe the FUND.
c. The name of a single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
DERIVATIVE TRANSACTIONS-
DEFINITIONS
The Prospectus for each FUND and the uniform Appendix for the Prospectus booklet
discuss the type of derivative transactions in which the FUNDS may engage and
the risks typically associated with many derivative transactions. Here are some
definitions for the derivatives listed in the Appendix:
OPTION. A contract which gives the FUND the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the FUND to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options trading
to terminate an outstanding option contract by entering into an offsetting
transaction known as a closing transaction; as a result of which the FUND would
either pay out or receive a cash settlement. This is discussed below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX OPTION. One based on the value of an index which measures the fluctuating
value of a basket of pre-selected securities.
STOCK (EQUITY) OPTION. One based on the shares of stock of a particular company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the FUND and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price, level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a loan
or bond borrowing from one interest rate base (fixed term or floating rate) or
currency of one denomination to another.
EQUITY SWAP. One which allows the FUND to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the FUND and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed rate
to floating rate in the same currency); basis swaps (one floating rate index to
another floating rate index in the same currency); and cross-currency interest
rate swaps (fixed rate in one currency to floating rate in another).
Related transactions to interest rate swaps:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An arrangement to simultaneously purchase a cap and sell a floor, in
order to maintain interest rates within a defined range. The premium income
from the sale of the floor reduces or offsets the cost of buying the cap.
d. Corridor. An agreement to buy a cap at one interest rate and sell a cap at a
higher rate.
SWAPTION. An option to enter into, extend, or cancel a swap.
FUTURES CONTRACT. A contract which commits the FUND to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected stocks,
with prices based on a composite of the changes to the prices of the individual
securities in the index (e.g., S&P 500).
A-12
<PAGE>
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the FUND and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal is
involved; the difference between the contracted rate and the prevailing rate is
settled in cash.
CURRENCY CONTRACT. A contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES. Futures contracts on foreign currencies. Used to hedge the
purchase or sale of foreign securities.
CURRENCY OPTION. An option taken on foreign currency.
CURRENCY SWAP. A swap involving the exchange of cash flows and principal in one
currency for those in another, with an agreement to reverse the principal swap
at a future date.
CROSS-CURRENCY INTEREST RATE SWAP. A swap involving the exchange of streams of
interest rate payments (but not necessarily principal payments) in different
currencies and often on different interest bases (e.g., fixed Deutsche Mark
against floating dollar, but also fixed Deutsche Mark against fixed dollar).
FORWARD CURRENCY CONTRACT. A contract to lock in a currency exchange rate at a
future date, to eliminate risk of currency fluctuation when the time comes to
convert from one currency to another.
A-13
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
A-14
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) Financial Statements:
(1) Part A.
------
The financial highlights of Lincoln National International Fund, Inc. (the
Fund) for the years ended December 31, 1997, 1996, 1995, 1994, 1993, 1992, and
for the period from May 1, 1991 to December 31, 1991 are incorporated by
reference to Pages 53 and 54 of the Fund's 1997 Annual Report.
Part B.
------
The following financial statements and Report of Independent Auditors of the
Fund are incorporated by reference to pages 43, and 45-53 and 55 of the Fund's
1997 Annual Report:
- Statement of Net Assets -- December 31, 1997
- Statement of Operations -- Year Ended December 31, 1997
- Statements of Changes in Net Assets -- Years Ended December 31, 1997
and 1996
- Notes to Financial Statements -- December 31, 1997
- Report of Independent Auditors
In total, only pages 43, and 45-55 of the Fund's 1997 Annual Report are
incorporated by reference into this Registration Statement. No other pages
of that Report are incorporated by reference.
(2) Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or the required information is included
in the financial statements, and therefore have been omitted.
b) Exhibits:
1(a) Articles (Filed with Post-effective amendment
No. 8 to this Registration Statement)
1(b) Articles Supplementary (Filed with Post-effective
amendment No. 7 to this Registration Statement)
1(c) Amended Articles - Dated May 11, 1990
2 By-Laws (Filed with Post-effective amendment No. 8
to this Registration Statement)
3 NA
4 Certificate
5(a) Advisory agreement between Lincoln Investment
Management, Inc. and Lincoln National International
Fund, Inc.
5(b) Sub-Advisory Agreement between Lincoln
Investment Management, Inc. and Delaware
International Advisers Ltd.
5(c) Amendment to Advisory Agreement dated November 16,
1990.
6(a) Specimen Agent's Contract (Filed with Post-effective
amendment No. 7 to this Registration Statement)
7 NA
8(a) Custody Agreement
8(b) Custody Fee Schedule (Filed with Post-effective
amendment No. 7)
9(a) Agreement to Purchase Shares
9(b) Trade Name Agreement
9(c) Service Agreement between Alamo Direct Mail
Services, Inc. and Lincoln Life dated September 18,
1996. (Filed with Post-effective amendment No. 7
to this Registration Statement)
9(d) Services Agreement between Delaware Management
Holdings, Inc., Delaware Services Company, Inc.
and Lincoln National Life Insurance Company is
incorporated herein by reference to the
Registration Statement of Lincoln National Life
Insurance Co., Form S-6 (333-40745)
filed November 21, 1997.
10 Opinion of Counsel
11 Consent of Ernst & Young LLP,
Independent Auditors
12 NA
13 Investment Letter
14 NA
15 NA
16 NA
17(a) Financial Data Schedule
18(a) Power of Attorney - John B. Borsch Jr.
18(b) Power of Attorney - Barbara S. Kowalczyk
18(c) Power of Attorney - Nancy L. Frisby
19(a) ORG Chart
19(b) Memorandum Concerning Books and Records
Item 25. Persons Controlled by or Under Common Control with Registrant
See "Management of the Fund," "Purchase of Securities Being Offered," and
"Description of Shares" in the Prospectus forming Part A of this Registration
Statement and "Investment Adviser and Sub-Adviser" in the Statement of
Additional Information forming Part B of this Registration Statement. As of the
date of this Post-Effective Amendment to the Registration Statement, 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.
<PAGE>
Item 26. Number of Holders of Securities
As of February 1, 1998, there was one record holder of common stock, $.01 par
value per share.
Item 27. Indemnification
Reference is made to Article VIII of the Fund's By-Laws (filed as
Exhibit No. (2) hereto); to Section 7 of the Agreement to Purchase Shares
between the Fund and The Lincoln National Life Insurance Company (filed as
Exhibit No. (13(a)) hereto; and to Section 2-418 of the Maryland General
Corporation Law.
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to any business and other connections of
Registrant's investment adviser, Lincoln Investment, is hereby incorporated
by reference from the section captioned "Management of the Fund" in the
Prospectus forming Part A of this Registration Statement, the section
captioned "Investment Adviser and Sub-Adviser" in the Statement of
Additional Information forming Part B of this Registration Statement, and
Item 7 of Part II of Lincoln Investment's Form ADV filed separately with
the Commission (File No. 801-5098). Information pertaining to any business
and other connections of Registrant's sub-investment adviser and Delaware
International Adviser Ltd. ("DIAL"), 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 DIAL's Form ADV filed
separately with the Commission (File No. 801-37702.)
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 DIAL are hereby incorporated by
reference, respectively, from Schedules A and D of Lincoln Investment's
Form ADV and from Schedules A and D of DIAL's Form ADV.
a) As of April 1, 1998, the officers and/or directors of the Investment
Adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
JoAnn Becker Senior Vice President 200 East Berry Street,
and Director Fort Wayne, Indiana 46802
David A. Berry Vice President Vice President, Lincoln National Income Fund, Inc. and
Lincoln National Convertible Securities Fund, Inc.,
Second Vice President, Lincoln Life & Annuity Company of
New York, 200 East Berry Street, Fort Wayne, Indiana
46802
Steven R. Brody Senior Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company, and Lincoln Advisor Funds, Inc., 200
East Berry Street, Fort Wayne, Indiana 46802
David C. Fischer Vice President Vice President, Lincoln National Income Fund, Inc. 200
East Berry Street
Fort Wayne, Indiana 46802
Mark Laurent Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Thomas M. McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., President, Chief Executive Officer and Director,
Lincoln National Mezzanine Corporation; Executive Vice
President and Chief Investment Officer, Lincoln National
Corporation; Director, Delaware Management Holdings,
Inc., Lincoln National (China) Inc., Lincoln National
(India) Inc., Lincoln National Investment Companies,
Inc., Lincoln National Realty Corporation, Lynch & Mayer,
Inc., Vantage Global Advisors, Lincoln National Life
Insurance Company, 200 East Berry Street, Fort Wayne,
Indiana 46802 Other Substantial Business
Jil Schoeff-Lindholm Portfolio Manager 200 East Berry Street, Fort Wayne, Indiana 46802
Cedrick Walta Short Term Investment 200 East Berry Street, Fort Wayne, Indiana 46802
Manager
Denny Westrick Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Jay Yentis Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
</TABLE>
b) The Sub-Adviser.
As of February 5, 1998 the officers and/or directors of the sub-advisor held
the following positions:
Delaware International Advisers, LTD
Officers/Directors Names Principal Occupation
- --------------------------------------------------------------------------------
Wayne A. Stork Chairman & Chief Executive Officer
G. Roger H. Kitson Vice Chairman
David G. Tilles Managing Director and Chief Investment
Officer
Ian G. Sims Deputy Managing Director/Chief Investment
Officer--Global Fixed Income
Clive A. Gillmore Senior Portfolio Manager/Director U.S.
Mutual Fund Liaison
Harnish O. Parker Senior Portfolio Manager/Director U.S.
Marketing Liaison
Timothy W. Sanderson Chief Investment Officer--Equity/Deputy
Compliance Officer/Director
Elizabeth A. Desmond Senior Portfolio Manager/Director of
Pacific Basic Group
Nigel G. May Senior Portfolio Manager/Director of
European Group
John Emberson Secretary, Compliance Officer and
Finance Director
David K. Downes Director, Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
George M. Chamberlain, Jr. Director, Senior Vice President, General
Counsel and Secretary
John C. E. Campbell Director and Senior Vice President,
Delaware Investment Advisers
Richard J. Flannery Director and Senior Vice President,
Delaware Management Holdings, Inc.
George E. Deming Director and Vice President/Senior
Portfolio Manager of Delaware Investment
Advisers
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 19.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant furnishes the following undertakings pursuant to the
Securities Act of 1933 (the "Act"):
To file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective
date of this Registration Statement.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officers or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
<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
the requirements for effectiveness of this Amendment to the Registration
Statement Pursuant to Rule 485(b) under the Securities Act of 1993 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Wayne, and
State of Indiana, on the 17 day of April, 1998.
LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
By /s/ Kelly D. Clevenger
----------------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below on April 17, 1998, by the following
persons in the capacities indicated.
Signature Title Date
- ---------- ----- ----
/s/ Kelly D. Clevenger Chairman of the Board, April 17, 1998
- ---------------------------- President and Director
Kelly D. Clevenger (Principal Executive Officer)
* Director April 17, 1998
- ----------------------------
John B. Borsch, Jr.
Director April 17, 1998
- ----------------------------
Kenneth G. Stella
*** Director April 17, 1998
- ----------------------------
Barbara S. Kowalczyk
** Director April 17, 1998
- ----------------------------
Nancy L. Frisby
/s/ Eric C. Jones Chief Accounting Officer April 17, 1998
- ---------------------------- (Principal Accounting
Eric C. Jones Officer)
/s/ Janet C. Whitney Vice President and April 17, 1998
- ---------------------------- Treasurer (Principal
Janet C. Whitney Financial Officer)
*By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with the
----------------------- initial Registration Statement on Form N-1A.
Jeremy Sachs
**By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
---------------------- Effective Amendment No. 3 to this Registration
Jeremy Sachs Statement.
***By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
--------------------- Effective Amendment No. 4 to this Registration
Jeremy Sachs Statement.
<PAGE>
Exhibit Index to Form N-1A
--------------------------
Exhibit Number Description
- --------------- -----------
1(c) Amended Articles - Dated May 11, 1990
4 Certificate
5(a) Advisory agreement between Lincoln Investment
Management, Inc. and Lincoln National International
Fund, Inc.
5(b) Sub-Advisory Agreement between Lincoln
Investment Management, Inc. and Delaware
International Advisers Ltd.
5(c) Amendment to Advisory Agreement dated November 16,
1990
8(a) Custody Agreement
9(a) Agreement to Purchase Shares
9(b) Trade Name Agreement
10 Opinion of Counsel
11 Consent of Ernst & Young LLP,
Independent Auditors
13 Investment Letter
17(a) Financial Data Schedule
18(a) Power of Attorney - Nancy L. Frisby
18(b) Power of Attorney - Barbara S. Kowalczyk
18(c) Power of Attorney - John B. Borsch Jr.
19(a) ORG Chart
19(b) Memorandum Concerning Books and Records
<PAGE>
STATE OF MARYLAND
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: MAY 11, 199O
THIS IS TO ADVISE YOU THAT YOUR AMENDED ARTICLES OF INCORPORATION WITH A
NAME CHANGE FOR LINCOLN NATIONAL REAL ESTATE FUND, INC. CHANGING TO LINCOLN
NATIONAL INTERNATIONAL FUND, INC. WERE RECEIVED AND APPROVED FOR RECORD ON MAY
11, 1990 AT 10:36 AM.
FEE PAID: 50.00
[SEAL OF THE STATE OF MARYLAND DEPARTMENT OF ASSESSMENTS AND TAXATION]
PAUL B. ANDERSON
CORPORATE ADMINISTRATOR
AT5-031
<PAGE>
AMENDED ARTICLES OF INCORPORATION
of LINCOLN NATIONAL REAL ESTATE FUND, INC.
(A Maryland Corporation)
FIRST: Incorporator. The undersigned, whose address is 1300 South Clinton
Street, P.O. Box 1110, Fort Wayne, IN 46801, being at least 18 years of age, is
acting as sole incorporator to form a corporation under and by virtue of the
General Laws of the State of Maryland authorizing the formation of corporations
(hereinafter referred to as the "General Corporation Law").
SECOND: Name. The name of the corporation (hereinafter called the
"Corporation") is Lincoln National International Fund, Inc.
THIRD: Purpose. The purposes for which the Corporation is formed are:
A. To engage in, conduct, operate and carry on the business of an
open-end management investment company as defined in the Investment Company Act
of 1940 (including any amendment thereof or successor statute) (hereinafter
called the "1940 Act");
B. To invest and reinvest in, buy or otherwise acquire, hold for
investment or otherwise, sell or otherwise dispose of, lend or pledge, trade or
deal in securities, obligations, commodities, commodity futures contracts or
interests therein of all kinds, however evidenced, (or rights, options, or
warrants to acquire or dispose of such securities, obligations, commodities,
commodity futures contracts or interests) of, or issued or guaranteed by or on
behalf of: (i) any national, state or local governments, foreign or domestic, or
their agencies, instrumentalities or subdivisions (including, without
limitation, the United States, any state of the United States, multi-state
agency, political subdivision of a state, municipality, or any governmental
entity, unit, agency or instrumentality of any of the foregoing), and (ii) any
private or public company, corporation, association, board of trade, exchange,
general or limited partnership, trust or other enterprise or organization,
foreign or domestic; including as to both clauses (i) and (ii) without
limitation stocks, and all other forms of equity securities, convertible
securities, bonds, debentures, bills, notes and all other evidences of
indebtedness, negotiable or non-negotiable instruments, government securities,
money market instruments, certificates of deposit, finance paper, commercial
paper, secured call loans, commodities, commodity futures contracts, bankers'
acceptances, investment contracts and repurchase agreements; and
<PAGE>
C. To do every other act not inconsistent with law which is appropriate to
promote and attain the purposes set forth in these Articles of Incorporation.
FOURTH: Principal Office and Resident Agent. The address of the principal
office of the Corporation in this State is 1123 North Eutaw Street, Baltimore,
Maryland 21201. The name of the resident agent of the Corporation in this State
is The Prentice-Hall Corporation System, Maryland, a corporation of this State,
and the address of the resident agent is 1123 North Eutaw Street, Baltimore,
Maryland 21201.
FIFTH: Capital Stock.
A. Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 50,000,000 shares of the par value
of $.01 per share, all of which shall be of a single class designated Common
Stock (and hereinafter referred to as such), such shares having an aggregate par
value of $500,000.
B. Preemptive Rights. No holder of any stock of the Corporation shall as
such holder have any preemptive or other right to purchase or subscribe for any
stock which the Corporation may issue or sell, whether or not exchangeable for
any other stock of the Corporation, and whether out of the number of shares
authorized by the Articles of Incorporation as originally filed or by any
amendment thereof or out of shares of the stock of the Corporation acquired by
it after the issue thereof.
C. Fractional Shares. The Corporation may issue fractional as well as full
shares, and each fractional share shall be dealt with and have rights identical
to those to which a full share is entitled but in such proportion, in all
instances, as such fractional share bears to a full share; provided, however,
that the Corporation shall in no event be obliged to issue certificates for
fractional shares.
D. Majority Vote. Notwithstanding any provision of the General Corporation
Law requiring that any action be taken or authorized by the affirmative vote of
the holders of a designated proportion greater than a majority of the shares or
votes entitled to be cast, such action shall be effective and valid if taken or
authorized by the affirmative vote of the holders of a majority of the total
number of shares outstanding and entitled to vote thereon.
SIXTH: Redemption of Shares. All shares of Common Stock now or hereafter
authorized shall be subject to redemption, in the sense used in the General
Corporation Law, in the manner,
-2-
<PAGE>
upon the terms and conditions and at the redemption price determined as provided
in these Articles of Incorporation. All shares so redeemed or repurchased shall
be deemed to be acquired for retirement in the sense contemplated by the General
Corporation Law and the number of authorized shares of Common Stock shall not be
reduced by the number of any shares redeemed or repurchased by the Corporation.
A. Redemption by Stockholders. Each holder of Common Stock, upon request
in proper form as determined by the Board of Directors, delivered to the
Corporation or its agent appointed for such purpose, accompanied, in the case of
shares for which certificates have been issued, by surrender of the appropriate
stock certificate or certificates in proper form for transfer, as determined by
the Board of Directors, shall be entitled to require the Corporation to redeem
all or any part of the shares of Common Stock standing in the name of such
holder on the books of the Corporation, to the extent that funds or property are
legally available therefor, at a redemption price per share equal to the net
asset value per share applicable to such redemption, determined as provided in
these Articles of Incorporation and in resolutions of the Board of Directors
adopted from time to time. Payment of the redemption price shall be made not
later than the seventh day following the day of receipt by the Corporation or
such agent of the written request and stock certificates, if any, in proper form
as described in the preceding sentence, except that no payment need be made
until funds for the purchase price of shares redeemed have been collected by or
for the account of the Corporation.
B. Rights of Holders of Shares Redeemed. The right of any holder of shares
of Common Stock redeemed as provided in Paragraph A to receive dividends or
distributions thereon and all other rights of such holder with respect to such
shares shall terminate at the time as of which the redemption price of such
shares is determined, except the right of such holder to receive (i) the
redemption price of such shares in accordance with the provisions hereof, and
(ii) any dividend or distribution to which such holder had previously become
entitled.
C. Determination of Net Asset Value Per Share. The Board of Directors
shall determine from time to time the net asset value per share of the
outstanding shares of Common Stock. It may delegate this authority to any one or
more of the Directors or officers of the Corporation, to the investment adviser,
the custodian of the Corporation's assets or to another agent of the Corporation
or agent of any of the foregoing appointed for such purpose; except that the
authority to suspend the determination of the net asset value may not be
delegated. The net asset value shall be determined as of the close of trading on
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<PAGE>
the New York Stock Exchange on each day such Exchange is open for trading,
unless the Board of Directors shall, by resolution, prescribe a different time
or times as of which such determination shall be made. The time at which shares
of Common Stock issued and sold by the Corporation shall be deemed to be
outstanding and the time at which shares of Common Stock redeemed or repurchased
by the Corporation shall be deemed no longer to be outstanding shall be fixed by
resolution of the Board of Directors. A determination of net asset value shall
be applicable to requests for redemption and, if and to the extent determined by
the Board of Directors, to other transactions of the Corporation in shares of
Common Stock, effected during such periods as the Board of Directors shall
prescribe by resolution.
D. Suspension of Redemption Rights. The Board of Directors may declare a
suspension of the redemption rights granted in Paragraph A: (i) for any period
during which the New York Stock Exchange is closed (other than customary weekend
and holiday closings), or during which trading in the markets customarily
utilized by the Corporation is restricted; (ii) for any period during which an
emergency exists, as determined by the Securities and Exchange Commission, as a
result of which disposal of the Corporation's investments or determination of
net asset value is not reasonably practicable; or (iii) for such periods as the
Securities and Exchange Commission by order may permit for the protection of the
Corporation's investors. Such suspension shall take effect at such time as the
Board of Directors or authorized officer shall specify and shall continue until
the Board of Directors or authorized officer shall declare the suspension at an
end, except that the suspension shall terminate in any event on the first day on
which (1) the condition giving rise to the suspension shall have ceased to exist
and (2) no other condition exists under which suspension is authorized under
this Paragraph D. Each declaration by the Board of Directors pursuant to this
Paragraph D shall be consistent with applicable rules and regulations, if any,
of the Securities and Exchange Commission or any other governmental body having
jurisdiction over the Corporation. To the extent not inconsistent with such
rules and regulations, the determination of the Board of Directors shall be
conclusive.
E. Effect of Suspension of Redemption Rights. Notwithstanding any other
provision of this Article Sixth, the rights of holders of Common Stock to
require the Corporation to redeem and tender payment for their shares, including
holders who shall have requested redemption of shares but who shall not have
received payment therefor, shall be suspended during any period when a
suspension of redemption rights authorized by Paragraph D is in effect. No
determination of net asset value per share shall be required to be made during a
period when
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<PAGE>
such a suspension is in effect. Any holder who shall have his redemption right
so suspended may, during the period of such suspension, by appropriate written
notice of revocation delivered to the office or agency where request for
redemption was made, revoke any request or instruction for redemption not
honored and withdraw any certificates tendered for redemption. The redemption
price of shares for which redemption requests have not been revoked shall be the
net asset value of such shares determined after the termination of such
suspension, and payment shall be made within seven days after the date upon
which the requirements of Paragraph A were met plus the period during which such
suspension was in effect.
SEVENTH: Board of Directors. The number of Directors of the Corporation
shall be five, which number may be changed pursuant to the By-Laws of the
corporation. The names of the Directors, who shall act until the first annual
meeting or until their successors are duly elected and qualified, are:
Robert A. Nikels
John B. Borsch, Jr.
Roxanne Decyk
Stanley R. Nelson
Robert W. Crispin
A. Powers. The following powers are expressly vested in the Board of
Directors of the Corporation and may be exercised without the approval of the
stockholders of the Corporation:
(i) To make, adopt, alter, amend and repeal By-Laws of the
Corporation;
(ii) To declare and pay dividends and distributions in cash, shares
of Common Stock or other securities or property from surplus or any funds
legally available therefor, at such intervals (which may be as frequently
as daily) or on such other periodic bases as it shall determine; to
declare such dividends or distributions by means of a formula or other
method of determination at meetings held less frequently than the
frequency of the effectiveness of such declarations; to provide that
dividends may be paid in cash or in shares of Common Stock at the election
of each stockholder; to establish payment dates for dividends or any other
distributions on any bases, including dates occurring less frequently than
the effectiveness of the declaration thereof; and to provide for the
payment of declared dividends on a date earlier than the specified payment
date;
(iii) Inasmuch as the computation of net income, profits or earnings
for Federal income tax purposes may
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<PAGE>
vary from the computation thereof on the books of the Corporation, in its
discretion, to distribute for any fiscal year as dividends and as capital
gains distributions, respectively, additional amounts sufficient to enable
the Corporation to avoid or reduce its liability for taxes;
(iv) To issue, reissue, sell or cause to be issued and sold any of
the authorized shares of Common Stock, including any additional shares
hereafter authorized and any shares redeemed or repurchased by the
Corporation, to such persons as the Board of Directors shall determine,
for such consideration, not less than the greater of the par value thereof
or the net asset value per share determined as provided in these Articles
of Incorporation and in resolutions of the Board of Directors adopted from
time to time, and upon terms and conditions determined by the Board of
Directors, all such shares when so issued and sold being fully paid and
nonassessable; provided that no shares of Common stock shall be issued or
sold by the Corporation (except as a stock dividend distributed to
stockholders) for less than an amount which would result in proceeds to
the Corporation at least equal to the net asset value per share,
determined as provided in these Articles of Incorporation and in
resolutions of the Board of Directors adopted from time to time, and
provided further that in the case of shares issued or sold for a
consideration other than cash, the resolution authorizing their issue or
sale shall include a fair description of any consideration other than cash
and a statement of the actual value of such consideration as determined by
the Board of Directors or a statement that the Board of Directors has
determined that the actual value is or will be not less than a certain
sum; and
(v) To authorize the purchase by the Corporation, either directly or
through an agent, of shares of Common Stock, in the open market or
otherwise, upon terms and conditions determined by the Board of Directors
at prices not in excess of the net asset value of such shares determined
as provided in these Articles of Incorporation and in resolutions of the
Board of Directors adopted from time to time.
B. Good-Faith Determinations Conclusive. Any determination made in good
faith and, so far as accounting matters are involved in accordance with
generally accepted accounting principles, by or pursuant to the direction of the
Board of Directors, as to: the amount of the assets, debts, obligations or
liabilities of the Corporation; the amount of any reserves or charges set up and
the propriety thereof; the purpose for
-6-
<PAGE>
creating such reserves or charges the use, alteration or cancellation of any
reserves or charges (whether or not any debt, obligation or liability for which
such reserves or charges were created shall have been paid or discharged or
shall be then or thereafter required to be paid or discharged); the price or bid
or asked price or yield equivalent of any investment owned or held by the
Corporation; the market or fair value of any investment or any other asset of
the Corporation; the number of shares of Common Stock of the Corporation
outstanding; the ability to liquidate investments in orderly fashion; and any
matters relating to the issue, sale, redemption, purchase and/or other
acquisition or disposition of investments or Common Stock of the Corporation,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its Common Stock, past, present and future, and Common Stock of the
Corporation shall be issued and sold on the condition and understanding that any
and all such determinations shall be binding as aforesaid.
EIGHTH: General:
A. The Corporation reserves the right from time to time to amend, alter,
change, add to, or repeal any provisions contained in these Articles of
Incorporation in the manner now or hereafter prescribed or permitted by statute,
including any amendment which alters the contract rights, as expressly set forth
in these Articles of Incorporation, of any outstanding Common Stock, and all
rights conferred on stockholders and others herein are granted subject to this
reservation.
B. Nothing contained in these Articles of Incorporation shall be deemed to
authorize any action in contravention of any provision of the 1940 Act or any
rule or regulation thereunder.
C. The titles contained in these Articles of Incorporation are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
IN WITNESS WHEREOF, the undersigned incorporator hereby acknowledges these
Articles of Incorporation to be his act and further acknowledges that, to the
best to his knowledge, information and belief, the matters and facts set forth
therein are true in all material respects and that this statement is made under
the penalties for perjury.
5/7/90 /s/ Jeremy Sachs
- ------------- ----------------------
Dated Jeremy Sachs
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<PAGE>
Exhibit 4
INCORPORATED UNDER THE LAWS OF THE STATE OF
MARYLAND
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
AUTHORIZED CAPITAL 50,000,000 SHARES $.01 PAR VALUE
THIS CERTIFIES THAT SPECIMENT IS THE OWNER OF _____________________________
FULL PAID AND NON-ASSESSABLE shares of the Capital Stock of LINCOLN NATIONAL
INTERNATIONAL FUND, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON
OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE
CORPORATION, THIS _________________________ DAY OF ________________________
A.D. 19__
- ----------------------------------- ----------------------------------------
Secretary President
<PAGE>
ADVISORY AGREEMENT
This Agreement, made this 16th day of November, 1990 between Lincoln
National International Fund, Inc., a Maryland corporation (the "Fund"), and
Lincoln National Investment Management Company (the "Adviser"),
WHEREAS, the Fund is to be an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory and administrative services to the Fund, and the Adviser is willing to
render such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Appointment of Adviser. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund and to administer its corporate affairs, subject
to the supervision of the Board of Directors of the Fund for the period and on
the terms set forth in this Agreement. The Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Investment Advisory Duties. Subject to the supervision of the Board of
Directors of the Fund, the Adviser shall manage the investment operations of the
Fund, subject to the following:
(a) The Adviser shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio,
determine from time to time what securities will be purchased,
retained or sold by the Fund, and what portion of the assets will be
invested or held uninvested as cash;
(b) The Adviser shall use the same skill and care in the management of
the Fund's portfolio as it uses in the management of other accounts
for which it has investment responsibility;
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of
Incorporation, Bylaws and prospectus of the Fund and with the
instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations;
(d) The Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its determinations
either directly with the issuer or with any broker and/or dealer who
specializes
<PAGE>
in the securities in which the Fund is active, but shall in no event
place such orders with any affiliated person of the Adviser. In
placing orders with brokers and/or dealers the Adviser shall attempt
to obtain the best price and the most favorable execution of its
orders, subject to such other considerations as may be set forth in
the then most recent prospectus of the Fund;
(e) The Adviser shall maintain books and records with respect to the
Fund's securities transactions and shall render to the Fund's Board
of Directors such periodic and special reports as the Fund's Board
of Directors may reasonably request;
(f) The investment advisory services of the Adviser to the Fund under
this Agreement are not to be deemed exclusive, and the Adviser shall
be free to render similar services to others. In addition, it is
understood that the persons employed by the Adviser to assist in the
performance of its duties under this Agreement will not necessarily
devote their full time to such activity.
(g) For purposes of this Agreement, the term "prospectus" includes the
Statement of Additional Information for the Fund pursuant to the
requirements of the 1940 Act and regulations thereunder.
3. Administrative Functions. The Adviser will administer the Fund's
corporate affairs, subject to the overall supervision of the Board of Directors
of the Fund and, in connection therewith, shall furnish the Fund with office
space and all necessary office facilities, equipment and personnel, and shall
provide all necessary executive and other personnel (including certain of its
officers and employees) for managing the investments and affairs of the Fund.
In connection with its administration of the affairs of the Fund, the
Adviser will bear all of the following expenses:
(i) The salaries and expenses of all personnel, except the fees and
expenses of directors who are not "interested persons" of the Fund,
as that term is defined in the 1940 Act;
(ii) All expenses incurred by the Adviser in connection with
administering the Fund's business other than those assumed by the
Fund herein; and
The Fund assumes and will pay the following expenses, except to the extent
incurred in connection with the organization of the Fund:
(a) The fee of the Adviser;
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<PAGE>
(b) The compensation and expenses of directors who are not "interested
persons" of the Fund;
(c) The fees and expenses of the custodian of the Fund's assets;
(d) The fees and expenses of independent accountants for the Fund;
(e) Brokerage commissions and securities transaction costs incurred by
the Fund, including any portion of such commissions attributable to
research and brokerage services as defined by Section 28(e) of the
Securities Exchange Act of 1934, as amended;
(f) All taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies;
(g) The fees of any trade association of which the Fund may be a member;
(h) The cost of stock certificates representing shares of the Fund;
(i) The fees and expenses involved in registering and maintaining
registrations of the Fund and its shares with the Securities and
Exchange Commission (the "Commission"), and qualifying its shares
under state securities laws, including the preparation and printing
of the Fund's registration statements and updated prospectuses
provided to current stockholders;
(j) Expenses of stockholders' and directors' meetings and of preparing
and printing proxy material and mailing reports to stockholders;
(k) The charges and expenses of outside legal counsel for the Fund,
including legal services rendered in connection with the Fund's
corporate existence, corporate and financial structure and relations
with its stockholders, registrations and qualifications of
securities and litigation; and
(l) Expenses of any extraordinary nature (including litigation and
indemnification expenses) which are not incurred in the ordinary
course of the Fund's business.
4. Contractual Services. The Adviser may contract with other entities to
assist it in rendering services described in this Agreement; provided, however,
that the Adviser will continue to be contractually bound with respect to the
performance of its duties and obligations as set forth herein.
-3-
<PAGE>
5. Books and Records. The Adviser shall keep the Fund's books and records
required to be maintained by it pursuant to paragraph 2 hereof. The Adviser
agrees that all records which it maintains for the Fund are the property of the
Fund and it will surrender promptly to the Fund any of such records upon the
Fund's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by Rule 31a-l of the Commission under the 1940
Act.
6. Compensation. The Fund shall pay the Adviser, as full compensation for
all services rendered and all facilities and personnel furnished hereunder, a
monthly fee at the annual rate of .90 of 1% of the first $200,000,000 of average
daily net asset value of the Fund; .75 of 1% of the next $200,000,000; and .60
of 1% of the average daily net asset value of the Fund in excess of $400,000,000
during the fiscal year, computed in the manner used for the determination of the
offering price of shares of the Fund. The fee for each month shall be payable to
the Adviser not later than the tenth day of the following month.
7. Reimbursement of Expenses. If, in any fiscal year, the total of the
Fund's expenses (including the fee payable pursuant to paragraph 6 hereof, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses) exceeds
1-1/2% of the average daily net asset value of the Fund, computed in the manner
above described, the Adviser will pay such excess. For purposes of this
paragraph, the term "fiscal year" shall include the portion of any fiscal year
which shall have elapsed at the date of termination of this Agreement, and the
expense limitation shall be that part of 1-1/2% proportioned to the portion of a
full fiscal year elapsed.
8. Limitation of Liability. The Adviser shall not be liable for any error
of judgment or mistake of law or fact or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard of its obligations and
duties under this Agreement.
9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until the earlier of one year from the effective
date of the Fund's Registration Statement or the date of the first annual or
special meeting of the stockholders of the Fund, and, if approved by a majority
of the Fund's outstanding voting securities (as defined in the 1940 Act),
thereafter shall continue automatically for periods of one calendar year so long
as such continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities or by the Fund's Board
of Directors, and (b) by the vote of a majority of those members of the Board of
Directors of the Fund who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that this Agreement may be terminated by the Fund at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Fund or by vote of a majority of the Fund's outstanding voting securities
on 60 days'
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<PAGE>
written notice to the Adviser, or by the Adviser at any time, without the
payment of any penalty, on 90 days' written notice to the Fund. This Agreement
will automatically and immediately terminate in the event of its "assignment"
(as defined in the 1940 Act).
10. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund who are not "interested
persons" of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such amendment, and (b) by vote of a majority of the
Fund's outstanding voting securities, provided, however, that compliance with
subparagraph (b) of this paragraph 10 shall not be required in order to amend
this Agreement to lower the Adviser's compensation under paragraph 6 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument, in two
counterparts (each of which shall be deemed an original), to be executed by
their officers designated below as of the day and year first above written.
Lincoln National International
Fund, Inc.
By /s/ Robert A. Nikels
-------------------------------
Robert A. Nikels, President
ATTEST:
/s/ Kelly D. Clevenger
- ----------------------------
Vice President
Lincoln National International
Management Company
By /s/ Robert W. Crispin
-------------------------------
Robert W. Crispin, President
ATTEST:
/s/ O. Douglas Worthington
- ----------------------------
Assistant Secretary
-5-
<PAGE>
SUB-ADVISORY AGREEMENT
Sub-Advisory Agreement executed as of , between LINCOLN
INVESTMENT MANAGEMENT, INC., an Illinois corporation (the "Adviser"), and
DELAWARE INTERNATIONAL ADVISERS LIMITED, a company formed under the laws of
England (the "Sub-Adviser").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE FUND.
(a) Subject always to the control of the Directors of Lincoln National
International Fund, Inc. (the "Fund"), a Maryland corporation, which is an
eligible investment fund for Lincoln National Variable Annuity Account C
and one or more other separate accounts of The Lincoln National Life
Insurance Company (the "Separate Accounts"), the Sub-Adviser, at its
expense, will furnish continuously an investment program for the Fund
which shall at all times meet the diversification requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Sub-Adviser will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of portfolio securities. In the
performance of its duties, the Sub-Adviser will comply with the provisions
of the organizational documents and Bylaws of the Fund (as provided in
writing to the Sub-Adviser) and the stated investment objective, policies
and restrictions of the Fund, and will use its best efforts to safeguard
and promote the welfare of the Fund, and to comply with other policies
which the Directors or the Adviser, as the case may be, may from time to
time determine (as provided in writing to the Sub-Adviser). The Sub-
Adviser shall make its officers and employees available to the Adviser
from time to time at such reasonable times as the parties may agree to
review investment policies of the Fund and to consult with the Adviser
regarding the investment affairs of the Fund.
(b) The Sub-Adviser, at its expense, will furnish (i) all necessary investment
and management facilities, including salaries of personnel, required for
it to execute its duties faithfully and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Fund (excluding
determination of net asset value per share and shareholder accounting
services).
(c) In the selection of brokers and dealers and the placing of orders for the
purchase and sale of portfolio investments for the Fund, the Sub-Adviser
shall use its best efforts to obtain for the Fund the most favorable price
or best execution available, except to the extent it may be permitted to
pay higher brokerage commissions for brokerage and research services as
described below. In using its best efforts to obtain for the Fund the
most favorable price or best execution available, the Sub-Adviser, bearing
in mind the Fund's
<PAGE>
best interests at all times, shall consider all factors it deems relevant,
including by way of illustration: price; the size of the transaction; the
nature of the market for the security; the amount of the commission; the
timing of the transaction taking into account market prices and trends;
the reputation, experience and financial stability of the broker or dealer
involved; and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Directors of the
Fund may determine (and which are delivered in writing to Sub-Adviser), the
Sub-Adviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker or dealer that provides
brokerage and research services to the Sub-Adviser an amount of commission
for effecting a portfolio investment transaction in excess of the amount
of commission another broker or dealer would have charged for effecting
that transaction, if the Sub-Adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Sub-Adviser's
over-all responsibilities with respect to the Fund and to other clients of
the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion.
(d) The Sub-Adviser shall not be obligated to pay any expenses of or for the
Fund not expressly assumed by the Sub-Adviser pursuant to this Section 1
other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Directors, officers and
employees of the Fund may be a shareholder, director, officer or employee
of, or be otherwise interested in, the Sub-Adviser, and in any person
controlled by or under common control with the Sub-Adviser; and that the
Sub-Adviser and any person controlled by or under common control with the
Sub-Adviser may have an interest in the Fund or one or more Separate
Accounts, or any other investment vehicle for which the Fund is an
eligible investment fund.
3. COMPENSATION TO BE PAID BY THE ADVISER TO THE SUB-ADVISER.
The Adviser will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered and for the expenses borne by the
Sub-Adviser pursuant to Section 1, a fee, computed and paid at the annual
rate of 0.50 of 1% of the first $200 million of average net assets of the
Fund, 0.40 of 1% of the next $200 million of average net assets, and 0.35
of 1% of any excess over $400 million. Such fee shall be paid by the
Adviser, and not by the Fund, and without regard to any reduction in the
fees paid by the Fund to the Adviser under its management contract as a
result of any statutory or regulatory limitation on investment company
expenses or voluntary fee reduction assumed by the Adviser. Such fee shall
be payable for each month within 10 business days after the end of such
month.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
<PAGE>
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment or in the event that the investment
advisory contract between the Adviser and the Fund shall have terminated for any
reason; and this Agreement shall not be amended unless such amendment be
approved at a meeting by the affirmative vote of a majority of the outstanding
shares of the Fund and by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Directors of the Fund
who are not interested persons of the Fund or of the Adviser or of the
Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall remain
in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) The Fund may at any time terminate this Agreement by not more than sixty
days' written notice delivered or mailed by registered mail, postage
prepaid, to the Adviser and the Sub-Adviser; or
(b) If (i) the Directors of the Fund or the shareholders by the affirmative
vote of a majority of the outstanding shares of the Fund and (ii) a
majority of the Directors who are not interested persons of the Fund or of
the the Adviser or of the Sub-Adviser, by vote cast in person at a meeting
called for the purpose of voting on such approval, do not specifically
approve at least annually the continuance of this Agreement, then this
Agreement shall automatically terminate at the close of business on the
second anniversary of its execution, or upon the expiration of one year
from the effective date of the last such continuance, whichever is later;
provided, however, that if the continuance of this Agreement is submitted
to the shareholders of the Fund for their approval and such shareholders
fail to approve such continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in a manner consistent with
the Investment Company Act of 1940 and the Rules and Regulations
thereunder; or
(c) The Adviser may at any time terminate this Agreement by not less than
ninety days' written notice delivered or mailed by registered mail,
postage prepaid, to the Sub-Adviser, and the Sub-Adviser may at any time
terminate this Agreement by not less than 90 days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser.
Action by the Fund under (a) above may be taken either (i) by vote of a
majority of its Directors, or (ii) by the affirmative vote of a majority of
the outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be without
the payment of any penalty.
<PAGE>
6. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Adviser in writing of the
occurrence of any of the following events:
(a) the Sub-Adviser shall fail to be registered as an investment adviser under
the Investment Advisers Act of 1940, as amended from time to time, and
under the laws of any jurisdiction in which the Sub-Adviser is required to
be registered as an investment adviser in order to perform its obligations
under this Agreement;
(b) the Sub-Adviser shall have been served or otherwise have notice of any
action, suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, public board or body, involving the affairs of the
Fund;
(c) the ownership of more than 51% of the common stock of the Sub- Adviser
issued and outstanding as of the effective date of this Agreement will be
transferred; and
(d) the Chairman of the Board of Directors or the President of the Sub-
Adviser, or any of the Sub-Adviser's portfolio managers for the Fund shall
have changed.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority of
the outstanding shares" means the affirmative vote, at a duly called and held
meeting of shareholders, (a) of the holders of 67% or more of the shares of the
Fund present (in person or by proxy) and entitled to vote at such meeting, if
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of the holders
of more than 50% of the outstanding shares of the Fund entitled to vote at such
meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the Rules and
Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934 and the Rules
and Regulations thereunder.
8. NONLIABILITY OF SUB-ADVISER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub-Adviser, or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to
the Fund or to any shareholder of the Fund, for any act or
<PAGE>
omission in the course of, or connected with, the rendering of services
hereunder.
Sub-Adviser agrees to indemnify the Adviser, the Separate Accounts and the
Depositor of the Separate Accounts for, and hold them harmless against,
any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Sub-Adviser) or litigation
(including legal and other expenses) to which the Adviser, the Separate
Accounts or the Depositor of the Separate Accounts may become subject
under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements arise as a result of any failure by the Sub-Adviser to
adequately diversify the investment program of the Fund, pursuant to the
requirements of Section 817(h) of the Code, and the regulations issued
thereunder (including, but not by way of limitation, Reg. Sec. 1.817-5,
March 2, 1989, 54 F.R. 8730), relating to the diversification requirements
for separate accounts, endowment, and life insurance contracts.
<PAGE>
IN WITNESS WHEREOF, LINCOLN INVESTMENT MANAGEMENT, INC. and DELAWARE
INTERNATIONAL ADVISERS LIMITED have each caused this Instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
LINCOLN INVESTMENT
MANAGEMENT, INC.
By:
-------------------------------------
Printed Name:
----------------------------
Title:
-----------------------------------
DELAWARE INTERNATIONAL ADVISERS LIMITED
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
Accepted and agreed to as of the day and year
first above written:
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
<PAGE>
AMENDMENT TO ADVISORY AGREEMENT
This is an Amendment (effective November 16, 1990) to that certain
ADVISORY AGREEMENT (made November 16, 1990) between Lincoln National
International Fund, Inc., a Maryland Corporation (the "Fund") and Lincoln
National Investment Management Company (the "Adviser").
For good and valuable consideration, the Fund and the Adviser hereby amend
paragraph 7 of the Agreement, as follows:
The figure 1-1/2% appearing on line 5 and again on line 10, in paragraph 7
of the Agreement, is hereby deleted, and the figure 2.0% is hereby
substituted for it, in both instances.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment, in two
counterparts (each of which shall be deemed an original), to be executed by
their officers designated below as of the day and year first above written.
Lincoln National International
Fund, Inc.
By /s/ Robert A. Nikels
-------------------------------
Robert A. Nikels, President
ATTEST:
/s/ J. Paul Trenary
- ----------------------------
Assistant Secretary
Lincoln National International
Management Company
By /s/ Robert W. Crispin
-------------------------------
Robert W. Crispin, President
ATTEST:
/s/ O. Douglas Worthington
- ----------------------------
Assistant Secretary
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank ....................1
Article 2 Fees and Expenses ...........................................5
Article 3 Representations and Warranties of the Bank ..................6
Article 4 Representations and Warranties of the Fund ..................6
Article 5 Indemnification .............................................7
Article 6 Covenants of the Fund and the Bank .........................10
Article 7 Termination of Agreement ...................................11
Article 8 Assignment .................................................12
Article 9 Amendment ..................................................12
Article 10 Massachusetts Law to Apply .................................13
Article 11 Merger of Agreement ........................................13
Article 12 Counterparts ...............................................13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 29th day of April, 1991, by and between LINCOLN
NATIONAL INTERNATIONAL FUND, INC., a Maryland corporation, having its principal
office and place of business at 1300 South Clinton Street, Fort Wayne, Indiana
46801 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment: Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and issued shares
of its common stock, $.01 par value, ("Shares"), dividend disbursing agent,
custodian of certain retirement plans and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders of the
Fund ("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund, including
without limitation any periodic investment plan or periodic withdrawal program.
<PAGE>
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Articles of Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
-2-
<PAGE>
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated
stock certificates upon presentation thereof and without such
indemnity;
(ix) Report abandoned property to the various states as authorized
by the Fund per policies and principles agreed upon by the
Fund and the Bank;
(x) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(xi) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-1O(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance
-3-
<PAGE>
of shares, to monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or sale of such
shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total number of Shares sold
in each State.
-4-
<PAGE>
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund and
the Bank per the attached service responsibility schedule. The Bank may at times
perform only a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
Article 2 Fees and Expenses
5
<PAGE>
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It as a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
-6-
<PAGE>
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being, offered for sale.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
-7-
<PAGE>
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents or services which (i) are
received or relied upon by the Bank or its agents or subcontractors and/or
furnished to it or performed by or on behalf of the Fund, and (ii) have been
prepared, maintained and/or performed by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
-8-
<PAGE>
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision
-9-
<PAGE>
of this Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
-10-
<PAGE>
6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
-11-
<PAGE>
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund. Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c) (1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c) (1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
-12-
<PAGE>
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 12 Counterparts
12.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
LINCOLN NATIONAL INTERNATIONAL
FUND, INC.
BY: /s/ Robert A. Nikels
--------------------------------
Robert A. Nikels
Chairman of the Board and President
ATTEST:
/s/ Kenneth R. Hobson
- --------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Mark Toomey
--------------------------------
Vice President
ATTEST:
/s/ M. Fitzgerald
- --------------------------------
Assistant Secretary
-14-
<PAGE>
AGREEMENT TO PURCHASE SHARES
The Lincoln National Life Insurance Company ("LNL"), on its behalf and on
behalf of Lincoln National Variable Annuity Account C (the "Variable Account");
and Lincoln National International Fund, Inc. (the "Fund"), hereby agree that
shares of the Fund shall be made available to serve as an underlying investment
medium for variable annuity contracts to be offered by LNL through the Variable
Account subject to the following provisions:
1. LNL represents and warrants that it is an insurance company duly
organized and existing in good standing under Indiana law, that it has legally
and validly established the Variable Account as permitted under Indiana law and
has registered the Variable Account as permitted under Indiana law and will
register the Variable Account as a unit investment trust in accordance with the
provisions of the Investment Company Act of 1940, as amended (the "1940 Act"),
to serve as a segregated investment account for certain variable annuity
contracts (the "Contracts"). LNL further represents and warrants that the
Contracts will be registered under the Securities Act of 1933, as amended (the
"1933 Act"), and the Contracts will be issued and sold in compliance with all
applicable federal and state laws. The Contracts will provide for the
allocation of net amounts received by LNL thereunder to separate divisions of
the Variable Account designated as "sub-accounts" for investment in the shares
of registered investment companies selected by LNL ("underlying fund"). The
Fund will be an underlying fund for one of the sub-accounts.
2. Fund shares may be purchased and redeemed by LNL in accordance with
the provisions of the then current prospectus of the Fund. The Fund anticipates
that it will make its shares available indefinitely for purchase by LNL
hereunder, but the Fund reserves the right to suspend or terminate sales of its
shares hereunder at any time or times when its Board of Directors makes a good
faith determination that further sales would be to the detriment of current
holders of Fund shares. Payment for Fund shares shall be made by LNL within
five days after placement of the order for Fund shares. The Fund reserves the
right to delay issuance or transfer
<PAGE>
of Fund shares and/or to delay the accrual and/or declaration of dividends in
accordance with any policy set forth in its then current prospectus with respect
to such shares until any payment check has cleared. If payment is not received
by the Fund or an agent of the Fund within the five day period, the Fund may,
without notice, cancel the order and require LNL to reimburse promptly the Fund
for any loss suffered by the Fund resulting from such failure to make timely
payment. The Fund represents and warrants that Fund shares sold hereunder shall
be registered under the 1933 Act and duly authorized for issuance in accordance
with Maryland law.
3. LNL and its agents shall make no representation concerning the Fund or
Fund shares except those contained in the then current prospectus of the Fund or
in current printed sales literature of the Fund, or as otherwise approved by the
Fund in writing.
4. Administrative services to owners of and participants under Contracts
shall be the responsibility of LNL and shall not be the responsibility of the
Fund. The Fund will furnish LNL copies of its proxy material, reports to
stockholders and other communications to stockholders in such quantities as LNL
shall reasonable require for distribution to owners of or participants under the
Contracts and LNL will distribute these materials to such owners or participants
as required. LNL will vote Fund shares, to the extent required by law, in
accordance with instructions received from Contract owners. LNL will vote Fund
shares for which no instructions have been received in the same proportion as
Fund shares for which instructions have been received from Contract owners. LNL
and persons under its control will in no way recommend action in connection with
the solicitation of proxies for Fund shares held in the Variable Account.
5. The Fund shall amend the Registration Statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offer of its shares and shall provide LNL with as many copies of
its current prospectus as LNL may reasonably request.
-2-
<PAGE>
6. This Agreement may be terminated as to the issuance of Fund Shares as
follows:
(a) at the option of LNL or the Fund upon 90 days' written notice to
the other party;
(b) at the option of LNL if Fund shares are not available for any
reason to meet the requirements of the Contracts as determined by
LNL; or
(c) at the option of the Fund upon institution of any proceedings
against LNL relating to the Variable Account or the issuance and
sale of the Contracts, by the National Association of Securities
Dealers, Inc., the Securities and Exchange Commission, the
Indiana Insurance Commissioner or any other regulatory body.
7. (a) LNL agrees to indemnify and hold harmless the Fund and each of
its directors who is not an "interested person" of the Fund, as defined in the
1940 Act (collectively the "indemnified Parties") against any losses, claims,
damages, liabilities (including amounts paid in settlement thereof with the
written consent of LNL) or expenses or actions with respect thereto to which
such Indemnified Parties may become subject, under the Federal securities laws
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus of the Variable Account or
contained in the Contracts or sales literature (or any amendment
or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to an Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with written
information furnished to LNL by such Indemnified Party expressly
for use in the Registration Statement or prospectus for the
Variable Account or the Contracts or sales literature (or any
amendment or supplement);
(ii) arise out of or as a result of conduct, statements, or
representations (other than statements or representations
contained in the prospectus of the Fund and sales literature not
supplied by LNL) of LNL or persons under its control, with
respect to the sale and distribution of the Contracts, or
-3-
<PAGE>
(iii) arise as a result of any failure by LNL to provide the services
and furnish the materials set forth in paragraph four hereof.
LNL will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement is in addition to
any liability which LNL may otherwise have.
(b) Promptly after receipt by any of the Indemnified Parties of
notice of the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim in respect thereof is to be made against LNL, notify LNL of the
commencement thereof; but the omission so to notify LNL will not relieve LNL
from any liability which it may have to the Indemnified Parties otherwise than
under this Agreement. In case any such action is brought against the
Indemnified Parties, and LNL is notified of the commencement thereof, LNL will
be entitled to participate therein and to assume the defense thereof, with
counsel satisfactory to the party named in the action, and after notice from LNL
to such party of LNL's election to assume the defense thereof, LNL will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
-4-
<PAGE>
Executed and agreed to this 19th day of November, 1990.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
By:
Robert W. Crispin,
Executive Vice President
LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
By:
Robert A. Nikels,
President
U90062/LCT
-5-
<PAGE>
Exhibit No. (9)
FORM OF
TRADENAME AGREEMENT
THIS AGREEMENT, made this __ day of __________, 1990, between Lincoln
National Corporation ("LNC") and Lincoln National International Fund, Inc. (the
"Fund").
W I T N E S S E T H:
LNC, an Indiana corporation, holds diversified interests, primarily in
insurance and related financial service companies. Various subsidiary and
affiliated corporations organized or acquired by LNC use the words "Lincoln
National" in their names and business, and these words when used by a company
associated with LNC have a recognized business acceptance and identity
throughout the United States and in foreign countries. The right to use the
words "Lincoln National" as a part of the corporate name and business is an
asset of LNC, and it is entitled to protect its valuable property right against
improper use by others.
Lincoln National Investment Management Company, a subsidiary of LNC, has
agreed to act as investment adviser to the Fund. LNC believes that it is in its
best interests to agree to make the words "Lincoln National" available for use
by the Fund so long as the Fund has in effect an investment advisory contract
with Lincoln National Investment Management company.
Accordingly, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
1. The use of the words "Lincoln National" as a part of the corporate name
and business of the Fund is subject to consent of LNC, which consent is
hereby granted upon the conditions and terms set forth herein.
2. The Fund is authorized to use the words "Lincoln National" in its
corporate name and business only while the Fund is a party to an
investment advisory contract with Lincoln National Investment Management
Company and for a period not exceeding ninety (90) days following the
termination of any such contract. In the event that the Fund ceases to be
a party to an investment advisory contract with Lincoln National
Investment Management Company, the Fund shall promptly take such steps as
may be necessary to change its corporate name and business practices so as
to eliminate the words "Lincoln National" or any name that, in the opinion
of LNC, is confusingly similar or indicates an affiliation with LNC or any
of its subsidiaries and affiliates.
3. The use of the words "Lincoln National" by the Fund shall not prevent LNC
or any of its subsidiaries or affiliates, or any of their respective
successors or assigns, from using or permitting the use of the words
"Lincoln National" alone or with any other word or words by or in
connection with any other entity or business, whether or not the same
directly or indirectly competes or conflicts with the Fund or its
<PAGE>
IN WITNESS WHEREOF, LNC and the Fund have caused this Agreement to be
executed by their duly authorized officers upon the day aforesaid.
Attest: LINCOLN NATIONAL CORPORATION
By:
- ------------------------ -------------------------
Robert W. Crispin
Executive Vice President
- ------------------------ -------------------------
(Title) (Title)
Attest: LINCOLN NATIONAL
INTERNATIONAL FUND, INC.
By:
- ------------------------ -------------------------
Robert A. Nikels
President
- ------------------------ -------------------------
(Title) (Title)
<PAGE>
[Letterhead of Lincoln National Corporation - Law Division]
(219) 455-3018
April 19, 1991
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln National International Fund, Inc.
[File No. 33-38335]
Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
As counsel for Lincoln National International Fund, Inc., a Maryland
corporation (the "Fund"), I have examined the proceedings taken and being taken
for the registration by the Fund on the Registration Statement on Form N-1A of
an indefinite number of shares of its Common Stock, $.01 par value.
I have examined all instruments, documents and records which, in my
opinion, were necessary to examine for the purpose of rendering this
opinion. Based upon such examination, I am of the opinion that the
above-described shares of Common Stock will be, if and when issued by the Fund
in the manner and upon the terms set forth in said Registration Statement,
validly authorized and issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to Form N-1A.
Very truly yours,
/s/ Jeremy Sachs
Jeremy Sachs
Assistant General Counsel
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Financial Statements"
in the Statement of Additional Information and to the incorporation by reference
in this Post-Effective Amendment No. 9 to the Registration Statement (Form N-1A)
(No. 33-38335) of Lincoln National International Fund, Inc. of our report dated
February 4, 1998, included in the Multi Fund Variable Annuity Annual Report
1997.
Philadelphia, Pennsylvania
April 14, 1998
<PAGE>
[LETTERHEAD OF LINCOLN NATIONAL CORPORATION]
Exhibit No. (13)(b)
INVESTMENT LETTER
November 16, 1990
Lincoln National International Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46801
Ladies and Gentlemen:
This will advise you that in consideration of your issuance to the
undersigned of 11,000 shares of Common Stock (the Stock) $.01 par value of
Lincoln National International Fund, Inc. (the Fund) for an aggregate purchase
price of $110,000, Lincoln National Variable Annuity (Account C) represents and
warrants that the Stock will be held by Account C for its own account, for
investment and not with a view to distribution.
Account C understands that the Stock being issued to it has not been
registered under the Securities Act of 1933, as amended (the Act), and agrees
that the Stock may not be sold or transferred except pursuant to an effective
Registration Statement under the Act or unless exemption from such registration
is available under the Act with respect to such proposed sale or transfer.
In order to insure compliance with the Act, Account C agrees that the Fund
may, if it desires, refuse to transfer the Stock unless:
(i) a Registration Statement under the Act is then in effect with
respect to such Stock; or
(ii) an opinion has been obtained from counsel for the Fund to the effect
that an exemption from registration under the Act is available with
respect to the proposed transfer and that no such registration is
required; or
(iii) a no-action letter has been obtained with respect to such transfer
from the staff of the Securities and Exchange Commission.
<PAGE>
Lincoln National International Fund, Inc.
November 16, 1990
Page 2
Account C further agrees that a legend briefly describing the restrictions
set forth in this letter may be placed on the stock certificate, if any,
delivered to Account C.
Very truly yours,
LINCOLN NATIONAL VARIABLE
ANNUITY ACCOUNT C
By: THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
By: /s/ ROBERT W. CRISPIN
--------------------------
Robert W. Crispin,
Executive Vice President
<PAGE>
Power of Attorney
LET IT BE KNOWN that I, Nancy L. Frisby, hereby revoke all Powers of
Attorney authorizing any person to act as attorney-in-fact relative to Lincoln
National International Fund, Inc. which were previously executed by me and
appoint Jeremy Sachs, John L. Steinkamp and C. Suzanne Womack, jointly and
severally, my attorneys-in-fact, with power of substitution, for me in any and
all capacities, to sign any and all amendments to the Registration Statement for
Lincoln National International Fund, Inc. and to file such amendments, with
exhibits and other documents, with the Securities and Exchange Commission,
hereby ratifying all that each attorney-in-fact may do or cause to be done by
virtue of this power.
/s/ Nancy L. Frisby
----------------------
Nancy L. Frisby
STATE OF INDIANA )
) SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me
this 2nd day of February, 1993.
/s/ [Illegible]
----------------------------
Notary Public
Commission Expires: July 6, 1993
<PAGE>
Power of Attorney
LET IT BE KNOWN that I, Barbara S. Kowalczyk, hereby revoke all Powers of
Attorney authorizing any person to act as attorney-in-fact relative to
Lincoln National International Fund, Inc. which were previously executed by
me and appoint Jeremy Sachs, John L. Steinkamp and C. Suzanne Womack, jointly
and severally, my attorneys-in-fact, with power of substitution, for me in
any and all capacities, to sign any and all amendments to the Registration
Statement for Lincoln National International Fund, Inc. and to file such
amendments, with exhibits and other documents, with the Securities and
Exchange Commission, hereby ratifying all that each attorney-in-fact may do
or cause to be done by virtue of this power.
/s/ Barbara S. Kowalzcyk
-------------------------
Barbara S. Kowalzcyk
STATE OF INDIANA )
) SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me
this 20th day of December, 1993.
/s/ Mary L. Lung
--------------------
Notary Public
Commission Expires: 12/20/97
--------
<PAGE>
POWER OF ATTORNEY
Each peron whose signature appears following paragraph b) under
"SIGNATURES" below hereby constitutes and appoints John L. Steinkamp, Jeremy
Sachs and C. Suzanne Womack, and each of them, has true and lawful
attorneys-in-fact in his name, place and stead, in any and all capacities, to
sign any and all amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission under the Securities Act of 1933
and the Investment Company Act of 1940.
SIGNATURES
a) Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Wayne, and State of Indiana on
the 20th day of December, 1990.
LINCOLN NATIONAL
INTERNATIONAL FUND, INC:
By /s/ Robert A. Nikels
-----------------------------
Robert A. Nikels, Chairman of
the Board and President
b) Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Robert A. Nikels Chairman of the Board, 12/20/90
- ------------------------ President and Director --------
Robert A. Nikels (Principal Executive
Officer)
/s/ John B. Borsch, Jr. Director 10/31/90
- ------------------------ --------
John B. Borsch, Jr.
/s/ Roxanne Decyk Director 10/31/90
- ------------------------ --------
Roxanne Decyk
/s/ Stanley R. Nelson Director 11/5/90
- ------------------------ -------
Stanley R. Nelson
Director
- ------------------------ --------
Jon A. Boscia
/s/ David G. Humes Assistant Secretary 12/20/90
- ------------------------ (Principal Accounting --------
David G. Humes Officer)
/s/ Walter W. Bonham, Jr Assistant Treasurer 12/20/90
- ------------------------ (Acting Principal --------
Max A. Roesler Financial Officer)
<PAGE>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------
|--| City Financial Planners, Ltd. |
| | 100% - Englad/Wales - Distribution of life|
| | assurance & pension products |
| --------------------------------------------
| -------------------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| -------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ------------------------------------------------
|--| Lincoln Funds Corporation |
| | 100% - Delaware - Intermediate Holding Company |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -----------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | --------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | --------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | --------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
| | ----------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
| -------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
|
| ----------------------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | -------------------------------------------------------------
| |
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (India) Inc. |
| | 100% - Indiana - India Representative Office |
| -----------------------------------------------
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | ----------------------------------------
| | | |--| Delaware International Advisers Ltd. |
| | | | | 81.1% - England - Investment Advisor |
| | | | ----------------------------------------
| | | | --------------------------------------
| | | |--| Delaware Management Trust Company |
| | | | | 100% - Pennsylvania - Trust Service |
| | | | --------------------------------------
| | | | ------------------------------------------------
| | | |--| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | ------------------------------------------------
| | | | | | --------------------------------------
| | | | | --| Delaware International Advisers, Ltd.|
| | | | | | 18.9% - England - Investment Advisor |
| | | | | --------------------------------------
| | | | -------------------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | ---------------------------------------
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | ---------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-MutualFund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | | |
| | | | | | -------------------------------------------------------
| | | | | | ------------------------------------
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General Partner |
| | | | | | ------------------------------------
| | | | | | | -----------------------------------------
| | | | | | | | Founders CBO, L.P. |
| | | | | | --| 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | --|Founders CBO Corporation |
| | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | -------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------
| | | | | ------------------------------------
| | | | |---| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | ------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |---| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |-- | Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | -------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Investment & Retirement Services, Inc. |
| | | | | 100% - Delaware - Registered Transfer Agent |
| | | | -----------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | -----------------------------------------
| | | |--| Lynch & Mayer Asia, Inc. |
| | | | | 100% - Delaware - Investment Management |
| | | | -----------------------------------------
| | | | ----------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ----------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
| | | ----------------------------------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--| AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | --------------------------------------------------
| | -------------------------------------------
| |--| Cigna Associates, Inc. |
| | | 100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | ----------------------------------------------------------
| | |--| Cigna Associates of Massachusetts, Inc. |
| | | | 100% - Massachusetts - Insurance Agency |
| | ----------------------------------------------------------
| | -------------------------------------------
| |--|Cigna Financial Advisors, Inc. |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| |
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| -----------------------------------------------
| -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
|
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | -------------------------------------------------------
| |--| Lincoln European Reinsurance S.A. |
| | | 79% - Belgium |
| | | (Remaining 21% owned by Lincoln National Underwriting |
| | | Services, Ltd. |
| | -------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | | ------------------------------------------------------
| | |--| Lincoln European Reinsurance S.A. |
| | | | 21% - Belgium |
| | | |(Remaining 79% owned by Lincoln National Reinsurance |
| | | | Company Limited |
| | | ------------------------------------------------------
| | --------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | | (Remaining 49% owned by Lincoln National Corp.) |
| | --------------------------------------------------------
| ---------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| ---------------------------------------------
| ------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| ------------------------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | -------------------------------------------------------
| |--| Allied Westminster & Company Limited |
| | | (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | -------------------------------------------------------
| | -----------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | --------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ---------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| |
| | --------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Financial Advisers Limited |
| | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| | ------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Unit Trust Management Limited |
| | | |(formerly: Laurentian Unit Trust Management Limited)|
| | | | 100% - England/Wales - Unit Trust Management |
| | | ----------------------------------------------------
| | | | --------------------------------------------------
| | | |--| LUTM Nominees Limited |
| | | | | 100% - England/Wales - Nominee Services (Dormat) |
| | | | --------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | |(formerly: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--| Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | | 100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| ------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | |
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | |
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | | -----------------------------------------------------
| | | | ----------------------------------------------------
| | | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | |
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
| | | | -------------------------------------
| | | | --------------------------
| | | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | | | 100% - Inactive |
--------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | | -----------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| | -----------------------------------------------------------
| |--| Lincoln Independent Limited |
| | |(formerly: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | -----------------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln Investment Management Limited |
| | |(formerly: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| |
| | ---------------------------------------------
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| | ---------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | --------------------------------------------------
| | -------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National (Jersey) Limited |
| | | 100% - England/Wales - Dormat |
| | --------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln National (Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| | -------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln SBP Trustee Limited |
| | 100% - England/Wales |
--------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
|
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| | --------------------------------------------------------
| | ---------------------------------------------------
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | ---------------------------------------------------
| | | ----------------------------------------
| | |--|Solutions Reinsurance Limited |
| | | 100% - Bermuda - Class III Insurance Co|
| ----------------------------------------
| ----------------------------------------------------------
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
| ----------------------------------------------------------
| ----------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ----------------------------------------------------------
| --------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
--------------------------------------------
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport, LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
12a) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18,
1995. Company is dormat and was formed for tax reasons per Barbara
Benoit, Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware
Capital Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National
Sales Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and
was incorporated on November 26, 1996; it was formed to act ast
Trustee for Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an
Indiana corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage
Global Advisors, Inc. were transferred via capital contribution to
Lincoln National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln
National Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to
Lincoln National Investments, Inc. effective January 24, 1997.
<PAGE>
JANUARY 1997 CON'T
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (formerly
Laurentian Financial Group PLC); Lincoln Milldon Limited (formerly
Laurentian Milldon Limited); Lincoln Management Services Limited
(formerly Laurentian Management Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc.
which was dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved
effective March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997.
Company then changed its name to Delvoy, Inc. The acquisition
included the mutual fund group of companies as part of the Voyager
acquisition. The following companies all then were moved under the
newly formed holding company, Delvoy, Inc. effective April 30, 1997:
Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Capital Management, Inc., Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund
Distributors, Inc. on April 30, 1997; merger is scheduled for May 31,
1997 for Voyager Fund Managers, Inc. into Delaware Management Company,
Inc. and Voyager Fund Distributors, Inc. is to merge into Delaware
Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y
Reaseguros, Grupo Financiero InverMexico. Stock was sold to Grupo
Financiero InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National
Financial Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company,
Inc. effective May 30, 1997 at 10:00 p.m. with Delaware Management
Company, Inc. surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged
into a newly formed company Voyager Fund Distributors (Delaware),
Inc., incorporated as a Delaware corporation on May 23, 1997. Voyager
Fund Distributors (Delaware), Inc. then merged into Delaware
Distributors, L.P. effective May 31, 1997 at 2:01 a.m. Delaware
Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
<PAGE>
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on
June 30, 1997.
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial
Advisors Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial
Corporation, American States Insurance Company, American Economy
Insurance Company, American States Insurance Company of Texas,
American States Life Insurance Company, American States Lloyds
Insurance Company, American States Preferred Insurance Company, City
Insurance Agency, Inc. And Insurance Company of Illinois -- all were
sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International
Holdings PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Planners, Ltd. as a result of its
acquisition by Lincoln National Corporation on December 22, 1997.
This company will distribute life assurance and pension products of
Lincoln Assurance Limited.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln
National Life Insurance Company on January 1, 1998. Cigna Associates
of Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was
dissolved on January 12, 1998 and Lincoln National Mezzanine Fund,
L.P. was cancelled January 12, 1998.
c. Corporate organizational changes took place in the UK group of
companies on January 21, 1998: Lincoln Insurance Services Limited and
its subsidiaries were moved from Lincoln National (UK) PLC to Lincoln
Assurance Limited; Lincoln General Insurance Co. Ltd. was moved from
Lincoln Insurance Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation
on January 16, 1998 and a wholly-owned subsidiary of The Lincoln
National Life Insurance Company.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having Transactions
with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's
certificates relating thereto.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Annual Reports F&RM Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual F&RM Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR F&RM Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
TYPE OF RECORD
(1) Journals (or other records of original entry) containing an itemized
daily record in detail of all purchases and sales of securities (including
sales and redemptions of its own securities), all receipts and deliveries of
securities (including certificate numbers if such detail is not recorded by
custodian or transfer agent), all receipts and disbursements of cash and all
other debits and credits. Such records shall show for each such transaction
the name and quantity of securities, the unit and aggregate purchase or sale
price, commission paid, the market on which effected, the trade date, the
settlement date, and the name of the person through or from whom purchased or
received or to whom sold or delivered.
PURCHASES AND SALES JOURNALS
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years in an easily accessible
transactions place
PORTFOLIO SECURITIES
Equity Delaware Fund Accounting Permanently, the first two
Notifications years in an easily accessible
place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
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
Trust Company
(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
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 Ledger Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
SECURITIES IN TRANSFER
File consisting State Street Mutual Funds Permanently, the first two
of bank advices, Bank and Division years in an easily accessible
confirmations, Trust place
and Notification Company
of Securities
Transaction
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
SECURITIES IN PHYSICAL POSSESSION
Securities State Street Mutual Funds Permanently, the first two
Ledger Bank and Division years in an easily accessible
Trust place
Company
Portfolio State Street Mutual Funds Permanently, the first two
Listings Bank and Division years in an easily accessible
Trust place
Company
SECURITIES BORROWED AND LOANED
Their files State Street Mutual Funds Permanently, the first two
Bank and Division years in an easily accessible
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
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
<PAGE>
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held.
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
LNL - only F&RM Eric Jones Permanently, the first two
shareholder years in an easily accessible
place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The
record called for by this paragraph shall not be required in circumstances
under which all portfolio securities are maintained by a bank or banks or a
member or members of a national securities exchange as custodian under a
custody agreement or as agent for such custodian.
SECURITIES POSITION RECORD
Maintained by State Street Mutual Funds Permanently, the fist two
Custodian of Bank and Division years in an easily accessible
Securities Trust place
Company
<PAGE>
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
CORPORATE DOCUMENTS
Corporate Executive- Sue Womack Permanently, the first two
charter, cer- Corp. Secy. years in an easily accessible
tificate of place
incorporation.
Bylaws and Corp. Secy. Sue Womack
minute books.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such record shall include the name of the
broker, the terms and conditions of the order and of any modification or
cancellation thereof, the time of entry or cancellation, the price at which
executed, and the time of receipt of report of execution. The record shall
indicate the name of the person who placed the order in behalf of the
investment company.
ORDER TICKETS
Sales Order or Clay Finlay Mutual Funds Six years, the first two
Purchase Order Division years in an easily accessible
place
Notification State Street Mutual Funds Six years, the first two
Form (From AOS Bank and Division years in an easily accessible
Trading 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 Street Mutual Funds Six years, the first two
Form (From AOS Bank and Division years in an easily accessible
S-T System) Trust place
Company
Bank Advice and Delaware Fund Accounting Six years, the first two
Issuer Confir- years in an easily accessible
mation place
(7) A record of all puts, calls, spreads, straddles, and other options in
which the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other
property (but not including open orders placed with broker-dealers for the
purchase or sale of securities, which may be cancelled by the company on
notices without penalty or cost of any kind); containing at least an
identification of the security, the number of units involved, the option
price, the date of maturity, the date of issuance, and the person to whom
issued.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
RECORD OF PUTS, CALLS, SPREADS, ETC.
Trade Delaware Fund Accounting Six Years
Notification
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances
shall be prepared currently at least once a month.
TRIAL BALANCE
General Ledger Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
(9) A record for each fiscal quarter, which shall be completed within 10
days after the end of such quarter, showing specifically the basis or bases
upon which the allocation of orders for the purchase and sale of portfolio
securities to named brokers or dealers and the division of brokerage
commissions or other compensation on such purchase and sale orders among
named persons were made during such quarter. The record shall indicate the
consideration given to (a) sales of shares of the investment company by
brokers or dealers, (b) the supplying of services or benefits by brokers or
dealers to the investment company, its investment advisor or principal
underwriter or any persons affiliated therewith, and (c) any other
considerations other than the technical qualifications of the brokers and the
dealers as such. The record shall show the nature of their services or
benefits made available, and shall describe in detail the application of any
general or specific formula or other determinant used in arriving at such
allocation of purchase and sales orders and such division of brokerage
commissions or other compensation. The record shall also include the
identifies of the person responsible for the determination of such allocation
and such division of brokerage commissions or other compensation.
Brokerage Clay Finlay 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).
Trading Clay Finlay Mutual Funds Six years, the first two
Authorization Division years in an easily accessible
place
Advisory Law Division Janet Lindenburg Six years, the first two
Agreements Jeremy Sachs years in an easily accessible
place
<PAGE>
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
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.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Correspondence Product Admin. Nancy Alford Six years, the first two
Project Mgmt. years in an easily accessible
place
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, years in an easily accessible
Cancelled place
Checks and
Cash Recon-
ciliations
March 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND
ANNUAL REPORT DATED 12/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000870782
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 400,144,945
<INVESTMENTS-AT-VALUE> 459,104,861
<RECEIVABLES> 13,348,947
<ASSETS-OTHER> 9,848,173
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 482,301,981
<PAYABLE-FOR-SECURITIES> 14,877,043
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</TABLE>
