<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000
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. 8 [x]
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 [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
Elizabeth Frederick, Esq.
1300 S. Clinton St.
Fort Wayne, IN 46802
(Name and Address of Agent for Service)
Copies of all communications to
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.,
Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
Richard Choi, Esq.
Fiscal year-end: December 31
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 2000 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on _____________ pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on _____________ pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
The fund is one of the Lincoln National Funds (funds) that sells its shares only
to Lincoln National Life Insurance Co. and its affiliates (Lincoln Life).
Lincoln Life holds the shares in its separate accounts to support variable
annuity contracts and variable life contracts (contracts). We refer to a
separate account as a variable account. Each variable account has its own
prospectus that describes the account and the contracts it supports. You choose
the fund or funds in which a variable account invests your contract assets. In
effect, you invest indirectly in the fund(s) that you choose under the contract.
The Prospectus discusses the information about the fund that you ought to know
before choosing to invest your contract assets in the fund. You can find
information common to all Lincoln National Funds in the General Prospectus
Disclosure following the fund Prospectus.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson, or any other person to give any
information, or to make any representation, other than what this Prospectus
states. This Prospectus does not offer to sell fund shares, or seek offers to
buy fund shares, where it would be unlawful.
CONTENTS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
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Summary description of the Fund CA-2
Investment Strategies CA-2
Risk of investment Strategies CA-3
Investment Advisor and Portfolio Manager CA-4
General Prospectus Disclosure -- Important
Additional Information
</TABLE>
Prospectus
May 1, 2000
CA-1
<PAGE>
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, five 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%
1999 45.46%
</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 12/31/99)
<TABLE>
<CAPTION>
CAPITAL RUSSELL 1000
PERIOD BACK APPRECIATION S&P 500* GROWTH***
<S> <C> <C> <C>
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1 year 45.46% 21.14% 33.16%
5 year 30.73 28.66 32.42
10 year N/A N/A N/A
Lifetime** 25.58% 23.51% 26.89%
</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.
*** The Russell 1000 Growth Index measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000 companies consist of the 1000 largest U.S. companies based on total
market capitalization.
The fund tends to invest in large-sized growth companies. Accordingly, the
fund's performance can be compared to the performance of the Russell 1000 Growth
Index.
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 a manner consistent with the preservation of capital.
CA-2
<PAGE>
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, 1999, 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 $146 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 59.68% in 1999 and 77.99% in 1998.
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, 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
CA-3
<PAGE>
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.)
On January 1, 1999, the European Economic and Monetary Union implemented a
common currency for several participating countries. This currency is commonly
known as the "euro." The long-term consequences of the euro conversion for
foreign exchange rates, interest rates and the value of European securities in
which the Fund may invest are unclear. The consequences may adversely affect the
value and/or increase the volatility of securities held by the Fund.
You may consider choosing this fund for investing some portion of your contract
assets if (1) you are seeking 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, including its
plans to merge into a newly created series of its affiliate, Delaware Management
Business Trust, in the General Prospectus Disclosure under "Management of the
funds -- Investment advisor." Lincoln Investment is responsible for overall
management of the fund's securities investments. This includes monitoring the
fund's sub-adviser, 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. Blaine Rollins began managing
the fund on January 1, 2000. Mr. Rollins has been with Janus since 1990. He
holds a Bachelor's Degree in finance from the University of Colorado and is a
Chartered Financial Analyst.
CA-4
<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, determines its NAV by:
- - adding the values of all securities investments and other assets,
- - subtracting liabilities (including dividends payable), and
- - dividing by the number of shares outstanding.
NYSE's most recent announcement states that, as of the date of this prospectus,
the NYSE will be closed on New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. NYSE may also be closed on other days. The NYSE may modify
its holiday schedule at any time.
A fund's securities may be traded in other markets on days when the NYSE is
closed. Therefore, the fund's NAV may fluctuate on days when you do not have
access to the fund to purchase or redeem shares.
Each fund (other than for the Money Market Fund) values its securities
investments as follows:
- - equity securities, at their last sale prices on national securities exchanges
or over-the-counter, or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on exchanges or
over-the-counter;
- - debt securities, at the price established by an independent pricing service,
which is believed to reflect the fair value of these securities; and
- - equity securities, debt securities and other assets for which market
quotations are not readily available, fair value as determined in good faith
under the authority of each fund's Board of Directors.
MONEY MARKET FUND. The Money Market Fund values its securities using the
amortized cost method of valuation provided by SEC Rule 2a-7 under the
Investment Company Act of 1940. Under the Rule, the fund's NAV must fairly
reflect market value.
See the General SAI Disclosure for the methodology that a fund (other than for
the Money Market Fund) uses to value short-term investments, options, futures
and options on futures, and foreign securities.
MANAGEMENT OF THE FUNDS
Each fund's business and affairs are managed under the direction of its Board of
Directors. The Board has the power to amend the bylaws of each fund, to declare
and pay dividends, and to exercise all the powers of the fund except those
granted to the shareholders.
INVESTMENT ADVISOR. Lincoln Investment Management, Inc. (Lincoln Investment or
advisor) is the investment advisor to each fund. Its headquarters are at 200
East Berry Street, Fort Wayne, Indiana 46802.
The advisor has registered with the SEC as an investment advisor and acted as an
investment advisor to mutual Funds for over 40 years. The advisor also acts as
investment advisor to Lincoln National Convertible Securities Fund, Inc. and
Lincoln National Income Fund, Inc., closed-end investment companies.
The advisor is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. LNC,
through its subsidiaries, provides life insurance and annuities, property-
casualty insurance, reinsurance and financial services.
GPD-1
<PAGE>
The advisor, either directly or through a sub-advisor, provides portfolio
management and investment advice to each fund and administers each fund's other
affairs, subject to the supervision of each fund's Board of Directors.
Lincoln Investment has informed the funds that it intends to merge into a newly
created series of its affiliate, Delaware Management Business Trust ("Delaware")
during the second or third quarter of 2000. Delaware is registered with the SEC
as an investment adviser and, like Lincoln Investment, is a wholly owned
subsidiary of Lincoln National Investments, Inc., and ultimately of Lincoln
National Corporation. The address of Delaware is 2005 Market Street,
Philadelphia, PA 19103. Lincoln Investment does not expect the merger to result
in any change in the level of advisory services that it currently provides to
the funds, although there may be some changes in, and additions to, personnel.
Lincoln Investment has concluded that the proposed merger would not result in an
"assignment" of its investment advisory agreements with the funds, or of its
sub-advisory agreements with the sub-advisors, that would require shareholder
approval under the Investment Company Act of 1940, as amended. The proposed
merger is subject to review by the funds' boards of directors.
Some of the funds using sub-advisors have names, investment objectives and
investment policies that are very similar to certain publicly available mutual
funds that are managed by these same sub-advisors. These funds will not have the
same performance as those publicly available mutual funds. Different performance
will result from many factors, including, but not limited to, different cash
flows into and out of the funds, different fees, and different sizes.
Each fund pays the advisor a monthly fee for the advisor's services. The annual
rate of the fee is based on the average daily net asset value of each fund, as
shown in the following chart:
<TABLE>
<CAPTION>
FUND ...OF AVERAGE DAILY NET ASSET VALUE
<S> <C>
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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>
1999 ADVISORY FEES*
FUND 1999 RATIO OF THE ADVISOR'S COMPENSATION TO AVERAGE NET ASSETS
<S> <C>
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Aggressive Growth .73%
Bond .45
Capital Appreciation .72
Equity-Income .72
Global Asset Allocation .72
Growth and Income .31
International .77
Managed .36
Money Market .48
Social Awareness .33
Special Opportunities .37
</TABLE>
* The sub-advisor to the funds, where applicable, is paid out of the fees paid
to the advisor.
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PURCHASE AND REDEMPTION OF FUND SHARES
Each fund sells its shares of common stock to Lincoln Life and Lincoln Life &
Annuity Company of New York. Lincoln Life and Lincoln Life & Annuity Company of
New York hold the fund shares in separate accounts (variable accounts) that
support various Lincoln Life and Lincoln Life & Annuity Company of New York
variable annuity contracts and variable life insurance contracts.
Each fund sells and redeems its shares, without charge, at their NAV next
determined after Lincoln Life and
GPD-2
<PAGE>
Lincoln Life & Annuity Company of New York receives a purchase or redemption
request. However, each fund redeems its shares held by Lincoln Life and Lincoln
Life & Annuity Company of New York for its own account at the NAV next
determined after the fund receives the redemption request. The value of shares
redeemed may be more or less than original cost, depending on the market value
of a fund's securities investments at the time of redemption.
The fund normally pays for shares redeemed within seven days after Lincoln Life
and Lincoln Life & Annuity Company of New York receives the redemption request.
However, a fund may suspend redemption or postpone payment for any period when:
- - the NYSE closes for other than weekends and holidays;
- - the SEC restricts trading on the NYSE;
- - the SEC determines that an emergency exists, so that a fund's (1) disposal of
investment securities, or (2) determination of net asset value, is not
reasonably practicable; or
- - The SEC permits, by order, for the protection of fund shareholders.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each fund's policy is to distribute substantially all of its net investment
income and net realized capital gains each year. A fund may distribute net
realized capital gains only once a year. Each fund pays these distributions to
Lincoln Life for the variable accounts. The variable accounts automatically
reinvest the distributions in additional fund shares at no charge.
Each fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains. See the SAI for a more complete
discussion.
Each fund must meet asset diversification requirements under Section 817(h) of
the Code and the related regulation of the United States Treasury Department.
Each fund intends to comply with these diversification requirements.
Since the only shareholders of the funds are Lincoln Life and Lincoln Life &
Annuity Company of New York, this Appendix does not discuss the federal income
tax consequences at the shareholder level. For information concerning the
federal income tax consequences to owners of variable annuity contracts or
variable life insurance contracts (contract owners), including the failure of a
fund to meet the diversification requirements discussed above, see the
Prospectus for the variable account.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Each fund's Annual Report includes the portfolio manager's discussion of the
fund's performance for the previous fiscal year and the factors affecting the
performance. Each fund will send you a free copy of its Annual Report on
request.
GPD-3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the funds for the past 5 years, or, if shorter, the period of the
fund's operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Ernst &
Young LLP, independent auditors, whose report, along with each fund's financial
statements, are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DIVIDENDS FROM:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO
NET NET REALIZED OF
ASSET AND NET EXPENSES
VALUE NET UNREALIZED NET ASSET TO
BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM NET REALIZED VALUE AVERAGE
OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET
PERIOD ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(1) ASSETS
<CAPTION>
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Aggressive Growth Fund, Inc.
12/31/99 $13.367 (0.060) 5.732 5.672 (0.001) -- (0.001) $19.038 42.43% 0.87%
12/31/98 $16.385 0.001 (0.810) (0.809) (0.023) (2.186) (2.209) $13.367 (6.20%) 0.81%
12/31/97 $13.980 0.023 3.055 3.078 -- (0.673) (0.673) $16.385 23.09% 0.81%
12/31/96 $12.183 0.004 1.989 1.993 (0.004) (0.192) (0.196) $13.980 17.02% 0.82%
12/31/95 $ 9.048 0.007 3.135 3.142 (0.007) -- (0.007) $12.183 34.15% 0.94%
Lincoln National Bond Fund, Inc.
12/31/99 $12.689 0.772 (1.180) (0.408) (0.845) -- (0.845) $11.436 (3.27%) 0.53%
12/31/98 $12.861 0.662 0.494 1.156 (1.328) -- (1.328) $12.689 9.56% 0.52%
12/31/97 $11.766 0.785 0.310 1.095 -- -- -- $12.861 9.30% 0.53%
12/31/96 $12.247 0.767 (0.481) 0.286 (0.767) -- (0.767) $11.766 2.31% 0.51%
12/31/95 $10.941 0.803 1.306 2.109 (0.803) -- (0.803) $12.247 18.95% 0.49%
Lincoln National Capital Appreciation Fund, Inc.
12/31/99 $21.772 0.007 9.839 9.846 -- (0.152) (0.152) $31.466 45.46% 0.78%
12/31/98 $17.530 (0.003) 6.127 6.124 (0.050) (1.832) (1.882) $21.772 37.96% 0.83%
12/31/97 $14.504 0.050 3.510 3.560 -- (0.534) (0.534) $17.530 25.29% 0.89%
12/31/96 $12.916 0.135 2.051 2.186 (0.135) (0.463) (0.598) $14.504 18.02% 0.93%
12/31/95 $10.152 0.116 2.764 2.880 (0.116) -- (0.116) $12.916 28.69% 1.07%
Lincoln National Equity-Income Fund, Inc.
12/31/99 $21.715 0.189 1.204 1.393 (0.171) (0.890) (1.061) $22.047 6.27% 0.79%
12/31/98 $20.118 0.282 2.204 2.486 (0.460) (0.429) (0.889) $21.715 12.73% 0.79%
12/31/97 $15.780 0.229 4.511 4.740 -- (0.402) (0.402) $20.118 30.67% 1.02%
12/31/96 $13.507 0.288 2.451 2.739 (0.288) (0.178) (0.466) $15.780 19.81% 1.08%
12/31/95 $10.335 0.275 3.218 3.493 (0.275) (0.046) (0.321) $13.507 34.74% 1.15%
Lincoln National Global Asset Allocation Fund, Inc.
12/31/99 $15.759 0.323 1.409 1.732 (0.266) (0.432) (0.698) $16.793 11.36% 0.91%
12/31/98 $15.628 0.357 1.585 1.942 (0.589) (1.222) (1.811) $15.759 13.50% 0.91%
12/31/97 $14.226 0.383 2.205 2.588 -- (1.186) (1.186) $15.628 19.47% 0.89%
12/31/96 $13.391 0.392 1.522 1.914 (0.392) (0.687) (1.079) $14.226 15.04% 1.00%
12/31/95 $11.144 0.412 2.247 2.659 (0.412) -- (0.412) $13.391 23.95% 0.92%
Lincoln National Growth and Income Fund, Inc.
12/31/99 $46.288 0.509 7.356 7.865 (0.497) (1.946) (2.443) $51.710 17.55% 0.36%
12/31/98 $41.949 0.607 7.371 7.978 (1.164) (2.475) (3.639) $46.288 20.33% 0.35%
12/31/97 $33.110 0.649 9.331 9.980 -- (1.141) (1.141) $41.949 30.93% 0.35%
12/31/96 $29.756 0.683 4.943 5.626 (0.683) (1.589) (2.272) $33.110 18.76% 0.36%
12/31/95 $23.297 0.701 7.680 8.381 (0.701) (1.221) (1.922) $29.756 38.81% 0.35%
Lincoln National International Fund, Inc.
12/31/99 $15.982 0.294 2.182 2.476 (0.529) (3.555) (4.084) $14.374 17.75% 0.92%
12/31/98 $14.673 0.253 1.838 2.091 (0.189) (0.593) (0.782) $15.982 14.65% 0.93%
12/31/97 $14.556 0.066 0.771 0.837 -- (0.720) (0.720) $14.673 6.00% 0.93%
12/31/96 $13.398 0.071 1.244 1.315 (0.071) (0.086) (0.157) $14.556 9.52% 1.19%
12/31/95 $13.027 0.069 0.892 0.961 (0.069) (0.521) (0.590) $13.398 8.89% 1.27%
Lincoln National Managed Fund, Inc.
12/31/99 $18.971 0.622 0.767 1.389 (0.552) (0.898) (1.450) $18.910 7.75% 0.42%
12/31/98 $19.304 0.599 1.632 2.231 (1.162) (1.402) (2.564) $18.971 12.72% 0.42%
12/31/97 $16.266 0.661 2.811 3.472 -- (0.434) (0.434) $19.304 21.82% 0.42%
12/31/96 $15.895 0.628 1.291 1.919 (0.628) (0.920) (1.548) $16.266 12.05% 0.43%
12/31/95 $12.783 0.623 3.132 3.755 (0.623) (0.020) (0.643) $15.895 29.29% 0.43%
<CAPTION>
<S> <C> <C> <C>
RATIO
OF NET
INVESTMENT
INCOME
TO NET ASSETS
AVERAGE PORTFOLIO AT END OF
NET TURNOVER PERIOD
PERIOD ENDED ASSETS RATE (000'S)
Lincoln National
12/31/99 (0.48%) 208.50% $ 448,193
12/31/98 0.01% 102.33% $ 335,366
12/31/97 0.16% 105.07% $ 342,763
12/31/96 0.03% 77.51% $ 242,609
12/31/95 0.06% 85.82% $ 138,471
Lincoln National
12/31/99 6.02% 39.11% $ 330,923
12/31/98 5.90% 51.33% $ 363,808
12/31/97 6.45% 56.16% $ 280,383
12/31/96 6.56% 142.19% $ 253,328
12/31/95 6.90% 139.61% $ 250,816
Lincoln National
12/31/99 0.03% 59.68% $1,913,076
12/31/98 (0.01%) 77.99% $ 770,736
12/31/97 0.35% 137.07% $ 451,036
12/31/96 0.99% 92.73% $ 267,242
12/31/95 1.00% 195.63% $ 127,936
Lincoln National
12/31/99 0.86% 191.21% $ 990,758
12/31/98 1.40% 29.04% $ 991,977
12/31/97 1.46% 17.81% $ 811,070
12/31/96 1.99% 22.17% $ 457,153
12/31/95 2.27% 27.81% $ 238,771
Lincoln National
12/31/99 2.05% 134.31% $ 490,804
12/31/98 2.36% 133.84% $ 490,154
12/31/97 2.77% 178.40% $ 438,090
12/31/96 2.93% 167.33% $ 316,051
12/31/95 3.36% 146.49% $ 248,772
Lincoln National
12/31/99 1.05% 15.91% $4,709,687
12/31/98 1.44% 33.55% $4,263,557
12/31/97 1.79% 32.09% $3,540,862
12/31/96 2.23% 46.70% $2,465,224
12/31/95 2.64% 51.76% $1,833,450
Lincoln National
12/31/99 2.05% 11.51% $ 526,317
12/31/98 1.63% 123.11% $ 501,654
12/31/97 0.44% 77.58% $ 466,229
12/31/96 0.51% 68.67% $ 440,375
12/31/95 0.59% 63.15% $ 358,391
Lincoln National
12/31/99 3.25% 44.79% $ 927,572
12/31/98 3.31% 57.36% $ 965,486
12/31/97 3.77% 53.40% $ 850,646
12/31/96 4.05% 108.86% $ 675,740
12/31/95 4.37% 112.52% $ 589,165
</TABLE>
GPD-4
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DIVIDENDS FROM:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO
NET NET REALIZED OF
ASSET AND NET EXPENSES
VALUE NET UNREALIZED NET ASSET TO
BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM NET REALIZED VALUE AVERAGE
OF INCOME ON INVESTMENT INVESTMENT GAIN ON TOTAL END OF TOTAL NET
PERIOD ENDED PERIOD (LOSS)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS DIVIDENDS PERIOD RETURN(1) ASSETS
<CAPTION>
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lincoln National Money Market Fund, Inc.
12/31/99 $10.000 0.468 N/A 0.468 (0.468) N/A (0.468) $10.000 4.62% 0.59%
12/31/98 $10.000 0.497 N/A 0.497 (0.497) N/A (0.497) $10.000 5.10% 0.58%
12/31/97 $10.000 0.501 N/A 0.501 (0.501) N/A (0.501) $10.000 5.13% 0.59%
12/31/96 $10.000 0.505 N/A 0.505 (0.505) N/A (0.505) $10.000 5.07% 0.57%
12/31/95 $10.000 0.570 N/A 0.570 (0.570) N/A (0.570) $10.000 5.67% 0.52%
Lincoln National Social Awareness Fund, Inc.
12/31/99 $40.283 0.319 5.649 5.968 (0.296) (1.663) (1.959) $42.292 15.44% 0.38%
12/31/98 $35.657 0.367 6.414 6.781 (0.672) (1.483) (2.155) $40.283 19.89% 0.38%
12/31/97 $27.316 0.364 9.447 9.811 -- (1.470) (1.470) $35.657 37.53% 0.41%
12/31/96 $22.590 0.389 5.748 6.137 (0.389) (1.022) (1.411) $27.316 28.94% 0.46%
12/31/95 $16.642 0.432 6.491 6.923 (0.432) (0.543) (0.975) $22.590 42.83% 0.50%
Lincoln National Special Opportunities Fund, Inc.
12/31/99 $33.416 0.482 (1.779) (1.297) (0.373) (3.521) (3.894) $28.225 (4.45%) 0.44%
12/31/98 $35.056 0.470 1.795 2.265 (0.862) (3.043) (3.905) $33.416 6.79% 0.42%
12/31/97 $29.423 0.477 7.293 7.770 -- (2.137) (2.137) $35.056 28.15% 0.42%
12/31/96 $27.383 0.548 3.867 4.415 (0.548) (1.827) (2.375) $29.423 16.51% 0.44%
12/31/95 $22.164 0.616 6.131 6.747 (0.616) (0.912) (1.528) $27.383 31.86% 0.45%
<CAPTION>
<S> <C> <C> <C>
RATIO
OF NET
INVESTMENT
INCOME
TO NET ASSETS
AVERAGE PORTFOLIO AT END OF
NET TURNOVER PERIOD
PERIOD ENDED ASSETS RATE (000'S)
Lincoln National
12/31/99 4.68% N/A $ 234,676
12/31/98 4.97% N/A $ 137,062
12/31/97 5.01% N/A $ 89,227
12/31/96 5.07% N/A $ 90,358
12/31/95 5.67% N/A $ 75,319
Lincoln National
12/31/99 0.79% 23.77% $1,946,179
12/31/98 1.10% 37.55% $1,868,231
12/31/97 1.37% 34.84% $1,255,494
12/31/96 1.58% 45.90% $ 636,595
12/31/95 2.21% 54.02% $ 297,983
Lincoln National
12/31/99 1.46% 96.49% $ 665,652
12/31/98 1.44% 76.27% $ 917,796
12/31/97 1.57% 73.74% $ 872,822
12/31/96 2.00% 88.17% $ 648,592
12/31/95 2.39% 90.12% $ 505,755
</TABLE>
(1) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares. The total return percentages in
the table are NOT calculated on the same basis as the performance
percentages in the letter at the front of this booklet (those percentages
are based upon the change in unit value).
(2) Per share information for the years ended December 31, 1999 and 1998 were
based on the average shares outstanding method for Capital Appreciation,
Equity-Income, Global Asset Allocation and International.
GENERAL INFORMATION
You should direct any inquiry to Lincoln National Life Insurance Co., at
P.O. Box 2340, Fort Wayne, Indiana 46801, or, call 1-800-4LINCOLN (454-6265).
Each fund will issue:
- - unaudited semiannual reports showing current investments and other
information; and
- - annual financial statements audited by the fund's independent auditors.
These Prospectuses do not contain all the information included in the
Registration Statements that the funds have filed with the SEC. You may examine
the Registration Statements, including exhibits, at the SEC in Washington, D.C.
Statements made in the Prospectuses about any variable annuity contract,
variable life insurance contract, or other document referred to in a contract,
are not necessarily complete. In each instance, we refer you to the copy of that
CONTRACT or other document filed as an exhibit to the related Registration
Statement. We qualify each statement in all respects by that reference.
The use of a fund by both annuity and life insurance variable accounts is called
mixed funding. Due to differences in redemption rates, tax treatment, or other
considerations, the interests of contract owners under the variable life
accounts may conflict with those of contract owners under the variable annuity
accounts. Violation of the federal tax laws by one variable account investing in
a fund could cause the contracts funded through another variable account to lose
their tax-deferred status, unless remedial action were taken. The Board of
Directors of each fund will monitor for any material conflicts and determine
what action, if any, the fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial
amount of assets from any of the funds. The redemption could disrupt orderly
portfolio management to the detriment of those contract owners still investing
in that fund. Also, that fund could determine that it has become so large that
its size materially impairs investment performance. The fund would then examine
its options.
Lincoln Life performs the dividend and transfer functions for each fund.
GPD-5
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
GPD-6
<PAGE>
You can find additional information in each fund's Statement of Additional
Information (SAI), which is on file with the SEC. Each fund incorporates its
SAI, dated May 1, 2000, into its Prospectus. Each fund will provide a free copy
of its SAI on request.
You can find still further information about each fund's investments in the
fund's annual and semi-annual reports to shareholders. The Annual Report
discusses the market conditions and investment strategies that significantly
affected that fund's performance (except the Money Market Fund) during its last
fiscal year. Each fund will provide a free copy of its Annual and Semi-Annual
Report on request.
For an SAI or Report, either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265).
Also call this number to request other information about a fund, or to make
inquiries.
You can review and copy information about the funds (including the SAIs) at the
SEC's Public Reference Room in Washington, D.C. You can get information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
can also get reports and other information about the funds on the SEC's Internet
site at http:// www.sec.gov. You can get copies of this information by writing
the SEC Public Reference Section, Washington, D.C. 20549-6009, and paying a
duplicating fee.
Fund Investment Company Act File Numbers:
<TABLE>
<S> <C> <C>
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC.: 33-70742; 811-8090
LINCOLN NATIONAL BOND FUND, INC.: 2-80746; 811-3210
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.: 33-70272; 811-8074
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.: 33-71158; 811-8126
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.: 33-13530; 811-5115
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.: 2-80741; 811-3211
LINCOLN NATIONAL INTERNATIONAL FUND, INC.: 33-38335; 811-6233
LINCOLN NATIONAL MANAGED FUND, INC.: 2-82276; 811-3683
LINCOLN NATIONAL MONEY MARKET FUND, INC.: 2-80743; 811-3212
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.: 33-19896; 811-5464
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.: 2-80731; 811-3291
</TABLE>
GPD-7
<PAGE>
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
The SAI provides more information about the fund. The fund's audited financial
statements and the report of Ernst & Young, LLP, Independent Auditors, are
incorporated by reference to the fund's 1999 Annual Report. This SAI should be
read in conjunction with the prospectus of the Capital Appreciation Fund dated
May 1, 2000. You may obtain a copy of the fund's Annual Report or prospectus on
request and without charge. Please write Lincoln National Life Insurance Co,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN (454-6265).
The fund's SAI is not a prospectus.
CONTENTS
<TABLE>
<CAPTION>
SUBJECT PAGE
<S> <C>
- --------------------------------------------------
Description of the Fund CA-2
Additional Investment Strategies and Risks CA-2
Strategic Portfolio Transactions CA-4
Investment Restrictions CA-9
Portfolio Transactions and Brokerage CA-11
General SAI Disclosure -- Important
Additional Information
</TABLE>
May 1, 2000
CA-1
<PAGE>
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 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
CA-2
<PAGE>
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.
EURO.
On January 1, 1999, the European Economic and Monetary Union implemented a new
currency unit, the euro, for eleven participating European countries. The
countries that initially converted or tied their currencies to the euro are
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Each participating country is currently
phasing in use of the Euro for major financial transactions. In addition, each
participating country will begin using the euro for currency transactions
beginning July 1, 2002. Implementation of this plan means that financial
transactions and market information, including share quotations and company
accounts, in participating countries will be denominated in euros. Participating
governments will issue their bonds in euros, and monetary policy for
participating countries will be uniformly managed by a new central bank, the
European Central Bank. The transition to the euro is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world.
Although it is not possible to predict the impact of the euro implementation
plan on the Fund, the transition to the euro presents unique uncertainties,
including: (i) the legal treatment of certain outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the euro;
(ii) the establishment and maintenance of exchange rates for currencies being
converted into the euro; (iii) the fluctuation of the euro relative to non-euro
currencies during the transition period from January 1, 1999 to December 31,
2001 and beyond; (iv) whether the interest rate, tax and labor regimes of
European countries participating in the euro will converge over time; and
(iv) whether the conversion of the currencies of other countries in the European
Union ("EU"), such as the United Kingdom and Denmark, into the euro and the
admission of other non-EU countries, such as Poland, Latvia and Lithuania, as
members of the EU may have an impact on the euro or on the computer systems used
by the Fund's service providers to process the Fund's transactions.
Further, the process of implementing the euro may adversely affect financial
markets outside of Europe and may result in changes in the relative strength and
value of the U.S. dollar or other major currencies. The transition to the euro
is likely to have a significant impact on fiscal and monetary policy in the
participating countries and may produce unpredictable effects on trade and
commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
These or other factors could cause market disruptions, and could adversely
affect the value of securities held by the Fund. Because of the number of
countries using this single currency, a significant portion of the assets of the
Fund may be denominated in the euro.
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.
CA-3
<PAGE>
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.
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
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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 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
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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.
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
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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. 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
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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 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
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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 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.
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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.
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
CA-10
<PAGE>
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 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 1999,
the advisor directed transactions totaling approximately $123 million to these
brokers and paid commissions of approximately $91,558 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
CA-11
<PAGE>
the value of such services. The aggregate amount of brokerage commissions paid
by the fund during 1999 was $1,316,180, for 1998 it was $778,955, and for 1997
it was $1,088,656.
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-12
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
CA-13
<PAGE>
GENERAL SAI DISCLOSURE
(Note: this is uniform information for the 11 Funds. See each Fund's SAI for
information specific to that Fund.)
THIS GENERAL SAI DISCLOSURE CONSTITUTES PART OF THE SAIS OF LINCOLN NATIONAL
AGGRESSIVE GROWTH FUND, INC. (AGGRESSIVE GROWTH), LINCOLN NATIONAL BOND
FUND, INC. (BOND), LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC. (CAPITAL
APPRECIATION), LINCOLN NATIONAL EQUITY-INCOME FUND, INC. (EQUITY-INCOME),
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC. (GLOBAL ASSET ALLOCATION),
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC. (GROWTH AND INCOME), LINCOLN
NATIONAL INTERNATIONAL FUND, INC. (INTERNATIONAL), LINCOLN NATIONAL MANAGED
FUND, INC. (MANAGED), LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY MARKET),
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS), AND LINCOLN
NATIONAL SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL OPPORTUNITIES). UNLESS
OTHERWISE INDICATED, THE FOLLOWING INFORMATION APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment or advisor) is the
investment advisor to the funds and is headquartered at 200 E. Berry Street,
Fort Wayne, Indiana 46802. Lincoln Investment is a subsidiary of Lincoln
National Investments, Inc., which is a wholly-owned subsidiary of Lincoln
National Corp. (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis,
insurance and financial services. Lincoln Investment is registered with the
Securities and Exchange Commission (SEC) as an investment advisor and has acted
as an investment advisor to mutual funds for over 40 years. The advisor also
acts as investment advisor to Lincoln National Income Fund, Inc. (a closed-end
investment company whose investment objective is to provide a high level of
current income from interest on fixed-income securities) and Lincoln National
Convertible Securities Fund, Inc. (a closed-end investment company whose
investment objective is a high level of total return on its assets through a
combination of capital appreciation and current income) and to other clients,
and also acts as sub-adviser to two of the series of Delaware Group Adviser
Funds, Inc. (the Corporate Income Fund and the Federal Bond Fund of that retail
mutual fund complex).
Under an Advisory Agreement with each fund, the advisor provides portfolio
management and investment advice to the funds and administers its other affairs,
subject to the supervision of the fund's Board of Directors. The advisor, at its
expense, will provide office space to the funds and all necessary office
facilities, equipment and personnel and will make its officers and employees
available to the funds as appropriate. In addition, the advisor will pay all
expenses incurred by it or by the funds in connection with the management of
each fund's assets or the administration of its affairs, other than those
assumed by the funds, as described in the General Prospectus Disclosure. Lincoln
Life has paid the organizational expenses of all the funds. The rates of
compensation to the advisor is set forth in the General Prospectus Disclosure to
the Prospectus.
<TABLE>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund $ 2,417,737 $ 2,476,022 $2,109,952
Bond Fund 1,552,439 1,421,361 1,221,295
Capital Appreciation Fund 9,051,341 4,265,160 2,940,632
Equity-Income Fund 7,394,087 6,639,317 6,053,404
Global Asset Allocation Fund 3,493,557 3,320,142 2,808,358
Growth and Income Fund 13,910,486 12,112,568 9,714,765
International Fund 3,998,445 3,837,594 3,741,563
Managed Fund 3,376,216 3,283,079 2,873,786
Money Market Fund 859,855 517,294 451,243
Social Awareness Fund 6,167,750 5,287,914 3,355,544
Special Opportunities Fund 2,868,328 3,248,791 2,824,015
</TABLE>
A-1
<PAGE>
During the last three years, the advisor received the amounts, as mentioned
above, for investment advisory services. If total expenses of the
funds(excluding taxes, interest, portfolio brokerage commissions and fees, and
expenses of an extraordinary and non-recurring nature, but including the
investment advisory fee) exceed 1 1/2% per annum of the average daily net assets
of each fund (2% for the International Fund), the advisor will pay such excess
by offsetting it against the advisory fee. If such offset is insufficient to
cover the excess, any balance remaining will be paid directly by the advisor to
each fund.
SUB-ADVISORS. As advisor, Lincoln Investment is primarily responsible for
investment decisions affecting each of the funds. However, Lincoln Investment
has entered into sub-advisory agreements with several professional investment
management firms. These firms provide some or substantially all of the
investment advisory services required by a number of the funds, including
day-to-day investment management of those funds' portfolios. Each sub-advisor
makes investment decisions for its respective fund in accordance with that
fund's investment objectives and places orders on behalf of that fund to effect
those decisions. See the following tables for more information about the
sub-advisors and their fees:
<TABLE>
ANNUAL FEE RATE BASED ON
FUND SUB-ADVISOR AVERAGE DAILY NET ASSET VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Putnam Currently .50 of 1% of the first $150 million .35 of 1% of
One Post Office Square the excess over $150 million; upon shareholder approval
Boston, MA 02109 fees will be .50 of 1% of the first $250 million, .45 of 1%
of the excess over $250 million
Capital Appreciation Janus .55 of 1% of the first $100 million .50 of 1% of the next
100 Fillmore Street $400 million; and .45 of 1% of the excess over
Denver, CO 80206 $500 million
Equity-Income Fidelity Trust .48 of 1%
82 Devonshire Street
Boston, MA 02108
Global Asset Allocation Putnam The greater of (a) $40,000; or (b) .47 of 1% of the first
One Post Office Square $200 million; .42 of 1% of the next $200 million; and .40
Boston, MA 02109 of 1% of any excess over $400 million
International Delaware International Advisers .50 of 1% of the first $200 million; .40 of 1% of the next
Ltd. $200 million; and .35 of 1% of any excess over
80 Cheapside, $400 million
London, England
EC2V 6EE
</TABLE>
<TABLE>
ANNUAL FEE RATE BASED ON MARKET
VALUE OF SECURITIES HELD IN THE
PORTFOLIO OF EACH RESPECTIVE CLIENT
FUND AT THE CLOSE OF BUSINESS ON THE
FUND SUB-ADVISOR LAST TRADING DAY OF EACH CALENDAR QUARTER
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Vantage .20 of 1%
405 Lexington Avenue, 34th
floor
New York, NY 10174
Managed Vantage .20 of 1%
(stock portfolio only)
Social Awareness Vantage .20 of 1%
Special Opportunities Vantage .20 of 1%
</TABLE>
A-2
<PAGE>
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus, most of which it acquired in 1984. KCSI is a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, information processing and financial services. Thomas H. Bailey,
President and Chairman of the Board of Janus, owns approximately 12% of its
voting stock and, by agreement with KCSI, selects a majority of Janus' Board.
FMR Corp., organized in 1972, is the ultimate parent company of Fidelity Trust.
The voting common stock of FMR Corp. is divided into two classes. Class B is
held predominantly by members of the Edward C. Johnson 3d family and is entitled
to 49% of the vote on any matter acted upon by the voting common stock. Class A
is held predominately by non-Johnson family member employees of FMR Corp. and
its affiliates and is entitled to 51% of the vote on any such matter. The
Johnson family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. Under the 1940 Act, control
of a company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company. Therefore, through their ownership
of voting common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
Putnam is a majority-owned subsidiary of Marsh & McLennan Companies, a
diversified firm offering insurance and reinsurance broking, consulting, and
investment management services. Putnam, however, operates independently of its
parent.
During the last three years each sub-advisor received the following amounts for
investment sub-advisory services. Lincoln Investment, not the fund, pays all
sub-advisory fees owed.
<TABLE>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund 1,637,988 $1,450,345 $1,229,800
Bond Fund N/A N/A N/A
Capital Appreciation Fund 5,545,764 2,840,385 2,072,388
Equity-Income Fund 5,268,247 5,248,803 4,781,931
Global Asset Allocation Fund 2,296,989 2,000,284 1,724,369
Growth and Income Fund 9,501,504 7,502,197 6,155,225
International Fund 2,200,556 1,233,752 1,503,294
Managed Fund 1,269,452 1,116,901 974,080
Money Market Fund N/A N/A N/A
Social Awareness Fund 4,013,362 2,992,902 1,901,560
Special Opportunities Fund 1,706,577 1,775,700 1,519,961
</TABLE>
- --------------------------------------------------------------------------------
SERVICE MARKS. The service mark for the funds and the name Lincoln National have
been adopted by the funds with the permission of LNC, and their continued use is
subject to the right of LNC to withdraw this permission in the event the advisor
should not be the investment advisor of the funds.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund and
Putnam with the Aggressive Growth and Global Asset Allocation Funds. The
continued use of these names is subject to the right of the respective
sub-advisor to withdraw its permission in the event it ceases to be the
sub-advisor to the particular fund it advises.
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 47
1300 S. Clinton Street
Fort Wayne, IN 46802
- ----------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. Retired, formerly Director of Northwestern University
Director, age 66
1776 Sherwood Road
Des Plaines, IL 60016
- ----------------------------------------------------------------------------------------------------------
NANCY L. FRISBY, CPA Vice President/Chief Financial Officer, Desoto Memorial
Director, age 58 Hospital
127 Sinclair Street, S.W., Formerly Chief Financial Officer, Bascom Palmer Eye
Port Charlotte, FL 33952 Institute, University of Miami School of Medicine
- ----------------------------------------------------------------------------------------------------------
* BARBARA S. KOWALCZYK Senior Vice President and Director, Corporate Planning and
Director, age 48 Development, Lincoln National Management Corporation;
Centre Square, West Tower Director, Lincoln Life and Annuity Company of New York
1500 Market St., Suite 3900 (formerly Executive Vice President, Lincoln Investment
Philadelphia, PA 19102-2112 Management, Inc.)
- ----------------------------------------------------------------------------------------------------------
KENNETH G. STELLA President, Indiana Hospital and Health Association
Director, age 56
One America Square
Indianapolis, IN 46282
- ----------------------------------------------------------------------------------------------------------
JANET C. CHRZAN Vice President and Treasurer, Lincoln National Corp.
Treasurer, age 51 (formerly Vice President and General Auditor)
Centre Square, West Tower
1500 Market St., Suite 3900
Philadelphia, PA 19102-2112
- ----------------------------------------------------------------------------------------------------------
CYNTHIA A. ROSE Assistant Vice President, Lincoln National Life Insurance
Secretary, age 45 Co.
1300 South Clinton Street Secretary and Assistant Vice President (eff. 1/1/99)
Fort Wayne, IN 46802
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Interested persons of the funds, as defined in the 1940 Act.
A-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND
NAME OF PERSON, FROM EACH FUND* AND FUND COMPLEX
POSITION
- ----------------------------------------------------------------------------------------------------------------------------
JOHN B. BORSCH, JR. $18,105
Director $1,646
- ----------------------------------------------------------------------------------------------------------------------------
NANCY L. FRISBY 18,226
Director 1,657
- ----------------------------------------------------------------------------------------------------------------------------
KENNETH G. STELLA 16,874
Director 1,534
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Directors fees of $350 per meeting, plus expenses to attend the meetings, are
paid by each fund to each director who is not an interested person of the funds.
CODE OF ETHICS
The funds permit "Access Persons" as defined by Rule 17j-1 under the 1940 Act to
engage in personal securities transactions, subject to the terms of the Code of
Ethics that has been adopted by each fund's Board of Directors. Access Persons
are required to follow the guidelines established by a fund's Codes of Ethics in
connection with all personal securities transactions and are subject to certain
prohibitions on personal trading. Each fund's advisor and sub-advisor, pursuant
to Rule 17j-1 and other applicable laws and pursuant to the terms of each fund's
Code of Ethics, must adopt and enforce their own Codes of Ethics appropriate to
their operations. Each fund's Board of Directors is required to review and
approve the Codes of Ethics for the fund's advisor and sub-advisor.
FUND EXPENSES
Expenses other than investment advisory fees specifically assumed by each fund
include: compensation and expenses of Directors of the fund who are not
interested persons of the fund as defined in the 1940 Act; registration, filing,
printing, and other fees in connection with filings with regulatory authorities,
including the costs of printing and mailing updated Prospectuses and SAIs
provided to current contract owners; fees and expenses of independent auditors;
the expenses of printing and mailing proxy statements and shareholder reports;
custodian and transfer agent charges; brokerage commissions and securities and
options transaction costs incurred by the fund; taxes and corporate fees; fees
for accounting, valuation and related services; legal fees incurred in
connection with the affairs of the fund (other than legal services provided by
personnel of the advisor or its affiliated companies); the fees of any trade
association of which the fund is a member; and expenses of shareholder and
Director meetings.
DESCRIPTION OF SHARES
The authorized capital stock of each fund consists of shares of common stock,
$0.01 par value. Fund shares will be owned by Lincoln Life and will be held by
it in the variable accounts. As principal shareholder of each fund, Lincoln Life
may be deemed to be a control person as that term is defined under the 1940 Act.
However, as stated in the Prospectuses for the variable accounts, Lincoln Life
provides to contract owners of the variable accounts the right to direct the
voting of fund shares at shareholder meetings, to the extent provided by law.
Lincoln Life will vote for or against any proposition, or will abstain from
voting, any fund shares attributable to a contract for which no timely voting
instructions are received, and any fund shares held by Lincoln Life for its own
account, in proportion to the voting instructions that it received with respect
to all contracts participating in that fund. However, if the 1940 Act or any
regulation under it should change, and as a result Lincoln Life determines it is
permitted to vote fund shares in its own right, it may elect to do so.
All the shares of each fund are of the same class with equal rights and
privileges. Each full share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote, on all matters subjected to a vote
of the shareholder. All shares, full and fractional, participate proportionately
in any dividends and capital gains distributions and, in the event of
liquidation, in that fund's net assets remaining after satisfaction of
outstanding liabilities.
When issued, each share is fully-paid and non-assessable and the shareholder has
no preemptive or conversion rights. Fund shares have non-cumulative voting
A-5
<PAGE>
rights, which means that holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
In that event the holders of the remaining shares so voting will not be able to
elect any directors. Shares may be redeemed as set forth under Sale and
redemption of shares.
The Bylaws of the funds allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as:
(1) a majority of the Directors then in office have at some point been elected
by the shareholder and, if any vacancy is filled by vote of the Board of
Directors, then immediately after filling the vacancy at least two thirds of the
Directors shall have been elected by the shareholder; (2) there is no change in
the independent auditor of the funds; (3) there is no material change to the
investment advisory and/or sub-advisory agreements and/or fundamental policies;
and (4) a shareholder vote is not required with respect to a distribution
agreement. In adopting this procedure for dispensing with annual meetings that
are a formality, the Directors of the funds have undertaken to comply with the
requirements of Section 16(c) of the 1940 Act. That Section protects contract
owners by providing a procedure by which they may require management to convene
a meeting of the shareholder to vote on removal of one or more Directors. The
Directors also have agreed to facilitate communication among contract owners for
the purpose of calling those meetings. Further information about these
procedures is available from fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objectives and portfolio management
philosophies many of the funds engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to seek to increase the fund's overall
value (or, depending on the condition of the securities markets, at least to
slow its decrease). Cash enhancement transactions are designed to make some
extra money for the fund when it has excess cash, or to help the fund obtain
some cash for temporary purposes when needed. See the Prospectus for each fund
for a listing of the kinds of transactions in which each fund may engage.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one or more indices of asset values. The following types are
currently in fairly common use in the investment community, although not
every fund will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps;
stock index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs); interest rate swaps and their
related transactions (e.g., caps, floors, collars and corridors);
and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest
rate swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED AT THE END OF THIS
GENERAL SAI DISCLOSURE.
Although they may be structured in complex combinations, derivative transactions
in which the funds engage generally fall into two broad categories: options
contracts or forward contracts. The combined forms are constantly evolving. In
fact, variations on the types listed previously may come into use after the date
of these SAIs. Therefore, where a particular fund discloses the intent of that
fund to engage in any of the types listed, that fund hereby reserves the right
to engage in related variations on those transactions.
The funds intend to engage in derivative transactions only defensively, unless a
fund's Prospectus or SAI states otherwise. Examples of this defensive use might
be: to hedge against a perceived decrease in a fund's asset value; to control
transaction costs associated with market timing (e.g., by using futures on an
unleveraged basis); and to lock in returns, spreads, or currency exchange rates
in anticipation of future cash market transactions.
There is no discussion here of asset-backed or mortgage-backed securities, or
securities such as collateralized mortgage obligations, structured notes,
inverse floaters, principal-only or interest-only securities, etc. For a
description of these securities see the Prospectus or SAI for the funds that are
authorized to engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some derivatives
involve more of these risks than others. We briefly describe the
A-6
<PAGE>
most common ones here; however, this is not an exhaustive list. Consult
your financial counselor if you have additional questions.
CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one counterparty
has received payment in one indicated currency and the time the other
counterparty(ies) receive payment in the others, those awaiting payment
are exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in
particular jurisdictions or against a financially troubled entity; or
will be subject to regulation from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will be unable to control
its losses if a liquid secondary market for a financial instrument does
not exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundamental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a
market segment, to a settlement system, etc.) might cause widespread
difficulties at other firms, in other market segments, or in the
financial system as a whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's
ability to correctly predict the direction of stock prices and interest
rates, and other economic factors. Options and futures trading may fail
as hedging techniques in cases where the price movements of the
securities underlying the options and futures do not follow the price
movements of the portfolio securities subject to the hedge. The loss from
investing in futures transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular fund, please consult your
financial counselor if you have questions about the risks associated with
that fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each fund, that fund's
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the
Comptroller of the Currency), and by self-regulatory agencies (such as
the NASD). Should legislation or regulatory initiatives be enacted
resulting in additional restrictive requirements for derivative
transactions, Lincoln Life and the funds reserve the right to make all
necessary changes in the contracts and the Registration Statements for
the funds, respectively, to comply with those requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the fund. They are
discussed more fully in the SAI.
A. Lending of portfolio securities
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Any fund authorized to do so may make secured loans of its portfolio
securities in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the fund's total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to
102% of the value of the securities lent.
The borrower pays the fund an amount equal to any dividends or interest
received on securities lent. The fund retains all or a portion of the
interest received on securities lent. The fund also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the fund retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of
those securities--including the fund--to vote or consent on matters which
could materially affect the holders' investment. The fund may also call
in the loaned securities in order to sell them. None of the fund's
portfolio securities will be loaned to Lincoln Investment, to any
sub-advisor, or to any of their respective affiliates. The fund may pay
reasonable finder's fees to persons unaffiliated with it in connection
with the arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. REPOS. From time to time, the funds may enter into Repo
transactions. In a typical Repo transaction, the fund involved buys
U.S. Government or other money market securities from a financial
institution (such as a bank, broker, or savings and loan
association). At the same time, as part of the arrangement, the fund
obtains an agreement from the seller to repurchase those same
securities from the fund at a specified price on a fixed future
date.
The repurchase date is normally not more than seven days from the
date of purchase. Repurchase agreements maturing in more than seven
days will be considered illiquid and subject to the fund's
restriction on illiquid securities.
2. REVERSE REPOS. A fund may also be authorized to enter into Reverse
Repo transactions. This simply means the fund is on the reverse side
of a Repo transaction. That is, the fund is the Seller of some of
its portfolio securities, subject to buying them back at a set price
and date.
Authorized funds will engage in Reverse Repos for temporary purposes,
such as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse
repo transaction is considered to be the borrowing of money by the
fund. Funds authorized to engage in Repos as buyers are not
necessarily authorized to do Reverse Repos.
RISKS OF OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to all funds except the International Fund and the Money
Market Fund. (Note: The SAIs for Aggressive Growth, Capital Appreciation,
Equity-Income and Global Asset Allocation Funds provide additional disclosures
concerning the types and risks of the strategic portfolio transactions in which
they may engage.)
OPTIONS TRADING
The fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the fund's
portfolio. The fund may not purchase or write put or covered call options in an
aggregate cost exceeding 30% of the value of its total assets. The fund would
invest in options in standard contracts which may be quoted on NASDAQ, or on
national securities exchanges. Currently options are traded on numerous
securities and indices including, without limitation, the Standard and
Poor's 100 Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), and the
NYSE Beta Index.
Put and call options are generally short-term contracts with durations of nine
months or less. The investment advisor will generally write covered call options
when it anticipates declines in the market value of the portfolio securities and
the premiums received may offset to some extent the decline in the fund's net
asset value. On the other hand, writing put options may be a useful portfolio
investment strategy when the fund has cash or other reserves and it intends to
purchase securities but expects prices to increase.
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Generally, the risk to the fund in writing options is that the investment
advisor's assumption about the price trend of the underlying security may prove
inaccurate. If the fund wrote a put, expecting the price of a security to
increase, and it decreases, or if the fund wrote a call, expecting the price to
decrease but it increased, the fund could suffer a loss if the premium received
in each case did not equal the difference between the exercise price and the
market price.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of the position in the underlying security), the
fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
Principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price and price volatility
of the underlying security and the time remaining until the expiration date. In
addition, there is no assurance that the fund will be able to effect a closing
transaction at a favorable price. If the fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security. If a
substantial number of covered options written by the fund are exercised, the
fund's rate of portfolio turnover could exceed historic levels. This could
result in higher transaction costs, including brokerage commissions. The fund
will pay brokerage commissions in connection with the writing and purchasing of
options to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
FUTURES CONTRACTS AND OPTIONS THEREON
The fund may buy and sell financial futures contracts (futures contracts) and
related options thereon solely for hedging purposes. The fund may sell a futures
contract or purchase a put option on that futures contract to protect the value
of the fund's portfolio in the event the investment advisor anticipates
declining security prices. Similarly, if security prices are expected to rise,
the fund may purchase a futures contract or a call option thereon.
The fund may purchase and sell financial futures contracts (futures contracts)
as a hedge against fluctuations in the value of securities which are held in the
fund's portfolio or which the fund intends to purchase. The fund will engage in
such transactions consistent with the fund's investment objective. For certain
limited purposes, the fund may also be authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge. Currently, futures contracts
are available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
The Bond, Growth and Income, Managed, Social Awareness, and Special
Opportunities funds may only purchase futures and related options thereon for
hedging purposes. The Aggressive Growth, Capital Appreciation, Equity-Income,
and Global Asset Allocation funds may purchase futures and related options for
both hedging and non-hedging purposes, but subject to the limits described in
each fund's SAI. The funds will not purchase or sell futures contracts or
related options if immediately thereafter more than 1/3 of its net assets would
be hedged.
There are a number of risks associated with futures hedging. Changes in the
price of a futures contract generally parallel but do not necessarily equal
changes in the prices of the securities being hedged. The risk of imperfect
correlation increases as the composition of the fund's securities portfolio
diverges from the securities that are the subject of the futures contract.
Because the change in the price of the futures contract may be more or less than
the change in the prices of the underlying securities, even a correct forecast
of price changes may not result in a successful hedging transaction. Another
risk is that the investment advisor could be incorrect in its expectation as to
the direction or extent of various market trends or the time period within which
the trends are to take place.
The fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. This investment policy does not apply to the
Capital Appreciation, Global Asset Allocation, and Equity-Income funds. There
can be no assurance that a liquid market will always exist for any particular
contract at any particular time. Accordingly, there can be no assurance that it
will always be possible to close a futures position when such closing is desired
and, in the event of adverse price movements, the fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been sold to hedge portfolio securities, such securities
will not be sold until the offsetting futures contracts can be executed.
Similarly, in the event futures have been bought to hedge anticipated securities
purchases, such purchases will not be executed until the offsetting futures
contracts can be sold.
Successful use of futures contracts by the fund is also subject to the ability
of the investment advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities.
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For example, if the fund has hedged against the possibility of an increase in
interest rates that would adversely affect the price of securities in its
portfolio and prices of such securities increase instead, the fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet such requirements. Such
sale of securities may be, but will not necessarily be, at increased prices that
reflect the rising market. The fund may have to sell securities at a time when
it is disadvantageous to do so. Where futures are purchased to hedge against a
possible increase in the price of securities before the fund is able to invest
its cash in an orderly fashion, it is possible that the market may decline
instead; if the fund then concludes not to invest in securities at that time
because of concern as to possible further market decline or for other reasons,
the fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The selling of futures contracts by the fund and use of related transactions in
options on futures contracts are subject to position limits, which are affected
by the activities of the investment advisor.
The hours of trading of futures contracts may not conform to the hours during
which the fund may trade securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the securities markets that cannot be reflected in the futures
markets.
The fund's successful use of futures contracts and options thereon depends upon
the ability of its investment advisor to predict movements in the securities
markets and other factors affecting markets for securities and upon the degree
of correlation between the prices of the futures contracts and the prices of the
securities being hedged. As a result, even a correct forecast of price changes
may not result in a successful hedging transaction. Although futures contracts
and options thereon may limit the fund's exposure to loss, they may also limit
the fund's potential for capital gains. For example, if the fund has hedged
against the possibility of decrease in prices which would adversely affect the
price of securities in its portfolio and prices of such securities increase
instead, the fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
Although the fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
LENDING OF PORTFOLIO SECURITIES
The funds may from time to time lend securities from their portfolios to
brokers, dealers and financial institutions and receive collateral from the
borrower, in the form of cash (which may be invested in short-term securities),
U.S. Government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 102% of the current
market value of the loaned securities, and will be in the actual or constructive
possession of the particular fund during the term of the loan. The fund will
maintain the incidents of ownership of the loaned securities and will continue
to be entitled to the interest or dividends payable on the loaned securities. In
addition, the fund will receive interest on the amount of the loan. The loans
will be terminable by the fund at any time and will not be made to any
affiliates of the fund or the advisor. The fund may pay reasonable finder's fees
to persons unaffiliated with it in connection with the arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made to firms deemed by the advisor to be creditworthy.
RISKS OF REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. The
difference between the purchase price to the fund and the resale price to the
seller represents the interest earned by the fund which is unrelated to the
coupon rate or maturity of the purchased security. If the seller defaults, the
fund may incur a loss if the value of the collateral securing the repurchase
agreement declines, or the fund may incur disposition costs in connection with
liquidating the collateral. If bankruptcy proceedings are commenced with respect
to the seller, realization upon the collateral by the fund may be delayed or
limited and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. The Board of
Directors of the funds or its delegate will evaluate the creditworthiness of all
entities, including banks and broker-dealers, with which they propose to enter
into repurchase agreements. These transactions will be fully collateralized; and
the collateral for each
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transaction will be in the actual or constructive possession of the particular
fund during the terms of the transaction, as provided in the agreement.
Similarly, the fund will enter into reverse repurchase agreements only with
parties that the advisor or sub-advisor deems creditworthy. While a reverse
repurchase agreement is outstanding, the funds will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages, bars preventing the removal of assets, or other
foreign governmental laws or restrictions; reduced availability of public
information concerning issuers; and the fact that foreign companies are not
generally subject to uniform accounting, auditing, and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is also the possibility of expropriation, nationalization, confiscatory
taxation, and limitations on the use or removal of cash or other assets of a
fund, including the withholding of interest payments or dividends. These risks
may be particularly great in so-called developing or undeveloped countries,
sometimes referred to as Emerging Markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The funds will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a fund
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the U.S. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the U.S. There may be difficulty in
enforcing legal rights outside the U.S. For example, in the event of default on
any foreign debt obligations, it may be more difficult or impossible for the
fund to obtain or to enforce a judgment against the issuers of these securities.
The advisor or sub-advisor will take all these factors into consideration in
managing a fund's foreign investments.
The share price of a fund that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a fund's
investments abroad, changes in a fund's share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the fund invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the fund.
FOREIGN CURRENCIES
When an advisor or sub-advisor believes that a currency in which a portfolio
security or securities is denominated or exposed may suffer a decline against
the U.S. dollar, it may hedge that risk by entering into a forward contract to
sell an amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in or exposed to that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a fund may hold various foreign currencies,
the value of the net assets of that fund as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold. Some foreign currency values
may be volatile, and there is the possibility of government controls on currency
exchange or governmental intervention in currency markets which could adversely
affect the fund.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a fund's advisor or
sub-advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the fund's assets denominated in or exposed
to that currency), or by participating in options or futures contracts with
respect to that currency. If the advisor or sub-advisor believes that a
particular currency may
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decline relative to the U.S. dollar, the fund may also enter into contracts to
sell that currency (up to the value of the fund's assets denominated in or
exposed to that currency) in exchange for another currency that the advisor or
sub-advisor expects to remain stable or to appreciate relative to the U.S.
dollar. This technique is known as currency cross-hedging. Refer to the
Prospectus for each fund to determine which funds may engage in these
transactions.
These strategies are intended to minimize the effect of currency appreciation as
well as depreciation, but do not protect against a decline in the underlying
value of the hedged security. In addition, these strategies may reduce or
eliminate the opportunity to profit from increases in the value of the original
currency and may adversely impact the fund's performance if the advisor or
sub-advisor's projection of future exchange rates is inaccurate. See Strategic
portfolio transactions.
VALUATION OF PORTFOLIO SECURITIES
SHORT-TERM INVESTMENTS. For funds (other than the Money Market Fund) that own
short-term investments which mature in less than 60 days, these instruments are
valued at amortized cost. Such securities acquired with a remaining maturity of
61 days or more are valued at their fair value until the sixty-first day prior
to maturity; thereafter, their cost for valuation purposes is deemed to be their
fair value on such sixty-first day.
OPTIONS TRADING. For those funds engaging in options trading, fund investments
underlying call options will be valued as described previously. Options are
valued at the last sale price or, if there has been no sale that day, at the
mean of the last bid and asked price on the principal exchange where the option
is traded, as of the close of trading on the NYSE. The fund's net asset value
will be increased or decreased by the difference between the premiums received
on writing options and the cost of liquidating those positions measured by the
closing price of those options on the exchange where traded.
FUTURES CONTRACTS AND OPTIONS THEREON. For those funds buying and selling
futures contracts and related options thereon, the futures contracts and options
are valued at their daily settlement price.
FOREIGN SECURITIES. For funds investing in foreign securities, the value of a
foreign portfolio security held by a fund is determined based upon its closing
price or upon the mean of the closing bid and asked prices on the foreign
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that fund's portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market rates,
as computed by the custodian of the fund's assets.
However, trading on foreign exchanges may take place on dates or at times of day
when the NYSE is not open; conversely, overseas trading may not take place on
dates or at times of day when the NYSE is open. Any of these circumstances could
affect the net asset value of fund shares on days when the investor has no
access to the fund. There are more detailed explanations of these circumstances
in the SAI for the various funds. See the General Prospectus Disclosure for the
funds for information about how to obtain a copy of the SAI booklet for the
11 funds.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities funds are
currently held in custody by The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, NY 11245. Chase Manhattan agreed to act as custodian for each
fund pursuant to a Custodian Agreement dated March 30, 1998.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation and International Funds are
held in custody by State Street Bank and Trust Co., 225 Franklin Street, Boston,
Massachusetts 02110. State Street agreed to act as custodian for these funds
pursuant to Custodian Contracts effective July 21, 1987 for the Global Asset
Allocation fund, April 29, 1991 for the International fund, and December 6, 1993
for the other three funds.
Under these Agreements, the respective custodians shall (1) receive and disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit receipts to be executed; (6) register securities; and
(7) deliver to the funds proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each fund's Board of Directors has engaged Ernst & Young LLP, Two Commerce
Square, Suite 4000, 2001 Market Street, Philadelphia, PA 19103, to be the
independent auditors for the fund. In addition to the audit of the 1999
financial statements of the funds, other services provided include review and
consultation connected with filings of annual reports and registration
statements with the Securities and Exchange Commission (SEC); consultation on
financial accounting and
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reporting matters; and meetings with the Audit Committee.
FINANCIAL STATEMENTS
The audited financial statements and the reports of Ernst & Young LLP,
Independent Auditors, for the funds are incorporated by reference to each fund's
1999 Annual Report. We will provide a copy of each fund's Annual Report on
request and without charge. Either write Lincoln National Life Insurance Co.,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call: 1-800-4LINCOLN (452-6265).
BOND AND COMMERCIAL PAPER RATINGS
Certain of the funds' investment policies and restrictions include references to
bond and commercial paper ratings. The following is a discussion of the rating
categories of Moody's Investors Service, Inc. and Standard & Poor's Corp.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S CORP.
AAA -- This is the highest rating assigned by Standard & Poor's Corp. to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than for
bonds in the A category and higher.
BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1 -- Highest Quality;
Prime 2 -- Higher Quality;
Prime 3 -- High Quality.
(The funds will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORP.
A Standard & Poor's Corp. commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The fund will invest in commercial paper rated in the A Categories, as
follows:
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The
funds will not invest in commercial paper rated A-3).
A -- 1 this designation indicates that the degree of safety regarding timely
payment is very strong.
A -- 2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
Government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of two to ten years and
Treasury bonds generally have a maturity of greater than ten years.
Various agencies of the U.S. Government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority).
Obligations of instrumentalities of the U.S. Government are supported by the
right of the issuer to borrow from the Treasury (for example, those issued by
Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Federal Intermediate Credit Banks, Federal Land Bank and the U.S. Postal
Service). Obligations supported by the credit of the instrumentality include
securities issued by government-sponsored corporations whose stock is publicly
held (for example, the Federal National Mortgage Association, and the Student
Loan Marketing Association). There is no guarantee that the government will
support these types of securities, and therefore they may involve more risk than
other government obligations.
TAXES
Each fund intends to qualify and has elected to be taxed as a regulated
investment company under certain provisions of the Internal Revenue Code of
1986, as amended (the Code). If a fund qualifies as a regulated investment
company and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a regulated investment company, each fund must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
which are not directly related to the fund's principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its investing in such
stocks, securities, or currencies.
The federal tax laws impose a 4% nondeductible excise tax on each regulated
investment company with respect to an amount, if any, by which such company does
not meet distribution requirements specified in such tax laws, unless certain
exceptions apply. Each fund intends to comply with such distribution
requirements or qualify under one or more exceptions, and thus does not expect
to incur the 4% nondeductible excise tax.
Since the sole shareholder of each fund will be Lincoln Life, no discussion is
stated herein as to the federal income tax consequences at the shareholder
level.
The discussion of federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service (IRS). These
interpretations can be changed at any time. The above discussion covers only
A-14
<PAGE>
federal tax considerations with respect to the fund. State and local taxes vary.
DERIVATIVE TRANSACTIONS-DEFINITIONS
The SAI for each fund and this uniform Appendix discuss the type of derivative
transactions in which the funds may engage and the risks typically associated
with many derivative transactions. Here are some definitions for the derivatives
listed in the Appendix:
OPTION. A contract which gives the fund the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options trading
to terminate an outstanding option contract by entering into an offsetting
transaction known as a closing transaction; as a result of which the fund would
either pay out or receive a cash settlement. This is discussed below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX OPTION. One based on the value of an index which measures the fluctuating
value of a basket of pre-selected securities.
STOCK (EQUITY) OPTION. One based on the shares of stock of a particular company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a loan
or bond borrowing from one interest rate base (fixed term or floating rate) or
currency of one denomination to another.
EQUITY SWAP. One which allows the fund to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the fund and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed rate
to floating rate in the same currency); basis swaps (one floating rate index to
another floating rate index in the same currency); and cross-currency interest
rate swaps (fixed rate in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An arrangement to simultaneously purchase a cap and sell a floor, in
order to maintain interest rates within a defined range. The premium income
from the sale of the floor reduces or offsets the cost of buying the cap.
d. Corridor. An agreement to buy a cap at one interest rate and sell a cap at a
higher rate.
SWAPTION. An option to enter into, extend, or cancel a swap.
FUTURES CONTRACT. A contract which commits the fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected stocks,
with prices based on a composite of the changes to the prices of the individual
securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the fund and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal
A-15
<PAGE>
is involved; the difference between the contracted rate and the prevailing rate
is settled in cash.
CURRENCY CONTRACT. A contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES. Futures contracts on foreign currencies. Used to hedge the
purchase or sale of foreign securities.
CURRENCY OPTION. An option taken on foreign currency.
CURRENCY SWAP. A swap involving the exchange of cash flows and principal in one
currency for those in another, with an agreement to reverse the principal swap
at a future date.
CROSS-CURRENCY INTEREST RATE SWAP. A swap involving the exchange of streams of
interest rate payments (but not necessarily principal payments) in different
currencies and often on different interest bases (e.g., fixed Deutsche Mark
against floating dollar, but also fixed Deutsche Mark against fixed dollar).
FORWARD CURRENCY CONTRACT. A contract to lock in a currency exchange rate at a
future date, to eliminate risk of currency fluctuation when the time comes to
convert from one currency to another.
A-16
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
A-17
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits:
(a) - Articles of Incorporation*
(1) Articles Supplementary
(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., Lincoln National
Capital Appreciation Fund, Inc. and Lincoln National
Life Insurance Company is incorporated herein by reference
to the Registration Statement on Form N-1A (2-80741),
Amendment No. 21 filed on April 10, 2000.
(i) - Opinion of Counsel*
(j) - Consent of Ernst & Young LLP, Independent Auditors
(k) - NA
(l) - INVESTMENT LETTER*
(m) - NA
(n) - NA
(o) - N/A
(p) - Code of Ethics
1.- Lincoln National Capital Appreciation Fund, Inc.
2.- Lincoln Investment Management, Inc.
3.- Janus Capital Corporation
(q) 1.- Power of Attorney, Kenneth G. Stella is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
2.- Power of Attorney, John B. Borsch, Jr. is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
3.- Power of Attorney, Barbara S. Kowalczyk is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
4.- Power of Attorney, Nancy L. Frisby is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
5.- Power of Attorney, Eric C. Jones is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
6.- Power of Attorney, Janet C. Chrzan is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
7.- Power of Attorney, Kelly D. Clevenger is incorporated by
reference to Post-Effective Amendment No. 7 filed on
April 16, 1999.
(r) - Org Chart
(s) - 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, 2000, the officers and/or directors of the
investment adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
David A. Berry Senior Vice President Vice President, Lincoln National Income Fund, Inc. and
and Director Lincoln National Convertible Securities Fund, Inc.,
Vice President, Lincoln National Life Insurance Company,
Second Vice President, Lincoln Life & Annuity Company of
New York,
200 East Berry Street,
Fort Wayne, Indiana 46802
Dennis A. Blume Vice President Director Vantage Global
Advisors, Inc.,
200 East Berry Street,
Fort Wayne, Indiana 46802
Philip C. Byrde Vice President Vice President, Lincoln National Life Insurance Company and
Second Vice President, Lincoln Life & Annuity Company of
New York,
200 East Berry Street,
Fort Wayne, Indiana 46802
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
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
David C. Patch Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
Luke Girard Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
David J. Miller Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
Howard R. Lodge Vice President 200 East Berry Street,
Fort Wayne, Indiana 46802
</TABLE>
<PAGE>
(b) The Sub-Adviser.
As of March 23, 2000, 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 (s).
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets 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 10th day of April 2000.
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 10, 2000
- ----------------------- President and Director
Kelly D. Clevenger (Principal Executive Officer)
* Director April 10, 2000
- -----------------------
John B. Borsch, Jr.
* Director April 10, 2000
- -----------------------
Kenneth G. Stella
* Director April 10, 2000
- -----------------------
Barbara S. Kowalczyk
* Director April 10, 2000
- -----------------------
Nancy L. Frisby
* Chief Accounting Officer April 10, 2000
- ----------------------- (Principal Accounting Officer)
Eric C. Jones
* Vice President and Treasurer April 10, 2000
- ----------------------- (Principal Financial Officer)
Janet C. Chrzan
</TABLE>
*By /s/ Steven M. Kluever pursuant to a Power of Attorney filed with Post-
-------------------- Effective Amendment No. 7 filed on April 16, 1999.
Steven M. Kluever
<PAGE>
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
ARTICLES SUPPLEMENTARY
To the State Department
of Assessments and Taxation
State of Maryland
FIRST: The name of the corporation (the "corporation") is LINCOLN
NATIONAL CAPITAL APPRECIATION FUND, INC.
SECOND: In accordance with Maryland General Corporation Law, Section
2-105(c), the Board of Directors of the corporation has, by resolution,
authorized an increase in the total number of shares of capital stock that
the corporation has authority to issue.
THIRD: Immediately before the increase, the total number of shares of
stock that the Corporation had authority to issue was 50,000,000 shares, with
the par value of $.01 per share, all of which were of a single class
designated Common Stock, such shares having an aggregate par value of
$500,000.
After the increase, the total number of shares of stock that the
corporation shall have authority to issue is 100,000,000 shares, with the par
value of $.01 per share, all of which shall be of a single class designated
Common Stock, such shares having an aggregate par value of $1,000,000.
FOURTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, Lincoln National Capital Appreciation Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its
President or one of its Vice Presidents and attested by its Secretary or one
of its Assistant Secretaries on February 14, 2000.
ATTEST: LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
/s/ Cynthia A. Rose /s/ Kelly D. Clevenger
- ---------------------------- ----------------------------------------
Cynthia A. Rose, Secretary Kelly D. Clevenger, Chairman & President
THE UNDERSIGNED, Kelly D. Clevenger, Chairman and President, of Lincoln
National Capital Appreciation Fund, Inc., who executed on behalf of said
corporation, the foregoing Articles Supplementary, of which this certificate
is made a part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles Supplementary to be the corporate act of
said corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect
to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Kelly D. Clevenger
------------------------------------------
Kelly D. Clevenger, Chairman & President
- -------------------------------------------------------------------------------
STATE OF MARYLAND
-----------------
I hereby certify that this is a true and complete copy of the 2 page
document on file in this office.
DATED: 2/24/00.
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: Custodian
-----------------------------------
This stamp replaced our previous certification system. Effective 6/95.
- -------------------------------------------------------------------------------
<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.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the
Company shall be the agent of the Fund for the limited
purpose of receiving redemption
2
<PAGE>
and purchase requests from the Account (but not from the
general account of the Company), and receipt on any
Business Day by the Company as such limited agent of the
Fund prior to the time prescribed in the current Fund
Prospectus (which as of the date of execution of this
Agreement is 4 p.m., E.S.T.) shall constitute receipt by
the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase
request by 9:00 a.m., E.S.T. on the next following
Business Day. For purposes of this Agreement, "Business
Day" shall mean any day on which the New York Stock
exchange is open for trading.
(b) The Company shall pay for the shares on the same
day that it places an order with the Fund to purchase
those Fund shares for an Account. Payment for Fund shares
will be made by the Account or the Company in Federal
Funds transmitted to the Fund by wire to be received by
11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will
confirm receipt of each trade and these confirmations
will be received by the Company via Fax or Email by 3:00
p.m. E.S.T. If Federal Funds are not received on time,
such funds will be invested, and shares purchased thereby
will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the
Company by wire on the same day the Fund is notified of
the redemption order of shares, except that the Fund
reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of
the 1940 Act. The Fund shall not bear any responsibility
whatsoever for the proper disbursement or crediting of
redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Fund shares will be recorded in
an appropriate ledger for the Account or the appropriate subaccount of the
Account.
1.6. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income dividends or capital gain
distributions payable on any shares. The Company, on its behalf and on behalf
of the Account, hereby elects to receive all such dividends and distributions
as are payable on any shares in the form of additional shares of that Fund.
The Company reserves the right, on its behalf and on behalf of the Account,
to revoke this election and to receive all such dividends in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset
value per share available to the Company by 7:00 p.m., E.S.T. each Business Day,
and in any event, as soon as reasonably practicable after the net asset value
per share is calculated, and shall calculate such net asset value in accordance
with the then currently effective Fund Prospectus. The Fund shall not be liable
for
3
<PAGE>
any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company to the
Fund.
1.8. (a) The Company may withdraw the Account's investment
in the Fund only: (i) as necessary to facilitate Contract
owner requests; (ii) upon a determination by a majority
of the Fund Board, or a majority of disinterested Fund
Board members, that an irreconcilable material conflict
exists among the interests of (x) any Product Owners or
(y) the interests of the Participating Insurance
Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the Fund
to substitute the shares of another investment company
for shares in accordance with the terms of the Contracts;
(iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of
general application; or (v) at the Company's sole
discretion, pursuant to an order of the SEC under Section
26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the
arrangement contemplated by this Agreement is not
exclusive and that the Fund shares may be sold to other
insurance companies (subject to Section 1.9 hereof) and
the cash value of the Contracts may be invested in other
investment companies.
(c) The Company shall not, without prior notice to
the Fund (unless otherwise required by applicable law),
take any action to operate the Accounts as management
investment companies under the 1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to
Participating Insurance Companies and their separate accounts. The Fund will
not sell Fund shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the
Contracts are registered under the 1933 Act or will be so registered before
the issuance thereof, (b) that the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws and (c) that
the Company will require of every person distributing the Contracts that the
Contracts be offered and sold in compliance in all material respects with all
applicable Federal and state laws. The Company further represents and
warrants that it is an insurance company duly organized and validly existing
under applicable law and that it has legally and validly authorized each
Account as a separate account under Section 27-1-5-1 of the Indiana Insurance
Code, and has registered or, prior to the issuance of any Contracts, will
register each Account (unless exempt therefrom) as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a separate account
for its Contracts, and that it will maintain such registrations for so long
as any Contracts issued under them are outstanding.
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2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund
is and shall remain registered under the 1940 Act for so long as the Fund
shares are sold. The Fund further represents and warrants that it is a
corporation duly organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently
qualifies as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund further
represents and warrants that it will make every effort to continue to qualify
and to maintain such qualification (under Subchapter M or any successor or
similar provision), and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently
and at the time of issuance will be treated as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of
the Code. The Company shall make every effort to maintain such treatment and
shall notify the Fund immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies,
fees and expenses, and operations are and shall at all times remain in
material compliance with the laws of the state of Maryland, to the extent
required to perform this Agreement; and with any state- mandated investment
restrictions set forth on Schedule 3, as amended from time to time by the
Company in accordance with Section 6.6. The Fund, however, makes no
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies
with the insurance laws or regulations of any state. The Company alone shall
be responsible for informing the Fund of any investment restrictions imposed
by state insurance law and applicable to the Fund.
2.7. The Fund represents and warrants that it has and
maintains a fidelity bond in accordance with Rule 17g-1 under the 1940 Act.
The Fund will immediately notify the Company in the event the fidelity bond
coverage should lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of
the current Fund Prospectus as the Company may reasonably request. If requested
by the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for
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the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund and the Fund
shall provide such Statement free of charge to the Company and to any
outstanding or prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and
other communications to shareholders (except proxy
material), in each case in a form suitable for printing,
as determined by the Company. The Fund shall be
responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material.
The Company will provide the appropriate Contractowner
names and addresses to the Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use,
each piece of sales literature or other promotional material in which the
Fund is named. No such material shall be used, except with the prior written
permission of the Fund. The Fund agrees to respond to any request for
approval on a prompt and timely basis. Failure of the Fund to respond within
10 days of the request by the Company shall relieve the Company of the
obligation to obtain the prior written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund
other than the information or representations contained in the Fund
Registration Statement or Fund Prospectus, as such Registration Statement and
Prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund, except with the prior written permission of
the Fund. The Fund agrees to respond to any request for permission on a
prompt and timely basis. If the Fund does not respond within 10 days of a
request by the Company, then the Company shall be relieved of the obligation
to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. If the Company fails to respond within 10 days
of a request by the Fund, then the Fund is relieved of the obligation to
obtain the prior written permission of the Company.
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3.7. The Fund will provide to the Company at least one
complete copy of all Fund Registration Statements, Fund Prospectuses,
Statements of Additional Information, annual and semi-annual reports and
other reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments or supplements to any of the above, that relate to the Fund or
Fund shares, within 20 days after the filing of such document with the SEC or
other regulatory authorities.
3.8. The Company will provide to the Fund at least one
complete copy of all Contracts Registration Statements, Contracts
Prospectuses, Statements of Additional Information, Annual and Semi-annual
Reports, sales literature and other promotional materials, and all amendments
or supplements to any of the above, that relate to the Contracts, within 20
days after the filing of such document with the SEC or other regulatory
authorities.
3.9. Each party will provide to the other party copies of
draft versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, computer net site, signs or billboards, motion
pictures or other public media), sales literature (I.E., any written
communication distributed or made generally available to customers or the
public, in print or electronically, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts
of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, Statements of Additional Information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article
VII, the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article
VII, the Company shall:
(a) vote Fund shares attributable to Contract owners
in accordance with
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instructions or proxies received in timely fashion from
such Contract owners;
(b) vote Fund shares attributable to Contract owners
for which no instructions have been received in the same
proportion as Fund shares of such Series for which
instructions have been received in timely fashion; and
(c) vote Fund shares held by the Company on its own
behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion as
Fund shares of such Series for which instructions have
been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except
as may otherwise be provided in Section 1.4 and Article VII of this
Agreement, the Company shall not bear any of the expenses for the cost of
registration and qualification of the Fund shares under Federal and any state
securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement, the preparation of all statements and notices
required by any Federal or state securities law, all taxes on the issuance or
transfer of Fund shares, and any expenses permitted to be paid or assumed by
the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and
distributing Fund Prospectuses and SAIs to existing Contractowners. (If for
this purpose the Company decided to print the Fund Prospectuses and SAIs in a
booklet or separate booklets containing disclosure for the Contracts and for
underlying funds other than those of the Fund, then the Fund shall pay only
its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account
Prospectuses and SAIs for existing Contractowners. The Company shall have the
final decision on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and
Section 817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration
Statements under the 1933 Act and the Account's Registration Statement under
the 1940 Act from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable law.
The Company shall register and qualify the Contracts for sale to the extent
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<PAGE>
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under
the 1933 Act and the 1940 Act from time to time as required in order to
effect for so long as Fund shares are sold the continuous offering of Fund
shares as described in the then currently effective Fund Prospectus. The Fund
shall register and qualify Fund shares for sale to the extent required by
applicable securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
describe the circumstances under which a Contract could be treated as a
modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of
any applicable state-mandated investment restrictions
with which the Fund must comply, the Company shall
arrange with the Fund to amend Schedule 3, pursuant to
the requirements of Article XI.
(b) Should the Fund become aware of any restrictions
which may be appropriate for inclusion in Schedule 3, the
Company shall be informed immediately of the substance of
those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of
the Fund (the "Board") any potential or existing conflicts between the
interests of Product Owners of all separate accounts investing in the Fund,
and to assist the Board in carrying out its responsibilities under Section
6e-3(T) of the 1940 Act, by providing all information reasonably necessary
for the Board to consider any issues raised, including information as to a
decision to disregard voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of
disinterested Board Members, determines that a material irreconcilable
conflict exists, the Board shall give prompt notice to all Participating
Insurance Companies.
(a) If a majority of the whole Board, after notice to
the Company and a reasonable opportunity for the Company
to appear before it and present its case, determines that
the Company is responsible for said conflict, and if the
Company
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agrees with that determination, the Company shall, at its
sole cost and expense, take whatever steps are necessary
to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable
to some or all of the affected Accounts from the Fund and
reinvesting such assets in a different investment
vehicle, or submitting the question of whether such
segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating
the assets of any particular group (i.e., variable
annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected
Contractowners the option of making such a change; and
(ii) establishing a new registered mutual fund or
management separate account; or (iii) taking such other
action as is necessary to remedy or eliminate the
material irreconcilable conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest
with the Board, reserving its right to dispute the
determination as between just the Company and the Fund
and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict .
After reserving that right the Company, although
disagreeing with the Board that it (the Company) was
responsible for the conflict, shall take the necessary
steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just
above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45
days after the Board's determination the Company elects
to press the dispute, it shall so notify the Board in
writing. The parties shall then attempt to resolve the
matter amicably through negotiation by individuals from
each party who are authorized to settle the matter. If
the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to
press the dispute, then before either party shall
undertake to litigate the dispute it shall be submitted
to non-binding arbitration conducted expeditiously in
accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator;
PROVIDED, HOWEVER, that if one party has requested the
other party to seek an amicable resolution and the other
party has failed to participate, the requesting party may
initiate arbitration before expiration of the 60-day
period set out just above.
If within 45 days of the commencement of the process
to select an arbitrator the parties cannot agree upon the
arbitrator, then he or she will be selected from the CPR
Panels of Neutrals. The arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. Sec. 1-16.
The place of arbitration shall be Fort Wayne, Indiana.
The Arbitrator is not empowered to award damages in
excess of compensatory damages.
(d) If the Board shall determine that the Fund or
another was responsible for the conflict, then the Board
shall notify the Company immediately
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of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance
Company as applicable, shall, at its sole cost and
expense, take whatever steps are necessary to eliminate
the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall
constitute a waiver of any right of action which the
Company may have against other Participating Insurance
Companies for reimbursement of all or part of the costs
and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of
the Company's decision to disregard Contractowner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company shall withdraw (without charge or penalty) the Account's
investment in the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the
disinterested members of the Board shall determine whether or not any
proposed action adequately remedies any irreconcilable conflict. However, in
no event will the Fund be required to establish a new funding medium for any
variable contract, nor will the Company be required to establish a new
funding medium for any Contract, if in either case an offer to do so has been
declined by a vote of a majority of affected Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund and each person who controls or is
associated with the Fund (other than another Participating Insurance Company)
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any
and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid with the prior written consent of the Company in
settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the Contracts Registration Statement,
Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading in light of
the circumstances in which they were made; provided that
this obligation to indemnify shall not apply if such
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statement or omission or such alleged statement or
alleged omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Fund (or a person authorized in writing to
do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
by or on behalf of the Company (other than statements or
representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct
of the Company or persons under its control with respect
to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Fund
Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund or
any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances in which they were made, if such statement
or omission was made in reliance upon and in conformity
with information furnished to the Fund by or on behalf of
the Company; or
(d) arise as a result of any failure by the Company
to provide the services and furnish the materials or to
make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company
of this Agreement, including but not limited to any
failure to transmit a request for redemption or purchase
of Fund shares on a timely basis in accordance with the
procedures set forth in Article I; or
(f) arise as a result of the Company's providing the
Fund with inaccurate information, which causes the Fund
to calculate its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify
and hold harmless the Company and each person who controls or is associated
with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any
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<PAGE>
investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid with the prior written consent of the Fund in
settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the Fund Registration Statement, Fund
Prospectus (or any amendment or supplement thereto) or
sales literature or other promotional material of the
Fund, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement
or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information
furnished in writing by the Company to the Fund for use
in the Fund Registration Statement, Fund Prospectus (or
any amendment or supplement thereto) or sales literature
for the Fund or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
made by the Fund (other than statements or
representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control)
or wrongful conduct of the Fund or persons under its
control with respect to the sale or distribution of the
Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the
Contract's Registration Statement, Contracts Prospectus
or sales literature or other promotional material for the
Contracts (or any amendment or supplement thereto), or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading in light of
the circumstances in which they were made, if such
statement or omission was made in reliance upon
information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including, but not by way of
limitation, a failure, whether unintentional or in good
faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4
and 6.1 in Article VI of this Agreement; and (ii) to
provide the Company with accurate information sufficient
for it to calculate its accumulation and/or annuity unit
values
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in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Fund of
this Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party
entitled to indemnification ("indemnified party") under this Article VIII of
notice of the commencement of any action, if a claim in respect thereof is to
be made by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, provided that the
omission to so notify the indemnifying party will not relieve it from any
liability under this Article VIII, except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give such
notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the state of
Indiana, without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those
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statutes, rules and regulations as the SEC may grant, and the terms hereof
shall be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties; or
(b) at the option of the Company if shares of the
Fund are not available to meet the requirements of the
Contracts as determined by the Company. Prompt notice of
the election to terminate for such cause shall be
furnished by the Company. Termination shall be effective
ten days after the giving of notice by the Company; or
(c) at the option of the Fund upon institution of
formal proceedings against the Company by the NASD, the
SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of
formal proceedings against the Fund, the investment
advisor or any sub-investment advisor, by the NASD, the
SEC, or any state securities or insurance commission or
any other regulatory body; or
(e) upon requisite vote of the Contract owners having
an interest in the Fund (unless otherwise required by
applicable law) and written approval of the Company, to
substitute the shares of another investment company for
the corresponding shares of the Fund in accordance with
the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in
accordance with applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the
interests of (i) any Product owners or (ii) the interests
of the Participating Insurance Companies investing in the
Fund; or
(h) at the option of the Company if the Fund ceases
to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any
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<PAGE>
successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel,
that the Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to
meet the diversification requirements specified in
Section 817(h) of the Code and any regulations
thereunder; or
(j) at the option of the Fund if the Contracts cease
to qualify as annuity contracts or life insurance
policies, as applicable, under the Code, or if the Fund
reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of the Fund if the Fund shall
determine, in its sole judgment exercised in good faith,
that either (1) the Company shall have suffered a
material adverse change in its business or financial
condition; or (2) the Company shall have been the subject
of material adverse publicity which is likely to have a
material adverse impact upon the business and operations
of the Fund; or
(l) at the option of the Company, if the Company
shall determine, in its sole judgment exercised in good
faith, that: (1) the Fund shall have suffered a material
adverse change in its business or financial condition; or
(2) the Fund shall have been the subject of material
adverse publicity which is likely to have a material
adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this
Agreement (including, without limitation, any transfer of
the Contracts or the Accounts to another insurance
company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or unless
this Agreement is assigned to an affiliate of the Company
or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in
Section 10.1, no termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to the
other party of its intent to terminate, which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon
the provisions of Article VII or the provisions of
Section 10.1(a) of this Agreement, such prior written
notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon
the provisions of Section 10.1(c) or 10.1(d) of this
Agreement, such prior written notice shall be given at
least ninety (90) days before the effective date of
termination, or sooner if required by law or regulation.
10.3. EFFECT OF TERMINATION
16
<PAGE>
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund
will, at the option of the Company, continue to make
available additional Fund shares for so long after the
termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the
Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the
Company, whichever shall have legal authority to do so,
shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the
Existing Contracts.
(b) If Fund shares continue to be made available
after such termination, the provisions of this Agreement
shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this Section
10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for
more than six months.
(c) The parties agree that this Section 10.3 shall
not apply to any termination made pursuant to Article
VII, and the effect of such Article VII termination shall
be governed by the provisions set forth or incorporated
by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the
Contracts and to add new classes of variable annuity contracts and variable
life insurance policies to be issued by the Company through new or existing
Separate Accounts investing in the Fund. The provisions of this Agreement
shall be equally applicable to each such separate account and each such class
of contracts or policies, unless the context otherwise requires. Any such
amendment must be signed by the parties and must bear an effective date for
that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party(ies) at the address of such party(ies)
set forth below or at such other address as such party(ies) may from time to
time specify in writing to the other party.
If to the Fund:
Lincoln National Capital Appreciation Fund, Inc.
17
<PAGE>
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as
applicable, by such party, and when so executed and delivered this Agreement
will be the valid and binding obligation of such party enforceable in
accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its
effective date, hereby supersedes any and all prior agreements to purchase
shares between Lincoln Life and the Fund.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
officer on the date specified below.
LINCOLN NATIONAL 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
-------------------------------------------------
#73844
19
<PAGE>
20
<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
21
<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
22
<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.
23
<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, 2000
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L
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, 2000
MULTI FUND INDIVIDUAL VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
LINCOLN VUL
LINCOLN VUL-DB-
LINCOLN SVUL
LINCOLN SVUL II
LINCOLN CVUL
LINCOLN CVUL SERIES III
MULTI FUND - NON-REGISTERED
GROUP VARIABLE ANNUITY (GVA) I, II, III
<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: By:
------------------------- --------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
------------------------- --------------------------
Steven M. Kluever
Second Vice President
<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 October 15, 1999
MULTI FUND INDIVIDUAL VARIABLE ANNUITY
eANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
LINCOLN VUL
LINCOLN SVUL
LINCOLN C
MULTI FUND - NON-REGISTERED
LINCOLN VUL-DB-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule 2 to be executed in its name and behalf by its duly authorized
officer on the date specified below.
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
Date: By:
------------------------- --------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
------------------------- --------------------------
Stephen H. Lewis
Senior Vice President
<PAGE>
Amendment to
SCHEDULE 1
Lincoln National 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: By:
------------------------- --------------------------
Kelly D. Clevenger
President and Chairman
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
------------------------- --------------------------
Stephen H. Lewis
Senior Vice President
<PAGE>
The Fund Participation Agreement (the "Agreement"), dated July 1, 1998,
by and among The Lincoln National Life Insurance Company and Lincoln National
Capital Appreciation Fund, Inc. is hereby amended as follows:
Page 2, the second paragraph is replaced in its entirety with the following:
"WHEREAS, the Company has registered or will have registered each
Account with the SEC (unless exempt therefrom) as a unit investment trust
under the 1940 Act before any Contracts are issued by that Account; and"
Page 5, Article 2.1 is replaced in its entirety with the following:
"The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof (unless exempt therefrom), (b) that the Contracts will be issued
in compliance in all material respects with all applicable Federal and
state laws and (c) that the Company will require of every person
distributing the Contracts that the Contracts be offered and sold in
compliance in all material respects with all applicable Federal and state
laws. The Company further represents and warrants that it is an
insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a separate account for its
Contracts, and that it will maintain such registrations for so long as any
Contracts issued under them are outstanding."
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
the Fund Participation Agreement to be executed in its name and behalf by its
duly authorized officer on the date specified below.
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
Date: By:
------------------------- --------------------------
Name: Kelly D. Clevenger
--------------------------
Title: President
------------------
LINCOLN NATIONAL LIFE
INSURANCE COMPANY
Date: By:
------------------------- --------------------------
Name: Stephen H. Lewis
----------------------------
Title: Senior Vice President
-------------------------
<PAGE>
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. 8 to the Registration Statement (Form N-1A) (No.
33-70272) of Lincoln National Capital Appreciation Fund, Inc. of our report
dated February 4, 2000, included in the 1999 Annual Report to shareholders.
Philadelphia, Pennsylvania
April 6, 2000
<PAGE>
Code of Ethics
Lincoln National Variable Annuity Fund A
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
----------------------------------------
Section 1 - Statement of General Fiduciary Principles
This Code of Ethics (the "Code") is adopted to prescribe standards and
procedures which are designed to prevent conduct which is in contravention of
Section 17(j)-1 of the Investment Company Act of 1940 [15 U.S.C.
80q-17(j)-1] (the "1940 Act").
The Code is applicable to all Access Persons (as defined below). The
fundamental standard of this code is that, at all times, Access persons
should place the interests of the corporation's Separate Account's
shareholders/unitholders first. No action should be taken by an Access Person
which is inconsistent with this obligation. An Access Person must abide by
both the spirit and the letter of the Code in order to avoid even the
appearance of impropriety, as well as potential conflict situations. Any and
all personal securities transactions must be conducted in a manner consistent
with the Code so as to avoid any actual or potential conflict of interest or
any abuse of a position of trust and responsibility. It is imperative that
Access Persons avoid any situation that might compromise or call into
question their exercise of judgment that is fully independent and that places
primary importance on their fiduciary duty to shareholders.
Section 2 - Definitions
(a) "Corporation" means Lincoln National Variable Annuity Fund A,
Lincoln National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc.,
Lincoln National Capital Appreciation Fund, Inc., Lincoln National Equity-Income
Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln
National Growth and Income Fund, Inc., Lincoln National International Fund,
Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market Fund,
Inc., Lincoln National Social Awareness Fund, Inc., Lincoln National Special
Opportunities Fund, Inc.
(b) "Access Person" means (1) any employee, director or officer of
the Corporation; and (2) any Advisory Person (defined below); and (3) any
natural person in a control relationship to the Corporation or to the Adviser
who obtains information concerning current recommendations made to the
Corporation with regard to security transactions.
<PAGE>
(c) "Advisory Person" means any officer, director or employee of the
Corporation who in connection with his or her regular functions or duties,
makes any recommendation, participates in the determination of which
recommendation should be made or whose principal function or duties relate to
the determination of which recommendation shall be made to any registered
investment company with respect to the purchase or sale of securities for the
Corporation, or who, in connection with his or her duties, obtains any
information concerning securities recommendations being made by any such
investment adviser to any registered investment company.
(d) "Director" means each member of the board of Directors of the
Corporation.
(e) "Independent Director" means each Corporation director who is not
an "interested person" of the investment company under the provisions of Section
2 (a)(19) of the 1940 Act.
(f) A security is "to be considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
(g) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p] and the rules
and regulations thereunder, except that the determination of direct and indirect
beneficial ownership shall apply to all securities which an Access Person has or
acquires.
(h) "Compliance Officer" means the officer so designated by the
Corporation, to review the personal securities transactions of Access Persons,
and to make related decisions and offer advice regarding such personal
securities transactions.
(i) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(j) "Purchase or sale of a security" and "security transaction"
includes, inter alia, the writing of an option to purchase or sell a security.
(k) "Security" shall have the meaning set forth in Section 2(a)(36) of
the 1940 Act except that it shall not include securities issued by the
government of the United States, banker's acceptances, bank certificates of
deposit, commercial paper, shares of registered open-end investment companies or
short term debt securities. The term "security" includes any option right
related to a security.
(l) "Security held or to be acquired" by the Corporation means any
security as defined above which, within the most recent 15 days, (i) is or has
been held by the Corporation, or (ii) is being or has been considered by the
Corporation or the Adviser for purchase by the Corporation.
<PAGE>
Section 3 - Exempt Transactions
The prohibitions of Section 4 of the Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access
person has no direct or indirect influence or control;
(b) Purchases or sales of securities which are not eligible for
purchase or sale by the Corporation;
(c) Purchases or sales which are non-volitional on the part of either
the Access Person or the Corporation;
(d) Purchases which are part of an automatic dividend reinvestment
plan;
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
(f) Purchases or sales which are only remotely potentially harmful to
the Corporation because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related economically to
the securities held or to be acquired or sold by the Corporation.
Section 4 - Prohibitions
(a) No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership and which to his or her actual
knowledge at the time of such purchase or sale:
(1) Is currently being considered for purchase or sale by the
Corporation; or
(2) Is currently being purchased or sold by the Corporation.
(b) No Advisory Person may invest in or acquire any securities in an
initial public offering.
(c) No Advisory Person may invest in a private placement without first
obtaining approval from the Compliance Officer or Law Division appropriate
under the circumstances.
(d) No Access Person may make personal use of information available
only by reason of his or her position until after the Corporation has acted upon
it and, in addition, each investment opportunity which comes to the attention of
any such Access Person and which is appropriate for consideration by the
Corporation must first be made available to the Corporation before the Access
Person may take personal advantage of such investment opportunity.
(e) No Advisory Person may receive any gift or other thing of more
than de minimis value from any person or entity that does business with or on
behalf of the Corporation/Separate Account.
<PAGE>
(f) No Advisory Person may serve as a director on the board of a
publicly traded company without first obtaining approval from the Compliance
Officer or Law Division.
(g) For a period of three trading days before and after the
Corporation's trade, no Access Person shall trade in a security which is or has
been traded by the Corporation.
Section 5 - Reporting
Except as provided below under "Exceptions," each Access Person shall
report not later than ten (10) days after the end of a calendar quarter, each
transaction during such calendar quarter in any security in which such Access
Person has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership in the security. Such transactions may involve any of the
following:
(a) A security in which the Access Person, the Access Person's spouse
or minor children, or any relative residing in the Access Person's home, has any
direct or indirect beneficial interest in himself or herself, including by
reason of being the settlor of a revocable trust.
(b) A security in which the Access person, or the Access Person's
spouse or minor children may, by reason of any agreement or understanding, vest
or revest any beneficial interest in himself or herself, including by reason of
being the settlor of a revocable trust.
(c) A security whose purchase or sale was or may be controlled or
influenced by the Access person, including securities for the account of a trust
of which the Access Person is a trustee.
In addition, all Access Persons shall preclear personal securities
transactions with the Compliance Officer. After preclearance has been granted,
the Compliance Officer shall monitor such precleared personal securities
transactions in accordance with Section 5 - Form of Reporting below.
EXCEPTIONS
(a) No report is required of security transactions of any account over
which the Access Person does not have any direct or indirect influence or
control.
(b) Independent Directors who would be required to make a report solely
by reason of being a director are required only to report those security
transactions where such director knew or, in the ordinary course of fulfilling
his or her official duties as a director of the Corporation, should have known
that during the 15-day period immediately preceding or after the date of the
transaction in a security by the director, such security is or was purchased or
sold by or on behalf of the Corporation or such purchase or sale is or was
considered by the Corporation or the Adviser. No director shall be presumed to
know such matters solely by reason of his or her being a director or serving on
any committee of the Board of Directors.
<PAGE>
Form of Report
Each report shall be made to the Compliance Officer no later than 10
days after the end of the calendar quarter in which the transaction occurred.
The report shall contain the following information:
(a) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or other
acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected.
Any report submitted to comply with the requirements of this Section 5
may contain a statement that the report shall not be construed as an admission
by the person making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
Every Advisory Person shall disclose all personal securities holdings
upon the commencement of a relationship between such Advisory Person and the
Corporation and/or the Adviser.
All Access Persons shall certify annually that they have read and
complied with the Code.
Until further notice, all reports filed with the Compliance Officer
shall be mailed to: Jerry C. Danielson, AVP and Chief Compliance Officer,
Internal Audit, P.O. Box 1110, 1300 South Clinton Street, Fort Wayne, IN
46801.
Use of the Form
The filed report will be reviewed by the Compliance Officer of the
Corporation and of the Adviser. It will be confidential and subject only to
disclosure to the SEC staff as required by law pursuant to a periodic,
special or other examination. The reports of persons other than independent
directors may be disclosed to there senior officers of the Corporation or the
Adviser or to legal counsel as deemed necessary for compliance purposes and
to otherwise administer the Code. Reports of independent directors will be
subject to disclosure only to the person with whom they are filed, the SEC
staff as required by law, independent directors of the Corporation involved,
relevant committees composed of such directors, and the Corporation's legal
counsel (if such directors or such committees shall determine to consult
counsel in respect to any such report).
<PAGE>
Section 6 - Sanctions
Upon discovering a violation of the Code, the Corporation, the Adviser, or
the Board of Directors, whichever is most appropriate under the circumstances,
may impose such sanctions as it deems appropriate, including, inter alia,
censure, suspension or termination of employment. All material violations of the
code and any sanctions imposed with respect hereto shall be reported
periodically, as necessary, to the Board of Directors of the Corporation.
Until further notice, certificates of compliance with the Code may be
forwarded to the Securities Compliance Unit, Lincoln National Corporation.
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Jerry
Danielson, Chief Compliance Officer at (219) 455-3984.
Signed:_______________________ Date:_______________________
Position:_____________________
Company:______________________
CONSENT TO RELEASE
REPORTS OF PERSONAL TRANSACTIONS
To:_______________________________
I am reporting my personal securities transactions to Jerry Danielson,
Chief Compliance Officer, under the Code of Ethics for Lincoln National Variable
Annuity Fund A, Lincoln National Aggressive Growth Fund, Inc., Lincoln National
Bond Fund, Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln
National Equity-Income Fund, Inc., Lincoln National Global Asset Allocation
Fund, Inc., Lincoln National Growth and Income Fund, Inc., Lincoln National
International Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National
Money Market Fund, Inc., Lincoln National Social Awareness Fund, Inc., Lincoln
National Special Opportunities Fund, Inc.
I consent to having copies of all reports which I file made available so long as
I am an Access Person with respect to any or all of the above companies.
Signed:_______________________ Date:_______________________
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ John B. Borsch, Jr
---------------------------------------
Name: John B. Borsch, Jr
--------------------------------------------
(Please print name)
Title: Director
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Kelly D. Clevenger
---------------------------------------
Name: Kelly D. Clevenger
--------------------------------------------
(Please print name)
Title: President
-------------------------------------------
Date: 10/29/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Nancy L. Frisby
---------------------------------------
Name: Nancy L. Frisby
--------------------------------------------
(Please print name)
Title: Director
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Barbara S Kowalczyk
---------------------------------------
Name: Barbara S Kowalczyk
--------------------------------------------
(Please print name)
Title: Sr VP
-------------------------------------------
Date: Nov 1, 1999
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CERTIFICATE OF REVIEW AND COMPLIANCE WITH CODE OF ETHICS
I hereby acknowledge receipt and review of the Code of Ethics for any
or all of the following: Lincoln National Variable Annuity Fund A, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln
National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National
Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln
National Social Awareness Fund, Inc., Lincoln National Special Opportunities
Fund, Inc. I understand its provisions and its applicability to me. I have
complied with both the letter and the spirit of the Code, and I will continue to
do so during the upcoming year. I understand that if I have any questions
regarding the Code and its application, I shall direct these questions to Regina
Rohrbacher, Compliance Director at (219) 455-7407.
Signature: /s/ Kenneth G. Stella
---------------------------------------
Name: Kenneth G. Stella
--------------------------------------------
(Please print name)
Title:
-------------------------------------------
Date: 11/1/99
-------------------------------------------
PLEASE RETURN TO:
Gina Rohrbacher
Assistant Vice President
Compliance Director
Lincoln Investment Management, 2R-13
200 East Berry Street
Fort Wayne, IN 46802
<PAGE>
CODE OF ETHICS
FOR
LINCOLN INVESTMENT MANAGEMENT, INC.
- --------------------------------------------------------------------------------
I. INTRODUCTION
IT IS THE DUTY OF ALL EMPLOYEES TO CONDUCT THEMSELVES WITH INTEGRITY, IN
ACCORDANCE WITH THE CODE OF ETHICS, AND AT ALL TIMES TO PLACE THE INTERESTS
OF THE SHAREHOLDERS AND CLIENTS FIRST. IN THE INTEREST OF THIS CREDO, ALL
PERSONAL SECURITIES TRANSACTIONS WILL BE CONDUCTED CONSISTENT WITH THE CODE
OF ETHICS AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT
OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND
RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS THAT PERSONNEL
SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.
The Securities and Exchange Commission (SEC) has adopted Rule 17j-1 under
the Investment Company Act of 1940. This Rule makes it unlawful for certain
persons, including any investment adviser or principal underwriter to a
registered investment company, in connection with the purchase or sale by
such persons of a security held or to be acquired(1) by a registered
investment company:
- to employ any device, scheme or artifice to defraud;
- to make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light
of the circumstances in which they are made, not misleading;
- to engage in any act, practice or course of business that operates or
would operate as a fraud or deceit; or
- to engage in any manipulative practice.
- -----------------
(1) A security is deemed to be "held or to be acquired" if within the most
recent fifteen days it (i) is or has been held by the registered investment
company or (ii) is being or has been considered by the registered
investment company or its investment adviser for purchase by the registered
investment company.
Page 1
<PAGE>
The Rule also requires that every registered investment company and each
investment adviser or principal underwriter for such investment company
shall adopt a written code of ethics containing provisions reasonably
necessary to prevent persons from engaging in acts in violation of the
above standard and shall use reasonable diligence and institute procedures
reasonably necessary to prevent violations of the code.
Accordingly, the Board of Directors of Lincoln Investment Management, Inc.
("LIM") has adopted the following Code of Ethics to be effective for its
directors, officers, and, where applicable, employees on and after March 1,
1998, thereby replacing all previous Codes of Ethics. This Code of Ethics
does not replace, but is intended to supplement, the POLICY STATEMENT ON
CONFLICTS OF INTEREST adopted by the Board of Directors of Lincoln National
Corporation ("LNC").
II. DEFINITIONS
A. "ACCESS PERSON" of a Fund or Adviser includes each of its directors,
officers, Investment Personnel and Advisory Persons.
B. "ADVISER" means Lincoln Investment Management, Inc.
C. "ADVISORY PERSON" of a Fund or Adviser means (i) any employee
(including employees of companies in a control relationship with a
Fund or Adviser) who, in connection with his or her regular functions
or duties, makes, participates in, or obtains information regarding
the purchase or sale of a security, or whose functions relate to the
making of any recommendations with respect to such purchases and
sales; and (ii) any natural person in a control relationship with a
Fund or Adviser who obtains information concerning recommendations
with regard to the purchase or sale of a security.
For purposes of this definition, "Advisory Person" when used with
reference to Lincoln Investment Management, Inc. shall be deemed to
include employees of the Treasurer's Department and Law Division of
Lincoln National Corporation who otherwise satisfy this definition.
D. "BENEFICIAL OWNERSHIP" means, among other things, the powers to (i)
vote or control the voting of securities; (ii) transfer securities or
control their transfer; (iii) receive income from securities or
control the disposition of the income; or (iv) receive or control the
disposition of the proceeds through a liquidation.
Generally speaking, a person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest in a security, is a
"beneficial owner" of the security.
Page 2
<PAGE>
For example, an Access Person will generally be considered the
beneficial owner of securities held in the name of a spouse, minor
children, or a person not in the immediate family if the person is a
relative sharing the same home or if, by reason of a contract,
understanding, relationship, agreement, or other arrangement, the
Access Person obtains benefits substantially equivalent to ownership.
E. "COMPLIANCE COMMITTEE" of LIM consists of Tom McMeekin, President;
JoAnn Becker, Senior Vice President; Steven R. Brody, Senior Vice
President; Ann Warner, Vice President; J. Michael Keefer, Vice
President and General Counsel of LIM; and Gina Rohrbacher, Compliance
Officer.
The Compliance Committee, with advice from the Law Division, will
identify all Access Persons, Advisory Persons and Investment
Personnel.
F. "CONTROL" means investment discretion in whole or in part of an
account regardless of beneficial ownership to include any controlling
influence over the management or policies of an account and/or
investment company, unless the power is solely the result of an
official position with the company.
G. "CONSIDERED FOR PURCHASE OR SALE" or "BEING PURCHASED OR SOLD" occurs
when (i) a recommendation to purchase or sell a security has been made
and communicated, or (ii) with respect to the person making a
recommendation, the person first seriously considers making such a
recommendation.
H. "FUND" and "FUNDS" means the following entities listed on Exhibit A,
and any other registered investment companies as to which LIM is the
adviser or sub-adviser from time to time.
I. "INVESTMENT PERSONNEL" means portfolio managers, securities analysts
and traders, and those personnel who provide information and advice to
a portfolio manager or who help execute the portfolio manager's
decisions. All Investment Personnel are also considered Advisory
Persons for purposes of this Code of Ethics.
J. "PERSONAL SECURITIES TRANSACTION REPORT" is the SEC required quarterly
report listing all personal securities transactions subject to the
Code in which the Access Person or member(s) of his or her immediate
family has, or by reason of such transaction acquires, any direct or
indirect beneficial interest.
K. "SECURITY" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, a certificate of interest or participation
in any profit-sharing agreement, collateral trust certificate,
preorganization certificate or subscription, transferable share, an
investment contract, voting-trust certificate, certificate of deposit
for a security, fractional undivided interest in oil, gas or other
mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit) or on any group or index
of securities
Page 3
<PAGE>
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relation to foreign currency, or, in general, any
interest or participation in, temporary or interim certificate for,
receipt for, guarantees of, or warrant or right to subscribe to or
purchase, any of the foregoing.
For purposes of the Code of Ethics, the following shall not be
considered a Security:
1. U.S. Government Securities
2. Bank Certificate of Deposits
3. Bankers Acceptances
4. Commercial Paper
5. Mutual Funds (shares of open-end registered investment companies)
6. Securities issued or guaranteed by a U.S. Governmental Agency
7. Stock index options and futures contract
8. Nonfinancial Commodities
9. Foreign Currencies
10. Unit Investment Trusts
11. Variable Annuities
12. Receipt of securities as a gift or inheritance. Future
transactions would be subject to the Code of Ethics.
13. IRAs through open-end registered investment companies
L. "WINDOW PERIOD" means a 30-day period commencing on the third trading
day after the release of LNC's: (i) annual financial results; (ii)
Annual Report to shareholders; and (iii) quarterly earnings reports.
III. PROHIBITED TRANSACTIONS
A. The following restrictions apply to all ACCESS PERSONS. Any violation
of any of these restrictions can be expected to result in serious
sanctions, up to and including dismissal of the person or persons
involved.
1. No Access Person of a Fund or Adviser shall engage in any act,
practice or course of conduct which would violate the provisions
of Rule 17j-1.
2. No Access Person of a Fund or Adviser shall purchase or sell,
directly or indirectly, any security in which he or she has, or
by reason of the transaction acquires, any direct or indirect
beneficial ownership and which to his or her actual knowledge at
the time of the purchase or sale (a) is being considered for
purchase or sale by a Fund or any other client of an Adviser; or
(b) is being purchased or sold by a Fund or any other client of
an Adviser, whether pursuant to a program of trading or
otherwise.
Page 4
<PAGE>
3. No Access Person of a Fund or Adviser shall recommend any
security transaction without first having disclosed his or her
interest, if any, in the transaction or the issuer of the
security, including without limitation:
(a) his or her direct or indirect beneficial ownership of any
securities of the issuer;
(b) any contemplated transaction by the Access Person in such
securities;
(c) any position or other affiliation with the issuer or its
affiliates; and
(d) any present or proposed business relationship between the
issuer or its affiliates and the Access Person or any party
in which the Access Person has a significant interest.
4. No Access Person making any such recommendation may purchase or
sell the security which is the subject of the recommendation
until after he or she has been informed that the Funds and any
other clients of the Adviser considering the recommendation have
deferred or rejected the recommendation. If the recommendation is
approved for a Fund or other clients of the Adviser, the Access
Person must adhere to all trading restrictions outlined in the
Code of Ethics.
5. No Access Person of a Fund or Adviser may reveal to any other
person (except in normal course of his or her duties on behalf of
a Fund or Adviser) any information regarding securities
transactions by a Fund or any other clients of the Adviser or the
consideration of any such securities transactions.
6. No Access Person shall use actual knowledge of a Fund or other
clients' transactions to profit by the market effect of such
transaction. Any pattern of transactions involving parallel
transactions (client buy/Access Person buys or both selling the
same security) or involving opposite transactions (buy/sell or
sell/buy) will be analyzed to determine if there are grounds to
believe that the Code of Ethics has been violated.
7. Each Access Person's personal transactions must be PRE-CLEARED by
using LIM's Trading Compliance System prior to entering any
orders for personal transactions with a registered broker/dealer.
Pre-clearance is only valid on the day the security is cleared.
If the order is not executed the day it is pre-cleared, the
security must be pre-cleared again the following day prior to
placing a personal transaction.
Page 5
<PAGE>
8. No Access Person may execute a buy or sell order for a personal
account in which he or she has beneficial ownership or control
until the NEXT TRADING DAY following the execution of a
Fund/client trade in that same security.
9. All Access Persons are prohibited from receiving anything of more
than a DE MINIMIS value (not to exceed $100) from any person or
entity that does business with or on behalf of any Fund or
client. Things of value may include, but not be limited to,
travel expenses, special deals or incentives.
10. All Access Persons require PRIOR written approval from the
President of LIM, with advice from the Law Division, before they
may serve on the board of directors of any company in which a
Fund or other client of the Adviser has an investment.
B. The following ADDITIONAL restrictions apply to all INVESTMENT
PERSONNEL. Any violations of any of these requirements can be expected
to result in serious sanctions, up to and including dismissal of the
person or persons involved.
1. All Investment Personnel are prohibited from purchasing any
initial public offering for their personal account.
2. All Investment Personnel are prohibited from purchasing any
private placement without express PRIOR written consent by the
Compliance Committee. All private placement holdings are subject
to disclosure to the Compliance Officer. Investment Personnel who
are the beneficial owners of a private placement must receive
permission from the Compliance Committee prior to any
participation by any such person in the consideration of an
investment in the same issuer.
3. No Investment Personnel may execute a buy or sell order for a
personal account for which he or she has beneficial ownership
within SEVEN CALENDAR DAYS BEFORE OR AFTER a Fund or other client
he or she manages trades in that security.
IV. EXEMPT TRANSACTIONS
The following transactions are EXEMPT from the prohibitions of Section
III.
A. Securities transactions in which the Access Person has no direct or
indirect influence or control or over which the Access Person has
granted full discretion to another;
B. Securities transactions which are not eligible for participation in by
the Funds or any other clients of the Adviser;
Page 6
<PAGE>
C. Securities transactions which are non-volitional on the part of the
Access Person, the Funds, or any other clients of the Adviser;
D. Securities transactions in the form of stock dividends, dividend
reinvestment, stock splits, mergers, consolidation or other similar
corporate reorganizations or distributions generally applicable to all
holders of the same class of securities;
E. Any acquisition of securities through the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities (to the
extent such rights were acquired from the issuer), and sales of the
rights so acquired;
F. Securities transactions through systematic investment and qualified
retirement plans (e.g., 401(k)).
G. Securities transactions specifically approved by the Compliance
Committee, with advice from the Law Division and the Compliance
Officer, and deemed appropriate because of unusual or unforeseen
circumstances.
V. TRANSACTIONS IN LNC STOCK
Transactions in LNC stock are governed by the restrictions on insider
trading adopted from time to time by Lincoln National Corporation. The
following is a summary of the restrictions on trading in LNC stock:
A. LNC Stock and Stock Options
1. Transaction does not need to be pre-cleared.
2. Report all transactions on quarterly Personal Securities
Transaction Report.
3. Transaction must be during the Window Period for officers.
4. Transaction is subject to insider trading restrictions.
B. EMPLOYEE STOCK PURCHASE PLAN through Smith Barney
1. Transaction does not need to be pre-cleared.
2. Transaction does not need to be reported on quarterly Personal
Securities Transaction Report.
3. Changes to payroll deduction must be within Window Period for
officers.
4. Transaction is subject to insider trading restrictions.
Page 7
<PAGE>
C. DIVIDEND REINVESTMENT AND CASH INVESTMENT PLAN through LNC
1. Transaction does not need to be pre-cleared.
2. Report transaction on the quarterly Personal Securities
Transactions Report.
3. Additional purchases made through the cash investment portion of
the Plan must be made during the Window Period for officers.
4. Transactions subject to insider trading restrictions.
D. LNC 401(k) Plan
1. Transaction does not need to be pre-cleared.
2. Transaction does not need to be reported on the quarterly
Personal Securities Transaction Report.
3. Transaction must be during the Window Period for officers.
4. Transactions are subject to insider trading restrictions.
VI. REQUIRED DISCLOSURES AND REPORTS
The following disclosures and reports are required to be made by all Access
Persons.
A. All Access Persons must disclose brokerage relationships at the time
of their employment and at the time of opening any new account.
B. All Access Persons MUST direct their brokers to supply to the
Compliance Officer, on a timely basis, duplicate copies of all
confirmations for all securities accounts.
C. The Personal Securities Transaction Report of all transactions subject
to this Code must be filed with the Compliance Officer no later than
TEN (10) DAYS after the end of each calendar quarter. The Report must
include all securities transactions which each Access Person has, or
by reason of such transaction acquires, any direct or indirect
beneficial ownership.
The Report must be dated, signed and contain the following
information:
1. the date of the transaction
2. the name of the security and its cusip number
3. the number of shares or the principal amount of each security
involved
4. the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition)
5. the price at which the transaction was effected
6. the name of the broker, dealer or bank effecting the transaction.
THE PERSONAL SECURITIES TRANSACTION REPORT IS REQUIRED EVEN IF THE
ACCESS PERSON HAS NO PERSONAL SECURITIES TRANSACTIONS DURING THE
QUARTER.
Page 8
<PAGE>
The manager and department head of an Access Person will be notified
if such person's quarterly Personal Securities Transaction Report is
late. If the Personal Securities Transaction Report is late for ANY
FOLLOWING QUARTERS, the Access Person and his/her manager will receive
a notice stating that the Access Person is in violation of the Code of
Ethics and this violation should be considered unsatisfactory
performance during the next performance review. Violation of the Code
of Ethics can result in serious sanctions by LIM, including possible
termination of employment.
An outside director of a Fund is required to file such reports only if
the director, at the time of the transactions, knew or, in the
ordinary course of fulfilling his or her official duties as director,
should have known that during the 15-day period immediately preceding
or after the date of the transaction the same security was purchased
or sold by the Fund or was being considered for purchase or sale by
the Fund or its Adviser. (However, no director shall be presumed to
know of such matters solely by reason of being a director or serving
on a committee of the Board).
D. If any security involved in a personal transaction is purchased
or sold by a Fund or other client within fifteen days of the
personal transaction, the Compliance Officer will request and the
Access Person must provide additional information relating to the
circumstances surrounding the personal transaction.
E. All Access Persons must certify annually that they have read and
complied with this Code of Ethics and all disclosure and
reporting requirements contained herein.
VII. SUPERVISORY
A. Any question as to whether an employee is an Access Person or
Investment Personnel, or other questions concerning the Code of
Ethics or transactions in personal accounts, should be directed
to the Compliance Officer.
B. The Compliance Officer shall promptly report to the President of
LIM and the Compliance Committee any apparent violations of the
requirements contained in this Code of Ethics. The reports will
be reviewed and a determination will be made whether or not the
Code of Ethics has been violated and what sanctions, if any,
should be imposed.
VIII. CONFIDENTIALITY
All information and reports from any Access Person shall be kept in
strict confidence, subject only to disclosure as required by law or to
the Compliance Committee as deemed necessary for compliance purposes.
Page 9
<PAGE>
Dated: July, 1998
------------------------------------------------
EXHIBIT A
------------------------------------------------
s:\comprpts\coe\codeethi.doc
- --------------------------------------------------------------------------------
Lincoln National Convertible Securities Fund, Inc.
Lincoln National Income Fund, Inc.
Variable Annuity Fund A
Multi-Fund Variable Annuity
- Lincoln National Social Awareness Fund, Inc.
- Lincoln National Money Market Fund, Inc.
- Lincoln National Managed Fund, Inc.
- Lincoln National Growth Income Fund, Inc.
- Lincoln National Bond Fund, Inc.
- Lincoln National Special Opportunity Fund, Inc.
- Lincoln National Capital Appreciation Fund, Inc.
- Lincoln National Aggressive Growth Fund, Inc.
- Lincoln National International Fund, Inc.
- Lincoln National Global Asset Allocation Fund, Inc.
- Lincoln National Equity Income Fund, Inc.
- Any funds which may be added to the Lincoln family of funds
Page 10
<PAGE>
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS - EARN THEIR CONFIDENCE
WITH EVERY ACTION"
- ------------------------------------------------------------------------------
CODE OF ETHICS
INSIDER TRADING POLICY
GIFT POLICY
OUTSIDE EMPLOYMENT POLICY
- ------------------------------------------------------------------------------
LAST REVISED MARCH 3, 1999
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS................................................................. 4
INTRODUCTION................................................................ 6
CAUTION REGARDING PERSONAL TRADING ACTIVITIES............................ 6
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS........................... 6
CODE OF ETHICS.............................................................. 7
OVERVIEW................................................................. 7
GENERAL PROHIBITIONS..................................................... 7
TRADING RESTRICTIONS..................................................... 8
Excluded Transactions..................................................9
Preclearance...........................................................9
Trading Ban on Portfolio Managers and Assistant Portfolio Managers....10
60 Day Rule...........................................................10
Blackout Period.......................................................10
Fifteen Day Rule......................................................10
Seven Day Rule........................................................10
Short Sales...........................................................10
Hedge Funds, Investment Clubs, and Other Investments..................11
PRECLEARANCE PROCEDURES..................................................11
General Preclearance..................................................11
Preclearance Requirements For Investment Personnel....................11
Preclearance of Company Stock.........................................12
Preclearance of Tender Offers and Stock Purchase Plans................12
Four Day Effective Period.............................................12
REPORTING TRANSACTIONS AND ACCOUNTS......................................12
Monthly Transaction Reports...........................................13
Non-Influence and Non-Control Accounts................................14
OTHER REQUIRED FORMS.....................................................14
Acknowledgement Forms.................................................14
Investment Personnel Representation Form..............................14
Outside Director/Trustee Representation Form..........................14
INSIDER TRADING POLICY......................................................15
BACKGROUND INFORMATION...................................................15
Who is an Insider?....................................................15
When is Information Nonpublic?........................................16
What is Material Information?.........................................16
When is Information Misappropriated?..................................16
Penalties for Insider Trading.........................................16
Who is a Controlling Person?..........................................17
PROCEDURES TO IMPLEMENT POLICY...........................................17
Identifying Material Inside Information...............................17
Reporting Inside Information..........................................17
Watch and Restricted Lists............................................18
Protecting Information................................................18
Responsibility to Monitor Transactions................................19
Record Retention......................................................19
Tender Offers.........................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GIFT POLICY.................................................................20
GIFT GIVING..............................................................20
GIFT RECEIVING...........................................................20
CUSTOMARY BUSINESS AMENITIES.............................................20
OUTSIDE EMPLOYMENT POLICY...................................................21
PENALTY GUIDELINES..........................................................22
OVERVIEW.................................................................22
PENALTY GUIDELINES.......................................................22
SUPERVISORY AND COMPLIANCE PROCEDURES.......................................23
SUPERVISORY PROCEDURES...................................................23
Prevention of Violations..............................................23
Detection of Violations...............................................23
COMPLIANCE PROCEDURES....................................................24
Reports of Potential Deviations or Violations.........................24
Annual Reports........................................................24
Records...............................................................24
Inspection............................................................24
Confidentiality.......................................................24
THE ETHICS COMMITTEE.....................................................25
Membership of the Committee...........................................25
Committee Meetings....................................................25
Special Discretion....................................................25
GENERAL INFORMATION ABOUT THE ETHICS RULES...............................26
Designees.............................................................26
Enforcement...........................................................26
Internal Use..........................................................26
FORMS....................................................................26
</TABLE>
<PAGE>
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS - EARN THEIR CONFIDENCE
WITH EVERY ACTION"
- -------------------------------------------------------------------------------
DEFINITIONS
- -------------------------------------------------------------------------------
The following definitions are used throughout this document. You are
responsible for reading and being familiar with each definition.
1) "Access Persons" are Investment Personnel, Directors, Trustees, and
officers of JCC and other designated persons deemed by the Ethics
Committee to have access to current trading information. Access Persons
are subject to additional scrutiny and more restrictions because of their
access or potential access to information about current portfolio
holdings and transactions.
2) "Beneficial Ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder. For example, in addition to a person's own
accounts the term "Beneficial Ownership" encompasses securities held
in the name of a spouse or equivalent domestic partnership, minor
children, a relative sharing your home, or certain trusts under which you
or a related party is a beneficiary, or held under other arrangements
indicating a sharing of financial interest.
3) "Company Stock" is any stock or option issued by Janus or Kansas City
Southern Industries, Inc. ("KCSI").
4) "Covered Securities" generally include all securities, whether publicly
or privately traded (including securities issued by KCSI or JCC) and any
option, future, forward contract or other obligation involving a security
or index thereof, including an instrument whose value is derived or based
on any of the above (a "derivative"). The following investments are not
Covered Securities:
- shares of open-end investment companies (e.g. mutual funds);
- direct obligations of the U.S. government (e.g., Treasury
securities), or any derivative thereof;
- obligations of agencies and instrumentalities of the U.S.
government with a remaining term to maturity of one year or less,
or any derivative thereof;
- securities representing a limited partnership interest in a real
estate limited partnership;
- money market instruments, such as certificates of deposit, bankers'
acceptances, repurchase agreements, and commercial paper;
- insurance contracts, including life insurance or annuity contracts;
- direct investments in real estate, business franchises or similar
ventures; and
- physical commodities (including foreign currencies), or any
derivatives thereof.
5) "Designated Compliance Representatives" are Ernie Overholt, Ted Dryden
and/or his designee(s), and Stephen Stieneker and/or his designee(s).
6) "Designated Legal Representatives" are Debby Bielicke-Eades, Stephen
Stieneker, or their designee(s).
7) "Designated Trading Operations Representatives" are Lesa Finney, John
Porro, and Mark Farrell.
8) "Directors" are directors of JCC.
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9) "Ethics Committee" is comprised of Ted Dryden, Thomas Early, Steve
Goodbarn, and Stephen Stieneker.
10)"Inside Trustees and Directors" are Trustees and Directors that are also
employed by Janus.
11)"Investment Personnel" are portfolio managers, assistant portfolio
managers, research analysts, trading department personnel and any other
employees deemed by the Compliance Department to be comparable.
12)"Janus" is Janus Investment Fund, Janus Aspen Series, Janus Capital
Corporation, Janus Service Corporation, Janus Distributors, Inc., Janus
Capital International Ltd, and Janus International (UK) Ltd.
13)"Janus Funds" are Janus Investment Fund and Janus Aspen Series.
14)"JCC" is Janus Capital Corporation.
15)"JDI" is Janus Distributors, Inc.
16)"JDI's Operations Manager" is Dana Wagener and/or her designee(s).
17)"NASD" is the National Association of Securities Dealers, Inc.
18)"Non-Access Person" is any person that is not an Access Person.
19)"Outside Directors" are Directors who are not employed by Janus.
20)"Outside Trustees" are Trustees who are not identified as an
"interested person" in the registration statement of the Janus Funds.
21)"Registered Persons" are persons registered with the NASD by JDI.
22)"SEC" is Securities and Exchange Commission.
23)"Trustees" are trustees of Janus Investment Fund and Janus Aspen Series.
These definitions may be updated from time to time to reflect changes in
personnel.
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INTRODUCTION
- -------------------------------------------------------------------------------
These Ethics Rules ("Rules") apply to all Directors, Trustees, officers,
and employees of Janus ("Covered Persons"). The Rules apply to transactions
for your personal accounts and any other accounts you Beneficially Own. You may
be deemed the beneficial owner of any account in which you have a direct or
indirect financial interest. Such accounts include, among others, accounts
held in the name of your spouse or equivalent domestic partnership, your
minor children, a relative sharing your home, or certain trusts under which
you or such persons are a beneficiary.
The Rules are intended to ensure that you (i) at all times place first the
interests of Janus' mutual funds and other clients ("Clients"), (ii) conduct
all personal trading consistent with the Rules and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of your
position of trust and responsibility, and (iii) not use any material
nonpublic information in securities trading. The Rules also establish policies
regarding other matters, such as outside employment and the giving or
receiving of gifts.
You are required to read and retain these Rules and to sign and return the
attached Acknowledgment Form to the Compliance Department ("Compliance")
upon commencement of employment or other services, and on an annual basis
thereafter. The Acknowledgment confirms that (i) you have received, read and
asked any questions necessary to understand the Rules, (ii) you agree to
conduct yourself in accordance with the Rules, and (iii) you have complied
with the Rules during such time as you have been associated with Janus.
Depending on your status, you may be required to submit additional reports
and/or obtain clearances as discussed more fully below.
Unless otherwise defined, all capitalized terms shall have the same meaning
as set forth in the Definitions section.
CAUTION REGARDING PERSONAL TRADING ACTIVITIES
Certain personal trading activities may be risky not only because of the
nature of the transactions, but also because action necessary to close out a
position may, for some Covered Persons, become prohibited while the position
remains open. For example, closing out short sales and transactions in
derivatives. Furthermore, if JCC becomes aware of material nonpublic
information, or if a Client is active in a given security, some Covered
Persons may find themselves "frozen" in a position. JCC will not bear any
losses in personal accounts resulting from the application of these Rules.
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS
As a regular business practice, JCC attempts to keep the Directors and
Trustees informed with respect to its investment activities through reports
and other information provided to them in connection with board meetings and
other events. In addition, Janus personnel are encouraged to respond to
inquiries from Directors and Trustees, particularly as they relate to general
strategy considerations or economic or market conditions affecting Janus.
However, it is JCC's policy not to communicate specific trading information
and/or advice on specific issues to the Outside Directors and Outside
Trustees (i.e., no information should be given on securities for which
current activity is being considered for Clients). Any pattern of repeated
requests by such Directors or Trustees should be reported to the Chief
Compliance Officer or the Director of Compliance.
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===============================================================================
CODE OF ETHICS
===============================================================================
OVERVIEW
In general, it is unlawful for persons affiliated with investment
companies, their principal underwriters or their investment advisers to
engage in personal transactions in securities which are held or are to be
acquired by a registered investment company, if such personal transactions
are made in contravention of rules which the SEC has adopted to prevent
fraudulent, deceptive and manipulative practices. Such rules require each
registered investment company, investment adviser and principal underwriter
to adopt its own written code of ethics containing provisions reasonably
necessary to prevent its access persons from engaging in such conduct, and
to maintain records, use reasonable diligence, and institute such procedures
as are reasonably necessary to prevent violations of such code. This Code of
Ethics ("Code") and information reported hereunder will enable Janus to
fulfill these requirements.
GENERAL PROHIBITIONS
The following are prohibited for Covered Persons (remember, if you work
at Janus or you're a Trustee or Director, you're a Covered Person). Persons
who violate any prohibition shall disgorge any profits realized in connection
with such violation to a charitable organization selected by the Ethics
Committee, and may be subject to sanctions imposed by the Ethics Committee,
as outlined in the Penalty Guidelines.
1. Purchasing, in an initial public offering, Covered Securities (see
Definitions section) for which no public market in the same or similar
securities of that issuer has previously existed. No securities may be
purchased in an offering that constitutes a "hot issue" as defined in
NASD rules. Such securities may be purchased, however, where the
individual has an existing right to purchase the security based on his
or her status as an investor, policyholder or depositor of the issuer.
In addition, securities issued in reorganizations are also outside the
scope of this prohibition if the transaction involves no investment
decision on the part of the employee except in connection with a
shareholder vote.*
2. Causing a Client to take action, or to fail to take action, for
personal benefit, rather than to benefit such Client. For example, an
employee would violate this Code by causing a Client to purchase a
security owned by the employee for the purpose of supporting or
increasing the price of that security or by causing a Client to refrain
from selling a security in an attempt to protect a personal investment,
such as an option on that security.
3. Using knowledge of portfolio transactions made or contemplated for
Clients to profit, or cause others to profit, by the market effect of
such transactions.
4. Disclosing current portfolio transactions made or contemplated for
Clients as well as any other nonpublic information to anyone outside
of Janus.
5. Engaging in fraudulent conduct in connection with the purchase or sale
of a security held or to be acquired by a Client, including without
limitation:
a) employing any device, scheme or artifice to defraud any Client;
=================================
*Item 1 is not applicable to Outside Directors and Outside Trustees.
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b) making to any Client any untrue statement of material fact or
omitting to state to any Client a material fact necessary in
order to make the statements made, in light of the circumstances
under which they are made, not misleading;
c) engaging in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any Client;
d) engaging in any manipulative practice with respect to any
Client; or
e) investing in derivatives to evade the restrictions of this Code.
Accordingly, individuals may not use derivatives to take positions
in securities which the Code would prohibit if the positions were
taken directly.
6. No Investment Personnel may serve on the board of directors of a
publicly traded company without prior written authorization by the
Ethics Committee. No such service shall be approved without a finding
by the Committee that the board service would not be inconsistent with
the interests of Clients. If board service is authorized by the
Committee, the Investment Personnel serving as director normally should
be isolated from those making investment decisions with respect to the
company involved through "Chinese Walls" or other procedures.**
7. If an Investment Person is planning to invest or make a recommendation
to invest in a security for a Client, and such person has a material
interest in the security, such person must first disclose such interest
to their manager or the Chief Investment Officer and obtain their
consent. The manager or Chief Investment Officer may only grant consent
if they have no material interest in the security. A material interest is
Beneficial Ownership of any securities (including derivatives, options,
warrants or rights), offices, directorships, significant contracts, or
interests or relationships that are likely to affect such person's
judgement.**
TRADING RESTRICTIONS
The trading restrictions of the Code apply to all direct or indirect
acquisitions or dispositions of Covered Securities, whether by purchase, sale,
tender, stock purchase plan, gift, inheritance, or otherwise. Unless
otherwise noted, the following Trading Restrictions are applicable to any
transaction in a Covered Security Beneficially Owned by a Covered Person.
Outside Directors and Outside Trustees are exempt from certain Trading
Restrictions because of their limited access to current information regarding
Client investments.
Any disgorgement of profits required under any of the following
provisions shall be donated to a charitable organization selected by the
Ethics Committee, as outlined in the Penalty Guidelines. However, if
disgorgement is required as a result of trades by a portfolio manager that
conflicted with that manager's own Clients,
=============================
**Items 6 and 7 are applicable to Investment Personnel only.
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disgorgement proceeds shall be paid directly to such Clients. If disgorgement
is required under more than one provision, the Committee shall determine in
its sole discretion the provision that shall control. (1)
EXCLUDED TRANSACTIONS
Some or all of the Trading Restrictions listed below do not apply to the
following transactions; however, these transactions must still be reported to
Compliance (see Reporting Transactions and Accounts):
- Tender offer transactions are exempt from all Trading Restrictions
except Preclearance.
- The acquisition of securities through stock purchase plans are
exempt from all Trading Restrictions except Preclearance, the Trading
Ban On Portfolio Managers and Assistant Portfolio Managers, and the
Seven Day Rule (note, sales of such securities are subject to the
Trading Restrictions of the Code).
- The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate reorganizations
or distributions generally applicable to all holders of the same class
of such securities are exempt from all Trading Restrictions.
- The acquisition of securities through the exercise of rights issued
by an issuer PRO RATA to all holders of a class of securities, to the
extent the rights were acquired in the issue are exempt from all
Trading Restrictions.
- Nondiscretionary transactions in Company Stock (e.g., the
acquisition of securities through KCSI's Employee Stock Purchase Plan
("ESPP") or the receipt of options in Company Stock as part of a
compensation or benefit plan) are exempt from all Trading
Restrictions. Discretionary transactions in Company Stock issued by JCC
are exempt from all Trading Restrictions. Discretionary transactions in
Company Stock issued by KCSI (e.g., exercising options or selling ESPP
Stock) are exempt from all Trading Restrictions except Preclearance
(See procedures for Preclearance of Company Stock).
- The acquisition of securities by gift or inheritance are exempt from
all Trading Restrictions.
PRECLEARANCE
Access Persons (except Outside Directors and Outside Trustees) must
obtain preclearance prior to engaging in any personal transaction in
applicable Covered Securities. Preclearance procedures, as well as special
procedures for preclearing transactions in KCSI securities, tender offer
transactions and stock purchase plans are set forth below.
===============================
(1) Unless otherwise noted, restrictions on personal transactions apply to
transactions involving Covered Securities, including any derivative thereof.
When determining the amount of disgorgement required with respect to a
derivative, consideration will be given to price differences in both the
derivative and the underlying securities, with the lesser amount being used
for purposes of computing disgorgement. For example, in determining whether a
reimbursement is required when the applicable personal trade is in a
derivative and the Client transaction is in the underlying security, the
amount shall be calculated using the lesser of (a) the difference between the
price paid or received for the derivative and the closing bid or ask price
(as appropriate) for the derivative on the date of the Client transaction, or
(b) the difference between the last sale price, or the last bid or ask price
(as appropriate) of the underlying security on the date of the derivative
transaction, and the price received or paid by the Client for the underlying
security. Neither preclearance nor disgorgement shall be required if such
person's transaction is to close, sell or exercise a derivative within five
days of its expiration.
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TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS
Portfolio managers and their assistants are prohibited from trading
personally in Covered Securities. However, the following types of transactions
are exempt from this policy, but are subject to all applicable provisions of
the Rules, including preclearance:
- Purchases or sales of securities issued by JCC or KSCI;
- The sale of any security that is not held by any Client; and
- The sale of any security in order to raise cash to meet personal
financial needs (e.g., to purchase a home, automobile, etc.).
60 DAY RULE
Access Persons (except Outside Directors and Outside Trustees) shall
disgorge any profits realized in the purchase and sale, or sale and
purchase, of the same or equivalent Covered Securities within 60 calendar
days if a Client held or traded the security during the 60 day period.
BLACKOUT PERIOD
No Access Person may engage in a transaction in a Covered Security when
such person knows there to be pending, on behalf of any Client, a "buy" or
"sell" order in that same security. The existence of pending orders will be
checked as part of the preclearance process referenced above. Preclearance
may be given when any pending Client order is executed or withdrawn.
FIFTEEN DAY RULE
Any Access Person (except Outside Directors and Outside Trustees) who buys
or sells an applicable Covered Security within fifteen calendar days before
such security is bought or sold on behalf of any Client must disgorge any
price advantage realized. The price advantage shall be the favorable spread,
if any, between the price paid or received by such person and the least
favorable price paid or received by a Client during such period.(2)
SEVEN DAY RULE
Any portfolio manager or assistant portfolio manager who buys or sells an
applicable Covered Security within seven calendar days before or after he or
she trades in that security on behalf of a Client shall disgorge any profits
realized on such transaction.
SHORT SALES
Any Access Person who sells short a Covered Security that such person
knows is held long by any Client shall disgorge any profit realized on such
transaction. This prohibition shall not apply, however, to securities indices
or derivatives thereof (such as futures contracts on the S&P 500 index).
Client ownership of Covered Securities will be checked as part of the
Preclearance process referenced above.
____________________________
(2) Personal purchases are matched only against subsequent Client purchases,
and personal sales are ONLY matched against subsequent Client sales for
purposes of this restriction.
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HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS
No Access Person (except Outside Directors and Outside Trustees) may
participate in hedge funds, partnerships, investment clubs, or similar
investment vehicles, unless such person does not have any direct or indirect
influence or control over the trading. Covered Persons relying upon this
provision will be required to file a Certification of Non-Influence and
Non-Control Form with the Director of Compliance.
PRECLEARANCE PROCEDURES
Preclearance must be obtained by Access Persons for all applicable
transactions in Covered Securities in which such person has a Beneficial
Interest. A Preclearance Form must be completed and forwarded to Compliance.
Compliance will notify the person when preclearance has been approved and the
trade then has four days to be executed.
GENERAL PRECLEARANCE
General preclearance shall be obtained from an authorized person from each
of the following three groups:
- A DESIGNATED LEGAL OR COMPLIANCE REPRESENTATIVE, who will present the
personal investment to the attendees of the weekly investment meeting,
whereupon an opportunity will be given to orally object. An attendee of
the weekly investment meeting shall object to such clearance if such
person knows of a conflict with a pending Client transaction or a
transaction known by such attendee to be under consideration for a
Client. Objections to such clearance should also take into account,
among other factors, whether the investment opportunity should be
reserved for a Client. If no objections are raised, the Designated
Legal or Compliance Representative shall so indicate by signing the
Preclearance Form. Such approval shall not be required for sales of
securities not held by any Clients.
In place of this authorization, Investment Personnel are required to
obtain portfolio manager approvals as noted in the section below
entitled Preclearance Requirements for Investment Personnel.
- A DESIGNATED TRADING OPERATIONS REPRESENTATIVE, who may provide
clearance if such Representative knows of no pending "buy" or "sell"
order in the security on behalf of a Client and no such trades are
known by such person to be under consideration.
- The DIRECTOR OF COMPLIANCE, OR A DESIGNATED LEGAL OR COMPLIANCE
REPRESENTATIVE IF THE DIRECTOR OF COMPLIANCE IS NOT AVAILABLE, who may
provide clearance if no legal prohibitions are known by such person to
exist with respect to the proposed trade. Approvals for such clearance
should take into account, among other factors, the existence of Watch
List or Restricted List and, to the extent reasonably practicable,
recent trading activity and holdings of Clients.
Except for transactions in KCSI, no authorized person may preclear a
transaction in which such person has a beneficial interest.
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL
Trades by Investment Personnel may NOT be precleared by presentation at
the weekly investment meeting. Instead, Investment Personnel must obtain the
following portfolio management approvals. However, such approval shall not be
required for sales of securities not held by any Clients:
- TRADES IN EQUITY SECURITIES require prior written approval from all
senior equity portfolio managers and either Ron Speaker or Sandy
Rufenacht;
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- TRADES IN DEBT SECURITIES require prior written approval from all
senior fixed income portfolio managers plus either Jim Craig or two
other senior equity portfolio managers.
A portfolio manager may not preclear his/her own transaction.
PRECLEARANCE OR COMPANY STOCK
Officers of Janus and certain persons designated by Compliance who wish
to make discretionary transactions in KCSI securities, or derivatives
thereon, must preclear such transactions only with the Director of Compliance
or other Designated Legal or Compliance Representative. If such persons are
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, trading will generally be allowed only in the 10 business day period
beginning 72 hours after KCSI files its quarterly results with the SEC (e.g.,
10Q or 10K filing, NOT earnings release). To preclear the trade, the Director
of Compliance or such other Representative shall discuss the transaction with
Janus' General counsel or Chief Financial Officer.
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS
Access Persons (other than Outside Directors and Outside Trustees) who
wish to participate in a tender offer or stock purchase plan must preclear
such trades only with the director of Compliance prior to submitting notice
to participate in such tender offer or notice of participation in such stock
purchase plan to the applicable company. To preclear the trade, the Director
of Compliance shall consider all material factors relevant to a potential
conflict of interest between the Access Person and Clients. In addition, any
increase of $100 or more to a pre-existing stock purchase plan must be
precleared.
FOUR DAY EFFECTIVE PERIOD
Clearances to trade will be in effect for only four trading days from and
including the date of the last Authorized Person's signature (which may not
be provided more than one day after the first Authorized Person's signature).
For tender offers, stock purchase plans, exercise of company Stock and
similar transactions, the date the request is submitted to the company
processing the transaction will be considered the trade date for purposes
of this requirement. Open orders, including stop loss orders, will generally
not be allowed unless such order is expected to be completed within the four
day effective period. It will be necessary to re-preclear transactions not
executed within the four day effective period.
REPORTING TRANSACTIONS AND ACCOUNTS
ACCESS PERSONS (other than Outside Trustees) must arrange for their brokers
or financial institutions to provide to Compliance, on a timely basis,
duplicate account statements and confirmations showing all transactions in
brokerage or commodities accounts in which they have a Beneficial Interest.
PLEASE NOTE THAT, EVEN IF SUCH PERSON DOES NOT TRADE COVERED SECURITIES IN A
PARTICULAR BROKERAGE OR COMMODITIES ACCOUNT (E.G., TRADING MUTUAL FUNDS IN A
SCHWAB ACCOUNT), THE REPORTING OF DUPLICATE ACCOUNT STATEMENTS AND
CONFIRMATIONS IS STILL REQUIRED. HOWEVER, IF SUCH PERSON ONLY USES A
PARTICULAR BROKERAGE ACCOUNT FOR CHECKING ACCOUNT PURPOSES, AND NOT
INVESTMENT PURPOSES, THEY MAY IN-LIEU OF REPORTING DUPLICATE ACCOUNT
STATEMENTS, REPORT DUPLICATE CONFIRMATIONS AND MAKE A QUARTERLY
REPRESENTATION TO COMPLIANCE INDICATING THAT NO INVESTMENT TRANSACTIONS
OCCURRED IN THE ACCOUNT DURING THE CALENDAR QUARTER. Reporting of accounts
that do not allow any trading in Covered Securities (e.g., a mutual fund
account held directly with the fund sponsor) is not required.
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Access Persons must notify Compliance of each reportable account at the
time it is opened, and annually thereafter, including the name of the firm and
the name under which the account is carried. An Account Information Form should
be completed for this purpose.
Certain transactions, such as private placements, inheritances or gifts,
might not be reported through a securities account. In these instances,
Access Persons must report these transactions using a Monthly Transaction
Report as noted below.
Any REGISTERED PERSON, whether or not an Access Person, must notify
Compliance of each brokerage account in which they have a beneficial
interest, including the name of the firm and the name under which the account
is carried. An Account Information Form should be completed for this purpose.
Such persons are also required to authorize Janus to request and receive
directly, duplicate trade confirmations and duplicate account statements for
each account. Compliance may, from time to time, request and spot check such
information for all or a portion of such transactions or accounts.
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REGISTERED PERSONS ARE REMINDED THAT THEY MUST ALSO INFORM
ANY BROKERAGE FIRM WITH WHICH THEY OPEN AN ACCOUNT, AT THE TIME
THE ACCOUNT IS OPENED, THAT THEY ARE REGISTERED WITH JDI.
REGISTERED PERSONS, UNLESS THEY ARE ALSO ACCESS PERSONS,
SHOULD NOT ARRANGE TO SEND DUPLICATE CONFIRMS - COMPLIANCE
WILL ARRANGE THIS IF DESIRED.
- -------------------------------------------------------------------------------
NON-ACCESS PERSONS who engage in an aggregate of $25,000 or more of
transactions in Covered Securities within a calendar year, must provide
Compliance an Annual Transaction Report listing all such transactions in all
accounts in which such person has a Beneficial Interest. Compliance will
request this information annually and will spot check such reports.
OUTSIDE TRUSTEES need only report a transaction in a Covered Security if
such person, at the time of that transaction, knew or, in the ordinary course
of fulfilling his or her official duties as a Trustee should have known,
that, during the fifteen-day period immediately preceding the date of his or
her personal transaction, such security was purchased or sold by, or was
being considered for purchase or sale on behalf of, any Janus Fund for which
such person acts as Trustee.
MONTHLY TRANSACTION REPORTS
ACCESS PERSONS (other than Outside Trustees) must provide a Monthly
Transaction Report within 10 days after any month end showing all
transactions in Covered Securities for which confirmations are known by such
person to not have been timely provided to Janus, and all such transactions
that are not effected in securities or commodities accounts, including
without limitation nonbrokered private placements, gifts, inheritances, and
other transactions in Covered Securities.
Such persons must promptly comply with any request of the Director of
Compliance to provide monthly reports regardless of whether their broker has
been instructed to provide duplicate confirmations. Such reports may be
requested, for example, to check that all applicable confirmations are being
received or to supplement the requested confirmations where a broker is
difficult to work with or otherwise fails to provide duplicate confirmations
on a timely basis.
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NON-INFLUENCE AND NON-CONTROL ACCOUNTS
The Rules shall not apply to any account, partnership, or similar
investment vehicle over which a Covered Person has no direct or indirect
influence or control. Covered Persons relying upon this provision will be
required to file a Certification of Non-Influence and Non-Control Form with
the Director of Compliance.
Any Account beneficially owned by a Covered Person that is managed by JCC
in a discretionary capacity is not covered by these Rules so long as such
person has no direct or indirect influence or control over the account. The
employment relationship between the account-holder and the individual
managing the account, in the absence of other facts indicating control, will
not be deemed to give such account-holder influence or control over the
account.
OTHER REQUIRED FORMS
In addition to the Account Information Form, Monthly and Annual
Transaction Reports, and Certification of Non-Influence and Non-Control Form
discussed above, the following forms must be completed if applicable to you:
ACKNOWLEDGEMENT FORMS
Each Covered Person must, upon commencement of services and annually
thereafter, provide Compliance with an Acknowledgment Form stating that he or
she has reviewed and complied with the Rules and has reported all applicable
securities transactions.
INVESTMENT PERSONNEL REPRESENTATION FORM
Investment Personnel must, upon commencement of services and annually
thereafter, provide Compliance with an Investment Personnel Representation
Form which lists all Covered Securities beneficially held. In addition, such
persons must provide a brief description of any positions held (e.g.,
director, officer, other) with for-profit entities other than Janus.
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM
All Outside Directors and Outside Trustees must, upon commencement of
services and annually thereafter, provide Compliance with an Outside
Director/Trustee Representation Form. The Form declares that such persons
agree to refrain from trading in any securities when they are in possession
of any information regarding trading recommendations made or proposed to be
made to any Client by Janus or its officers or employees.
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INSIDER TRADING POLICY
- -------------------------------------------------------------------------------
BACKGROUND INFORMATION
The term "insider trading" is not defined in the federal securities
statutes, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading can be complex and unclear, you
should assume that the law prohibits:
- trading by an insider, while in possession of material nonpublic
information,
- trading by a non-insider, while in possession of material nonpublic
information, where the information was disclosed to the non-insider
(either directly or through one or more intermediaries) in violation
of an insider's duty to keep it confidential,
- communicating material nonpublic information to others in breach of a
duty not to disclose such information, and
- misappropriating confidential information for securities trading
purposes, in breach of a duty owed to the source of the information to
keep the information confidential.
Trading based on material nonpublic information about an issuer does not
violate this policy unless the trader (i) is an "insider" with respect to an
issuer; (ii) receives the information from an insider or from someone that
the trader knows received the information from an insider, either directly or
indirectly, or (iii) misappropriates the nonpublic information or obtains or
misuses it in breach of a duty of trust and confidence owed to the source of
the information. Accordingly, trading based on material nonpublic information
about an issuer can be, but is not necessarily, a violation of this Policy.
Trading while in possession of material nonpublic information relating to a
tender offer is prohibited under this Policy regardless of how such
information was obtained.
Application of the law of insider trading to particular transactions can
be difficult, particularly if it involves a determination about trading based
on material nonpublic information. You legitimately may be uncertain about
the application of this Policy in particular circumstances. If you have any
questions regarding the application of the Policy or you have any reason to
believe that a violation of the Policy has occurred or is about to occur, you
should contact the Chief Compliance Officer or the Director of Compliance.
The following discussion is intended to help you understand the principal
concepts involved in insider trading.
WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if
he or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for
the company's purposes. A temporary insider can include, among others, a
company's attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, one or more of the Janus
entities may become a temporary insider of a company it advises or for which
it performs other services. To be considered an insider, the company must
expect the outsider to keep the disclosed nonpublic information confidential
and/or relationship must at least imply such a duty.
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WHEN IS INFORMATION NONPUBLIC?
Information remains nonpublic until it has been made public. Information
becomes public when it has been effectively communicated to the marketplace,
such as by a public filing with the SEC or other governmental agency,
inclusion in the Dow Jones "tape" or publication in THE WALL STREET JOURNAL or
another publication of general circulation. Moreover, sufficient time must
have passed so that the information has been disseminated widely.
WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally means information for
which there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions, or
information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that should be considered
material includes, but is not limited to: dividend changes, earnings
estimates, changes in previously released earnings estimates, significant
merger or acquisition proposals or agreements, major litigation, liquidation
problems, and extraordinary management developments.
Material information may also relate to the MARKET for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material. Similarly,
prepublication information regarding reports in the financial press also may
be deemed material. For example, the Supreme Court upheld the criminal
convictions of insider trading defendants who capitalized on prepublication
information about THE WALL STREET JOURNAL'S "Heard on the Street" column.
WHEN IS INFORMATION MISAPPROPRIATED?
The misappropriation theory prohibits trading on the basis of non-public
information by a corporate "outsider" in breach of a duty owed not to a
trading party, but to the source of confidential information.
Misappropriation of information occurs when a person obtains the non-public
information through deception or in breach of a duty of trust and loyalty to
the source of the information.
PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals involved in such unlawful conduct and their
employers or other controlling persons. A person can be subject to some or all
of the penalties below even if he or she does not personally benefit from the
violation. Penalties include:
* civil injunctions
* treble damages
* disgorgement of profits
* jail sentences for up to 10 years
* fines up to $1,000,000 (or $2,500,000 for corporations and other entities)
* civil penalties for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefited, and
16
<PAGE>
* civil penalties for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit gained or
loss avoided.
In addition, any violation of the law may result in serious sanctions by
Janus, including termination of employment.
WHO IS A CONTROLLING PERSON?
Included as controlling persons are Janus and its Directors, Trustees and
officers. If you are a Director, Trustee or officer, you have a duty to act
to prevent insider trading. Failure to fulfill such a duty may result in
penalties as described above.
PROCEDURES TO IMPLEMENT POLICY
The following procedures have been established to aid the Directors,
Trustees, officers and employees of Janus in avoiding insider trading, and to
aid Janus in preventing, detecting and imposing sanctions against insider
trading.
IDENTIFYING MATERIAL INSIDE INFORMATION
Before trading for yourself or others, including the Janus Funds or other
Clients, in the securities of a company about which you may have potential
inside information, ask yourself the following questions:
* To whom has this information been provided? Has the information been
effectively communicated to the marketplace?
* Has this information been obtained from either the issuer or from another
source in breach of a duty to that source to keep the information
confidential?
* Is the information material? Is this information that an investor would
consider important in making his or her investment decisions? Is this
information that would affect the market price of the securities if
generally disclosed?
Special caution should be taken with respect to potential inside information
regarding JCC. Although JCC's shares are not publicly traded, JCC's parent,
KCSI, is a publicly traded company. KCSI owns 82% of the stock of JCC. As a
result, potential inside information regarding JCC may affect trading in KCSI
stock and should be reported pursuant to the procedures set forth below.
REPORTING INSIDE INFORMATION
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps:
* Do not purchase or sell the securities on behalf of yourself or others,
including Clients.
* Do not communicate the information inside or outside of Janus, other
than to the Chief Compliance Officer or the Director of Compliance.
* Immediately advise the Chief Compliance Officer or Director of Compliance
of the nature and source of
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such information. The Chief Compliance Officer or Director of Compliance
will review the information with the Ethics Committee.
* Depending upon the determination made by the Ethics Committee, or by the
Chief Compliance Officer until the Committee can be convened, you may be
instructed to continue the prohibition against trading and communication
and the Director of Compliance will place the security on a Restricted
List or Watch List, as described below. Alternatively, if it is determined
that the information obtained is not material nonpublic information, you
may be allowed to trade and communicate the information.
WATCH AND RESTRICTED LISTS
Whenever the Ethics Committee or the Chief Compliance Officer determines
that a Director, Trustee, officer or employee of Janus is in possession of
material nonpublic information with respect to a company (regardless of
whether it is currently owned by any Client) such company will either be
placed on a Watch List or on a Restricted List.
WATCH LIST. If the security is placed on a Watch List, the flow of the
information to other Janus personnel will be restricted in order to allow
such persons to continue their ordinary investment activities. This procedure
is commonly referred to as a "Chinese Wall."
RESTRICTED LIST. If the Ethics Committee or the Chief Compliance Officer
determines that material nonpublic information is in the possession of a
Director, Trustee, officer, or employee of Janus and cannot be adequately
isolated through the use of a Chinese Wall, the company will be placed on the
Restricted List. While a company is on the Restricted List, no Investment
Person shall initiate or recommend any transaction in any Client account, and
no Access Person shall be precleared to transact in any account in which he
or she has a beneficial interest, with respect to the securities of such
company. The Ethics Committee or the Chief Compliance Officer will also have
the discretion of placing a company on the Restricted List even though no
"break in the Chinese Wall" has or is expected to occur with respect to the
material nonpublic information about the company. Such action may be taken by
such persons for the purpose of avoiding any appearance of the misuse of
material nonpublic information.
The Ethics Committee or the Chief Compliance Officer will be responsible for
determining whether to remove a particular company from the Watch List or
Restricted List. The only persons who will have access to the Watch List or
Restricted List are members of the Ethics Committee, Designated Legal or
Compliance Representatives and such persons who are affected by the
information. The Watch List and Restricted List are highly confidential and
should, under no circumstances, be discussed with or disseminated to anyone
other than the persons noted above.
PROTECTING INFORMATION
Directors, Trustees, officers and employees of Janus shall not disclose any
nonpublic information (whether or not it is material) relating to Janus or
its securities transactions to any person outside Janus (unless such
disclosure has been authorized by the Chief Compliance Officer). Material
nonpublic information may not be communicated to anyone, including any
Director, Trustee, officer or employee of Janus, except as provided in this
Policy. Access to such information must be restricted. For example, access to
files containing material nonpublic information and computer files containing
such information should be restricted, and conversations containing such
information, if appropriate at all, should be conducted in private.
To insure the integrity of the Chinese Wall and to avoid unintended
disclosures, it is important that all employees take the following steps with
respect to confidential or nonpublic information:
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* Do not discuss confidential information in public places such as
elevators, hallways or social gatherings.
* To the extent practical, limit access to the areas of the firm where
confidential information could be observed or overheard to employees with
a business need for being in the area.
* Avoid use of speakerphones in areas where unauthorized persons may
overhear conversations.
* Avoid use of wireless and cellular phones, or other means of communication
which may intercepted.
* Where appropriate, maintain the confidentiality of Client identities by
using code names or numbers for confidential projects.
* Exercise care to avoid placing documents containing confidential
information in areas where they may be read by unauthorized persons and to
store such documents in secure locations when they are not in use.
* Destroy copies of confidential documents no longer needed for a project
unless required to be saved pursuant to applicable recordkeeping polices
or requirements.
RESPONSIBILITY TO MONITOR TRANSACTIONS
Compliance will monitor transactions of Clients and employees for which
reports are received to detect the existence of any unusual trading activities
with respect to companies on the Watch and Restricted Lists. Compliance will
immediately report any unusual trading activity directly to the Director of
Compliance, and in his or her absence, the Chief Compliance Officer, who will
be responsible for determining what, if any, action should be taken.
RECORD RETENTION
Copies of the Watch List and Restricted List shall be maintained by the
Director of Compliance for a minimum of six years.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading
for two reasons. First, tender offer activity often produces extraordinary
fluctuations in the price of the target company's securities. Trading during
this time period is more likely to attract regulatory attention (and produces
a disproportionate percentage of insider trading cases). Second, the SEC has
adopted a rule which expressly forbids trading and "tipping" while in
possession of material nonpublic information regarding a tender offer
received from the tender offeror, the target company or anyone acting on
behalf of either. Janus employees and others subject to this Policy should
exercise particular caution any time they become aware of nonpublic
information relating to a tender offer.
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- ------------------------------------------------------------------------------
GIFT POLICY
- ------------------------------------------------------------------------------
Gifts may only be given (OR ACCEPTED) if they are in accordance with
normally accepted business practices and do not raise any question of
impropriety. A question of impropriety may be raised if a gift influences or
gives the appearance of influencing the recipient. The following outlines
Janus' policy on giving and receiving gifts to help us maintain those
standards and is applicable to all Inside Directors and Inside Trustees,
officers and employees of Janus.
GIFT GIVING
Neither you nor members of your immediate family may give any gift,
series of gifts, or other thing of value, including cash, loans, personal
services, or special discounts ("Gifts") in excess of $100 per year to any
Client or any one person or entity that does or seeks to do business with or
on behalf of Janus or any Client (collectively referred to herein as
"Business Relationships").
GIFT RECEIVING
Neither you nor members of your immediate family may receive any Gift of
material value from any single Business Relationship. A Gift will be
considered material in value if it influences or gives the appearance of
influencing the recipient.
In the event the aggregate fair market value of all Gifts received by you
from any single Business Relationship is estimated to exceed $250 in any
12-month period, you must immediately notify your manager. Managers that
receive such notification must report this information to the Director of
Compliance if it appears that such Gifts may have improperly influenced the
receiver. If the Gift is made in connection with the sale or distribution of
registered investment company or variable contract securities, the aggregate
fair market value of all such Gifts received by you from any single Business
Relationship may never exceed $100 in any 12-month period.
Occasionally, Janus employees are invited to attend or participate in
conferences, tour a company's facilities, or meet with representatives of a
company. Such invitations may involve traveling and may require overnight
lodging. Generally, all travel and lodging expenses provided in connection
with such activities must be paid for by Janus. However, if appropriate, and
with prior approval from your manager, you may accept travel related
amenities if the costs are considered insubstantial and are not readily
ascertainable.
The solicitation of a Gift is prohibited (I.E., YOU MAY NOT REQUEST A
GIFT, SUCH AS TICKETS TO A SPORTING EVENT, BE GIVEN TO YOU.)
CUSTOMARY BUSINESS AMENITIES
Customary business amenities are not considered Gifts so long as such
amenities are BUSINESS RELATED (E.G., IF YOU ARE ACCEPTING TICKETS TO A
SPORTING EVENT, THE OFFERER MUST GO WITH YOU), reasonable in cost,
appropriate as to time and place, and neither so frequent nor so costly as to
raise any question of impropriety. Customary business amenities which you
and, if appropriate, your guests, may accept (OR GIVE) include an occasional
meal, a ticket to a sporting event or the theater, green fees, an invitation
to a reception or cocktail party, or comparable entertainment.
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<PAGE>
- ------------------------------------------------------------------------------
OUTSIDE EMPLOYMENT POLICY
- ------------------------------------------------------------------------------
No Inside Director, Inside Trustee, officer or employee of Janus shall
accept employment or compensation as a result of any business activity (other
than a passive investment), outside the scope of his relationship with Janus
unless such person has provided prompt written notice of such employment or
compensation to the Chief Compliance Officer (or, for Registered Persons, to
JDI's Operations Manager), and, in the case of securities-related employment
or compensation, has received the prior written approval of the Ethics
Committee. Registered Persons are reminded to update and submit their Outside
Business Activity Disclosure forms as appropriate pursuant to JDI's Written
Supervisory Procedures and applicable NASD rules.
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<PAGE>
- ------------------------------------------------------------------------------
PENALTY GUIDELINES
- ------------------------------------------------------------------------------
OVERVIEW
Covered Persons who violate any of the requirements, restrictions, or
prohibitions of the Rules may be subject to sanctions imposed by the Ethics
Committee. The following guidelines shall be used by the Director of
Compliance for recommending remedial actions for Covered Persons who violate
prohibitions or disregard requirements of the Rules. Deviations from the
Fifteen Day Rule are not considered to be violations under the Rules and,
therefore, are not subject to the penalty guidelines.
Upon learning of a potential deviation or violation from the Rules, the
Director of Compliance will provide a written recommendation of remedial
action to the Ethics Committee. The Ethics Committee has full discretion to
approve such recommendations or impose other sanctions it deems appropriate.
The Ethics Committee will take into consideration, among other things,
whether the violation was a technical violation of the Rules or inadvertent
oversight (i.e., ill-gotten profits versus general oversight). The guidelines
are designed to promote consistency and uniformity in the imposition of
sanctions and disciplinary matters.
PENALTY GUIDELINES
Outlined below are the guidelines for the sanctions that may be imposed on
Covered Persons who fail to comply with the Rules:
- 1st violation - Compliance will send a memorandum of reprimand to the
person, copying his/her supervisor. The memorandum will generally
reinforce the person's responsibilities under the Rules, educate the
person on the severity of personal trading violations and inform the
person of the possible penalties for future failure to comply with the
Rules;
- 2nd violation - Janus' Chief Investment Officer, James P. Craig, will
meet with the person to discuss the violations in detail and will
reinforce the importance of complying with the Rules;
- 3rd violation - Janus' Chairman of the Board, Thomas H. Bailey, will
meet the person to discuss the violations in detail and will reinforce
the importance of complying with the Rules;
- 4th violation - The Executive Committee will impose such sanctions as it
deems appropriate, including without limitation, a letter of censure,
fines, withholding of bonus payments, or suspension or termination of
employment or personal trading privileges.
In addition to the above disciplinary sanctions, such persons may be
required to disgorge any profits realized in connection with such violation.
All disgorgement proceeds collected will be donated to a charitable
organization selected by the Ethics Committee. All sanctions imposed will be
documented in such person's personal trading file maintained by Janus, and
will be reported to the Executive Committee.
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- ------------------------------------------------------------------------------
SUPERVISORY AND COMPLIANCE PROCEDURES
- ------------------------------------------------------------------------------
Supervisory procedures can be divided into two classifications: prevention
of violations and detection of violations. Compliance review procedures
include preparation of special and annual reports, record maintenance and
review, and confidentiality preservation.
SUPERVISORY PROCEDURES
PREVENTION OF VIOLATIONS
To prevent violations of the Rules, the Director of Compliance should, in
addition to enforcing the procedures outlined in the Rules:
1 review and update the Rules as necessary, at least once annually,
including but not limited to a review of the Code by the Chief
Compliance Officer, the Ethics Committee and/or counsel;
2 answer questions regarding the Rules, or refer the same to the Chief
Compliance Officer;
3 request from all persons upon commencement of services, and annually
thereafter, any applicable forms and reports as required by the Rules;
4 write letters to the securities firms requesting duplicate
confirmations and account statements where necessary; and
5 with such assistance from the Human Resources Department as may be
appropriate, maintain a continuing education program consisting of the
following:
a) orienting Directors, Trustees, officers, and employees who are
new to Janus to the Rules, and
b) further educating Directors, Trustees, officers, and employees
by distributing memos or other materials that may be issued by
outside organizations such as the Investment Company Institute
discussing the issue of insider trading and other issues raised
by the Rules.
DETECTION OF VIOLATIONS
To detect violations of these Rules, the Director of Compliance should, in
addition to enforcing the procedures outlined in the Rules:
- Review reports, confirmations, and statements relative to applicable
restrictions, as provided under the Code;
- Review the Restricted and Watch Lists relative to applicable personal
and Client trading activity, as provided under the Policy;
Spot checks of certain information are permitted as noted under the Code.
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<PAGE>
COMPLIANCE PROCEDURES
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS
Upon learning of a potential deviation or violation of the Rules, the
Director of Compliance should prepare a written report providing full details
and a recommendation of remedial action to the Ethics Committee. The Ethics
Committee shall thereafter take such action as it deems appropriate (see
Penalty Guidelines).
ANNUAL REPORTS
The Director of Compliance should prepare at least annually a written
report for the Ethics Committee. This report shall set forth the following
information, and shall be confidential.
- Copies of the Rules, as revised, including a summary of any changes
made during the past year;
- Identification of any violations requiring significant remedial
action during the past year; and
- Recommendations, if any, regarding changes in existing restrictions
or procedures based upon Janus' experience under these Rules,
evolving industry practices, or developments in applicable laws or
regulations.
The Ethics Committee will annually report to the Trustees with respect to
any of the above items to the extent that the Janus Funds are materially
affected thereby.
RECORDS
Compliance should maintain the following records:
- Files for personal securities transaction confirmations and account
statements, all reports and other forms submitted by Covered Persons
pursuant to these Rules and any other pertinent information. Such
files shall be stored in a secure location;
- A copy of each preclearance;
- A list of all persons who are, or have been, required to make
reports pursuant to these Rules.
INSPECTION
The records and reports maintained by Compliance pursuant to the Rules
shall at all times be available for inspection, without prior notice, by any
member of the Ethics Committee.
CONFIDENTIALITY
All procedures, reports and records monitored, prepared or maintained
pursuant to these Rules shall be considered confidential and proprietary to
Janus and shall be maintained and protected accordingly. Except as otherwise
required by law or this Policy, such matters shall not be disclosed to anyone
other than to members of the Ethics Committee, as requested.
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<PAGE>
THE ETHICS COMMITTEE
The purpose of this Section is to describe the Ethics Committee. The
Ethics Committee is created to provide an effective mechanism for monitoring
compliance with the standards and procedures contained in the Rules and to
take appropriate action at such times as violations or potential violations
are discovered.
MEMBERSHIP OF THE COMMITTEE
The Committee consists of Steven R. Goodbarn, Vice President of Finance,
Treasurer and Chief Financial Officer; Thomas A. Early, Vice President and
General Counsel; Stephen L. Stieneker, Vice President of Compliance, Chief
Compliance Officer and Assistant General Counsel; and Ted S. Dryden, Director
of Compliance. The Director of Compliance currently serves as the Chairman of
the Committee. The composition of the Committee may be changed from time to
time.
COMMITTEE MEETINGS
The Committee shall generally meet every four months or as often as
necessary to review operation of the compliance program and to consider
technical deviations from operational procedures, inadvertent oversights, or
any other potential violation of the Rules. At such time as the Director of
Compliance learns of a potential violation, he or she shall report such
violation to the Chief Compliance Officer, together with all documents
relating to the matter. The Chief Compliance Officer shall either present the
information at the next regular meeting of the Committee, or convene a
special meeting.
Deviations alternatively may be addressed by including them in the
employee's personnel records maintained by Janus. Committee meetings are
primarily intended for consideration of the general operation of the
compliance program and substantive or serious departures from standards and
procedures in the Rules.
A Committee meeting may be attended, at the discretion of the Committee,
by such other persons as the Committee shall deem appropriate. Any individual
whose conduct has given rise to the meeting may also be called upon, but
shall not have the right, to appear before the Committee.
It is not required that minutes of Committee meetings be maintained; in
lieu of minutes the Committee may issue a report describing any action taken.
The report shall be included in the confidential file maintained by the
Director of Compliance with respect to the particular employee or employees
whose conduct has been the subject of the meeting.
SPECIAL DISCRETION
The Committee shall have the authority by unanimous action to exempt any
person or class of persons from all or a portion of the Rules, provided that:
- the Committee determines, on advice of counsel, that the particular
application of all or a portion of the Rules is not legally required;
- the Committee determines that the likelihood of any abuse of the
Rules by such exempted person(s) is remote;
- the terms or conditions upon which any such exemption is granted is
evidenced in a written instrument; and
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<PAGE>
- the exempted person(s) agrees to execute and deliver to the Director
of Compliance, at least annually, a signed Acknowledgment Form, which
Acknowledgment shall, by operation of this provision, include such
exemptions and the terms and conditions upon which it was granted.
The Committee shall also have the authority by unanimous action to impose
such additional requirements or restrictions as it, in its sole discretion,
determines appropriate or necessary, as outlined in the Penalty Guidelines.
Any exemption, and any additional requirement or restriction, may be
withdrawn by the Committee at any time (such withdrawal action is not
required to be unanimous).
===============================================================================
GENERAL INFORMATION ABOUT THE ETHICS RULES
===============================================================================
DESIGNEES
The Director of Compliance and the Chief Compliance Officer may appoint
designees to carry out their functions pursuant to these Rules.
ENFORCEMENT
In addition to the penalties described in the Penalty Guidelines and
elsewhere in the Rules, upon discovering a violation of the Rules, the Janus
entity with which you are associated may impose such sanctions as it deems
appropriate, including without limitation, a letter of censure or suspension
or termination of employment or personal trading privileges of the violator.
All material violations of the Rules and any sanctions imposed with respect
thereto shall be reported periodically to the Directors and Trustees and the
directors of any other Janus entity which has been directly affected by the
violation.
INTERNAL USE
The Rules are intended solely for internal use by Janus and do not
constitute an admission, by or on behalf of such companies, their controlling
persons or persons they control, as to any fact, circumstance or legal
conclusion. The Rules are not intended to evidence, describe or define any
relationship of control between or among any persons. Further, the Rules are
not intended to form the basis for describing or defining any conduct by a
person that should result in such person being liable to any other person,
except insofar as the conduct of such person in violation of the Rules may
constitute sufficient cause for Janus to terminate or otherwise adversely
affect such person's relationship with Janus.
===============================================================================
FORMS
===============================================================================
Attached are blank forms for use in complying with the Rules. These forms
may be revised from time to time, as the Ethics Committee shall determine.
Please contact Compliance if you need additional forms or if you have any
questions.
26
<PAGE>
PC Docs 12752 3/8/99
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
|
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life|
| | assurance & pension products |
|
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| |
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| |
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| | | Financial Investment Services, Inc. |
| |--| (fka Financial Services Department, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| | | Financial Investments, Inc. |
| |--| (fka Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| |
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| |
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| |
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
|
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
|
| | Lincoln Life and Annuity Distributors, Inc. |
|--| (fka Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Lincoln Financial Advisors Corporation |
| | | (fka LNC Equity Sales Corporation) |
| | | 100% - Indiana - Broker-Dealer |
| |
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | | Inc. ("LLAD")has subsidiaries of which LLAD owns from |
| | | 80%-100% of the common stock (see Attachment #1). These |
| | | subsidiaries serve as the corporate agency offices for the |
| | | marketing and servicing of products of The Lincoln National |
| | | Life Insurance Company. Each subsidiary's assets are less |
| | | than 1% of the total assets of the ultimate controlling |
| | | person. |
| |
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
|
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
|
|
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
|
|
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |--| Delaware International Advisers Ltd.|
| | | | | 81.1% - England - Investment Advisor |
| | |
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service|
| | | |
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Mktg & Admin Services|
| | | | |
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Holding Company |
| | | | | | ________________________________________
| | | | | |--|Delaware Management Business Trust |
| | | | | | |100% - Delaware - Investment Advisor |
| | | | | | |consists of: |
| | | | | | |Delaware Management Company Series |
| | | | | | | and Delaware Investment Advisers
Series |
| | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-MutualFund Distrib. |
| | | | | | |& Broker/Dealer |
| | | | | | |1%Equity-Delaware Capital |
| | | | |Management, Inc. |
| | | | |1% Equity-Delaware Distributors, |
| | | | |Inc.(G.P) |
| | | | | |
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General
| | | | | | | Partner |
| | | | | |
| | | | | |--| Founders CBO, L.P. |
| | | | | | |1%-Delaware-Investment |
| | | | | | | Partnership |
| | | | | | |99% held by outside |
| | | | | | |investors |
| | | | | |
| | | | | |--|Founders CBO Corporation|
| | | | |100%-Delaware-Co-Issuer |
| | | | |with Founders CBO |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Distributors, Inc.
| | | | | | | 100% - Delaware - General Partner |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-Mutual Fund Distributor & |
| | | | | | |Broker/Dealer |
| | | | | |1% Equity-Delaware Capital |
| | | | | |Management, Inc. |
| | | | | |1% Equity-Delaware Distributors, Inc.|
| | | | | |(G.P) |
| | | | | |
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(fka Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & |
Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital
| | | | | | | Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, |
| | | | | | | Inc. |
| | | | |--| Delaware Service Company, Inc. |
| | | | |100%-Delaware-Shareholder Services & |
| | | | |Transfer Agent |
| | | | | |
| | | | |__| Retirement Financial Services, Inc. |
| | | | | |(fka Delaware Investment & Retirement
| | | | | | Services,Inc.) |
| | | | | | 100% - Delaware - Registered Transfer
| | | | | | Agent & I/A |
| | |
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | |
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | |
| | | | Vantage Global Advisors, Inc. |
| | |--| (fka Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| | | Lincoln Investment Management, Inc. |
| |--| (fka Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| |--|AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | |
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| |
| |--|Lincoln National Insurance Associates, Inc.|
| | | (fka Cigna Associates, Inc.) |
| | | 100% - Connecticut - Insurance Agency |
| | |
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | | 100% - Alabama - Insurance Agency |
| | |
| | | | Lincoln National Insurance Associates of Massachusetts,|
| | | | Inc. (fka Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| |
| |--|Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| |
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| |
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (fka Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (fka Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| |
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| |
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| |
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
|
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
|
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
|
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Reinsurance Company Limited |
| | (fka Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| |
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
|
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
|
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Allied Westminster & Company Limited |
| | | (fka One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| |
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| |
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| |
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| |
| |--| Lincoln Financial Advisers Limited |
| | | (fka: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln ISA Management Limited |
| | | | (fka Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln Milldon Limited |
| | | |(fka: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | |
| | |--| Lincoln Management Services Limited |
| | | |(fka: Laurentian Management Services Limited) |
| | | | 100% - England/Wales - Management Services |
| | | |
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| |
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| |
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | |
| | |--| UK Mortgage Securities Limited |
| | | | 100% - England/Wales - Inactive |
| |
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| |
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | | |
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | |
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | |
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | |
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment
| | | | |(Inactive) |
| | | |
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | |
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | |
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension |
| | | | | Fund (Inactive) |
| | | |
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| | |
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | |
| |--| LIV Limited (fka Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | |
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| |
| |--| Lincoln Independent Limited |
| | |(fka: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | |
| |--| Lincoln Investment Management Limited |
| | |(fka: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| |
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| |
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| |
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| |
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| |
| |--| Lincoln Independent (Jersey) Limited |
| | | (fka Lincoln National (Jersey) Limited) |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln National(Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln SBP Trustee Limited |
| | | 100% - England/Wales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
| | Linsco Reinsurance Company |
|--| (fka Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
|
|
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| |
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | |
| | |--|Solutions Reinsurance Limited |
| | | | 100% - Bermuda - Class III Insurance Co|
|
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
|
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
|
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
Footnotes:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(fka: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (fka: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (fka: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act ast Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (fka Laurentian
Financial Group PLC); Lincoln Milldon Limited (fka Laurentian Milldon
Limited); Lincoln Management Services Limited (fka Laurentian Management
Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was
dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved effective
March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company
then changed its name to Delvoy, Inc. The acquisition included the mutual
fund group of companies as part of the Voyager acquisition. The following
companies all then were moved under the newly formed holding company,
Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors,
Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager
Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund
Distributors, Inc. is to merge into Delaware Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros,
Grupo Financiero InverMexico. Stock was sold to Grupo Financiero
InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National Financial
Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc.
effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc.
surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a
newly formed company Voyager Fund Distributors (Delaware), Inc.,
incorporated as a Delaware corporation on May 23, 1997. Voyager Fund
Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P.
effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Southwest Financial Group, Inc. -- company's term of
existence expired July 18, 1998.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL 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.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Annual Reports Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
PURCHASES AND SALES JOURNALS
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years in an easily accessible
transactions place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
PORTFOLIO SECURITIES
Equity Delaware Fund Accounting Permanently, the first two
Notifications years in an easily accessible
place
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
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LN-Record Location Person to Contact Retention
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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
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LN-Record Location Person to Contact Retention
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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
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LN-Record Location Person to Contact Retention
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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.
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LN-Record Location Person to Contact Retention
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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
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(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
CORPORATE DOCUMENTS
Corporate Secretary Cindy Rose Permanently, the first two
charter, cer- years in an easily accessible
tificate of place
incorporation.
Bylaws and Secretary Cindy Rose Permanently, the first two
minute books. years in an easily accessible
place
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
Sales Order or 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
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LN-Record Location Person to Contact Retention
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(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.
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LN-Record Location Person to Contact Retention
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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 Capital Mutual Funds Six Years, the first two
Allocation Division years in an easily accessible
Report place
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Trading Janus Capital Mutual Funds Six years, the first two
Authorization Division years in an easily accessible
place
Advisory Law Products and Distribution, Six years, the first two
Agreements Division LNL Law Division years in an easily accessible
place
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LN-Record Location Person to Contact Retention
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(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
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Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence Product Nancy Alford Six years, the first two
Admin. years in an easily accessible
Product place
Management
Pricing Sheets Delaware Fund Accounting Permanently, the first two
years in an easily accessible place
Bank State- Delaware Fund Accounting Six years, the first two
ments, Can- years in an easily accessible
celled Checks place
and Cash
Reconcilia-
tions
</TABLE>
March 24, 2000
