<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1999
File No. 33-70272
811-8074
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 7 [x]
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9 [x]
-----------------------------------
(Check appropriate box or boxes)
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
(Exact name of registrant as specified in charter)
1300 South Clinton Street
Fort Wayne, Indiana 46802
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(219) 455-2000
Jack D. Hunter, Esq.
200 E. Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
Copies of all communications to
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.,
Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
Bruce Rosenblum, Esq.
Fiscal year-end: December 31
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---
X on May 1, 1999 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
on _____________ pursuant to paragraph (a)(1)
---
75 days after filing pursuant to paragraph (a)(2)
---
on _____________ pursuant to paragraph (a)(2) of Rule 485.
---
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If appropriate, check the following box:
[X] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
PREFACE TO THE LINCOLN NATIONAL FUNDS PROSPECTUSES
THE PREFACE AND DIRECTORY ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING
FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc. (Capital Appreciation)
Lincoln National Equity-Income Fund, Inc. (Equity Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc. (Money Market)
Lincoln National Social Awareness Fund, Inc. (Social Awareness)
Lincoln National Special Opportunities Fund, Inc. (Special Opportunities)
Each fund has its own Prospectus that describes the fund and its investment
objective. We refer to each of the funds as a fund and to all of the funds
together as the funds.
Each fund sells its shares only to Lincoln National Life Insurance Co. and its
affiliates (Lincoln Life). Lincoln Life holds the shares in its separate
accounts to support variable annuity contracts and variable life insurance
contracts (contracts). We refer to a separate account as a variable account.
Each variable account has its own prospectus that describes the account and the
contracts it supports. You choose the fund or funds in which a variable account
invests your contract assets. In effect, you invest indirectly in the fund(s)
that you choose under your contract.
Each fund Prospectus discusses the information about the fund that you ought to
know before choosing to invest your contract assets in one or more of the funds.
You can find information unique to each fund in that fund's Prospectus. You can
find information common to all funds in the General Prospectus Disclosure
following the individual fund Prospectuses.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if these prospectuses are truthful or complete.
Any representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson, or any other person to give any
information, or to make any representation, other than what these Prospectuses
state. These Prospectuses do not offer to sell fund shares, or seek offers to
buy fund shares, where it would be unlawful.
Prospectuses dated May 1, 1999
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE
SUMMARY DESCRIPTION OF THE FUND
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
FEE TABLE
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
INVESTMENT STRATEGIES
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
RISKS OF INVESTMENT STRATEGIES
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
INVESTMENT ADVISER AND PORTFOLIO MANAGER
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
GENERAL PROSPECTUS DISCLOSURE -- IMPORTANT
ADDITIONAL INFORMATION
Net asset value
Management of the funds
Purchase and redemption of fund shares
Distributions and federal income tax
considerations
Management discussion of fund performance
Financial highlights
General Information
Preparing for year 2000
</TABLE>
<PAGE>
LINCOLN NATIONAL
CAPITAL APPRECIATION FUND, INC.
SUMMARY DESCRIPTION
OF THE FUND
The investment objective of the Capital Appreciation Fund (fund) is long-term
growth of capital (as measured by the change in the value of fund shares over a
period of three years or longer) in a manner consistent with the preservation of
capital. The fund pursues its investment objective primarily by buying and
holding (investing in) equity securities (stocks). The fund primarily invests in
stocks of large-sized U.S. companies: companies with market capitalizations of
more than $5 billion. The fund may also invest in medium-sized U.S. companies
(market capitalizations greater than $1 billion but less than $5 billion) and
small-sized U.S. companies (market capitalizations less than $1 billion).
Additionally, the fund may invest in foreign stocks (stocks of companies
organized, or having a majority of their assets, or earning a majority of their
operating income, in a country outside of the United States.)
The fund's investment strategy is to invest in stocks of companies with earnings
growth potential that may not be recognized by the market at large. In selecting
investments, the fund places no emphasis on earning income.
The main investment risks of choosing to invest your contract assets in the fund
are as follows:
- - the value of the fund's shares will fluctuate, and you could lose money;
- - investing in the stocks of small and medium-sized, less mature, lesser-known
companies involves more risk than that normally associated with investing in
the stocks of larger, more mature, well-known companies, including greater and
more rapid fluctuations in the value of these stocks and, therefore, the
fund's shares; and
- - investing in securities of foreign issuers involves greater risks than
investing in U.S. securities, including risk of loss from foreign currency
fluctuations, international economic or financial instability, and foreign
government or political actions.
The following information provides some indication of the risks of choosing to
invest your contract assets in the fund. The information shows:
- - changes in the fund's performance from year to year and
- - how the fund's average annual returns for one year and the fund's lifetime
compare with those of a broad measure of market performance.
Please note that the past performance of the fund is not necessarily an
indication of how the fund will perform in the future. Further, the returns
shown do not reflect variable contract expenses. If reflected the returns shown
would be lower.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
Year Annual Total Return (%)
1994 2.71%
1995 28.69%
1996 18.02%
1997 25.29%
1998 37.96%
</TABLE>
During the periods shown in the above chart, the fund's highest return for a
quarter occurred in the fourth quarter of 1998 at: 28.83%
The fund's lowest return for a quarter occurred in the third quarter of 1998 at:
(11.32)%
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED 12/31/98)
<TABLE>
<CAPTION>
PERIOD BACK CAPITAL APPRECIATION S&P 500*
<S> <C> <C>
- ------------------------------------------------------------------------
1 year 37.96% 28.76%
5 year N/A N/A
10 year N/A N/A
Lifetime** 21.94% 24.15%
</TABLE>
* The S&P 500 is the Standard and Poor's Composite Index of 500 stocks, a
widely recognized unmanaged index of common stock prices.
** The fund's lifetime began January 3, 1994. Lifetime Index Performance,
however, began January 1, 1994.
INVESTMENT STRATEGIES
The investment objective of the fund is long-term term growth of capital (as
measured by increasing the value of fund shares over a period of three years or
longer) in
1
<PAGE>
a manner consistent with the preservation of capital. The fund pursues its
investment objective primarily by buying and holding (investing in) equity
securities (stocks). Under normal conditions, the fund will invest a minimum of
65% of its total assets in stocks.
The fund primarily invests in stocks of large-sized U.S. companies: companies
with market capitalizations of more than $5 billion. (A company's market
capitalization is calculated by multiplying the total number of shares of its
common stock outstanding by the market price of the stock. As a point of
reference, as of December 31, 1998, the average market capitalization of the
Standard & Poor's 500 Composite Stock Index (S&P 500 Index), a broad based
market index representative of larger, typically more financially stable
companies, was $87 billion.)
The fund may also invest in medium-sized U.S. companies, which have market
capitalizations greater than $1 billion but less than $5 billion, and
small-sized U.S. companies, which have market capitalizations less than $1
billion. Additionally, the fund may invest in foreign stocks, which are stocks
of companies organized, or having a majority of their assets, or earning a
majority of their operating income, in a country outside of the United States.
These stocks may be traded on U.S. or foreign stock markets.
The fund uses a "bottom up" approach to selecting stocks. In other words, the
fund uses market research to identify individual companies with earnings growth
potential that may not be recognized by the market at large. As part of this
process, the fund considers the valuation and risk traits of individual stocks,
as well as the characteristics of the underlying companies -- such as the nature
of a company's business and its growth potential. The fund generally selects
stocks without regard to any defined industry sector or other similarly defined
selection procedure. When selecting stocks, the fund places little emphasis on
earning income, and any income earned on the fund's investments is incidental to
the fund's investment objective.
The fund expects its annual portfolio turnover rate not to exceed approximately
200% in any year. (For example, the fund would have a rate of portfolio turnover
of 100%, if the fund replaced all of its investments in one year.) Market
conditions could result in a greater degree of market activity and a higher
portfolio turnover rate. High turnover could increase fund expenses. The fund's
portfolio turnover rate was 77.99% in 1998 and 137.07% in 1997.
OTHER STRATEGIES
The fund may also use other investment strategies, to a lesser degree, to pursue
its investment objective, including investment in futures and forward contracts
on foreign currencies. Additionally, the fund may hold cash or invest in
short-term investments when the fund is unable to locate attractive investment
opportunities. When a fund's investment in cash or similar investments
increases, it may not participate in market advances or declines to the same
extent that it would if the fund remained more fully invested in stocks. The
fund's SAI describes these other investment strategies and the risks they
involve.
RISKS OF INVESTMENT STRATEGIES
Investing in stocks involves the risk that the value of the stocks purchased
will fluctuate. These fluctuations could occur for a single company, an
industry, a sector of the economy, or the stock market as a whole. These
fluctuations could cause the value of the fund's stock investments -- and,
therefore, the value of the fund's shares held under your contract -- to
fluctuate, and you could lose money. Because the fund invests in stocks of a
broad range of companies, the value of the Fund's shares is not expected to
fluctuate in line with the broad stock market indices such as the S&P 500 Index.
Moreover, the fund may invest some amounts in small-and medium-sized companies
as well as large-sized companies. The fund's performance may be affected if
stocks in one of these three groups of companies do not perform as well as
stocks in the other groups.
Further, investing in stocks of small- and medium-sized, less mature,
lesser-known companies involves greater risks than those normally associated
with larger, more mature, well-known companies. The fund runs a risk of
increased and more rapid fluctuations in the value of its stock investments.
This is due to the greater business risks of small size and limited product
lines, markets, distribution channels, and financial and managerial resources.
Historically, the price of small and medium capitalization stocks and stocks of
recently organized companies have fluctuated more than the larger capitalization
stocks included in the S&P 500 Index. One reason is that small and medium-sized
companies have less certain prospects for growth, a lower degree of liquidity in
the markets for their stocks, and greater sensitivity to changing economic
conditions.
Investing in foreign stocks involves additional risks not present when investing
in U.S. securities. Foreign currency fluctuations or economic or financial
instability could cause the value of the fund's investments -- and,
2
<PAGE>
therefore, the value of the fund's shares -- to fluctuate, and you could lose
money.
Investing in foreign stocks also involves the risk of loss from foreign
government or political actions. These actions could range from changes in tax
or trade statutes to governmental collapse and war. These actions could include
a foreign government's imposing a heavy tax on a company, withholding the
company's payment of interest or dividends, seizing assets of a company, taking
over a company, limiting currency convertibility or barring the fund's
withdrawal of assets from the country. As a general matter, risk of loss is
typically higher for issuers in emerging markets located in less developed or
developing countries.
Additionally, investing in foreign stocks involves risks resulting from the
reduced availability of public information concerning issuers and the fact that
foreign issuers generally are not subject to uniform accounting, auditing, and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to U.S. issuers. Further, the volume of
securities transactions effected on foreign markets in most cases remains
considerably below that of the U.S. markets. Accordingly, the fund's foreign
investments may be less liquid, and their prices may be more volatile, than
comparable investments in securities of U.S. issuers. Foreign brokerage
commissions and custodian fees are generally higher than in the U.S. (See the
General SAI Disclosure for the 11 funds for a more detailed discussion of the
risks and costs involved in investing in securities of foreign issuers.)
Additionally, as of January 1, 1999, several European countries began
participating in the European Economic and Monetary Union, which established a
common European currency for participating countries. This currency is commonly
known as the "Euro." Each participating country is currently phasing in use of
the Euro for major financial transactions. In addition, each participating
country will begin using the Euro for currency transactions beginning July 1,
2002. Additional European countries may elect to participate. 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 handle both the implementation of this single currency and the prospect of
the adoption of the Euro by additional countries in the future.
You may consider choosing this fund for investing some portion of your contract
assets if (1) you are seeking a long-term (over three years) investment
primarily in stocks of a broad range of companies, and (2) you are comfortable
with the risks of investing on stocks, including the additional risks of
investing in foreign stocks and stocks of small- and medium-sized companies.
INVESTMENT ADVISER AND PORTFOLIO MANAGER
The fund's investment adviser is Lincoln Investment Management, Inc. (Lincoln
Investment). You can find information about Lincoln Investment in the General
Prospectus Disclosure under "Management of the funds -- Investment adviser."
Lincoln Investment is responsible for overall management of the fund's
securities investments. This includes monitoring the fund's sub-adviser, Janus
Capital Corporation (Janus). Janus' address is 100 Fillmore Street, Denver,
Colorado 80206.
Janus is responsible for the day-to-day management of the fund's investments.
Janus has served as the fund's sub-adviser since 1994. Janus has been in the
investment advisory business for over 28 years. James P. Craig, Vice Chairman,
Chief Investment Officer and a Director of Janus, manages the fund. Mr. Craig
has been active in investment management since 1981, and with Janus since 1983.
He holds a Master's Degree in finance from the Wharton School, University of
Pennsylvania.
3
<PAGE>
GENERAL PROSPECTUS DISCLOSURE -- IMPORTANT ADDITIONAL INFORMATION
This General Prospectus Disclosure is part of the Prospectus of:
Lincoln National Aggressive Growth Fund, Inc.
(Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation)
Lincoln National Equity-Income Fund, Inc.
(Equity-Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc.
(Money Market)
Lincoln National Social Awareness Fund, Inc.
(Social Awareness)
Lincoln National Special Opportunities Fund, Inc.
(Special Opportunities)
The following information applies to each fund, unless otherwise indicated.
NET ASSET VALUE
Each fund determines its net asset value per share (NAV) as of close of business
(currently 4:00 p.m., New York time) on the New York Stock Exchange (NYSE) on
each day the NYSE is open for trading. Each fund, except the Money Market Fund,
determines its nav by:
- - adding the values of all securities investments and other assets,
- - subtracting liabilities (including dividends payable), and
- - dividing by the number of shares outstanding.
NYSE's most recent announcement states that, as of the date of this prospectus,
the NYSE will be closed on New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. NYSE may also be closed on other days. The NYSE may modify
its holiday schedule at any time.
A fund's securities may be traded in other markets on days when the NYSE is
closed. Therefore, the fund's NAV may fluctuate on days when you do not have
access to the fund to purchase or redeem shares.
Each fund (other than for the Money Market Fund) values its securities
investments as follows:
- - equity securities, at their last sale prices on national securities exchanges
or over-the-counter, or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on exchanges or
over-the-counter;
- - debt securities, at the price established by an independent pricing service,
which is believed to reflect the fair value of these securities; and
- - equity securities, debt securities and other assets for which market
quotations are not readily available, fair value as determined in good faith
under the authority of each fund's Board of Directors.
MONEY MARKET FUND. The Money Market Fund determines its NAV by the amortized
cost method of valuation provided by SEC Rule 2a-7 under the Investment Company
Act of 1940. Under the Rule, the fund's nav must fairly reflect market value.
See the General SAI Disclosure for the methodology that a fund (other than for
the Money Market Fund) uses to value short-term investments, options, futures
and options on futures, and foreign securities.
MANAGEMENT OF THE FUNDS
Each fund's business and affairs are managed under the direction of its Board of
Directors. The Board has the power to amend the bylaws of each fund, to declare
and pay dividends, and to exercise all the powers of the fund except those
granted to the shareholders.
INVESTMENT ADVISOR. Lincoln Investment Management, Inc. (Lincoln Investment or
advisor) is the investment advisor to each fund. Its headquarters are at 200
East Berry Street, Fort Wayne, Indiana 46802.
The advisor has registered with the SEC as an investment advisor and acted as an
investment advisor to mutual Funds for over 40 years. The advisor also acts as
(1) investment advisor to Lincoln National Convertible Securities Fund, Inc. and
Lincoln National Income Fund, Inc., closed-end investment companies, and (2)
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. LNC,
through its subsidiaries, provides life insurance and annuities,
property-casualty insurance, reinsurance and financial services.
<PAGE>
Directors, officers and employees of the advisor and each fund may engage in
personal securities transactions, subject to restrictions and procedures of the
Code of Ethics adopted by the advisor and each fund. The 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.
The advisor, either directly or through a sub-advisor, provides portfolio
management and investment advice to each fund and administers each fund's other
affairs, subject to the supervision of each fund's Board of Directors.
Some of the funds using sub-advisors have names, investment objectives and
investment policies that are very similar to certain publicly available mutual
funds that are managed by these same sub-advisors. These funds will not have the
same performance as those publicly available mutual funds. Different performance
will result from many factors, including, but not limited to, different cash
flows into and out of the funds, different fees, and different sizes.
Each fund pays the advisor a monthly fee for the advisor's services. The annual
rate of the fee is based on the average daily net asset value of each fund, as
shown in the following chart:
<TABLE>
<CAPTION>
FUND ...OF AVERAGE DAILY NET ASSET VALUE
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<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>
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<TABLE>
<CAPTION>
1998 ADVISORY FEES
FUND 1998 RATIO OF THE ADVISOR'S COMPENSATION TO AVERAGE NET ASSETS
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<S> <C>
Aggressive Growth .73%
Bond .44
Capital Appreciation .75
Equity-Income .72
Global Asset Allocation .72
Growth & Income .31
International .79
Managed .36
Money Market .48
Social Awareness .34
Special Opportunities .36
</TABLE>
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PURCHASE AND REDEMPTION OF FUND SHARES
Each fund sells its shares of common stock only to Lincoln Life. Lincoln Life
holds the fund shares in separate accounts (variable accounts) that support
various Lincoln Life variable annuity contracts and variable life insurance
contracts.
Each fund sells and redeems its shares, without charge, at their nav next
determined after Lincoln Life receives a purchase or redemption request.
However, each fund redeems its shares held by Lincoln Life for its own account
at the nav next determined after the fund receives the redemption request. The
value of shares redeemed may be more or less than original cost, depending on
the market value of a fund's securities investments at the time of redemption.
The fund normally pays for shares redeemed within seven days after Lincoln Life
receives the redemption request. However, a fund may suspend redemption or
postpone payment for any period when:
- - the NYSE closes for other than weekends and holidays;
- - the SEC restricts trading on the NYSE;
- - the SEC determines that an emergency exists, so that a fund's (1) disposal of
investment securities, or (2) determination of net asset value, is not
reasonably practicable; or
- - The SEC permits, by order, for the protection of fund shareholders.
<PAGE>
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each fund's policy is to distribute substantially all of its net investment
income and net realized capital gains each year. A fund may distribute net
realized capital gains only once a year. Each fund pays these distributions to
Lincoln Life for the variable accounts. The variable accounts automatically
reinvest the distributions in additional fund shares at no charge.
Each fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains. See the SAI for a more complete
discussion.
Each fund must meet asset diversification requirements under Section 817(h) of
the Code and the related regulation of the United States Treasury Department.
Each fund intends to comply with these diversification requirements.
The sole shareholder of the funds is Lincoln Life. Consequently, this Appendix
does not discuss the federal income tax consequences at the shareholder level.
For information concerning the federal income tax consequences to owners of
variable annuity contracts or variable life insurance contracts (contract
owners), including the failure of a fund to meet the diversification
requirements discussed above, see the Prospectus for the variable account.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Each fund's Annual Report includes the portfolio manager's discussion of the
fund's performance for the previous fiscal year and the factors affecting the
performance. Each fund will send you a free copy of its Annual Report on
request.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the funds for the past 5 years, or, if shorter, the period of the
fund's operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Ernst &
Young LLP, independent auditors, whose report, along with each fund's financial
statements, are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM LESS DIVIDENDS
INVESTMENT OPERATIONS FROM:
RATIO
NET OF
REALIZED RATIO NET
NET AND OF INVESTMENT NET
ASSET UNREALIZED NET EXPENSES INCOME ASSETS
VALUE NET GAIN TOTAL NET ASSET TO TO AT END
BEGINNING INVESTMENT (LOSS) FROM NET REALIZED VALUE AVERAGE AVERAGE PORTFOLIO OF
PERIOD OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET NET TURNOVER PERIOD
ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(3) ASSETS ASSETS RATE (000'S)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund, Inc.
12/31/98 $16.385 0.001 (0.810) (0.809) (0.023) (2.186) (2.209) $13.367 (6.20%) 0.81% 0.01% 102.33% $335,366
12/31/97 $13.980 0.023 3.055 3.078 -- (0.673) (0.673) $16.385 23.09% 0.81% 0.16% 105.07% $342,763
12/31/96 $12.183 0.004 1.989 1.993 (0.004) (0.192) (0.196) $13.980 17.02% 0.82% 0.03% 77.51% $242,609
12/31/95 $ 9.048 0.007 3.135 3.142 (0.007) -- (0.007) $12.183 34.15% 0.94% 0.06% 85.82% $138,471
12/31/94(1) $10.000 0.019 (0.952) (0.933) (0.019) -- (0.019) $ 9.048 (9.37%) 1.11% 0.21% 100.31% $60,697
Lincoln National Bond Fund, Inc.
12/31/98 $12.861 0.662 0.494 1.156 (1.328) -- (1.328) $12.689 9.56% 0.52% 5.90% 51.33% $363,808
12/31/97 $11.766 0.785 0.310 1.095 -- -- -- $12.861 9.30% 0.53% 6.45% 56.16% $280,383
12/31/96 $12.247 0.767 (0.481) 0.286 (0.767) -- (0.767) $11.766 2.31% 0.51% 6.56% 142.19% $253,328
12/31/95 $10.941 0.803 1.306 2.109 (0.803) -- (0.803) $12.247 18.95% 0.49% 6.90% 139.61% $250,816
12/31/94 $12.693 0.741 (1.233) (0.492) (0.741) (0.519) (1.260) $10.941 (4.18%) 0.50% 6.40% 213.26% $195,010
Lincoln National Capital Appreciation Fund, Inc.
12/31/98 $17.530 (0.003) 6.127 6.124 (0.050) (1.832) (1.882) $21.772 37.96% 0.83% (0.01%) 77.99% $770,736
12/31/97 $14.504 0.050 3.510 3.560 -- (0.534) (0.534) $17.530 25.29% 0.89% 0.35% 137.07% $451,036
12/31/96 $12.916 0.135 2.051 2.186 (0.135) (0.463) (0.598) $14.504 18.02% 0.93% 0.99% 92.73% $267,242
12/31/95 $10.152 0.116 2.764 2.880 (0.116) -- (0.116) $12.916 28.69% 1.07% 1.00% 195.63% $127,936
12/31/94(1) $10.000 0.134 0.152 0.286 (0.134) -- (0.134) $10.152 2.71% 1.18% 1.33% 185.28% $52,904
Lincoln National Equity-Income Fund, Inc.
12/31/98 $20.118 0.282 2.204 2.486 (0.460) (0.429) (0.889) $21.715 12.73% 0.79% 1.40% 29.04% $991,977
12/31/97 $15.780 0.229 4.511 4.740 -- (0.402) (0.402) $20.118 30.67% 1.02% 1.46% 17.81% $811,070
12/31/96 $13.507 0.288 2.451 2.739 (0.288) (0.178) (0.466) $15.780 19.81% 1.08% 1.99% 22.17% $457,153
12/31/95 $10.335 0.275 3.218 3.493 (0.275) (0.046) (0.321) $13.507 34.74% 1.15% 2.27% 27.81% $238,771
12/31/94(1) $10.000 0.258 0.335 0.593 (0.258) -- (0.258) $10.335 5.65% 1.26% 2.48% 33.40% $78,861
Lincoln National Global Asset Allocation Fund, Inc.
12/31/98 $15.628 0.357 1.585 1.942 (0.589) (1.222) (1.811) $15.759 13.50% 0.91% 2.36% 133.84% $490,154
12/31/97 $14.226 0.383 2.205 2.588 -- (1.186) (1.186) $15.628 19.47% 0.89% 2.77% 178.40% $438,090
12/31/96 $13.391 0.392 1.522 1.914 (0.392) (0.687) (1.079) $14.226 15.04% 1.00% 2.93% 167.33% $316,051
12/31/95 $11.144 0.412 2.247 2.659 (0.412) -- (0.412) $13.391 23.95% 0.92% 3.36% 146.49% $248,772
12/31/94 $12.502 0.349 (0.702) (0.353) (0.349) (0.656) (1.005) $11.144 (1.82%) 1.06% 3.07% 134.33% $195,697
Lincoln National Growth and Income Fund, Inc.
12/31/98 $41.949 0.607 7.371 7.978 (1.164) (2.475) (3.639) $46.288 20.33% 0.35% 1.44% 33.55% $4,263,557
12/31/97 $33.110 0.649 9.331 9.980 -- (1.141) (1.141) $41.949 30.93% 0.35% 1.79% 32.09% $3,540,862
12/31/96 $29.756 0.683 4.943 5.626 (0.683) (1.589) (2.272) $33.110 18.76% 0.36% 2.23% 46.70% $2,465,224
12/31/95 $23.297 0.701 7.680 8.381 (0.701) (1.221) (1.922) $29.756 38.81% 0.35% 2.64% 51.76% $1,833,450
12/31/94 $24.693 0.668 (0.428) 0.240 (0.668) (0.968) (1.636) $23.297 1.32% 0.37% 2.85% 76.34% $1,161,324
Lincoln National International Fund, Inc.
12/31/98 $14.673 0.253 1.838 2.091 (0.189) (0.593) (0.782) $15.982 14.65% 0.93% 1.63% 123.11% $501,654
12/31/97 $14.556 0.066 0.771 0.837 -- (0.720) (0.720) $14.673 6.00% 0.93% 0.44% 77.58% $466,229
12/31/96 $13.398 0.071 1.244 1.315 (0.071) (0.086) (0.157) $14.556 9.52% 1.19% 0.51% 68.67% $440,375
12/31/95 $13.027 0.069 0.892 0.961 (0.069) (0.521) (0.590) $13.398 8.89% 1.27% 0.59% 63.15% $358,391
12/31/94 $12.642 0.033 0.385 0.418 (0.033) -- (0.033) $13.027 3.28% 1.24% 0.25% 52.78% $316,350
Lincoln National Managed Fund, Inc.
12/31/98 $19.304 0.599 1.632 2.231 (1.162) (1.402) (2.564) $18.971 12.72% 0.42% 3.31% 57.36% $965,486
12/31/97 $16.266 0.661 2.811 3.472 -- (0.434) (0.434) $19.304 21.82% 0.42% 3.77% 53.40% $850,646
12/31/96 $15.895 0.628 1.291 1.919 (0.628) (0.920) (1.548) $16.266 12.05% 0.43% 4.05% 108.86% $675,740
12/31/95 $12.783 0.623 3.132 3.755 (0.623) (0.020) (0.643) $15.895 29.29% 0.43% 4.37% 112.52% $589,165
12/31/94 $14.152 0.628 (0.814) (0.186) (0.628) (0.555) (1.183) $12.783 (1.84%) 0.44% 4.45% 160.79% $442,140
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM RATIO
NET OF
REALIZED RATIO NET
NET AND OF INVESTMENT NET
ASSET INVESTMENT OPERATIONS UNREALIZED LESS DIVIDENDS NET EXPENSES INCOME ASSETS
VALUE NET GAIN TOTAL FROM: NET ASSET TO TO AT END
BEGINNING INVESTMENT (LOSS) FROM NET REALIZED VALUE AVERAGE AVERAGE PORTFOLIO OF
PERIOD OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET NET TURNOVER PERIOD
ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(3) ASSETS ASSETS RATE (000'S)
- --------------------------------------------------------------------------------------------------------------------------------
Lincoln National Money Market Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98 $10.000 0.497 N/A 0.497 (0.497 ) N/A (0.497) $10.000 5.10 % 0.58 % 4.97 % N/A $137,062
12/31/97 $10.000 0.501 N/A 0.501 (0.501) N/A (0.501) $10.000 5.13% 0.59% 5.01% N/A $89,227
12/31/96 $10.000 0.505 N/A 0.505 (0.505) N/A (0.505) $10.000 5.07% 0.57% 5.07% N/A $90,358
12/31/95 $10.000 0.570 N/A 0.570 (0.570) N/A (0.570) $10.000 5.67% 0.52% 5.67% N/A $75,319
12/31/94 $10.000 0.381 N/A 0.381 (0.381) N/A (0.381) $10.000 3.82% 0.52% 3.82% N/A $77,177
Lincoln National Social Awareness Fund, Inc.
12/31/98 $35.657 0.367 6.414 6.781 (0.672) (1.483) (2.155) $40.283 19.89% 0.38% 1.10% 37.55% $1,868,231
12/31/97 $27.316 0.364 9.447 9.811 -- (1.470) (1.470) $35.657 37.53% 0.41% 1.37% 34.84% $1,255,494
12/31/96 $22.590 0.389 5.748 6.137 (0.389) (1.022) (1.411) $27.316 28.94% 0.46% 1.58% 45.90% $636,595
12/31/95 $16.642 0.432 6.491 6.923 (0.432) (0.543) (0.975) $22.590 42.83% 0.50% 2.21% 54.02% $297,983
12/31/94 $17.915 0.377 (0.461) (0.084) (0.377) (0.812) (1.189) $16.642 0.19% 0.53% 2.22% 64.97% $163,514
Lincoln National Special Opportunities Fund, Inc.
12/31/98 $35.056 0.470 1.795 2.265 (0.862) (3.043) (3.905) $33.416 6.79% 0.42% 1.44% 76.27% $917,796
12/31/97 $29.423 0.477 7.293 7.770 -- (2.137) (2.137) $35.056 28.15% 0.42% 1.57% 73.74% $872,822
12/31/96 $27.383 0.548 3.867 4.415 (0.548) (1.827) (2.375) $29.423 16.51% 0.44% 2.00% 88.17% $648,592
12/31/95 $22.164 0.616 6.131 6.747 (0.616) (0.912) (1.528) $27.383 31.86% 0.45% 2.39% 90.12% $505,755
12/31/94 $24.478 0.565 (0.942) (0.377) (0.565) (1.372) (1.937) $22.164 (1.00%) 0.48% 2.49% 74.63% $318,417
</TABLE>
(1) The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on
January 3, 1994 through December 31, 1994. Accordingly, the total return,
ratios, and portfolio turnover have NOT been calculated on an annualized
basis.
(2) Per share information for the Capital Appreciation, Equity-Income, Global
Asset Allocation, and International funds for the year ended December 31,
1998 was based on the average shares outstanding method.
(3) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares.
GENERAL INFORMATION
You should direct any inquiry to Lincoln National Life Insurance Co., at P.O.
Box 2340, Fort Wayne, Indiana 46801, or, call 1-800-4LINCOLN (454-6265).
Each fund will issue:
- - unaudited semiannual reports showing current investments and other
information; and
- - annual financial statements audited by the fund's independent auditors.
These Prospectuses do not contain all the information included in the
Registration Statements that the funds have filed with the SEC. You may examine
the Registration Statements, including exhibits, at the SEC in Washington, D.C.
Statements made in the Prospectuses about any variable annuity contract,
variable life insurance contract, or other document referred to in a contract,
are not necessarily complete. In each instance, we refer you to the copy of that
CONTRACT or other document filed as an exhibit to the related Registration
Statement. We qualify each statement in all respects by that reference.
The use of a fund by both annuity and life insurance variable accounts is called
mixed funding. Due to differences in redemption rates, tax treatment, or other
considerations, the interests of contract owners under the variable life
accounts may conflict with those of contract owners under the variable annuity
accounts. Violation of the federal tax laws by one variable account investing in
a fund could cause the contracts funded through another variable account to lose
their tax-deferred status, unless remedial action were taken. The Board of
Directors of each fund will monitor for any material conflicts and determine
what action, if any, the fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial
amount of assets from any of the funds. The redemption could disrupt orderly
portfolio management to the detriment of those contract owners still investing
in that fund. Also, that fund could determine that it has become so large that
its size materially impairs investment performance. The fund would then examine
its options.
Lincoln Life performs the dividend and transfer functions for each fund.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits in the date field to
identify the year. If left uncorrected these programs, which were designed and
developed without considering the impact of the upcoming change in the century,
could fail to operate or could produce erroneous results when processing dates
after December 31, 1999. For example, for a bond with a stated
<PAGE>
maturity date of July 1, 2000, a computer program could read and store the
maturity date as July 1, 1900. This problem is known by many names, such as the
"Year 2000 Problem", "Y2K", and the "Millenium Bug".
The Year 2000 Problem affects virtually all computer programs worldwide. It can
cause a computer system to suddenly stop operating. It can also result in a
computer corrupting vital company records, and the problem could go undetected
for a long time. The updating of fund-related computer systems is the
responsibility of Lincoln Life as part of its own year 2000 updating process.
Delaware Service Company Inc. (Delaware), which provides substantially all of
the accounting and valuation services for the funds, is responsible for updating
all its computer systems (including those which serve the funds) to accommodate
the year 2000. If Y2K problems with computer programs affecting the funds are
left unchecked they can cause such problems as share transfer errors; accounting
errors; improper instructions to the securities custodian of a fund; and
erroneous net asset values. In a worst-case scenario, this could result in a
material disruption of the operations of the funds, Lincoln Life and/or
Delaware.
However, these companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year 2000.
Both Lincoln Life and Delaware have dedicated Year 2000 teams and steering
committees that are answerable to their counterparts in LNC.
In light of the potential problems discussed above, Lincoln Life, as part of its
Year 2000 updating process, has assumed responsibility for correcting all
high-priority Information Technology (IT) systems which service the funds.
Delaware for its part is responsible for updating all its high-priority IT
systems to support these vital services. The Year 2000 effort, for both IT and
non-IT systems, is organized into four phases:
- - awareness-raising and inventory of all assets (including third-party agent and
vendor relationships)
- - assessment and high-level planning and strategy
- - remediation of affected systems and equipment; and
- - testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
(including those which support the funds) remediated and tested to demonstrate
readiness by June 30, 1999. During the third and fourth quarters of 1999,
additional testing of the environment will continue. Both companies are
currently on schedule to have their high-priority non-IT systems (elevators,
heating and ventilation, security systems, etc.) remediated and tested by
October 31, 1999.
The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty include
(but are certainly not limited to) a possible loss of technical resources to
perform the work; failure to identify all susceptible systems; and
non-compliance by third parties whose systems and operations impact Lincoln
Life. In a report dated February 26, 1999, entitled, INVESTIGATING THE IMPACT OF
THE YEAR 2000 TECHNOLOGY PROBLEM, S. Prt 106-10, the U.S. Senate Special
Committee on the Year 2000 Technology Problem expressed its concern that
"Financial services firms...are particularly vulnerable to...the risk that a
material customer or business partner will fail, as a result of the computer
problems, to meet its obligations".
One important source of uncertainty is the extent to which the key trading
partners of Lincoln Life and of Delaware will be successful in their own
remediation and testing efforts. Lincoln Life and Delaware have been monitoring
the progress of their trading partners; however, the efforts of these partners
are beyond our control.
Lincoln Life and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
<PAGE>
You can find additional information in each fund's Statement of Additional
Information (SAI), which is on file with the SEC. Each fund incorporates its
SAI, dated May 1, 1999, into its Prospectus. Each fund will provide a free copy
of its SAI on request.
You can find still further information about each fund's investments in the
fund's annual and semi-annual reports to shareholders. The Annual Report
discusses the market conditions and investment strategies that significantly
affected that fund's performance (except the Money Market Fund) during its last
fiscal year. Each fund will provide a free copy of its Annual and Semi-Annual
Report on request.
For an SAI or Report, either write Lincoln National Life Insurance Co., P.O. Box
2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). Also call
this number to request other information about a fund, or to make inquiries.
You can review and copy information about the funds (including the SAIs) at the
SEC's Public Reference Room in Washington, D.C. You can get information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
can also get reports and other information about the funds on the SEC's Internet
site at http:// www.sec.gov. You can get copies of this information by writing
the SEC Public Reference Section, Washington, D.C. 20549-6009, and paying a
duplicating fee.
Fund Investment Company Act File Numbers:
<TABLE>
<S> <C> <C>
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC.: 33-70742; 811-8090
LINCOLN NATIONAL BOND FUND, INC.: 2-80746; 811-3210
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.: 33-70272; 811-8074
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.: 33-71158; 811-8126
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.: 33-13530; 811-5115
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.: 2-80741; 811-3211
LINCOLN NATIONAL INTERNATIONAL FUND, INC.: 33-38335; 811-6233
LINCOLN NATIONAL MANAGED FUND, INC.: 2-82276; 811-3683
LINCOLN NATIONAL MONEY MARKET FUND, INC.: 2-80743; 811-3212
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.: 33-19896; 811-5464
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.: 2-80731; 811-3291
</TABLE>
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
<PAGE>
PREFACE TO THE MULTI FUND-REGISTERED TRADEMARK- STATEMENTS OF ADDITIONAL
INFORMATION
THE PREFACE AND TABLE OF CONTENTS ARE PART OF THE STATEMENT OF ADDITIONAL
INFORMATION (SAI) FOR EACH OF THE FOLLOWING FUNDS:
Lincoln National Aggressive Growth Fund, Inc. (Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc. (Capital Appreciation)
Lincoln National Equity-Income Fund, Inc. (Equity-Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc. (Money Market)
Lincoln National Social Awareness Fund, Inc. (Social Awareness)
Lincoln National Special Opportunities Fund, Inc. (Special Opportunities)
Each fund has its own SAI that provides more information about that fund. For
each fund's SAI, the fund's audited financial statements and the report of Ernst
& Young LLP, Independent Auditors, are incorporated by reference to each fund's
1998 Annual Report. A fund's SAI should be read in conjunction with the
Prospectus of that fund dated May 1, 1999. You may obtain a copy of any fund's
Annual Report or Prospectus on request and without charge. Please write Lincoln
National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call
1-800-4LINCOLN (454-6265).
A fund's SAI is not a Prospectus.
The date of each fund's SAI is May 1, 1999.
<PAGE>
TABLE OF CONTENTS FOR THE FUND SAIS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------------
PREFACE
DESCRIPTION OF THE FUND
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
STRATEGIC PORTFOLIO TRANSACTIONS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
<CAPTION>
SUBJECT PAGE
- --------------------------------------------------------
<S> <C>
INVESTMENT RESTRICTIONS
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
Aggressive Growth
Bond
Capital Appreciation
Equity-Income
Global Asset Allocation
Growth and Income
International
Managed
Money Market
Social Awareness
Special Opportunities
- --------------------------------------------------------
GENERAL SAI DISCLOSURE -- IMPORTANT
ADDITIONAL INFORMATION
Investment advisor and sub-advisor
Directors and officers
Fund expenses
Description of shares
Strategic portfolio transactions --
additional information
Foreign investments
Valuation of portfolio securities
Custodian
Independent auditors
Financial statements
Bond and commercial paper ratings
Taxes
Derivative transactions -- definitions
</TABLE>
<PAGE>
LINCOLN NATIONAL
CAPITAL APPRECIATION FUND, INC.
DESCRIPTION OF THE FUND
The Capital Appreciation Fund (fund) was incorporated in Maryland in 1993 as an
open-end diversified management investment company whose investment objective is
long-term growth of capital in a manner consistent with the preservation of
capital. The fund investment objective and policies are fundamental and cannot
be changed without the affirmative vote of a majority of the outstanding voting
securities of the fund. See "Investment restrictions." There can be no assurance
that the objective of the fund will be achieved. References to advisor in this
SAI include both Lincoln Investment Management, Inc. (Lincoln Investment) and
Janus Capital Corporation, unless the context otherwise indicates.
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The Prospectus discusses the fund's principal investment strategies used to
pursue the fund's investment objective and the risks of those strategies. The
following discussion describes other investment strategies that the fund may use
as market conditions warrant, and notes the risks associated with these other
investment strategies.
FIXED-INCOME SECURITIES
Up to 35% of the fund's total assets may be invested in debt and fixed-income
securities, cash, and/or cash equivalents, in any combination, either because
the fund anticipates an opportunity for capital growth from those securities, or
because it seeks a return on idle cash. Debt and fixed-income securities
include, but are not limited to, preferred stocks, warrants, stock rights,
corporate bonds and debentures and longer-term government securities
(collectively, debt securities). Cash equivalents include, but are not limited
to, short-term government securities (i.e., with remaining maturities of less
than one year), high-grade commercial paper, certificates of deposit, repurchase
agreements, banker's acceptances and time deposits.
The fund intends to invest in debt securities and cash equivalents issued by:
U.S. companies; the U.S. Government, its agencies and instrumentalities; foreign
companies; foreign governments, their agencies and instrumentalities; and
supranational organizations such as (but not limited to) the European Economic
Community and the World Bank. When the fund invests in debt securities and cash
equivalents, the investment income of the fund may increase; however, the fund
will not be participating in stock market advances and declines to the extent it
would if it were fully invested in common stocks.
The performance of the debt component of the fund depends primarily on interest
rate changes, the average weighted maturity of the fund and the quality of the
securities held. The debt component of the fund will tend to decrease in value
when interest rates rise and increase when interest rates fall. Subject to
applicable maturity restrictions, the fund will vary its average maturities
based on the sub-advisor's analysis of interest rate trends and other factors.
Generally, shorter-term securities are less sensitive to interest rate changes,
but offer lower yields; conversely, longer-term securities are more sensitive to
interest rate changes, but offer higher yields. The fund's share price and yield
also depend, in part, on the quality of its investments. U.S. Government
securities generally are of high quality. Debt securities that are not backed by
the full faith and credit of the United States (including those of foreign
governments) may be affected by changes in the creditworthiness of the issuer of
the security. The extent that these changes are reflected in the fund's share
price will depend upon the extent of the fund's investment in such securities.
SPECIAL SITUATIONS
At times, the fund may invest in certain securities under special situations. A
special situation arises when, in the sub-advisor's opinion, the securities of a
particular company will be recognized and appreciate in value due to a specific
development at that company. Developments creating a special situation might
include a new product or process, a management change or a technological
breakthrough. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention. The impact of the strategy on the fund will
depend on the fund's size and the extent of the holdings of the special
situation company relative to its total assets.
FOREIGN INVESTMENTS; AMERICAN DEPOSITARY RECEIPTS (ADRS)
The fund may invest up to 25% of its assets in foreign securities, defined as
those which are denominated in a foreign currency and not publicly traded in the
United States. Foreign investing involves risks that differ from investing in
U.S. markets. For a discussion of those risks
CA-1
<PAGE>
see Foreign investments in the SAI Appendix for the 11 funds.
In connection with its foreign investments and as a non-fundamental policy, the
fund will not commit more than 10% of its assets to the currency cross-hedge
contracts and will maintain high-grade, liquid assets to cover those contracts.
See Foreign investments in the General SAI Disclosure for the 11 funds for an
explanation of these transactions.
In addition, the fund may purchase dollar-denominated ADRs, which do not involve
the same direct currency and liquidity risks as securities denominated in
foreign currency, because they are issued by domestic banks and publicly traded
in the U.S. ADRs are U.S. securities which indirectly replace foreign securities
and will not be subject to the 25% limit.
HIGH-YIELD/HIGH-RISK BONDS
The fund has no pre-established minimum quality standards and may invest in debt
securities of any quality, including lower-rated bonds (including junk bonds)
that may offer higher yields because of the greater risk involved in those
investments. It may invest up to 35% of its assets in those securities. Debt
securities rated below investment grade by the primary rating agencies (bonds
rated Ba or lower by Moody's Investors Service and BB or lower by Standard &
Poor's Corp., or their equivalents from other nationally recognized rating
agencies) constitute lower-rated securities. Unrated bonds or bonds with split
ratings are included in this limit if the portfolio manager determines that
these securities have the same characteristics as non-investment-grade bonds.
Even though the fund may at times invest in non-investment-grade securities, it
invests primarily in medium-grade obligations.
Lower-rated bonds involve a higher degree of credit risk -- that is, the risk
that the issuer will not make interest or principal payments when due. In the
event of an unanticipated default, the fund would experience a reduction in its
income, and could expect a decline in the market value of the securities
affected. More careful analysis of the financial condition of each issuer of
lower grade securities is necessary. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to honor their
principal and interest payment obligations, to meet projected business goals,
and obtain additional financing.
The market prices of lower-grade securities are generally less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic or political changes, or in the case of corporate issuers, to
individual corporate developments. Periods of economic or political uncertainty
and change can be expected to result in volatility of prices of these
securities. Since the last major economic recession, there has been a
substantial increase in the use of high-yield/high risk debt securities to fund
highly leveraged corporate acquisitions and restructurings, so past experience
with high-yield/high risk securities in a prolonged economic downturn may not
provide an accurate indication of future performance during such periods.
Lower-rated securities also may have less liquid markets than higher-rated
securities, and their liquidity as well as their value may be negatively
affected by adverse economic conditions. Adverse publicity and investor
perceptions as well as new or proposed laws may also have a negative impact on
the market for high-yield/high-risk bonds.
The fund may also invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the sub-advisor may treat these securities as unrated debt. Unrated
debt securities will be included in the 35% limit of the fund, unless the
sub-advisor deems these securities to be the equivalent of investment grade
securities. See the General SAI Disclosure for the 11 funds for a description of
bond credit rating categories.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The fund may invest in mortgage- and asset-backed securities. These securities
are subject to prepayment risk, meaning there is the possibility that
prepayments on the underlying mortgages or other loans will cause the principal
and interest on the mortgage- and asset-backed securities to be paid before
their stated maturities. Unscheduled prepayments are more likely to speed up
during periods of declining long-term interest rates. In the event of a
prepayment during a period of declining interest rates, the fund may be required
to invest the unanticipated proceeds at a lower interest rate. Prepayments
during those periods will also limit the fund's ability to participate in as
large a market gain as may be experienced with a comparable security not subject
to prepayment. On the other hand, these securities are also subject to maturity
extension risk. This is the risk that in a period of rising interest rates,
prepayments may occur at a slower than expected rate, which may cause these
securities to fluctuate more widely in response to changes in interest rates.
Finally, the value of asset-backed securities also may change because of changes
in the market's perception of the creditworthiness of the servicing agent for
the loan pool underlying the securities, the originator of the loans, or the
financial institution providing the credit enhancement associated with the
security.
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WHEN-ISSUED SECURITIES
The fund may purchase new issues of either corporate or government securities on
a when-issued basis. However, it does not intend to invest more than 20% of its
assets in when-issued securities. Because actual payment for and delivery of
when-issued securities generally take place 15 to 45 days after the purchase
date, a fund that purchases when-issued securities assumes the risk of any
decline in value of the security beginning on the date of the agreement or
purchase.
ILLIQUID SECURITIES
The fund may invest up to 15% of its net assets in loans to other persons and/or
securities that are considered illiquid because of the absence of a readily
available market or due to legal or contractual restrictions. Certain restricted
securities that are not registered for sale to the general public but can be
resold to institutional investors may not be considered illiquid, provided that
a dealer or institutional trading market exists. The institutional trading
market is relatively new and liquidity of the fund's investments could be
impaired if trading fails to further develop, or if it declines.
BORROWING
The fund may borrow money from banks for temporary or emergency purposes in an
amount not to exceed 25% of its total assets. Certain state insurance
regulations may impose additional restrictions on the fund's ability to borrow
money. See the General SAI Disclosure for the 11 funds.
DIVERSIFICATION
The fund qualifies as a diversified investment company under the Investment
Company Act of 1940 (1940 Act). As a fundamental policy, a diversified fund may
not purchase a security of any issuer (except cash items and U.S. Government
securities) if: a) it would cause the fund to own more than 10% of the
outstanding voting securities of that issuer; or b) it would cause the fund's
holdings of that issuer to amount to more than 5% of the fund's total assets (as
applied to 75% of the fund's total assets). It may invest up to 25% of its total
assets in the securities of one issuer. See Item 1 under Investment
restrictions.
The fund does not anticipate concentrating its holdings in so few issuers unless
the sub-advisor believes a security has the potential for substantial capital
appreciation consistent with the fund's investment policies and goals. However,
the fund does intend to take advantage of the ability to invest more than 5% of
its total assets in the securities of one issuer. To the extent that the fund
invests more than 5% of its assets in a particular issuer, its exposure to
credit risk and/or market risks associated with that issuer increases. As an
additional fundamental policy, the fund will not invest more than 25% of its
total assets in any particular industry.
STRATEGIC PORTFOLIO TRANSACTIONS
The portfolio manager for the fund may, at any given time, invest a portion of
the fund's assets in one or more strategic portfolio transactions which we
define as derivative transactions and cash enhancement transactions.
For your convenience, in the General SAI Disclosure for the 11 funds, we have
included a basic discussion of these special financial arrangement transactions
and some of the risks associated with them. Note also that the General SAI
Disclosure for the 11 funds contains definitions of the more commonly used
derivative transactions, technical explanations of how these transactions will
be used and the limits on their use. You should consult your financial counselor
if you have specific questions.
THE CAPITAL APPRECIATION FUND IS AUTHORIZED:
a) for derivative transactions, to: buy and sell options on securities
(including index options) and options on foreign currencies; buy and sell
futures contracts for instruments based on financial indices, including interest
rates or an index of U.S. Government or foreign government securities or equity
or fixed-income securities, futures contracts on foreign currencies and on
fixed-income securities; buy and sell options on futures contracts; engage in
forward contracts, interest rate swaps and swap-related products.
b) for cash enhancement transactions, to: lend portfolio securities; engage in
repurchase and reverse repurchase transactions. Collateral will be continually
maintained at no less than 102% of the value of the loaned securities or of the
repurchase price, as applicable. As a matter of fundamental policy, the fund
will not lend securities if, as a result, more than 25% of its total assets
would be lent to other parties.
Derivative transactions will be used primarily to hedge the fund's securities
positions, i.e., to attempt to reduce the overall level of investment risk that
normally would be expected to be associated with the fund's securities and to
attempt to protect the fund against market movements that might adversely affect
the value of its securities or the price of securities that it is considering
purchasing. The use of these instruments by the fund involves certain risks.
The use of futures, options, forward contracts and swaps exposes the fund to
additional investment risks and transaction costs. If the sub-advisor seeks to
protect the fund against potential adverse movements in the securities, foreign
currency or interest rate markets using these instruments, and such markets do
not move in a direction adverse to the fund, that fund could be left in a less
favorable position than if such strategies
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had not been used. Risks inherent in the use of futures, options, forward
contracts and swaps include (1) the risk that interest rates, securities prices
and currency markets will not move in the directions anticipated; (2) imperfect
correlation between the price of futures, options and forward contracts and
movements in the prices of securities or currencies being hedged; (3) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; and (5) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences.
The following discussion provides additional information about each of the types
of instruments used in derivative transactions.
FUTURES CONTRACTS. The fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities, foreign currencies or contracts
based on financial indices including interest rates or an index of U.S.
Government securities, foreign government securities, equity securities or fixed
income securities.
The buyer or seller of a futures contract is not required to deliver or pay for
the underlying instrument unless the contract is held until the delivery date.
However, both the buyer and seller are required to deposit initial margin for
the benefit of a futures commission merchant (an FCM) when the contract is
entered into. In the event of the bankruptcy of an FCM that holds margin on
behalf of the fund, the fund may be entitled to return of margin owed to it only
in proportion to the amount received by FCM's other customers. The sub-advisor
will attempt to minimize the risk by careful monitoring of the creditworthiness
of the FCMs with which the fund does business and by depositing margin payments
in a segregated account with the custodian when practical or otherwise required
by law.
The fund intends to comply with guidelines of eligibility for exclusion from the
definition of the term commodity pool operator with the Commodities Futures
Trading Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The fund will use futures contracts and related
options solely for bona fide hedging purposes within the meaning of CFTC
regulations; except that, in addition, the fund may hold positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions, provided that the aggregate initial margin and
premiums required to establish such positions will not exceed 5% of the fair
market value of the fund's net assets, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into.
Although the fund would hold cash and liquid assets in a segregated account with
a value sufficient to cover its open futures obligations, the segregated assets
would be available to the fund immediately upon closing out the futures
position, while settlement of securities transactions could take several days.
However, because the fund's cash that may otherwise be invested would be held
uninvested or invested in liquid assets so long as the futures position remains
open, the fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced and prices in the futures market
distorted. Third, from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
the foregoing distortions, a correct forecast of general price trends by the
sub-advisor still may not result in a successful use of futures.
Because futures contracts are generally settled within a day from the date they
are closed out, compared with a settlement period of three days for some types
of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, the fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, the fund's access to other assets held to cover its futures positions
also could be impaired.
OPTIONS ON FUTURES CONTRACTS. The fund may buy and write put and call options
on futures contracts for hedging purposes.
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The amount of risk the fund assumes when it buys an option on a futures contract
is the premium paid for the option plus related transaction costs. In addition
to correlation risks, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the options bought.
FORWARD CONTRACTS. The fund may enter into forward foreign currency exchange
contracts (forward currency contracts) with stated contract values of up to the
value of the fund's assets. The fund will exchange foreign currencies for U.S.
dollars and for other foreign currencies in the normal course of business and
may buy and sell currencies through forward currency contracts in order to fix a
price for securities it has agreed to buy or sell (transaction hedge). The fund
also may hedge some or all of its investments denominated in or exposed to
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate
the performance of that currency) approximating the value of some or all of its
portfolio securities denominated in or exposed to that currency (position hedge)
or by participating in options or futures contracts with respect to the
currency. The fund also may enter into a forward currency contract with respect
to a currency where the fund is considering the purchase of investments
denominated in or exposed to that currency but has not yet done so (anticipatory
hedge).
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the fund
may not always be able to enter into forward contracts at attractive prices and
may be limited in its ability to use these contracts to hedge fund assets. Also,
with regard to the fund's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which its assets that are the subject of such cross-hedges are denominated.
The fund may write options on foreign currencies for hedging purposes. For
example, to hedge against a potential decline in the U.S. dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates, the fund could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised and the decrease in value of portfolio securities will
be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the fund could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the fund to hedge the increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium. If exchange rates do not move in the
expected direction, the option may be exercised and the fund would be required
to buy or sell the underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign currencies, the
fund also may lose all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
The fund may write covered call options on foreign currencies. A call option
written on a foreign currency by the fund is covered if the fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the fund has a call on the same foreign currency
and in the same principal amount as the call written if the exercise price of
the call held (1) is equal to or less than the exercise price of the call
written or (2) is greater than the exercise price of the call written, if the
difference is maintained by the fund in cash or liquid assets in a segregated
account with the fund's custodian.
The fund also may write call options on foreign currencies for cross-hedging
purposes that would not be deemed to be covered. A call option on a foreign
currency is for cross-hedging purposes if it is not covered but is designed to
provide a hedge against a decline due to an adverse change in the exchange rate
in the U.S. dollar value of a security which the fund owns or has the right to
acquire and which is denominated in the currency underlying the option. In such
circumstances, the fund collateralizes the option by maintaining, in a
segregated account with the fund's custodian, cash or liquid assets in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked-to-market daily.
OPTIONS ON FOREIGN CURRENCIES. The fund may buy and write options on foreign
currencies for hedging purposes in a manner similar to that in which futures or
forward contracts on foreign currencies will be utilized.
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For example, a decline in the U.S. dollar value of a foreign currency in which
portfolio securities are denominated will reduce the U.S. dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such decreases in the value of portfolio securities,
the fund may buy put options on the foreign currency. If the value of the
currency declines, the fund will have the right to sell such currency for a
fixed amount in U.S. dollars and will offset, in whole or in part, the adverse
effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the fund may buy call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the fund from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
if currency exchange rates do not move in the direction or to the extent
desired, the fund could sustain losses on transactions in foreign currency
options that would require the fund to forego a portion or all of the benefits
of advantageous changes in those rates.
OPTIONS ON SECURITIES. In an effort to reduce fluctuations in net asset value
and preserve the fund's assets, the fund may write covered put and call options
and buy covered put and call options on securities that are traded on United
States and foreign securities exchanges and over-the-counter. The fund may write
and buy options on the same types of securities that the fund may purchase
directly.
An option position may be closed out only where a secondary market for an option
of the same series exists. There is no guarantee that either a closing purchase
or a closing sale transaction can be effected. If a secondary market does not
exist, the fund may not be able to effect closing transactions in particular
options and the fund would have to exercise the options in order to realize any
profit. If the fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or the fund delivers the underlying security upon exercise. The
absence of a liquid secondary market may be due to the following: (1)
insufficient trading interest in certain options, (2) restrictions imposed by a
national securities exchange on which the option is traded (Exchange) on opening
or closing transactions or both, (3) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities, (4) unusual or unforeseen circumstances that interrupt
normal operations on an Exchange, (5) the facilities of an Exchange or of the
Options Clearing Corp. (OCC) may not at all times be adequate to handle current
trading volume, or (6) one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options), in
which event the secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on that Exchange
that had been issued by the OCC as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
The fund may write options in connection with buy-and-write transactions. In
other words the fund may buy a security and then write a call option against
that security.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the fund may elect to close the position or take
delivery of the security at the exercise price and the fund's return will be the
premium received from the put options minus the amount by which the market price
of the security is below the exercise price.
The fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, the fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
The fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by the fund
upon exercise of the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the fund.
SWAPS AND SWAP-RELATED PRODUCTS. The fund may enter into interest rate swaps,
caps and floors on either an asset-based or liability-based basis, depending
upon whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis (i.e., the two payment streams are
netted out, with the fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the fund's
obligations over its entitlement with respect to each interest rate swap will be
calculated on a daily basis and an amount of cash or liquid assets having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the fund's custodian. If the fund enters
into an interest rate swap on other than a
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net basis, it would maintain a segregated account in the full amount accrued on
a daily basis of its obligations with respect to the swap. The fund will not
enter into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
one of the three highest credit rating categories of at least one nationally
recognized statistical rating organization at the time of entering into such
transaction. The sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the fund will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. The sub-advisor has determined that,
as a result, the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent the
fund sells (i.e., writes) caps and floors, it will maintain cash or liquid
assets having an aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of its obligations with respect to any caps or floors
in a segregated account.
There is no limit on the amount of interest rate swap transactions that may be
entered into by the fund. These transactions may in some instances involve the
delivery of securities or other underlying assets by the fund or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the fund
is contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the fund would risk the loss of the net
amount of the payments that it contractually is entitled to receive. The fund
may buy and sell (i.e., write) caps and floors without limitation, subject to
the segregated account requirement described previously.
ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND FOREIGN
INSTRUMENTS.
Unlike transactions entered into by the fund in futures contracts, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) by the Securities and Exchange Commission (SEC). To the contrary, such
instruments are traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the buyer of an option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost. Moreover, an
option writer and a buyer or seller of futures or forward contracts could lose
amounts substantially in excess of any premium received or initial margin or
collateral posted due to the potential additional margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the OCC, thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting the fund to liquidate open positions at a profit
before exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
previously, as well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the OCC
which has established banking relationships in applicable foreign countries for
this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special controls on exercise and settlement. Such
controls may include technical changes in the mechanics of delivery of currency,
the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. Government securities, futures contracts, options
on futures contracts, forward contracts and options on foreign currencies may be
traded on foreign exchanges and over-the-counter in
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foreign countries. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or securities.
The value of such positions also could be adversely affected by (1) other
complex foreign political and economic factors, (2) lesser availability than in
the United States of data on which to make trading decisions, (3) delays in the
fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (5) low trading volume.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, the fund purchases a security and simultaneously
commits to resell that security to the seller at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security. The fund may engage in a
repurchase agreement with respect to any security in which it is authorized to
invest. While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the fund in
the event of bankruptcy of the seller), it is the policy of the fund to limit
repurchase agreements to those parties whose creditworthiness has been reviewed
and found satisfactory by the Board of Directors or its delegates. In addition,
the fund currently intends to invest only in repurchase agreements
collateralized by U.S. Government or money market securities.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests or for other temporary or emergency purposes without
the necessity of selling portfolio securities, or to earn additional income on
portfolio securities, such as Treasury bills and notes. The fund will enter into
reverse repurchase agreements only with parties that the Board of Directors, or
its delegate, deems creditworthy.
INVESTMENT RESTRICTIONS
The fund has adopted policies and investment restrictions. The investment
restrictions may not be changed without a majority vote of its outstanding
shares, and are considered fundamental. Such majority is defined in the 1940 Act
as the vote of the lesser of (1) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (2) more
than 50% of the outstanding voting securities. For purposes of the following
restrictions: (1) all percentage limitations apply immediately after the making
of an investment; and (2) any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security
from the portfolio.
As fundamental policies, the fund may not:
1. Own more than 10% of the outstanding voting securities of any one issuer
and, as to 75% of the value of the total assets of the fund, purchase the
securities of any one issuer [except cash item and government securities as
defined under the Investment Company Act of 1940 (1940 Act)], if immediately
after and as a result of such purchase the value of the holdings of the fund
in the securities of such issuer exceeds 5% of the value of the fund's total
assets. (With respect to the remaining 25% of the fund's total assets, the
fund does not anticipate that any more than 15% of the fund's total assets
would be invested in the securities of a single issuer at any time, other
than those of the U.S. Government, its agencies and instrumentalities.)
2. Invest more than 25% of the value of its assets in any particular industry.
3. Invest directly in real estate or interests in real estate; however, the
fund may own debt or equity securities issued by companies engaged in those
businesses.
4. Purchase or sell physical commodities other than foreign currencies unless
acquired as a result of ownership of securities (but this limitation shall
not prevent the fund from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments
backed by physical commodities).
5. Lend any security or make any other loan if, as a result, more than 25% of
the fund's total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or
repurchase agreements).
6. Act as an underwriter of securities issued by others, except to the extent
that the fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
7. Invest in the securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
CA-8
<PAGE>
8. Invest more than 5% of its net assets in securities restricted as to resale.
9. Issue Senior Securities, except as permitted under the Investment Company
Act of 1940, as amended (1940 Act);
The Directors have adopted additional investment restrictions for the fund.
These restrictions are non-fundamental operating policies of the fund and, as
such, may be changed by the Directors without shareholder approval. The
additional investment restrictions adopted by the Directors to date include the
following:
a. The fund will not (1) enter into any futures contracts and related options
for purposes other than bona fide hedging transactions within the meaning of
Commodity Futures Trading Commission (CFTC) Regulations if the aggregate initial
margin and premiums required to establish positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions will exceed 5% of the fair market value of the fund's net assets,
after taking into account unrealized profits and unrealized losses on any such
contracts it has entered into; or (2) enter into any futures contracts if the
aggregate amount of the fund's commitments under its outstanding futures
contracts positions would exceed the market value of its total assets.
b. The fund does not currently intend to sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and amount to the
securities sold short without the payment of any additional consideration
therefor, and provided that transactions in options, futures, swaps and forward
contracts are not deemed to constitute selling securities short.
c. The fund does not currently intend to purchase securities on margin, except
that the fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments and other deposits
in connection with transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on margin.
d. The fund may not mortgage or pledge any securities owned or held by it in
amounts that exceed, in the aggregate, 15% of its net asset value, provided that
this limitation does not apply to reverse repurchase agreements, assets
deposited to margin, guarantee positions in futures, options, swaps or forward
contracts or the segregation of assets in connection with such contracts.
e. The fund may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the fund's total assets by
reason of a decline in net assets, it will reduce its borrowings within three
business days to the extent necessary to comply with the 25% limitation. This
policy shall not prohibit reverse repurchase agreements, deposits of assets to
margin or guarantee positions in futures, options, swaps or forward contracts or
the segregation of assets in connection with such contracts.
f. The fund does not currently intend to purchase any security or enter into a
repurchase agreement, if as a result, more than 15% of its net assets would be
invested in repurchase agreements not entitling the holder to payment of
principal and interest within seven days, and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of a
readily available market. The Directors, or the advisor and sub-advisor acting
pursuant to authority delegated by the Directors, may determine that a readily
available market exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, or any successor to such rule, and therefore
that such securities are not subject to the foregoing limitation.
g. The fund may not invest in companies for the purpose of exercising control or
management.
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 General SAI Disclosure. 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
CA-9
<PAGE>
fund and other client accounts. Securities of the same issuer may be purchased,
held, or sold at the same time by the fund or other accounts or companies for
which the advisor provides investment advice (including affiliates of the
advisor). On occasions when the advisor deems the purchase or sale of a security
to be in the best interest of the fund, as well as the other clients of the
advisor, the advisor, to the extent permitted by applicable laws and
regulations, may aggregate such securities to be sold or purchased for the fund
with those to be sold or purchased for other clients in order to obtain best
execution and lower brokerage commissions, if any. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the advisor in the manner it considers to be
equitable and consistent with its fiduciary obligations to all such clients,
including the fund. In some instances, the procedures may impact the price and
size of the position obtainable for the fund. Fund 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 either with
respect to the fund or other clients of the advisor or sub-advisor. 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, 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 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 1998,
the advisor directed transactions totaling approximately $59 million to these
brokers and paid commissions of approximately $54,472 in connection with these
transactions. Research services furnished by brokers are used for the benefit of
all of the advisor's clients and not solely or necessarily for the benefit of
the fund. The advisor believes that the value of research services received is
not determinable and does not significantly reduce its expenses. The fund does
not reduce its fee to the advisor by any amount that might be attributable to
the value of such services. The aggregate amount of brokerage commissions paid
by the fund during 1998 was $778,955, for 1997 it was $1,088,656, and for 1996
it was $383,399.
If the fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. If a call written by the fund
is exercised, normally the sale of the underlying securities will be executed by
the same broker-dealer who executed the sale of the call.
The writing of options by the fund will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the fund may write may be affected by
options written by other investment advisory clients of its advisor. An exchange
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions. As of the date of this Prospectus,
these limits (which are subject to change) are 2,000 options (200,000 shares) in
each class of puts or calls.
Under the sub-advisory agreement between the advisor and the sub-advisor, the
sub-advisor may perform some, or substantially all, of the investment advisory
services required by the fund, even though the advisor remains primarily
responsible for investment decisions affecting the fund. The sub-advisor will
follow the same procedures and policies which are followed by the advisor as
described previously. The sub-advisor currently provides investment advice to a
number of other clients.
CA-10
<PAGE>
GENERAL SAI DISCLOSURE
(Note: this is uniform information for the 11 Funds. See each Fund's SAI for
information specific to that Fund.)
THIS GENERAL SAI DISCLOSURE CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL
AGGRESSIVE GROWTH FUND, INC. (AGGRESSIVE GROWTH), LINCOLN NATIONAL BOND FUND,
INC. (BOND), LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL
APPRECIATION), LINCOLN NATIONAL EQUITY-INCOME FUND, INC. (EQUITY-INCOME),
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC. (GLOBAL ASSET ALLOCATION),
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC. (GROWTH AND INCOME), LINCOLN
NATIONAL INTERNATIONAL FUND, INC. (INTERNATIONAL), LINCOLN NATIONAL MANAGED
FUND, INC. (MANAGED), LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY MARKET),
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS), AND LINCOLN
NATIONAL SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL OPPORTUNITIES). UNLESS
OTHERWISE INDICATED, THE FOLLOWING INFORMATION APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment or advisor) is the
investment advisor to the funds and is headquartered at 200 E. Berry Street,
Fort Wayne, Indiana 46802. Lincoln Investment is a subsidiary of Lincoln
National Investments, Inc., which is a wholly-owned subsidiary of Lincoln
National Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis,
insurance and financial services. Lincoln Investment is registered with the
Securities and Exchange Commission (SEC) as an investment advisor and has acted
as an investment advisor to mutual funds for over 40 years. The advisor also
acts as investment advisor to Lincoln National Income Fund, Inc. (a closed-end
investment company whose investment objective is to provide a high level of
current income from interest on fixed-income securities) and Lincoln National
Convertible Securities Fund, Inc. (a closed-end investment company whose
investment objective is a high level of total return on its assets through a
combination of capital appreciation and current income) and to other clients,
and also acts as sub-adviser to two of the series of Delaware Group Adviser
Funds, Inc. (the Corporate Income Fund and the Federal Bond Fund of that retail
mutual fund complex).
Under an Advisory Agreement with each fund, the advisor provides portfolio
management and investment advice to the funds and administers its other affairs,
subject to the supervision of the fund's Board of Directors. The advisor, at its
expense, will provide office space to the funds and all necessary office
facilities, equipment and personnel and will make its officers and employees
available to the funds as appropriate. In addition, the advisor will pay all
expenses incurred by it or by the funds in connection with the management of
each fund's assets or the administration of its affairs, other than those
assumed by the funds, as described in the General Prospectus Disclosure. Lincoln
Life has paid the organizational expenses of all the funds. The rates of
compensation to the advisor is set forth in the General Prospectus Disclosure to
the Prospectus.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $ 2,476,022 $2,109,952 $1,428,803
Bond Fund 1,421,361 1,221,295 1,188,030
Capital Appreciation Fund 4,265,160 2,940,632 1,549,656
Equity-Income Fund 6,639,317 6,053,404 3,303,336
Global Asset Allocation Fund 3,320,142 2,808,358 2,072,722
Growth and Income Fund 12,112,568 9,714,765 7,063,276
International Fund 3,837,594 3,741,563 3,319,701
Managed Fund 3,283,079 2,873,786 2,480,524
Money Market Fund 517,294 451,243 417,468
Social Awareness Fund 5,287,914 3,355,544 1,877,030
Special Opportunities Fund 3,248,791 2,824,015 2,274,229
</TABLE>
A-1
<PAGE>
During the last three years, the advisor received the amounts, as mentioned
above, for investment advisory services. If total expenses of the
funds(excluding taxes, interest, portfolio brokerage commissions and fees, and
expenses of an extraordinary and non-recurring nature, but including the
investment advisory fee) exceed 1 1/2% per annum of the average daily net assets
of each fund (2% for the International Fund), the advisor will pay such excess
by offsetting it against the advisory fee. If such offset is insufficient to
cover the excess, any balance remaining will be paid directly by the advisor to
each fund.
SUB-ADVISORS. As advisor, Lincoln Investment is primarily responsible for
investment decisions affecting each of the funds. However, Lincoln Investment
has entered into sub-advisory agreements with several professional investment
management firms. These firms provide some or substantially all of the
investment advisory services required by a number of the funds, including
day-to-day investment management of those funds' portfolios. Each sub-advisor
makes investment decisions for its respective fund in accordance with that
fund's investment objectives and places orders on behalf of that fund to effect
those decisions. See the following tables for more information about the
sub-advisors and their fees:
<TABLE>
<CAPTION>
ANNUAL FEE RATE BASED ON
FUND SUB-ADVISOR AVERAGE DAILY NET ASSET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Putnam Currently .50 of 1% of the first $150 million
One Post Office Square .35 of 1% of the excess over $150 million; upon
Boston, MA 02109 shareholder approval fees will be .50 of 1% of
the first $250 million, .45 of 1% of the excess
over $250 million
Capital Appreciation Janus .55 of 1% of the first $100 million .50 of 1% of
100 Fillmore Street the next $400 million; and .45 of 1% of the
Denver, CO 80206 excess over $500 million
Equity-Income Fidelity Trust .48 of 1%
82 Devonshire Street
Boston, MA 02108
Global Asset Allocation Putnam The greater of (a) $40,000; or (b) .47 of 1% of
One Post Office Square the first $200 million; .42 of 1% of the next
Boston, MA 02109 $200 million; and .40 of 1% of any excess over
$400 million
International Delaware International .50 of 1% of the first $200 million; .40 of 1%
Advisers Ltd. of the next $200 million; and .35 of 1% of any
80 Cheapside, excess over $400 million
London, England
EC2V 6EE
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FEE RATE BASED ON MARKET
VALUE OF SECURITIES HELD IN THE
PORTFOLIO OF EACH RESPECTIVE CLIENT
FUND AT THE CLOSE OF BUSINESS ON THE
FUND SUB-ADVISOR LAST TRADING DAY OF EACH CALENDAR QUARTER
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Vantage .20 of 1%
630 5th Avenue
New York, NY 10111
Managed Vantage .20 of 1%
(stock portfolio only)
Social Awareness Vantage .20 of 1%
Special Opportunities Vantage .20 of 1%
</TABLE>
A-2
<PAGE>
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus, most of which it acquired in 1984. KCSI is a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, information processing and financial services. Thomas H. Bailey,
President and Chairman of the Board of Janus, owns approximately 12% of its
voting stock and, by agreement with KCSI, selects a majority of Janus' Board.
FMR Corp., organized in 1972, is the ultimate parent company of Fidelity Trust.
The voting common stock of FMR Corp. is divided into two classes. Class B is
held predominantly by members of the Edward C. Johnson 3d family and is entitled
to 49% of the vote on any matter acted upon by the voting common stock. Class A
is held predominately by non-Johnson family member employees of FMR Corp. and
its affiliates and is entitled to 51% of the vote on any such matter. The
Johnson family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. Under the 1940 Act, control
of a company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company. Therefore, through their ownership
of voting common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
Putnam is a majority-owned subsidiary of Marsh & McLennan Companies, a
diversified firm offering insurance and reinsurance broking, consulting, and
investment management services. Putnam, however, operates independently of its
parent.
During the last three years each sub-advisor received the following amounts for
investment sub-advisory services. Lincoln Investment, not the fund, pays all
sub-advisory fees owed.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $1,450,345 $1,229,800 $ 893,059
Bond Fund N/A N/A N/A
Capital Appreciation Fund 2,840,385 2,072,388 1,117,383
Equity-Income Fund 5,248,803 4,781,931 2,612,405
Global Asset Allocation Fund 2,000,284 1,724,369 1,284,185
Growth and Income Fund 7,502,197 6,155,225 4,440,325
International Fund 1,233,752 1,503,294 1,326,484
Managed Fund 1,116,901 974,080 820,633
Money Market Fund N/A N/A N/A
Social Awareness Fund 2,992,902 1,901,560 923,516
Special Opportunities Fund 1,775,700 1,519,961 1,168,134
</TABLE>
SERVICE MARKS. The service mark for the funds and the name Lincoln National have
been adopted by the funds with the permission of LNC, and their continued use is
subject to the right of LNC to withdraw this permission in the event the advisor
should not be the investment advisor of the funds.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund and
Putnam with the Aggressive Growth and Global Asset Allocation Funds. The
continued use of these names is subject to the right of the respective
sub-advisor to withdraw its permission in the event it ceases to be the
sub-advisor to the particular fund it advises.
A-3
<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
46
1300 S. Clinton Street
Fort Wayne, IN 46802
- -----------------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Associate Vice President--Investments, Northwestern
Director, age 65 University
1776 Sherwood Road
Des Plaines, IL 60016
- -----------------------------------------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Formerly: Regional Vice President/Chief Financial Officer (formerly
Director, age 57 Vice President--Finance; Regional Controller of Finance), St. Joseph
900 N.W. 17th Street, Medical Center, Fort Wayne, Indiana
Miami, FL 33136 Now: Chief Financial Officer, Bascom Palmer Eye Institute, University
of Miami School of Medicine, (eff. 1998)
- -----------------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and Development,
Director, age 47 Lincoln National Management Corporation; Director, Lincoln Life and
200 East Berry Street Annuity Company of New York (formerly Executive Vice President, Lincoln
Fort Wayne, IN 46802 Investment Management, Inc.)
- -----------------------------------------------------------------------------------------------------------------
KENNETH G. STELLA President, Indiana Hospital and Health Association
Director, age 55
One America Square
Indianapolis, IN 46282
- -----------------------------------------------------------------------------------------------------------------
JANET C. CHRZAN Vice President and Treasurer, Lincoln National Corp. (formerly Vice
Treasurer, age 50 President and General Auditor)
200 East Berry Street
Fort Wayne, IN 46802
- -----------------------------------------------------------------------------------------------------------------
CYNTHIA A. ROSE Secretary, Lincoln National Life Insurance Co.
Secretary, age 44 Secretary and Assistant Vice President (eff. 1/1/99)
200 East Berry Street
Fort Wayne, IN 46802
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested persons of the funds, as defined in the 1940 Act.
A-4
<PAGE>
<TABLE>
<S> <C> <C>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND
NAME OF PERSON, POSITION FROM EACH FUND* AND FUND COMPLEX
- ----------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. $16,394
Director $1,488
- ----------------------------------------------------------------------------------------------------
NANCY L. FRISBY 15,851
Director 1,439
- ----------------------------------------------------------------------------------------------------
KENNETH G. STELLA 16,800
Director 1,400
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Directors fees of $350 per meeting, plus expenses to attend the meetings, are
paid by each fund to each director who is not an interested person of the funds.
FUND EXPENSES
Expenses other than investment advisory fees specifically assumed by each fund
include: compensation and expenses of Directors of the fund who are not
interested persons of the fund as defined in the 1940 Act; registration, filing,
printing, and other fees in connection with filings with regulatory authorities,
including the costs of printing and mailing updated Prospectuses and SAIs
provided to current contract owners; fees and expenses of independent auditors;
the expenses of printing and mailing proxy statements and shareholder reports;
custodian and transfer agent charges; brokerage commissions and securities and
options transaction costs incurred by the fund; taxes and corporate fees; fees
for accounting, valuation and related services; legal fees incurred in
connection with the affairs of the fund (other than legal services provided by
personnel of the advisor or its affiliated companies); the fees of any trade
association of which the fund is a member; and expenses of shareholder and
Director meetings.
DESCRIPTION OF SHARES
The authorized capital stock of each fund consists of shares of common stock,
$0.01 par value. Fund shares will be owned by Lincoln Life and will be held by
it in the variable accounts. As 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 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
A-5
<PAGE>
adopting this procedure for dispensing with annual meetings that are a
formality, the Directors of the funds have undertaken to comply with the
requirements of Section 16(c) of the 1940 Act. That Section protects contract
owners by providing a procedure by which they may require management to convene
a meeting of the shareholder to vote on removal of one or more Directors. The
Directors also have agreed to facilitate communication among contract owners for
the purpose of calling those meetings. Further information about these
procedures is available from fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management
philosophies many of the funds engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to seek to increase the fund's overall
value (or, depending on the condition of the securities markets, at least to
slow its decrease). Cash enhancement transactions are designed to make some
extra money for the fund when it has excess cash, or to help the fund obtain
some cash for temporary purposes when needed. See the Prospectus for each fund
for a listing of the kinds of transactions in which each fund may engage.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one or more indices of asset values. The following types are
currently in fairly common use in the investment community, although not
every fund will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps;
stock index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs); interest rate swaps and their
related transactions (e.g., caps, floors, collars and corridors);
and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest
rate swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED AT THE END OF THIS
GENERAL SAI DISCLOSURE.
Although they may be structured in complex combinations, derivative transactions
in which the funds engage generally fall into two broad categories: options
contracts or forward contracts. The combined forms are constantly evolving. In
fact, variations on the types listed previously may come into use after the date
of these SAIs. Therefore, where a particular fund discloses the intent of that
fund to engage in any of the types listed, that fund hereby reserves the right
to engage in related variations on those transactions.
The funds intend to engage in derivative transactions only defensively, unless a
fund's Prospectus or SAI states otherwise. Examples of this defensive use might
be: to hedge against a perceived decrease in a fund's asset value; to control
transaction costs associated with market timing (e.g., by using futures on an
unleveraged basis); and to lock in returns, spreads, or currency exchange rates
in anticipation of future cash market transactions.
There is no discussion here of asset-backed or mortgage-backed securities, or
securities such as collateralized mortgage obligations, structured notes,
inverse floaters, principal-only or interest-only securities, etc. For a
description of these securities see the Prospectus or SAI for the funds that are
authorized to engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some derivatives
involve more of these risks than others. We briefly describe the 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
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indicated currency and the time the other counterparty(ies) receive
payment in the others, those awaiting payment are exposed to credit risk
and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in
particular jurisdictions or against a financially troubled entity; or
will be subject to regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will be unable to control
its losses if a liquid secondary market for a financial instrument does
not exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundamental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a
market segment, to a settlement system, etc.) might cause widespread
difficulties at other firms, in other market segments, or in the
financial system as a whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's
ability to correctly predict the direction of stock prices and interest
rates, and other economic factors. Options and futures trading may fail
as hedging techniques in cases where the price movements of the
securities underlying the options and futures do not follow the price
movements of the portfolio securities subject to the hedge. The loss from
investing in futures transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular fund, please consult your
financial counselor if you have questions about the risks associated with
that fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each fund, that fund's
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the
Comptroller of the Currency), and by self-regulatory agencies (such as
the NASD). Should legislation or regulatory initiatives be enacted
resulting in additional restrictive requirements for derivative
transactions, Lincoln Life and the funds reserve the right to make all
necessary changes in the contracts and the Registration Statements for
the funds, respectively, to comply with those requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the fund. They are
discussed more fully in the SAI.
A. Lending of portfolio securities
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.
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However, the fund retains the right to call in the loans and have the
loaned securities returned at any time with reasonable notice. This is
important when issuers of the securities ask holders of those
securities--including the fund--to vote or consent on matters which could
materially affect the holders' investment. The fund may also call in the
loaned securities in order to sell them. None of the fund's portfolio
securities will be loaned to Lincoln Investment, to any sub-advisor, or
to any of their respective affiliates. The fund may pay reasonable
finder's fees to persons unaffiliated with it in connection with the
arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. REPOS. From time to time, the funds may enter into Repo
transactions. In a typical Repo transaction, the fund involved buys
U.S. Government or other money market securities from a financial
institution (such as a bank, broker, or savings and loan
association). At the same time, as part of the arrangement, the fund
obtains an agreement from the seller to repurchase those same
securities from the fund at a specified price on a fixed future
date.
The repurchase date is normally not more than seven days from the
date of purchase. Repurchase agreements maturing in more than seven
days will be considered illiquid and subject to the fund's
restriction on illiquid securities.
2. REVERSE REPOS. A fund may also be authorized to enter into Reverse
Repo transactions. This simply means the fund is on the reverse side
of a Repo transaction. That is, the fund is the Seller of some of
its portfolio securities, subject to buying them back at a set price
and date.
Authorized funds will engage in Reverse Repos for temporary purposes,
such as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse
repo transaction is considered to be the borrowing of money by the
fund. Funds authorized to engage in Repos as buyers are not
necessarily authorized to do Reverse Repos.
RISKS OF OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to all funds except the International Fund and the Money
Market Fund. (Note: The SAIs for Aggressive Growth, Capital Appreciation,
Equity-Income and Global Asset Allocation Funds provide additional disclosures
concerning the types and risks of the strategic portfolio transactions in which
they may engage.)
OPTIONS TRADING
The fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the fund's
portfolio. The fund may not purchase or write put or covered call options in an
aggregate cost exceeding 30% of the value of its total assets. The fund would
invest in options in standard contracts which may be quoted on NASDAQ, or on
national securities exchanges. Currently options are traded on numerous
securities and indices including, without limitation, the Standard and Poor's
100 Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), and the NYSE
Beta Index.
Put and call options are generally short-term contracts with durations of nine
months or less. The investment advisor will generally write covered call options
when it anticipates declines in the market value of the portfolio securities and
the premiums received may offset to some extent the decline in the fund's net
asset value. On the other hand, writing put options may be a useful portfolio
investment strategy when the fund has cash or other reserves and it intends to
purchase securities but expects prices to increase.
Generally, the risk to the fund in writing options is that the investment
advisor's assumption about the price trend of the underlying security may prove
inaccurate. If the fund wrote a put, expecting the price of a security to
increase, and it decreases, or if the fund wrote a call, expecting the price to
decrease but it increased, the fund could suffer a loss if the premium received
in each case did not equal the difference between the exercise price and the
market price.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of the position in the underlying security), the
fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
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Principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price and price volatility
of the underlying security and the time remaining until the expiration date. In
addition, there is no assurance that the fund will be able to effect a closing
transaction at a favorable price. If the fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security. If a
substantial number of covered options written by the fund are exercised, the
fund's rate of portfolio turnover could exceed historic levels. This could
result in higher transaction costs, including brokerage commissions. The fund
will pay brokerage commissions in connection with the writing and purchasing of
options to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
FUTURES CONTRACTS AND OPTIONS THEREON
The fund may buy and sell financial futures contracts (futures contracts) and
related options thereon solely for hedging purposes. The fund may sell a futures
contract or purchase a put option on that futures contract to protect the value
of the fund's portfolio in the event the investment advisor anticipates
declining security prices. Similarly, if security prices are expected to rise,
the fund may purchase a futures contract or a call option thereon.
The fund may purchase and sell financial futures contracts (futures contracts)
as a hedge against fluctuations in the value of securities which are held in the
fund's portfolio or which the fund intends to purchase. The fund will engage in
such transactions consistent with the fund's investment objective. For certain
limited purposes, the fund may also be authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge. Currently, futures contracts
are available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
The Bond, Growth and Income, Managed, Social Awareness, and Special
Opportunities funds may only purchase futures and related options thereon for
hedging purposes. The Aggressive Growth, Capital Appreciation, Equity-Income,
and Global Asset Allocation funds may purchase futures and related options for
both hedging and non-hedging purposes, but subject to the limits described in
each fund's SAI. The funds will not purchase or sell futures contracts or
related options if immediately thereafter more than 1/3 of its net assets would
be hedged.
There are a number of risks associated with futures hedging. Changes in the
price of a futures contract generally parallel but do not necessarily equal
changes in the prices of the securities being hedged. The risk of imperfect
correlation increases as the composition of the fund's securities portfolio
diverges from the securities that are the subject of the futures contract.
Because the change in the price of the futures contract may be more or less than
the change in the prices of the underlying securities, even a correct forecast
of price changes may not result in a successful hedging transaction. Another
risk is that the investment advisor could be incorrect in its expectation as to
the direction or extent of various market trends or the time period within which
the trends are to take place.
The fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. This investment policy does not apply to the
Capital Appreciation, Global Asset Allocation, and Equity-Income funds. There
can be no assurance that a liquid market will always exist for any particular
contract at any particular time. Accordingly, there can be no assurance that it
will always be possible to close a futures position when such closing is desired
and, in the event of adverse price movements, the fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been sold to hedge portfolio securities, such securities
will not be sold until the offsetting futures contracts can be executed.
Similarly, in the event futures have been bought to hedge anticipated securities
purchases, such purchases will not be executed until the offsetting futures
contracts can be sold.
Successful use of futures contracts by the fund is also subject to the ability
of the investment advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. 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
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because of concern as to possible further market decline or for other reasons,
the fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The selling of futures contracts by the fund and use of related transactions in
options on futures contracts are subject to position limits, which are affected
by the activities of the investment advisor.
The hours of trading of futures contracts may not conform to the hours during
which the fund may trade securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the securities markets that cannot be reflected in the futures
markets.
The fund's successful use of futures contracts and options thereon depends upon
the ability of its investment advisor to predict movements in the securities
markets and other factors affecting markets for securities and upon the degree
of correlation between the prices of the futures contracts and the prices of the
securities being hedged. As a result, even a correct forecast of price changes
may not result in a successful hedging transaction. Although futures contracts
and options thereon may limit the fund's exposure to loss, they may also limit
the fund's potential for capital gains. For example, if the fund has hedged
against the possibility of decrease in prices which would adversely affect the
price of securities in its portfolio and prices of such securities increase
instead, the fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
Although the fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
LENDING OF PORTFOLIO SECURITIES
The funds may from time to time lend securities from their portfolios to
brokers, dealers and financial institutions and receive collateral from the
borrower, in the form of cash (which may be invested in short-term securities),
U.S. Government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 102% of the current
market value of the loaned securities, and will be in the actual or constructive
possession of the particular fund during the term of the loan. The fund will
maintain the incidents of ownership of the loaned securities and will continue
to be entitled to the interest or dividends payable on the loaned securities. In
addition, the fund will receive interest on the amount of the loan. The loans
will be terminable by the fund at any time and will not be made to any
affiliates of the fund or the advisor. The fund may pay reasonable finder's fees
to persons unaffiliated with it in connection with the arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made to firms deemed by the advisor to be creditworthy.
RISKS OF REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. The
difference between the purchase price to the fund and the resale price to the
seller represents the interest earned by the fund which is unrelated to the
coupon rate or maturity of the purchased security. If the seller defaults, the
fund may incur a loss if the value of the collateral securing the repurchase
agreement declines, or the fund may incur disposition costs in connection with
liquidating the collateral. If bankruptcy proceedings are commenced with respect
to the seller, realization upon the collateral by the fund may be delayed or
limited and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. The Board of
Directors of the funds or its delegate will evaluate the creditworthiness of all
entities, including banks and broker-dealers, with which they propose to enter
into repurchase agreements. These transactions will be fully collateralized; and
the collateral for each transaction will be in the actual or constructive
possession of the particular fund during the terms of the transaction, as
provided in the agreement.
Similarly, the fund will enter into reverse repurchase agreements only with
parties that the advisor or sub-advisor deems creditworthy. While a reverse
repurchase agreement is outstanding, the funds will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages, bars preventing the removal of assets, or other
foreign governmental laws or restrictions; reduced availability of public
information concerning issuers; and the fact that
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foreign companies are not generally subject to uniform accounting, auditing, and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic companies. With respect to certain
foreign countries, there is also the possibility of expropriation,
nationalization, confiscatory taxation, and limitations on the use or removal of
cash or other assets of a fund, including the withholding of interest payments
or dividends. These risks may be particularly great in so-called developing or
undeveloped countries, sometimes referred to as Emerging Markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The funds will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a fund
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the U.S. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the U.S. There may be difficulty in
enforcing legal rights outside the U.S. For example, in the event of default on
any foreign debt obligations, it may be more difficult or impossible for the
fund to obtain or to enforce a judgment against the issuers of these securities.
The advisor or sub-advisor will take all these factors into consideration in
managing a fund's foreign investments.
The share price of a fund that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a fund's
investments abroad, changes in a fund's share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the fund invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the fund.
FOREIGN CURRENCIES
When an advisor or sub-advisor believes that a currency in which a portfolio
security or securities is denominated or exposed may suffer a decline against
the U.S. dollar, it may hedge that risk by entering into a forward contract to
sell an amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in or exposed to that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a fund may hold various foreign currencies,
the value of the net assets of that fund as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold. Some foreign currency values
may be volatile, and there is the possibility of government controls on currency
exchange or governmental intervention in currency markets which could adversely
affect the fund.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a fund's advisor or
sub-advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the fund's assets denominated in or exposed
to that currency), or by participating in options or futures contracts with
respect to that currency. If the advisor or sub-advisor believes that a
particular currency may 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, as of January 1, 1999, several European countries began
participating in the European Economic and Monetary Union, which established a
common
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European currency for participating countries. This currency is commonly known
as the "Euro." Each participating country is currently phasing in use of the
Euro for major financial transactions. In addition, each participating country
will begin using the Euro for currency transactions beginning July 1, 2002.
Additional European countries may elect to participate. 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 handle both the implementation of this single currency and the prospect of
the adoption of the Euro by additional countries in the future.
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 for the 11 funds.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities funds are
currently held in custody by The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, NY 11245. Chase Manhattan agreed to act as custodian for each
fund pursuant to a Custodian Agreement dated March 30, 1998.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation and International Funds are
held in custody by State Street Bank and Trust Co., 225 Franklin Street, Boston,
Massachusetts 02110. State Street agreed to act as custodian for these funds
pursuant to Custodian Contracts effective July 21, 1987 for the Global Asset
Allocation fund, April 29, 1991 for the International fund, and December 6, 1993
for the other three funds.
Under these Agreements, the respective custodians shall (1) receive and disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit receipts to be executed; (6) register securities; and (7)
deliver to the funds proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each fund's Board of Directors has engaged Ernst & Young LLP, Two Commerce
Square, Suite 4000, 2001 Market Street, Philadelphia, PA 19103, to be the
independent auditors for the fund. In addition to the audit of the 1998
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.
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FINANCIAL STATEMENTS
The audited financial statements and the reports of Ernst & Young LLP,
Independent Auditors, for the funds are incorporated by reference to each fund's
1998 Annual Report. We will provide a copy of each fund's Annual Report on
request and without charge. Either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call: 1-800-4LINCOLN (452-6265).
BOND AND COMMERCIAL PAPER RATINGS
Certain of the funds' investment policies and restrictions include references to
bond and commercial paper ratings. The following is a discussion of the rating
categories of Moody's Investors Service, Inc. and Standard & Poor's Corp.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S CORP.
AAA -- This is the highest rating assigned by Standard & Poor's Corp. to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than for
bonds in the A category and higher.
BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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
A-13
<PAGE>
months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1 -- Highest Quality;
Prime 2 -- Higher Quality;
Prime 3 -- High Quality.
(The funds will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORP.
A Standard & Poor's Corp. commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The fund will invest in commercial paper rated in the A Categories, as
follows:
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The
funds will not invest in commercial paper rated A-3).
A -- 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A -- 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of two to ten years and
Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). Obligations supported by the credit of the instrumentality include
securities issued by government-sponsored corporations whose stock is publicly
held (for example, the Federal National Mortgage Association, and the Student
Loan Marketing Association). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk than
other government obligations.
TAXES
Each fund intends to qualify and has elected to be taxed as a regulated
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the Code). If a fund qualifies as a regulated investment
company and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each fund must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
which are not directly related to the fund's principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its investing in such
stocks, securities, or currencies.
The federal tax laws impose a 4% nondeductible excise tax on each regulated
investment company with respect to an amount, if any, by which such company does
not meet distribution requirements specified in such tax laws, unless certain
exceptions apply. Each fund intends to comply with such distribution
requirements or qualify under one or more exceptions, and thus does not expect
to incur the 4% nondeductible excise tax.
Since the sole shareholder of each fund will be Lincoln Life, no discussion is
stated herein as to the federal income tax consequences at the shareholder
level.
The discussion of federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service (IRS). These
interpretations can be changed at any time. The above discussion covers only
federal tax considerations with respect to the fund. State and local taxes vary.
A-14
<PAGE>
DERIVATIVE TRANSACTIONS-DEFINITIONS
The SAI for each fund and this uniform Appendix discuss the type of derivative
transactions in which the funds may engage and the risks typically associated
with many derivative transactions. Here are some definitions for the derivatives
listed in the Appendix:
OPTION. A contract which gives the fund the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options trading
to terminate an outstanding option contract by entering into an offsetting
transaction known as a closing transaction; as a result of which the fund would
either pay out or receive a cash settlement. This is discussed below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX OPTION. One based on the value of an index which measures the fluctuating
value of a basket of pre-selected securities.
STOCK (EQUITY) OPTION. One based on the shares of stock of a particular company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a loan
or bond borrowing from one interest rate base (fixed term or floating rate) or
currency of one denomination to another.
EQUITY SWAP. One which allows the fund to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the fund and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed rate
to floating rate in the same currency); basis swaps (one floating rate index to
another floating rate index in the same currency); and cross-currency interest
rate swaps (fixed rate in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An arrangement to simultaneously purchase a cap and sell a floor, in
order to maintain interest rates within a defined range. The premium income
from the sale of the floor reduces or offsets the cost of buying the cap.
d. Corridor. An agreement to buy a cap at one interest rate and sell a cap at a
higher rate.
SWAPTION. An option to enter into, extend, or cancel a swap.
FUTURES CONTRACT. A contract which commits the fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected stocks,
with prices based on a composite of the changes to the prices of the individual
securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the fund and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal is
involved; the difference between the contracted rate and the prevailing rate is
settled in cash.
A-15
<PAGE>
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-16
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
A-17
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits:
(a) - Articles of Incorporation*
(b) - By-Laws*
(c) - Certificate*
(d)1. - Advisory Agreement between Lincoln Investment Management
Inc. and Lincoln National Capital Appreciation Fund, Inc.
dated SEPTEMBER 23, 1993.*
2. - Sub-Advisory Agreement between Lincoln Investment Management
Inc. and Janus Capital Corporation dated January 1, 1994.*
3. - Amendment dated May 1, 1998 to advisory agreement between
Lincoln Investment Management Company and Lincoln National
Capital Appreciation Fund, Inc.*
4. - Amendment dated May 1, 1998 to sub-advisory agreement
between Lincoln Investment Management Company and Janus
Capital Corporation.*
(e)1. - N/A
2. - Specimen Agents Contract (Filed with Post-Effective No. 4
to this Registration Statement)
(f) - NA
(g)1. - Custody Agreement*
2. - Custody Fee Schedule (Filed with Post-Effective No. 4
to this Registration Statement)
(h)1. - Fund Participation Agreement
2. - Trade Name Agreement*
3. - Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc. and Lincoln National
Life Insurance Company is incorporated herein by reference
to the Registration Statement on Form S-6 (333-40745) filed
on November 21, 1997.
4. - Amendment to Fund Participation Agreement
(i) - Opinion of Counsel*
(j) - Consent of Ernst & Young LLP, Independent Auditors
(k) - NA
(l) - INVESTMENT LETTER*
(m) - NA
(n) - Financial Data Schedule
(o) - N/A
(p) 1.- Power of Attorney, Kenneth G. Stella
2.- Power of Attorney, John B. Borsch, Jr.
3.- Power of Attorney, Barbara S. Kowalczyk
4.- Power of Attorney, Nancy L. Frisby
5.- Power of Attorney, Eric C. Jones
6.- Power of Attorney, Janet C. Chrzan
7.- Power of Attorney, Kelly D. Clevenger
(q) - Org Chart
(r) - Memorandum Concerning Books and Records
* Filed with post-effective amendment No. 5 to this Registration
Statement
Item 24. Persons Controlled by or Under Common Control with Registrant
See "Management of the Fund," "Purchase of Securities Being Offered,"
and "Description of Shares" in the Prospectus forming Part A of this
Registration Statement and "Investment 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 Variable Life
Account K, is the sole shareholder in the Fund.
No persons are controlled by the Registrant. A diagram of all persons
under common control with the Registrant is filed as Exhibit 15(a) to
the Form N-4 Registrant Statement filed by Lincoln National Variable
Annuity Account C (File No. 33-25990), and is incorporated by reference
into this Registration Statement.
Item 25. Indemnification
Reference is made to Article IX of the Fund's By-Laws (filed as
Exhibit (b) hereto); in the indemnification provision of the Fund
Participation agreement between the Fund and the Lincoln National
Life Insurance Company (filed as Exhibit (h)1 to the Registration
Statement filed with Post-Effective Amendment No. 21); and to
Section 2-418 of the Maryland General Corporation Law.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Information pertaining to any business and other connections of
Registrant's investment adviser, Lincoln Investment, is hereby incorporated
by reference from the section captioned "Management of the Fund" in the
Prospectus forming Part A of this Registration Statement, the section
captioned "Investment Adviser and Sub-Adviser" in the Statement of
Additional Information forming Part B of this Registration Statement, and
Item 7 of Part II of Lincoln Investment's Form ADV filed separately with
the Commission (File No. 801-5098). Information pertaining to any business
and other connections of Registrant's sub-investment adviser, Janus Capital
Corporation ("Janus") 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 Janus' Form ADV filed separately with the
Commission (File No. 801-13991).
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 Janus are hereby incorporated by
reference, respectively, from Schedules A and D of Lincoln Investment's
Form ADV and from Schedules A and D of Janus' Form ADV.
(a) The Adviser.
As of March 23, 1999, the officers and/or directors of the
investment adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
David A. Berry Vice President Vice President, Lincoln National Income Fund, Inc. and
Lincoln National Convertible Securities Fund, Inc.,
Second Vice President, Lincoln Life & Annuity Company of
New York,
200 East Berry Street,
Fort Wayne, Indiana 46802
Dennis A. Blume Vice President Director Lynch & Mayer, Inc., and Vantage Global
Advisors, Inc.,
200 East Berry Street,
Fort Wayne, Indiana 46802
Philip C. Byrde Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
Steven R. Brody Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
David C. Fischer Vice President Vice President, Lincoln National Income Fund, Inc.
200 East Berry Street,
Fort Wayne, Indiana 46802
J. Michael Keefer Vice President 200 East Berry Street
General Counsel and Fort Wayne, Indiana 46802
Assistant Secretary
and Director
Mark Laurent Second Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
H. Thomas McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., Executive Vice President and Chief Investment
Officer, Lincoln National Corporation; Director, Delaware
Management Holdings, Inc., Lincoln National Realty
Corporation, Lynch & Mayer, Inc., Vantage Global Advisors,
Executive Vice President and Chief Investment Officer,
Fixed-Income Delaware Management Company, and Director
of Lincoln National Investments, Inc. (Formerly Lincoln
National Investment Companies, Inc.) Lincoln National Life
Insurance Company,
200 East Berry Street,
Fort Wayne, Indiana 46802
Jil Schoeff-Lindholm Portfolio Manager 200 East Berry Street,
Fort Wayne, Indiana 46802
David C. Patch Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
Dennis E. Westrick Second Vice President 200 East Berry Street,
and Assistant Fort Wayne, Indiana 46802
Treasurer
</TABLE>
<PAGE>
(b) The Sub-Adviser.
As of April 6, 1999, the officers and/or directors of the sub-
advisor held the following positions:
JANUS CAPITAL CORPORATION
100 FILLMORE STREET
DENVER CO 80206-4928
OFFICERS AND DIRECTORS
Thomas H. Bailey Chairman, CEO, Director and President
James P. Craig Chief Investment Officer, Vice Chairman and Director
Thomas A. Early Vice President, General Counsel, Secretary
Steven R. Goodbarn Vice President of Finance, Treasurer and Chief
Financial Officer
Margie G. Hurd Vice President and Chief Operations Officer
Mark B. Whiston Vice President and Chief Marketing Officer
Michael E. Herman Director
Thomas A. McDonnell Director
Landon H. Rowland Director
Michael N. Stolpher Director
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
See Exhibit (r).
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Amendment and has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Fort Wayne, and State of Indiana, on the 16th day of April 1999.
LINCOLN NATIONAL
CAPITAL APPRECIATION FUND, INC.
By /s/ Kelly D. Clevenger
----------------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Kelly D. Clevenger Chairman of the Board, April 16, 1999
- ----------------------- President and Director
Kelly D. Clevenger (Principal Executive Officer)
* Director April 16, 1999
- -----------------------
John B. Borsch, Jr.
* Director April 16, 1999
- -----------------------
Kenneth G. Stella
* Director April 16, 1999
- -----------------------
Barbara S. Kowalczyk
* Director April 16, 1999
- -----------------------
Nancy L. Frisby
* Chief Accounting Officer April 16, 1999
- ----------------------- (Principal Accounting Officer)
Eric C. Jones
* Vice President and Treasurer April 16, 1999
- ----------------------- (Principal Financial Officer)
Janet C. Chrzan
</TABLE>
*By /s/ Steven M. Kluever pursuant to a Power of Attorney filed with
-------------------- this Registration Statement.
Steven M. Kluever
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Capital Appreciation Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule
1 to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are
not received on time, such funds will be invested, and shares
purchased thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940 Act.
The Fund shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds if securities must
be redeemed; the Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the
Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product
Owners or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the
Contractowners having an interest in the Fund to substitute the
shares of another investment company for shares in accordance with
the terms of the Contracts; (iv) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or,
<PAGE>
prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece
of sales literature or other promotional material in which the Fund is named.
No such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications
<PAGE>
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or
separate booklets containing disclosure for the Contracts and for underlying
funds other than those of the Fund, then the Fund shall pay only its
proportionate share of the total cost to distribute the booklet to existing
Contractowners.)
<PAGE>
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such
assets in a different investment vehicle, or submitting the question
of whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets
of any particular group (i.e., variable annuity Contractowners,
variable life insurance policyowners, or variable Contractowners of
one or more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected Contractowners the
option of making such a change; and (ii) establishing a new
registered mutual fund or management separate account; or (iii)
taking such other action as is necessary to remedy or eliminate the
material irreconcilable conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict . After
reserving that right the Company, although disagreeing with the Board
that it (the Company) was responsible for the conflict, shall take
the necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for the
protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals
from each party who are authorized to settle the matter. If the
matter has not been amicably resolved within 60 days from the date
<PAGE>
of the Company's notice of its intent to press the dispute, then
before either party shall undertake to litigate the dispute it shall
be submitted to non-binding arbitration conducted expeditiously in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if
one party has requested the other party to seek an amicable
resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the
60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all or
part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in the
Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Company; or
<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto)
or sales literature for the Fund or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Fund to the Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and
by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and
<PAGE>
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies investing
in the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its business
or financial condition; or (2) the Company shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Fund;
or
<PAGE>
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if
the Company so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall have
legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the
Existing Contracts.
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Capital Appreciation Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------------------------
Title: President
--------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
<PAGE>
SCHEDULE 1
Lincoln National Capital Appreciation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
<PAGE>
SCHEDULE 2
Lincoln National Capital Appreciation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
<PAGE>
SCHEDULE 3
Lincoln National Capital Appreciation Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 33 1/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified
if it is invested in a minimum of three different countries at all
times, and has invested no more than 50 percent of total assets in
any one second-tier country and no more than 25 percent of total
assets in any one third-tier country. First-tier countries are:
Germany, the United Kingdom, Japan, the United States, France,
Canada, and Australia. Second-tier countries are all countries not
in the first or third tier. Third-tier countries are countries
identified as "emerging" or "developing" by the International Bank
for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
<PAGE>
Amendment to
SCHEDULE 1
Lincoln National Capital Appreciation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of May 1, 1999
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT R
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT S
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
<PAGE>
Amendment to
SCHEDULE 2
Lincoln National Capital Appreciation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of May 1, 1999
MULTI FUND INDIVIDUAL VARIABLE ANNUITY
EANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
LINCOLN VUL
LINCOLN SVUL
LINCOLN C
MULTI FUND - NON-REGISTERED
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedules 1 and 2 to be executed in its name and behalf by its duly authorized
officer on the date specified below.
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
Date: 3/26/99 By: /s/ Kelly D. Clevenger
------------------------ ----------------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: 3/26/99 By:/s/ Stephen H. Lewis
------------------------ ----------------------------------
Stephen H. Lewis
Senior Vice President
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 7 to the Registration Statement (Form N-1A)
(No. 33-70272) of Lincoln National Capital Appreciation Fund, Inc. of our report
dated February 5, 1999, included in the 1998 Annual Report to shareholders.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000913362
<NAME> LINCOLN NAT'L CAPITAL APPRECIATION FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 517,675,353
<INVESTMENTS-AT-VALUE> 769,248,434
<RECEIVABLES> 1,934,608
<ASSETS-OTHER> 89,003
<OTHER-ITEMS-ASSETS> 4,525
<TOTAL-ASSETS> 771,276,570
<PAYABLE-FOR-SECURITIES> 19,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 520,707
<TOTAL-LIABILITIES> 540,218
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 512,118,588
<SHARES-COMMON-STOCK> 35,400,022
<SHARES-COMMON-PRIOR> 25,728,647
<ACCUMULATED-NII-CURRENT> (95,825)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,135,917
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 251,577,673
<NET-ASSETS> 770,736,352
<DIVIDEND-INCOME> 2,617,237
<INTEREST-INCOME> 2,035,124
<OTHER-INCOME> (87,950)
<EXPENSES-NET> 4,660,236
<NET-INVESTMENT-INCOME> (95,825)
<REALIZED-GAINS-CURRENT> 7,137,985
<APPREC-INCREASE-CURRENT> 187,316,139
<NET-CHANGE-FROM-OPS> 194,358,299
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,290,717)
<DISTRIBUTIONS-OF-GAINS> (47,582,501)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,536,050
<NUMBER-OF-SHARES-REDEEMED> 741,304
<SHARES-REINVESTED> 2,876,629
<NET-CHANGE-IN-ASSETS> 319,700,685
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 47,582,501
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,265,160
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,660,236
<AVERAGE-NET-ASSETS> 565,058,767
<PER-SHARE-NAV-BEGIN> 17.530
<PER-SHARE-NII> (0.003)
<PER-SHARE-GAIN-APPREC> 6.127
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 1.832
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.77
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
/s/Kenneth G. Stella
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
/s/John B. Borsch, Jr.
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
/s/Barbara S. Kowalczyk
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
/s/Nancy L. Frisby
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
/s/Eric C. Jones
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
/s/Janet C. Chrzan
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any
person to act as attorney-in-fact relative to Lincoln National Capital
Appreciation Fund, Inc., which were previously executed by us and do hereby
severally constitute and appoint Steven M. Kluever, Thomas R. Kaehr, and
Cynthia A. Rose our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated
below, any and all amendments to Registration Statement No. 33-70272 filed
with the Securities and Exchange Commission under the Securities Act of 1933,
on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may
be signed by any of our attorneys-in-fact to any such amendment to that
Registration Statement. The power of attorney was signed by us on February
9, 1999.
SIGNATURE TITLE
- --------- -----
/s/Kelly D. Clevenger
- ------------------------------ Chairman of the Board, President and Director
Kelly D. Clevenger (Principal Executive Officer)
- ------------------------------ Director
John B. Borsch, Jr.
- ------------------------------ Director
Kenneth G. Stella
- ------------------------------ Director
Barbara S. Kowalczyk
- ------------------------------ Director
Nancy L. Frisby
- ------------------------------ Chief Accounting Officer
Eric C. Jones (Principal Accounting Officer)
- ------------------------------ Vice President and Treasurer
Janet C. Chrzan (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
9th day of February, 1999.
/s/Janet L. Lindenberg
---------------------------------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ---------------------------------------------
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
| ---------------------------------------------
| ---------------------------------------------
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life |
| | assurance & pension products |
| ---------------------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| |100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (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 Life and Annuity Distributors, Inc. |
|--| (formerly Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | |Inc. ("LLAD")has subsidiaries of which LLAD owns from |
| | |80%-100% of the common stock (see Attachment #1). These |
| | |subsidiaries serve as the corporate agency offices for the |
| | |marketing and servicing of products of The Lincoln National |
| | |Life Insurance Company. Each subsidiary's assets are less |
| | |than 1% of the total assets of the ultimate controlling |
| | |person. |
| | -------------------------------------------------------------
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
|
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| |
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
--------------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | ------------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | ------------------------------------
| | | | ----------------------------------------
| | | ---| Delaware International Advisers Ltd. |
| | | | 81.1% - England - Investment Advisor |
| | | ----------------------------------------
| | | --------------------------------------
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service |
| | | --------------------------------------
| | | | -------------------------------------------------
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - 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-Mutual Fund 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 |
| | | | | | | ------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | | -----------------------------------
| | | | -------------------------------------------------
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | | ------------------------------------
| | | | |--| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | -------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |--| 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 Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ---------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
----------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (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 |
| | --------------------------------------------------
| | | -------------------------------------
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| | -------------------------------------
| | -------------------------------------------
| |--|Lincoln National Insurance Associates, Inc.|
| | |(fka Cigna Associates, Inc.) |
| | |100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | --------------------------------------------------------
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | |100% - Alabama - Insurance Agency |
| | | --------------------------------------------------------
| | | -------------------------------------------------------------
| | | | Lincoln National Insurance Associates of Massachusetts, Inc.|
| | | | (formerly Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| | -------------------------------------------------------------
| | -------------------------------------------
| |--| Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| | --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| | -----------------------------------------------
| | -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
----------------------------------------------
<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.) |
| | ---------------------------------------------------------
| | --------------------------------------------------------
| | | 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 |
| | -------------------------------------------------------
| | --------------------------------------------------------
| |--| 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 ISA Management Limited |
| | | | (formerly Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
----------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (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 |
------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | |100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | -----------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
-------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | |----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (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 Independent (Jersey) Limited |
| | | (formerly 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 |
--------------------------------------------
</TABLE>
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (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 as Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (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.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Soutwest Financial Group, Inc. -- company's term of existence
expired July 18, 1998.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL CAPITAL APPRECIATION 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 Finance Eric Jones Permanently, the first two
To Shareholders years in an easily
accessible place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily
accessible place
Form N-SAR Finance Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and
quantity of securities, the unit and aggregate purchase or sale price,
commission paid, the market on which effected, the trade date, the settlement
date, and the name of the person through or from whom purchased or received or
to whom sold or delivered.
PURCHASES AND SALES JOURNALS
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years in an easily accessible
transactions place
<PAGE>
PORTFOLIO SECURITIES
Equity Delaware Fund Accounting Permanently, the first two
Notifications years in an easily accessible
place
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
(Bank Statements)
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
<PAGE>
General Ledger Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
SECURITIES IN TRANSFER
File consisting State Mutual Funds Permanently, the first two
of bank advices, Street Bank Division years in an easily accessible
confirmations, and Trust place
and Notification Company
of Securities
Transaction
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
SECURITIES IN PHYSICAL POSSESSION
Securities State Mutual Funds Permanently, the first two
Ledger Street Bank Division years in an easily accessible
and Trust place
Company
Portfolio State Mutual Funds Permanently, the first two
Listings Street Bank Division years in an easily accessible
and Trust place
Company
SECURITIES BORROWED AND LOANED
Their files State Mutual Funds Permanently, the first two
Street Bank Division years in an easily accessible
and Trust place
Company
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
<PAGE>
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
(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.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held.
In respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
LNL - only Finance Eric Jones Permanently, the first two
shareholder years in an easily accessible
place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The
record called for by this paragraph shall not be required in circumstances
under which all portfolio securities are maintained by a bank or banks or a
member or members of a national securities exchange as custodian under a
custody agreement or as agent for such custodian.
SECURITIES POSITION RECORD
Maintained by State Mutual Funds Permanently, the fist two
Custodian of Street Bank Division years in an easily accessible
Securities and Trust place
Company
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
CORPORATE DOCUMENTS
Corporate Secretary Cindy Rose Permanently, the first two
charter, years in an easily accessible
certificate of place
incorporation.
Bylaws and Secretary Cindy Rose Permanently, the first two
minute books. years in an easily accessible
place
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
Sales Order or Janus Capital Mutual Funds Six years, the first two
Purchase Order Division years in an easily accessible
place
Notification State Mutual Funds Six years, the first two
From (From Street Bank Division years in an easily accessible
AOS Trading and Trust place
System) Company
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
SHORT-TERM INVESTMENTS
Notification State Mutual Funds Six years, the first two
Form (From Street Bank Division years in an easily accessible
AOS S-T and Trust place
System) Company
Bank Advice Delaware Fund Accounting Six years, the first two
and Issuer years in an easily accessible
Confirmation place
<PAGE>
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
RECORD OF PUTS, CALLS, SPREADS, ETC.
Trade Notification Delaware Fund Accounting Six Years.
(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 identities of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Brokerage Janus Mutual Funds Six Years, the first two
Allocation Capital 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 Janus Mutual Funds Six years, the first two
Authorization Capital Division years in an easily accessible
place
Advisory Law Janet Lindenburg Six years, the first two
Agreements Division Jeremy Sachs years in an easily accessible
place
<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.
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence Product Nancy Alford Six years, the first two
Admin. years in an easily accessible
Product place
Management
Pricing Sheets Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
Bank Delaware Fund Accounting Six years, the first two
Statements, years in an easily accessible
Cancelled place
Checks and Cash
Reconciliations
March 24, 1999
