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As filed with the Securities and Exchange Commission on April 10, 2000
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File No. 33-71158
811-8126
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________
Post-Effective Amendment No. 10 X
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
___________
Amendment No. 12 X
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(Check appropriate box or boxes)
__________________________________
LINCOLN NATIONAL EQUITY-INCOME 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)
--- 60 days after filing pursuant to paragraph (a) (b)
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.
---
If appropriate, check the following box:
[ ] This post effective amendment designates a new effective date for a
previously filed post-effective amendment.
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LINCOLN NATIONAL EQUITY-INCOME FUND, INC.
The fund is one of the Lincoln National Funds (funds) that sells its shares only
to Lincoln National Life Insurance Co. and its affiliates (Lincoln Life).
Lincoln Life holds the shares in its separate accounts to support variable
annuity contracts and variable life contracts (contracts). We refer to a
separate account as a variable account. Each variable account has its own
prospectus that describes the account and the contracts it supports. You choose
the fund or funds in which a variable account invests your contract assets. In
effect, you invest indirectly in the fund(s) that you choose under the contract.
The Prospectus discusses the information about the fund that you ought to know
before choosing to invest your contract assets in the fund. You can find
information common to all Lincoln National Funds in the General Prospectus
Disclosure following the fund prospectus.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson, or any other person to give any
information, or to make any representation, other than what this prospectus
states. This prospectus does not offer to sell fund shares, or seek offers to
buy fund shares, where it would be unlawful.
CONTENTS
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SUBJECT PAGE
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Summary description of the Fund EI-2
Investment Strategies EI-3
Risk of investment Strategies EI-3
Investment Advisor and Portfolio Manager EI-5
General Prospectus Disclosure -- Important
Additional Information
</TABLE>
Prospectus
May 1, 2000
EI-1
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SUMMARY DESCRIPTION OF THE FUND
The investment objective of the Equity-Income Fund (fund) is to seek reasonable
income by investing primarily in income-producing equity securities. The fund
pursues this objective primarily by investing in a diverse group of stocks that
pay dividends (income-producing stocks). When selecting securities, the fund
also considers the potential for obtaining long-term growth of capital (capital
appreciation). The fund tends to invest in income-producing stocks of
large-sized "value" companies: companies with market capitalizations of more
than $5 billion, that tend to be inexpensive relative to their earnings or
assets compared to other types of stocks (value stocks). The fund seeks a yield
for its shareholders that exceeds the yield on the securities comprising the
Standard & Poor's 500 Composite Stock Index (S&P 500) .
The fund's primary investment strategies include
- - investing at least 65% of the fund's total assets in income-producing equity
securities;
- - potentially investing in other types of equity securities and fixed-income
securities (debt obligations), including lower-quality debt obligations such
as junk bonds;
- - investing in both U.S. and foreign securities; and
- - using fundamental analysis of each issuer's financial condition and industry
position and market and economic conditions to select investments.
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;
- - value stocks can perform differently than (1) the stock market as a whole and
(2) other types of stocks, and can continue to be undervalued in the market
for long periods of time;
- - companies that have had a record of paying dividends could reduce or eliminate
their payment of dividends at any time for many reasons;
- - the value of the debt obligations held by the fund -- and therefore, the value
of the fund's shares -- will fluctuate with changes in interest rates
(interest rate risk) and the perceived ability of the issuer to make interest
or principal payments on time (credit risk);
- - because the fund may invest lower-quality debt obligations such as junk bonds,
the fund involves more interest rate risk and credit risk -- and, therefore,
more risk of loss; 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
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<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
Year Annual Total Return(%)
1994 5.65%
1995 34.74%
1996 19.81%
1997 30.67%
1998 12.73%
1999 6.27%
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During the periods shown in the above chart, the fund's highest return for a
quarter occurred in the second quarter of 1997 at: 15.50%
The fund's lowest return for a quarter occurred in the third quarter of 1998 at:
(-12.59)%
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED 12/31/99)
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<CAPTION>
PERIOD BACK EQUITY-INCOME S&P 500* RUSSELL 1000 VALUE***
<S> <C> <C> <C>
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1 year 6.27% 21.14% 7.35%
5 year 20.37 28.66 23.07
10 year N/A N/A N/A
Lifetime** 17.78 23.51 18.47
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* The S&P 500 is the Standard & 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 Value Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values. Russell 1000 companies consist of the 1,000 largest U.S. companies
based on total market capitalization.
The fund tends to invest in income-producing stocks of large-sized value
companies. Accordingly, the fund's performance can be compared to the
performance of the Russell 1000 Value Index.
EI-2
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INVESTMENT STRATEGIES
The investment objective of the fund is to seek reasonable income by investing
primarily in income-producing equity securities. Equity securities include
stocks (common stocks), preferred stock, and debt obligations and warrants
convertible into stocks. When selecting securities, the fund also considers the
potential for obtaining capital appreciation, as measured by the change in the
value of the security over time.
The fund pursues its objective primarily by investing in a diverse group of
income-producing securities. The fund tends to invest in income-producing stocks
of large-sized "value" companies. The fund, however, is not required to use any
particular investment style when selecting investments. For these purposes,
large-size companies have 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 the date December 31, 1999, the average market
capitalization of the S&P 500, a broad based market index representative of
larger, typically more financially stable companies, was $146 billion.) Value
stocks tend to be inexpensive relative to their earnings or assets compared to
other types of stocks.
Further, the fund emphasizes above-average income-producing equity securities
that are expected to provide above market yields. (Yield is a measurement used
to evaluate stocks that compares the stock's dividend to its current price.) The
fund seeks a yield for its shareholders that exceeds the yield on the securities
comprising the S&P 500.
The fund's primary investment strategies include
- - normally investing at least 65% of the fund's total assets in income-producing
equity securities;
- - potentially investing in other types of equity securities and debt
obligations, including lower-quality debt obligations (junk bonds); and
- - investing in both U.S. and foreign securities.
The fund may invest in many different types of debt obligations, including
corporate bonds, government securities, and asset--backed securities, including
mortgage-backed securities. The fund may invest in debt obligations of any
quality, including junk bonds. Junk bonds are debt obligations rated below
investment-grade. (Investment-grade debt obligations are those rated at the time
of purchase in the top four credit rating categories of a nationally recognized
statistical rating organization, or, if unrated, are judged by the fund to be of
comparable quality. See the General SAI Disclosure for the 11 funds for a
description of the credit rating categories of two of these entities, Moody's
Investor Service, Inc. and Standard & Poor's Corp., and a description of U.S.
government securities.)
Further, the fund may invest in securities of U.S. or foreign issuers of any
size. Foreign securities are securities 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 securities may be traded on U.S. or
foreign markets.
When buying and selling securities, the fund relies on fundamental analysis of
each issuer. (A company's fundamentals refers to items related to the company's
financial condition or its competitiveness.) The fund assesses each issuer's
potential for success in light of its current financial condition, its industry
position, and economic and market conditions.
OTHER STRATEGIES
The fund also may use other investment strategies to pursue its investment
objective. The fund also may use various techniques, such as buying and selling
futures contracts, to increase or decrease the fund's exposure to changing
security prices, or other factors that affect security values. The fund's SAI
describes these other investment strategies and techniques and the risks they
involve.
As a temporary defensive strategy, the fund may invest in securities such as
investment-grade bonds, high-quality preferred stocks, and short-term notes. To
the extent the fund uses a temporary defensive strategy, it would not be using
its primary investment strategies. The fund may use a temporary defensive
strategy in response to market, economic, political or other conditions.
RISKS OF INVESTMENT STRATEGIES
Investing in equity securities involves the risk that the value of the equity
securities 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 equity investments --
and, therefore, the value of the fund's shares held under your contract -- to
fluctuate, and you could lose money.
Further, the fund tends to invest in income-producing value stocks. Companies
that have had a record of paying dividends could reduce or eliminate their
payment of dividends at any time for many reasons, including poor business
prospects or a downward turn in the economy in general. Additionally, value
stocks can react differently to issuer, political, market and economic
developments than the market as a whole and other
EI-3
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types of stocks. Value stocks tend to be inexpensive relative to their earnings
or assets compared to other types of stocks. However, "value" stocks can
continue to be inexpensive for long periods of time and may not ever realize
their full value.
Moreover, the fund may invest in the securities of companies of all sizes.
Investing in the equity securities of smaller 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 investments. This is
due to the greater business risks of small size and limited product lines,
markets, distribution channels, and financial and managerial resources.
Historically, the price of small and medium capitalization stocks and stocks of
recently organized companies have fluctuated more than the larger capitalization
stocks included in the S&P 500. One reason is that smaller 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.
Additionally, the prices of small and medium-sized company stocks may fluctuate
independently of larger company stock prices. Small and medium-sized company
stocks may decline in price as large company stock prices rise, or rise in price
as large company stock prices decline. Many independent factors lead to this
result, such as the current and anticipated global economic environment and
current and anticipated direction of interest rates in the United States, for
example. Slower economic conditions or increasing interest rates may have been
reasons historically for declining values in small and medium capitalization
companies. The stock of companies with small and medium stock market
capitalizations may trade less frequently and in limited volume.
Investing in debt obligations primarily involves interest rate risk and credit
risk.
Interest rate risk is the risk that the value of the debt obligations held by
the fund -- and therefore, the value of the fund's shares -- will fluctuate with
changes in interest rates. As a general matter, the value of debt obligations
will fluctuate with changes in interest rates. These fluctuations can be greater
for debt obligations with longer maturities and for mortgage securities. When
interest rates rise, debt obligations decline in value, and when interest rates
fall, debt securities obligations increase in value. Accordingly, during periods
when interest rates are fluctuating, you could lose money investing in the fund.
Credit risk is the risk that the issuer of the debt obligation will be unable to
make interest or principal payments on time. A debt obligation's credit rating
reflects the credit risk associated with that debt obligation. Higher-rated debt
obligations involve lower credit risks than lower-rated debt obligations.
Generally, credit risk is higher for corporate and foreign government debt
obligations than for U.S. government securities, and higher still for debt rated
below investment grade (junk bonds). The value of the debt obligations held by
the fund -- and, therefore, the value of the fund's shares -- will fluctuate
with the changes in the credit ratings of the debt obligations held. Generally,
a decrease in an issuer's credit rating will cause the value of that issuer's
outstanding debt obligations to fall. The issuer may also have increased
interest payments, as issuers with lower credit ratings generally have to pay
higher interest rates to borrow money. As a result, the issuer's future earnings
and profitability could also be negatively affected. This could further increase
the credit risks associated with that debt obligation.
If debt obligations held by the fund are assigned a lower credit rating, the
value of these debt obligations and, therefore, the value of the fund's shares
could fall, and you could lose money. Because the fund may also invest in debt
obligations of any quality, including junk bonds, the fund involves more risk of
loss than that normally associated with a fund that only invests in high-quality
corporate bonds. Junk bonds are often considered speculative and involve
significantly higher credit risk. Junk bonds are also more likely to experience
significant fluctuation in value due to changes in the issuer's credit rating.
The value of junk bonds may fluctuate more than the value of higher-rated debt
obligations, and may decline significantly in periods of general economic
difficulty or periods of rising interest rates.
Finally, investing in foreign securities involves additional risks. Foreign
currency fluctuations or economic or financial instability could cause the value
of the fund's investments -- and, therefore, the value of the fund's shares --
to fluctuate, and you could lose money.
Investing in foreign securities also involves the risk of loss from foreign
government or political actions. These actions could range from changes in tax
or trade statutes to governmental collapse and war. These actions could include
a foreign government's imposing a heavy tax on a company, withholding the
company's payment of interest or dividends, seizing assets of a company, taking
over a company, limiting currency convertibility, or barring the fund's
withdrawal of assets from the country. As a general matter, risk of loss is
typically higher for issuers in emerging markets located in less developed or
developing countries.
Investing in foreign securities also involves risks resulting from the reduced
availability of public information concerning issuers and the fact that foreign
issuers generally are not subject to uniform accounting, auditing, and financial
reporting standards or to other regulatory
EI-4
<PAGE>
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 the fund for investing some portion of your contract
assets if (1) you are seeking reasonable income and some capital appreciation by
investing in stocks, and (2) you are comfortable with the risks associated with
investing in value stocks and other types of equity securities and debt
obligations, as well as the other risks of investing in the fund.
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
investments. This includes monitoring the fund's sub-adviser, Fidelity
Management Trust Co. (Fidelity Trust). Fidelity Trust is responsible for the
day-to-day management of the fund's investments. As of January 31, 2000,
Fidelity Trust had $60 billion in discretionary assets under management.
Fidelity Trust has served as the fund's sub-adviser since 1993. Stephen DuFour
is a vice president of Fidelity Trust and portfolio manager of the Fund.
Currently, Mr. DuFour also manages the equity portion of the Fidelity Balanced
Fund and serves as sector leader for the natural resources equity research
group. Since 1993, Mr. DuFour served as Portfolio Manager with Fidelity
Management and Research Company. Mr. DuFour joined Fidelity Management and
Research Company as an analyst in 1992, after earning his MBA from the
University of Chicago.
EI-5
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THIS PAGE WAS INTENTIONALLY LEFT BLANK.
EI-6
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GENERAL PROSPECTUS DISCLOSURE -- IMPORTANT ADDITIONAL INFORMATION
This General Prospectus Disclosure is part of the Prospectus of:
Lincoln National Aggressive Growth Fund, Inc.
(Aggressive Growth)
Lincoln National Bond Fund, Inc. (Bond)
Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation)
Lincoln National Equity-Income Fund, Inc.
(Equity-Income)
Lincoln National Global Asset Allocation Fund, Inc. (Global Asset Allocation)
Lincoln National Growth and Income Fund, Inc. (Growth and Income)
Lincoln National International Fund, Inc. (International)
Lincoln National Managed Fund, Inc. (Managed)
Lincoln National Money Market Fund, Inc.
(Money Market)
Lincoln National Social Awareness Fund, Inc.
(Social Awareness)
Lincoln National Special Opportunities Fund, Inc.
(Special Opportunities)
The following information applies to each fund, unless otherwise indicated.
NET ASSET VALUE
Each fund determines its net asset value per share (NAV) as of close of business
(currently 4:00 p.m., New York time) on the New York Stock Exchange (NYSE) on
each day the NYSE is open for trading. Each fund, determines its NAV by:
- - adding the values of all securities investments and other assets,
- - subtracting liabilities (including dividends payable), and
- - dividing by the number of shares outstanding.
NYSE's most recent announcement states that, as of the date of this prospectus,
the NYSE will be closed on New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. NYSE may also be closed on other days. The NYSE may modify
its holiday schedule at any time.
A fund's securities may be traded in other markets on days when the NYSE is
closed. Therefore, the fund's NAV may fluctuate on days when you do not have
access to the fund to purchase or redeem shares.
Each fund (other than for the Money Market Fund) values its securities
investments as follows:
- - equity securities, at their last sale prices on national securities exchanges
or over-the-counter, or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on exchanges or
over-the-counter;
- - debt securities, at the price established by an independent pricing service,
which is believed to reflect the fair value of these securities; and
- - equity securities, debt securities and other assets for which market
quotations are not readily available, fair value as determined in good faith
under the authority of each fund's Board of Directors.
MONEY MARKET FUND. The Money Market Fund values its securities using the
amortized cost method of valuation provided by SEC Rule 2a-7 under the
Investment Company Act of 1940. Under the Rule, the fund's NAV must fairly
reflect market value.
See the General SAI Disclosure for the methodology that a fund (other than for
the Money Market Fund) uses to value short-term investments, options, futures
and options on futures, and foreign securities.
MANAGEMENT OF THE FUNDS
Each fund's business and affairs are managed under the direction of its Board of
Directors. The Board has the power to amend the bylaws of each fund, to declare
and pay dividends, and to exercise all the powers of the fund except those
granted to the shareholders.
INVESTMENT ADVISOR. Lincoln Investment Management, Inc. (Lincoln Investment or
advisor) is the investment advisor to each fund. Its headquarters are at 200
East Berry Street, Fort Wayne, Indiana 46802.
The advisor has registered with the SEC as an investment advisor and acted as an
investment advisor to mutual Funds for over 40 years. The advisor also acts as
investment advisor to Lincoln National Convertible Securities Fund, Inc. and
Lincoln National Income Fund, Inc., closed-end investment companies.
The advisor is a wholly-owned subsidiary of Lincoln National Corp. (LNC), a
publicly-held insurance holding company organized under Indiana law. LNC,
through its subsidiaries, provides life insurance and annuities, property-
casualty insurance, reinsurance and financial services.
GPD-1
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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.
- --------------------------------------------------------------------------------
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
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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 EQUITY-INCOME 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 Equity-Income 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 EI-2
Additional Investment Strategies and Risks EI-2
Strategic Portfolio Transactions EI-8
Investment Restrictions EI-11
Portfolio Transactions and Brokerage EI-13
General SAI Disclosure -- Important
Additional Information
</TABLE>
May 1, 2000
EI-1
<PAGE>
DESCRIPTION OF THE FUND
The Equity-Income Fund (fund) was incorporated in Maryland in 1993. It is a
diversified open-end management investment company whose investment objective is
to seek reasonable income by investing primarily in income-producing equity
securities. The fund's investment objective and certain investment restrictions
are fundamental and cannot be changed without the affirmative vote of a majority
of the outstanding voting securities of the fund. The fund may change its non-
fundamental investment policies without prior shareholder approval. See
"Investment Restrictions." There can be no assurance that the objective of the
fund will be achieved. References to advisor in this SAI include both Lincoln
Investment Management, Inc. (Lincoln Investment) and Fidelity Management Trust
Co. (sub-adviser), 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 and instruments that
the fund may use as market conditions warrant, and notes the risks associated
with these other investment strategies and instruments.
AFFILIATED BANK TRANSACTIONS
The fund may engage in transactions with financial institutions that are, or may
be considered to be, "affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks; short-term
obligations of, and repurchase agreements with, the 50 largest U.S. banks
(measured by deposits); municipal securities; U.S. Government securities with
affiliated financial institutions that are primary dealers in these securities;
short-term currency transactions; and short-term borrowings.
ASSET-BACKED SECURITIES
Asset-backed securities represent interests in pools of mortgages, loans,
receivables or other assets. Payment of interest and repayment of principal may
be largely dependent upon the cash flows generated by the assets backing the
securities and, in certain cases, supported by letters of credit, surety bonds,
or other credit enhancements. Asset-backed security values may also be affected
by other factors including changes in interest rates, the availability of
information concerning the pool and its structure, the creditworthiness of the
servicing agent for the pool, the originator of the loans or receivables, or the
entities providing the credit enhancement. If the credit enhancement is
exhausted, certificate holders may experience losses or delays in payment if the
required payments of principal and interest are not made to the trust with
respect to the underlying loans.
In addition, these securities may be subject to prepayment risk. Prepayment,
which occurs when unscheduled or early payments are made on the underlying
obligations, may shorten the effective maturities of these securities and may
lower their total returns. Additionally, asset-backed 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.
BORROWING
The fund may borrow money only from banks and will not purchase securities when
the amount borrowed exceeds 5% of its total assets. If the fund borrows money,
its share price may be subject to greater fluctuation until the amount borrowed
is paid off. Purchasing securities when the fund has borrowed money may involve
an element of leverage; however, the fund may only borrow money for temporary or
emergency purposes, and not for the purpose of leveraging the fund's assets. See
Reverse Repurchase Transactions for additional information regarding limitations
on the fund's ability to borrow money by engaging in reverse repurchase
transactions.
CASH MANAGEMENT
The fund can hold uninvested cash or can invest it in cash equivalents such as
money market securities and repurchase agreements. Generally, these securities
offer less potential for gains than other types of securities.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks or other
securities that may be converted or exchanged (by the holder or by the issuer)
into shares of the underlying common stock (or cash or securities of equivalent
value) at a stated exchange ratio. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and under certain
circumstances (including a specified price) established upon issue. If a
convertible security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than
common stocks. Convertible securities generally provide yields higher than the
underlying common stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their
EI-2
<PAGE>
"conversion value," which is the current market value of the stock to be
received upon conversion. The difference between this conversion value and the
price of convertible securities will vary over time depending on changes in the
value of the underlying common stocks and interest rates. When the underlying
common stocks decline in value, convertible securities will tend not to decline
to the same extent because of the interest or dividend payments and the
repayment of principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of the holder
generally do not limit the potential for loss to the same extent as securities
convertible at the option of the holder. When the underlying common stocks rise
in value, the value of convertible securities may also be expected to increase.
At the same time, however, the difference between the market value of
convertible securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
FOREIGN INVESTMENTS
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions and custodial costs, are generally
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments. There is no assurance that the sub-advisor will be able to
anticipate these potential events or counter their effects.
The fund may invest up to 20% of its net assets in foreign securities. Foreign
corporate securities are securities of companies organized, or having a majority
of their assets, or earning a majority of their operating income, in a country
outside the United States. These securities may be traded on U.S. or foreign
markets. The 20% may be invested in just one country or in several countries.
The fund may have an additional 15% of its net assets invested in securities of
issuers located in any one of the following countries: Australia, Canada,
France, Japan, the United Kingdom or Germany.
The fund may invest a portion of its assets in developing countries, or in
countries with new or developing capital markets; for example, nations in
Eastern Europe. The considerations noted previously generally are intensified
for investments in developing countries. Developing countries may have
relatively unstable governments, economies based on only a few industries and
securities markets that trade a small number of securities. Securities of
issuers located in these countries tend to have volatile prices and may offer
significant potential for loss as well as gain.
The fund may invest in foreign securities that impose restrictions on transfer
within the United States or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
The fund also may invest in "overseas equities," defined as securities of
foreign domiciled companies denominated in U.S. dollars and traded in U.S.
markets.
American Depositary Receipts and European Depositary Receipts (ADRs and EDRs)
are certificates evidencing ownership of shares of a foreign-based issuer held
in trust by a bank or similar financial institution. Designed for use in U.S.
and European securities markets, respectively, ADRs and EDRs are alternatives to
the purchase of the underlying securities in their national markets and
currencies.
EURO
On January 1, 1999, the European Economic and Monetary Union implemented a new
currency unit, the euro,
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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.
FOREIGN CURRENCY TRANSACTIONS
The fund may conduct foreign currency transactions on a spot ( i.e., cash) or
forward basis (i.e., by entering into forward contracts to purchase or sell
foreign currencies). Although foreign exchange dealers generally do not charge a
fee for such conversions, they do realize a profit based on the difference
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency at one rate, while offering
a lesser rate of exchange should the counterparty desire to resell that currency
to the dealer. Forward contracts are customized transactions that require a
specific amount of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are generally
traded in an interbank market directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
The following discussion summarizes the principal currency management strategies
involving forward contracts that could be used by a fund. A fund may also use
swap agreements, indexed securities, and options and futures contracts relating
to foreign currencies for the same purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a fund gainst
an adverse change in foreign currency values between the date a security is
purchased or sold and the date on which payment is made or received. Entering
into a forward contract for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction for a fixed amount of
U.S. dollars "locks in" the U.S. dollar price of the security. Forward contracts
to purchase or sell a foreign currency may also be used by a fund in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
sub-advisor.
The fund may also use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. For example, if a fund
owned securities denominated in pounds sterling, it could enter into a forward
contract to sell pounds sterling in return for U.S. dollars to hedge against
possible declines in the pound's value. Such a hedge, sometimes referred to as a
"position hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would
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not hedge currency exposure as effectively as a direct hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
A fund may enter into forward contracts to shift its investment exposure from
one currency into another. This may include shifting exposure from U.S. dollars
to a foreign currency, or from one foreign currency to another foreign currency.
This type of strategy, sometimes known as a "cross-hedge," will tend to reduce
or eliminate exposure to the currency that is sold, and increase exposure to the
currency that is purchased, much as if a fund had sold a security denominated in
one currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause a fund to assume the risk of fluctuations in the value
of the currency it purchases.
Successful use of currency management strategies will depend on the
sub-advisor's skill in analyzing currency values. Currency management strategies
may substantially change a fund's investment exposure to changes in currency
exchange rates and could result in losses to a fund if currencies do not perform
as the sub-advisor anticipates. For example, if a currency's value rose at a
time when the sub-advisor had hedged a fund by selling that currency in exchange
for dollars, a fund would not participate in the currency's appreciation. If the
sub-advisor hedges currency exposure through proxy hedges, a fund could realize
currency losses from both the hedge and the security position if the two
currencies do not move in tandem. Similarly, if the sub-advisor increases a
fund's exposure to a foreign currency and that currency's value declines, a fund
will realize a loss. There is no assurance that the sub-advisor's use of
currency management strategies will be advantageous to a fund or that it will
hedge at appropriate times.
FUND'S RIGHTS AS A SHAREHOLDER
The fund does not intend to direct or administer the day-to-day operations of
any company. A fund, however, may exercise its rights as a shareholder and may
communicate its views on important matters of policy to management, the Board of
Directors, and shareholders of a company when the sub-advisor determines that
such matters could have a significant effect on the value of the fund's
investment in the company. The activities in which a fund may engage, either
individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate structure or
business activities; seeking changes in a company's directors or management;
seeking changes in a company's direction or policies; seeking the sale or
reorganization of the company or a portion of its assets; or supporting or
opposing third-party takeover efforts. This area of corporate activity is
increasingly prone to litigation and it is possible that a fund could be
involved in lawsuits related to such activities. the sub-advisor will monitor
such activities with a view to mitigating, to the extent possible, the risk of
litigation against a fund and the risk of actual liability if a fund is involved
in litigation. No guarantee can be made, however, that litigation against a fund
will not be undertaken or liabilities incurred.
ILLIQUID SECURITIES
Illiquid securities cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued. Difficulty in
selling securities may result in a loss or may be costly to a fund. Under the
supervision of the Board of Directors, the sub-advisor determines the liquidity
of a fund's investments and, through reports from the sub-advisor, the Board
monitors investments in illiquid securities. In determining the liquidity of a
fund's investments, the sub-advisor may consider various factors, including (1)
the frequency and volume of trades and quotations, (2) the number of dealers and
prospective purchasers in the marketplace, (3) dealer undertakings to make a
market and (4) the nature of the security and the market in which it trades
(including any demand, put or tender features, the mechanics and other
requirements for transfer, any letters of credit or other credit enhancement
features, any ratings, the number of holders, the method of soliciting offers,
the time required to dispose of the security, and the ability to assign or
offset the rights and obligations of the security).
INDEXED SECURITIES
Indexed securities are instruments whose prices are indexed to the prices of
other securities, securities indices, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic.
Mortgage-indexed securities, for example, could be structured to replicate the
performance of mortgage securities and the characteristics of direct ownership.
Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies and may offer higher
yields than U.S. dollar-denominated securities. Currency-indexed securities may
be positively or negatively indexed; that is, their maturity value may increase
when the specified currency value increases, resulting in a security that
performs similarly to a foreign-denominated instrument, or their maturity value
may decline when foreign currencies increases, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of
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a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve a risk of
loss in case of default or insolvency of the borrower and may offer less legal
protection to the purchaser in the event of fraud or misrepresentation, or there
may be a requirement that a fund supply additional cash to a borrower on demand.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of interest and repayment of
principal. If scheduled interest or principal payments are not made, the value
of the instrument may be adversely affected. Loans that are fully secured
provide more protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments. However, there is no assurance that
the liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral could be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a risk
that the governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks. For example, if a
loan is foreclosed, the purchaser could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, a purchaser could be held liable as a co-lender. Direct debt
instruments may also involve a risk of insolvency of the lending bank or other
intermediary.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the purchaser has direct recourse against the borrower, the
purchaser may have to rely on the agent to apply appropriate credit remedies
against a borrower. If assets held by the agent for the benefit of a purchaser
were determined to be subject to the claims of the agent's general creditors,
the purchaser might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or interest.
Direct indebtedness may include letters of credit, revolving credit facilities,
or other standby financing commitments that obligate purchasers to make
additional cash payments on demand. These commitments may have the effect of
requiring a purchaser to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid.
The fund limits the amount of total assets that it will invest in any one issuer
or in issuers within the same industry (see the fund's investment limitations).
For purposes of these limitations, a fund generally will treat the borrower as
the "issuer" of indebtedness held by the fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between a fund and the borrower, if the participation does not
shift to the fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require a fund, in appropriate circumstances, to treat both the
lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
MORTGAGE SECURITIES
Mortgage securities are issued by government and non-government entities such as
banks, mortgage lenders, or other institutions. A mortgage security is an
obligation of the issuer backed by a mortgage or pool of mortgages or a direct
interest in an underlying pool of mortgages. Some mortgage securities, such as
collateralized mortgage obligations (or "CMOs"), make payments of both principal
and interest at a range of specified intervals; others make semiannual interest
payments at a predetermined rate and repay principal at maturity (like a typical
bond). Mortgage securities are based on different types of mortgages, including
those on commercial real estate or residential properties. Stripped mortgage
securities are created when the interest and principal components of a mortgage
security are separated and sold
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as individual securities. In the case of a stripped mortgage security, the
holder of the "principal-only" security (PO) receives the principal payments
made by the underlying mortgage, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying mortgage.
Fannie Maes and Freddie Macs are pass-through securities issued by Fannie Mae
and Freddie Mac, respectively. Fannie Mae and Freddie Mac, which guarantee
payment of interest and repayment of principal on Fannie Maes and Freddie Macs,
respectively, are federally chartered corporations supervised by the U.S.
Government that act as governmental instrumentalities under authority granted by
Congress. Fannie Mae is authorized to borrow from the U.S. Treasury to meet its
obligations. Fannie Maes and Freddie Macs are not backed by the full faith and
credit of the U.S. Government.
The value of mortgage securities may change due to shifts in the market's
perception of issuers and changes in interest rates. In addition, regulatory or
tax changes may adversely affect the mortgage securities market as a whole.
Non-government mortgage securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage securities are subject to prepayment risk, which is
the risk that early principal payments made on the underlying mortgages, usually
in response to a reduction in interest rates, will result in the return of
principal to the investor, causing it to be invested subsequently at a lower
current interest rate. Alternatively, in a rising interest rate environment,
mortgage security values may be adversely affected when prepayments on
underlying mortgages do not occur as anticipated, resulting in the extension of
the security's effective maturity and the related increase in interest rate
sensitivity of a longer-term instrument (extension risk). The prices of stripped
mortgage securities tend to be more volatile in response to changes in interest
rates than those of non-stripped mortgage securities.
In order to earn additional income for a fund, the sub-advisor may use a trading
strategy that involves selling mortgage securities and simultaneously agreeing
to purchase similar securities on a later date at a set price. This trading
strategy may result in an increased portfolio turnover rate which increases
costs and may increase taxable gains.
REAL ESTATE INVESTMENT TRUSTS
Equity real estate investment trusts own real estate properties, while mortgage
real estate investment trusts make construction, development, and long-term
mortgage loans. Their value may be affected by changes in the value of the
underlying property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as those
relating to the environment. Both types of trusts are dependent upon management
skill, are not diversified, and are subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for tax-free status of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act.
RESTRICTED SECURITIES
Restricted securities are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to a fund.
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the holder of a registered security may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time it
decides to seek registration and the time it may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
SHORT SALES
Stocks underlying a fund's convertible security holdings can be sold short. For
example, if the sub-advisor anticipates a decline in the price of the stock
underlying a convertible security held by a fund, it may sell the stock short.
If the stock price subsequently declines, the proceeds of the short sale could
be expected to offset all or a portion of the effect of the stock's decline on
the value of the convertible security. The fund currently intends to hedge no
more than 15% of its total assets with short sales on equity securities
underlying its convertible security holdings under normal circumstances.
A fund will be required to set aside securities equivalent in kind and amount to
those sold short (or securities convertible or exchangeable into such
securities) and will be required to hold them aside while the short sale is
outstanding. A fund will incur transaction costs, including interest expenses,
in connection with opening, maintaining, and closing short sales.
WARRANTS
Warrants are instruments which entitle the holder to buy an equity security at a
specific price for a specific period of time. Changes in the value of a warrant
do not necessarily correspond to changes in the value of its underlying
security. The price of a warrant may be more volatile than the price of its
underlying security, and a warrant may offer greater potential for capital
appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect to
the underlying security and do not represent any rights in the assets of the
issuing company. A warrant ceases to have value if it is not
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exercised prior to its expiration date. These factors can make warrants more
speculative than other types of investments.
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 SAI booklet for the 11 funds, we have included a
basic discussion of these special financial arrangement transactions and some of
the risks associated with them. Note also that the SAI booklet for the 11 funds
contains definitions of the more commonly used derivative transactions,
technical explanations of how these transactions will be used and the limits on
their use. You should consult your financial counselor if you have specific
questions.
THE EQUITY-INCOME FUND IS AUTHORIZED:
a) for derivative transactions, to: buy and sell put and call options; buy and
sell futures contracts; engage in forward contracts; engage in interest rate
swaps, currency swaps, and other types of swap agreements such as caps, collars,
and floors.
The fund will not hedge more than 25% of its total assets by selling futures,
buying puts, and writing calls under normal conditions. In addition, the fund
will not buy futures or write puts whose underlying value exceeds 25% of its
total assets, and the fund will not buy calls with a value exceeding 5% of its
total assets.
b) for cash enhancement transactions, to: lend portfolio securities, if such
loans of securities do not exceed one-third of the fund's total assets, and
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.
SWAP AGREEMENTS
Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a fund's
exposure to long- or short-term interest rates (in the United States or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one type of
investment to another. For example, if the fund agreed to exchange payments in
dollars for payments in foreign currency, the swap agreement would tend to
decrease the fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a fund's investments and its
share price and yield.
The most significant factor in the performance of swap agreements is the change
in the specific interest rate, currency, or other factors that determine the
amounts of payments due to and from a fund. If a swap agreement calls for
payments by the fund, the fund must be prepared to make such payments when due.
In addition, if the counterparty's creditworthiness declined, the value of a
swap agreement would be likely to decline, potentially resulting in losses. A
fund may be able to eliminate its exposure under a swap agreement either by
assignment or other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.
FUTURES AND OPTIONS
The following paragraphs pertain to futures and options: Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, Options and Futures Relating to Foreign Currencies, OTC
Options, Purchasing Put and Call Options, and Writing Put and Call Options.
COMBINED POSITIONS
Combined positions involve purchasing and writing options in combination with
each other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, purchasing
a put option and writing a call option on the same underlying instrument would
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call
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option at a lower price, to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
CORRELATION OF PRICE CHANGES
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a fund's current or anticipated investments exactly. A fund may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which the fund
typically invests, which involves a risk that the options or futures position
will not track the performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments match a fund's investments well.
Options and futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration of the contract, which may
not affect security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits or
trading halts. A fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in a fund's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
FUTURES CONTRACTS
In purchasing a futures contract, the buyer agrees to purchase a specified
underlying instrument at a specified future date. In selling a futures contract,
the seller agrees to sell a specified underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed
when the buyer and seller enter into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the
Standard & Poor's 500 Index (S&P 500). Futures can be held until their delivery
dates, or can be closed out before then if a liquid secondary market is
available.
The value of a futures contract tends to increase and decrease in tandem with
the value of its underlying instrument. Therefore, purchasing futures contracts
will tend to increase a fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS
The purchaser 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 purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant (FCM),
when the contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin for
purposes of a fund's investment limitations. In the event of the bankruptcy of
an FCM that holds margin on behalf of a fund, the fund may be entitled to return
of margin owed to it only in proportion to the amount received by the FCM's
other customers, potentially resulting in losses to the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
The fund has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the Commodity
Exchange Act, which limits the extent to which the fund can commit assets to
initial margin deposits and option premiums. Accordingly, the fund will not
enter into any futures contract and options thereon for non-hedging purposes if,
immediately, thereafter, the aggregate initial margin for all such existing
futures contracts and options thereon and for premiums paid for related options
would exceed 5% of the fund's net assets.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal conditions;
(b) purchase futures contracts or write put options if, as a result, the fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total
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assets under normal conditions; or (c) purchase call options if, as a result,
the current value of option premiums for call options purchased by the fund
would exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features similar to
options.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS
There is no assurance a liquid secondary market will exist for any particular
options or futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close to the
underlying instrument's current price. In addition, exchanges may establish
daily price fluctuation limits for options and 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
or a trading halt is imposed, it may be impossible to enter into new positions
or close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require a fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
The uses and risks of currency options and futures are similar to options and
futures relating to securities or indices, as discussed above. A fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. Currency
options may also be purchased or written in conjunction with each other or with
currency futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for example,
should protect a Yen-denominated security from a decline in the Yen, but will
not protect a fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the fund's investments exactly over time.
OTC OPTIONS
Unlike exchange-traded options, which are standardized with respect to the
underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter (OTC) options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the purchaser or writer greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS
By purchasing a put option, the purchaser obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, the purchaser pays the current market price for the
option (known as the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities prices, and
futures contracts. The purchaser may terminate its position in a put option by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the purchaser will lose the entire premium. If the option is exercised,
the purchaser completes the sale of the underlying instrument at the strike
price. A purchaser may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss
EI-10
<PAGE>
if security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS
The writer of a put or call option takes the opposite side of the transaction
from the option's purchaser. In return for receipt of the premium, the writer
assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The writer
may seek to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the secondary market
is not liquid for a put option, however, the writer must continue to be prepared
to pay the strike price while the option is outstanding, regardless of price
changes. When writing an option on a futures contract, a fund will be required
to make margin payments to an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to profit, although
its gain would be limited to the amount of the premium it received. If security
prices remain the same over time, it is likely that the writer will also profit,
because it should be able to close out the option at a lower price. If security
prices fall, the put writer would expect to suffer a loss. This loss should be
less than the loss from purchasing the underlying instrument directly, however,
because the premium received for writing the option should mitigate the effects
of the decline.
Writing a call option obligates the writer to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
REPURCHASE AGREEMENTS
Repurchase agreements involve an agreement to purchase a security and to sell
that security back to the original seller at an agreed-upon price. The resale
price reflects the purchase price plus an agreed-upon incremental amount which
is unrelated to the coupon rate or maturity of the purchased security. As
protection against the risk that the original seller will not fulfill its
obligation, the securities are held in a separate account at a bank,
marked-to-market daily, and maintained at a value at least equal to the sale
price plus the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has agreed to
purchase the security. In addition, delays or losses could result if the other
party to the agreement defaults or becomes insolvent. The fund will engage in
repurchase agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by the Board of Directors or its delegate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, a fund sells a security to another party,
such as a bank or broker-dealer, in return for cash and agrees to repurchase
that security at an agreed-upon price and time.
While a reverse repurchase agreement is outstanding, the fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been reviewed and found
satisfactory by the Board of Directors or its delegate. Such transactions may
increase fluctuations in the market value of the fund's assets and may be viewed
as a form of leverage.
SECURITIES LENDING
The fund may from time to time lend securities from its portfolio 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 fund during the term of the loan. The fund will retain the
incidents of ownership of the loaned securities and will 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 or sub-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 only to firms deemed by the Board of Directors to be
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
EI-11
<PAGE>
more of the outstanding voting securities present at a meeting, if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy, or (2) more than 50% of the outstanding voting securities. For
purposes of the following restrictions: (1) all percentage limitations apply
immediately after the making of an investment; and (2) any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio.
The fund may not:
1. with respect to 75% of the fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
2. issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended (1940 Act);
3. borrow money, except that the fund (a) may borrow money for temporary or
emergency purposes (not for leveraging or investment) or (b) engage in
reverse repurchase agreements, provided that (a) and (b) in combination
(borrowings) do not exceed 25% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that come
to exceed 25% of the value of the fund's total assets by reason of a decline
in net assets will be reduced within three days (exclusive of Sundays and
holidays) to the extent necessary to comply with the 25% limitation;
4. underwrite securities issued by others, except to the extent that the fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities;
5. purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets would
be invested in the securities of companies whose principal business
activities are in the same industry;
6. purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
7. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
8. lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does
not apply to purchases of debt securities or to repurchase agreements.
The following investment limitations for the fund are not fundamental and may be
changed without shareholder notification.
1. 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, and provided that transactions in futures contracts
and options are not deemed to constitute selling securities short.
2. 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 in connection
with futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
3. The fund may borrow money only (a) from a bank or (b) by engaging in reverse
repurchase agreements with any party [reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation
(3)]. The fund will not borrow money in excess of 25% of net assets so long
as this limitation is required for certification by certain state insurance
departments. Any borrowings that come to exceed this amount will be reduced
within seven days (not including Sundays and holidays) to the extent
necessary to comply with the 25% limitation. The fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding.
4. The fund does not currently intend to purchase any security if, as a result,
more than 10% of the fund's net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. (With respect to this limitation , if through a change in values,
net assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it would
consider appropriate steps to protect liquidity.)
5. The fund does not currently intend to lend assets other than securities to
other parties, except by
EI-12
<PAGE>
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated unfunded
commitments of the sellers. (This limitation does not apply to purchases of
debt securities or to repurchase agreements.)
6. The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations
(a) and (b) do not apply to securities received as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, the fund does not currently
intend to purchase the securities of other investment companies.)
DIVERSIFICATION
The fund qualifies as a diversified investment company under the 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, as applied to 75% of the
fund's total assets, (a) it would cause the fund to own more than 10% of the
outstanding voting securities of that issuer or (b) if it would cause the fund's
holdings of that issuer to amount to more than 5% of the fund's total assets. It
may invest up to 25% of its total assets in the securities of one issuer. The
fund does not anticipate concentrating its holdings in so few issuers unless the
sub-advisor believes a security has the potential for substantial income
production consistent with the fund's policies and goals. 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 it does so, its exposure to
credit risks and/or market risks associated with that issuer increases.
Other than the fund's fundamental investment policies and the limitations set
forth in the General SAI Disclosure and this SAI, there are no limits on the
percentage of the fund's assets which may be invested in any one type of
instrument. Nor are there limitations (except those described in this SAI, and
those imposed by certain state insurance regulations) on the percentage of the
fund's assets which may be invested in any foreign country. However, in order to
comply with diversification requirements under Section 817(h) of the Internal
Revenue Code of 1986, as amended, in connection with Fidelity Management Trust
Co. serving as sub-advisor, the fund has agreed to certain non-fundamental
limitations. Please refer to the Prospectus for the VAA for more information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
All orders for the purchase or sale of fund securities are placed on behalf of
the fund by the advisor (either directly or through affiliated advisors or
sub-advisors) pursuant to authority contained in the fund's advisory agreement.
The advisor may also be responsible for the placement of transaction orders for
other investment companies and accounts for which it or its affiliates act as
advisor or sub-advisor. Money market securities purchased and sold by the fund
generally will be traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the advisor will consider various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. Commissions for foreign investments traded on
foreign exchanges will generally be higher than for U.S. investments and may not
be subject to negotiation.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund and/or other accounts over which the
advisor or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities; and the availability of securities or the
purchasers or sellers of securities. In addition, such broker-dealers may
furnish analyses and reports concerning issuers, industries, securities,
economic factors and trends, fund strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). The advisor maintains a listing of
broker-dealers who provide such services on a regular basis. However, as many
transactions on behalf of the fund's money market securities are placed with
dealers (including broker-dealers on the list) without regard to the furnishing
of such services, it is not possible to estimate the proportion of such
transactions directed to such dealers solely because such services were
provided. The selection of such broker-dealers is generally made by the advisor
(to the extent possible consistent with execution considerations) in accordance
with a ranking of broker-dealers determined periodically by the advisor's
investment staff based upon the quality of research and execution services
provided.
For transactions in fixed-income securities, the advisor's selection of
broker-dealers is generally based on the availability of a security and its
price and, to a lesser extent, on the overall quality of execution and other
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<PAGE>
services, including research, provided by the broker-dealer.
The receipt of research from broker-dealers that execute transactions on behalf
of the fund may be useful to the advisor in rendering investment management
services to the fund and/or other clients, and conversely, such information
provided by broker-dealers who have executed transaction orders on behalf of
other advisor clients may be useful to the advisor in carrying out its
obligations to the fund. The receipt of such research has not reduced the
advisor's normal independent research activities; however, it enables the
advisor to avoid additional expenses that could be incurred if the advisor tried
to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or underwriter
acting as principal for the securities, on a net basis with no brokerage
commission paid. However, the dealer is compensated by a difference between the
security's original purchase price and the selling price, the so-called
"bid-asked spread." Securities may also be purchased from underwriters at prices
that include underwriting fees.
Subject to applicable limitations of the federal securities laws, broker dealers
may receive commissions for agency transactions that are in excess of the amount
of commissions charged by other broker dealers in recognition of their research
and/or execution services. In order to cause the fund to pay such higher
commissions, the advisor must determine in good faith that such commissions are
reasonable in relation to the value of the brokerage and research services
provided by such executing broker-dealers viewed in terms of a particular
transaction or the advisor's overall responsibilities to the fund and its other
clients. In reaching this determination, the advisor will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the compensation should be related to those services.
To the extent permitted by applicable law, the advisor is authorized to allocate
portfolio transactions in a manner that takes into account assistance received
in the distribution of shares of the funds or other Fidelity funds and to use
the research services of brokerage and other firms that have provided such
assistance. FMR may use research services provided by and place agency
transactions with National Financial Services Corporation (NFSC) and Fidelity
Brokerage Services Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. The advisor also
used research services provided by and placed agency transactions with Fidelity
Brokerage Services, Inc. (FBSI) and Fidelity Capital Markets, indirect
subsidiaries of FMR Corp.
The advisor may allocate brokerage transactions to broker-dealers (including
affiliates of the advisor) who have entered into arrangements with the advisor
under which the broker-dealer allocates a portion of the commissions paid by a
fund toward the reduction of that fund's expenses. The transaction quality must,
however, be comparable to those of other qualified broker-dealers.
The fund's Board of Directors periodically reviews the advisor's performance of
its responsibilities in connection with the placement of fund transactions on
behalf of the fund and reviews the commissions, if any, paid by the fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the fund.
BROKERAGE COMMISSIONS
Of the commissions paid to brokerage firms which provided research services, the
providing of such services is not necessarily a factor in the placement of all
business with such firms. The fund pays both commissions and spreads in
connection with the placement of fund transactions. The aggregate amount of
brokerage commissions paid by the fund during 1999 was $3,491,481, and for 1998
it was $504,893, and for 1997 it was $405,650. Brokerage commissions paid to
FBSI during 1999 and 1998 totaled about $191,040 and $41,678, respectively,
representing 5.5% and 8.2%, respectively, of total commissions paid. During 1999
and 1998, the percentage of the fund's transactions on which commissions were
paid effected through FBSI was 5.5% and 8.2%, respectively.
During 1999, the fund paid some brokerage commissions to firms that provided
research services.
From time to time the fund's Directors will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar fees
paid by the fund on fund transactions is legally permissible and advisable. The
fund seeks to recapture soliciting broker-dealer fees on the tender of portfolio
securities, but at present no other recapture arrangements are in effect. The
Directors intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the exercise
of their business judgment whether it would be advisable for the fund to seek
such recapture.
Although the advisor or its affiliates also manage other funds, investment
decisions for the fund are made independently from those of other funds managed
by the sub-advisor or accounts managed by affiliates of the sub-advisor. It
sometimes happens that the same security is held in the portfolio of more than
one of these funds or accounts. Simultaneous transactions are inevitable when
several funds are managed by the same investment advisor, particularly when the
same security is suitable for the investment objective of more than
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<PAGE>
one fund. 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.
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.
EI-15
<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
A-7
<PAGE>
Any fund authorized to do so may make secured loans of its portfolio
securities in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the fund's total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to
102% of the value of the securities lent.
The borrower pays the fund an amount equal to any dividends or interest
received on securities lent. The fund retains all or a portion of the
interest received on securities lent. The fund also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the fund retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of
those securities--including the fund--to vote or consent on matters which
could materially affect the holders' investment. The fund may also call
in the loaned securities in order to sell them. None of the fund's
portfolio securities will be loaned to Lincoln Investment, to any
sub-advisor, or to any of their respective affiliates. The fund may pay
reasonable finder's fees to persons unaffiliated with it in connection
with the arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. REPOS. From time to time, the funds may enter into Repo
transactions. In a typical Repo transaction, the fund involved buys
U.S. Government or other money market securities from a financial
institution (such as a bank, broker, or savings and loan
association). At the same time, as part of the arrangement, the fund
obtains an agreement from the seller to repurchase those same
securities from the fund at a specified price on a fixed future
date.
The repurchase date is normally not more than seven days from the
date of purchase. Repurchase agreements maturing in more than seven
days will be considered illiquid and subject to the fund's
restriction on illiquid securities.
2. REVERSE REPOS. A fund may also be authorized to enter into Reverse
Repo transactions. This simply means the fund is on the reverse side
of a Repo transaction. That is, the fund is the Seller of some of
its portfolio securities, subject to buying them back at a set price
and date.
Authorized funds will engage in Reverse Repos for temporary purposes,
such as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse
repo transaction is considered to be the borrowing of money by the
fund. Funds authorized to engage in Repos as buyers are not
necessarily authorized to do Reverse Repos.
RISKS OF OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to all funds except the International Fund and the Money
Market Fund. (Note: The SAIs for Aggressive Growth, Capital Appreciation,
Equity-Income and Global Asset Allocation Funds provide additional disclosures
concerning the types and risks of the strategic portfolio transactions in which
they may engage.)
OPTIONS TRADING
The fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the fund's
portfolio. The fund may not purchase or write put or covered call options in an
aggregate cost exceeding 30% of the value of its total assets. The fund would
invest in options in standard contracts which may be quoted on NASDAQ, or on
national securities exchanges. Currently options are traded on numerous
securities and indices including, without limitation, the Standard and
Poor's 100 Index (S&P 100), the Standard and Poor's 500 Index (S&P 500), and the
NYSE Beta Index.
Put and call options are generally short-term contracts with durations of nine
months or less. The investment advisor will generally write covered call options
when it anticipates declines in the market value of the portfolio securities and
the premiums received may offset to some extent the decline in the fund's net
asset value. On the other hand, writing put options may be a useful portfolio
investment strategy when the fund has cash or other reserves and it intends to
purchase securities but expects prices to increase.
A-8
<PAGE>
Generally, the risk to the fund in writing options is that the investment
advisor's assumption about the price trend of the underlying security may prove
inaccurate. If the fund wrote a put, expecting the price of a security to
increase, and it decreases, or if the fund wrote a call, expecting the price to
decrease but it increased, the fund could suffer a loss if the premium received
in each case did not equal the difference between the exercise price and the
market price.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of the position in the underlying security), the
fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
Principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price and price volatility
of the underlying security and the time remaining until the expiration date. In
addition, there is no assurance that the fund will be able to effect a closing
transaction at a favorable price. If the fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security. If a
substantial number of covered options written by the fund are exercised, the
fund's rate of portfolio turnover could exceed historic levels. This could
result in higher transaction costs, including brokerage commissions. The fund
will pay brokerage commissions in connection with the writing and purchasing of
options to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
FUTURES CONTRACTS AND OPTIONS THEREON
The fund may buy and sell financial futures contracts (futures contracts) and
related options thereon solely for hedging purposes. The fund may sell a futures
contract or purchase a put option on that futures contract to protect the value
of the fund's portfolio in the event the investment advisor anticipates
declining security prices. Similarly, if security prices are expected to rise,
the fund may purchase a futures contract or a call option thereon.
The fund may purchase and sell financial futures contracts (futures contracts)
as a hedge against fluctuations in the value of securities which are held in the
fund's portfolio or which the fund intends to purchase. The fund will engage in
such transactions consistent with the fund's investment objective. For certain
limited purposes, the fund may also be authorized to buy futures contracts on an
unleveraged basis and not as an anticipatory hedge. Currently, futures contracts
are available on Treasury bills, notes, and bonds as well as interest-rate and
stock market indexes.
The Bond, Growth and Income, Managed, Social Awareness, and Special
Opportunities funds may only purchase futures and related options thereon for
hedging purposes. The Aggressive Growth, Capital Appreciation, Equity-Income,
and Global Asset Allocation funds may purchase futures and related options for
both hedging and non-hedging purposes, but subject to the limits described in
each fund's SAI. The funds will not purchase or sell futures contracts or
related options if immediately thereafter more than 1/3 of its net assets would
be hedged.
There are a number of risks associated with futures hedging. Changes in the
price of a futures contract generally parallel but do not necessarily equal
changes in the prices of the securities being hedged. The risk of imperfect
correlation increases as the composition of the fund's securities portfolio
diverges from the securities that are the subject of the futures contract.
Because the change in the price of the futures contract may be more or less than
the change in the prices of the underlying securities, even a correct forecast
of price changes may not result in a successful hedging transaction. Another
risk is that the investment advisor could be incorrect in its expectation as to
the direction or extent of various market trends or the time period within which
the trends are to take place.
The fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. This investment policy does not apply to the
Capital Appreciation, Global Asset Allocation, and Equity-Income funds. There
can be no assurance that a liquid market will always exist for any particular
contract at any particular time. Accordingly, there can be no assurance that it
will always be possible to close a futures position when such closing is desired
and, in the event of adverse price movements, the fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been sold to hedge portfolio securities, such securities
will not be sold until the offsetting futures contracts can be executed.
Similarly, in the event futures have been bought to hedge anticipated securities
purchases, such purchases will not be executed until the offsetting futures
contracts can be sold.
Successful use of futures contracts by the fund is also subject to the ability
of the investment advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities.
A-9
<PAGE>
For example, if the fund has hedged against the possibility of an increase in
interest rates that would adversely affect the price of securities in its
portfolio and prices of such securities increase instead, the fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet such requirements. Such
sale of securities may be, but will not necessarily be, at increased prices that
reflect the rising market. The fund may have to sell securities at a time when
it is disadvantageous to do so. Where futures are purchased to hedge against a
possible increase in the price of securities before the fund is able to invest
its cash in an orderly fashion, it is possible that the market may decline
instead; if the fund then concludes not to invest in securities at that time
because of concern as to possible further market decline or for other reasons,
the fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The selling of futures contracts by the fund and use of related transactions in
options on futures contracts are subject to position limits, which are affected
by the activities of the investment advisor.
The hours of trading of futures contracts may not conform to the hours during
which the fund may trade securities. To the extent that the futures markets
close before the securities markets, significant price and rate movements can
take place in the securities markets that cannot be reflected in the futures
markets.
The fund's successful use of futures contracts and options thereon depends upon
the ability of its investment advisor to predict movements in the securities
markets and other factors affecting markets for securities and upon the degree
of correlation between the prices of the futures contracts and the prices of the
securities being hedged. As a result, even a correct forecast of price changes
may not result in a successful hedging transaction. Although futures contracts
and options thereon may limit the fund's exposure to loss, they may also limit
the fund's potential for capital gains. For example, if the fund has hedged
against the possibility of decrease in prices which would adversely affect the
price of securities in its portfolio and prices of such securities increase
instead, the fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
Although the fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
LENDING OF PORTFOLIO SECURITIES
The funds may from time to time lend securities from their portfolios to
brokers, dealers and financial institutions and receive collateral from the
borrower, in the form of cash (which may be invested in short-term securities),
U.S. Government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 102% of the current
market value of the loaned securities, and will be in the actual or constructive
possession of the particular fund during the term of the loan. The fund will
maintain the incidents of ownership of the loaned securities and will continue
to be entitled to the interest or dividends payable on the loaned securities. In
addition, the fund will receive interest on the amount of the loan. The loans
will be terminable by the fund at any time and will not be made to any
affiliates of the fund or the advisor. The fund may pay reasonable finder's fees
to persons unaffiliated with it in connection with the arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made to firms deemed by the advisor to be creditworthy.
RISKS OF REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The funds may make short-term investments in repurchase agreements. The
difference between the purchase price to the fund and the resale price to the
seller represents the interest earned by the fund which is unrelated to the
coupon rate or maturity of the purchased security. If the seller defaults, the
fund may incur a loss if the value of the collateral securing the repurchase
agreement declines, or the fund may incur disposition costs in connection with
liquidating the collateral. If bankruptcy proceedings are commenced with respect
to the seller, realization upon the collateral by the fund may be delayed or
limited and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. The Board of
Directors of the funds or its delegate will evaluate the creditworthiness of all
entities, including banks and broker-dealers, with which they propose to enter
into repurchase agreements. These transactions will be fully collateralized; and
the collateral for each
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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
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federal tax considerations with respect to the fund. State and local taxes vary.
DERIVATIVE TRANSACTIONS-DEFINITIONS
The SAI for each fund and this uniform Appendix discuss the type of derivative
transactions in which the funds may engage and the risks typically associated
with many derivative transactions. Here are some definitions for the derivatives
listed in the Appendix:
OPTION. A contract which gives the fund the right, but not the obligation, to
buy or sell specified securities at a fixed price before or at a designated
future date. If the contract allows the fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options trading
to terminate an outstanding option contract by entering into an offsetting
transaction known as a closing transaction; as a result of which the fund would
either pay out or receive a cash settlement. This is discussed below.
CURRENCY OPTION. Discussed later.
FIXED INCOME OPTION. One based on a fixed-income security, such as a corporate
or government bond.
INDEX OPTION. One based on the value of an index which measures the fluctuating
value of a basket of pre-selected securities.
STOCK (EQUITY) OPTION. One based on the shares of stock of a particular company.
OPTION ON A FUTURES CONTRACT. Discussed later.
SWAP. A financial transaction in which the fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the notional
amount. A swap is normally used to change the market risk associated with a loan
or bond borrowing from one interest rate base (fixed term or floating rate) or
currency of one denomination to another.
EQUITY SWAP. One which allows the fund to exchange the rate of return (or some
portion of the rate) on its portfolio stocks (an individual share, a basket or
index) for the rate of return on another equity or non-equity investment.
INTEREST RATE SWAP. One in which the fund and another party exchange different
types of interest payment streams, pegged to an underlying notional principal
amount. The three main types of interest rate swaps are coupon swaps (fixed rate
to floating rate in the same currency); basis swaps (one floating rate index to
another floating rate index in the same currency); and cross-currency interest
rate swaps (fixed rate in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. Cap. A contract for which the buyer pays a fee, or premium, to obtain
protection against a rise in a particular interest rate above a certain
level. For example, an interest rate cap may cover a specified principal
amount of a loan over a designated time period, such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the
rate cap pays the purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. Floor. A contract in which the seller agrees to pay to the purchaser, in
return for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should interest
rates fall below the agreed level (the floor). A floor contract has the
effect of a string of interest rate guarantees.
c. Collar. An arrangement to simultaneously purchase a cap and sell a floor, in
order to maintain interest rates within a defined range. The premium income
from the sale of the floor reduces or offsets the cost of buying the cap.
d. Corridor. An agreement to buy a cap at one interest rate and sell a cap at a
higher rate.
SWAPTION. An option to enter into, extend, or cancel a swap.
FUTURES CONTRACT. A contract which commits the fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM). Futures contracts pegged to U.S.
and foreign fixed-income securities, debt indices and reference rates.
STOCK INDEX FUTURES. Futures contracts based on an index of pre-selected stocks,
with prices based on a composite of the changes to the prices of the individual
securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT. An option taken on a futures position.
FORWARD CONTRACT. An over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA). A contract in which the fund and another party
agree on the interest rate to be paid on a notional deposit of specified
maturity at a specific future time. Normally, no exchange of principal
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is involved; the difference between the contracted rate and the prevailing rate
is settled in cash.
CURRENCY CONTRACT. A contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES. Futures contracts on foreign currencies. Used to hedge the
purchase or sale of foreign securities.
CURRENCY OPTION. An option taken on foreign currency.
CURRENCY SWAP. A swap involving the exchange of cash flows and principal in one
currency for those in another, with an agreement to reverse the principal swap
at a future date.
CROSS-CURRENCY INTEREST RATE SWAP. A swap involving the exchange of streams of
interest rate payments (but not necessarily principal payments) in different
currencies and often on different interest bases (e.g., fixed Deutsche Mark
against floating dollar, but also fixed Deutsche Mark against fixed dollar).
FORWARD CURRENCY CONTRACT. A contract to lock in a currency exchange rate at a
future date, to eliminate risk of currency fluctuation when the time comes to
convert from one currency to another.
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PART C - OTHER INFORMATION
Item 23. Exhibits:
(a)1.- Articles of Incorporation (filed with post-effective
Amendment No. 6 to this Registration Statement)
(a)2.- Articles Supplementary (filed with post-effective
Amendment No. 5 to this Registration Statement)
(b) - By-Laws (filed with post-effective
Amendment No. 6 to this Registration Statement)
(c) - Certificate*
(d)1.- Advisory Agreement between Lincoln Investment Management, Inc.
and Lincoln National Equity Income Fund, Inc. dated
September 23, 1993.*
(d)2.- Sub-Advisory Agreement between Lincoln Investment Management,
Inc. and Fidelity Management Trust Company dated
December 20, 1993.*
(d)3.- Amendment, dated January 1, 1998 to Advisory
Agreement between Lincoln Investment Management, Inc. and
Lincoln National Equity-Income Fund, Inc. Dated September 23,
1993.*
(d)4.- Amendment, dated January 1, 1998, to Sub-Advisory
Agreement between Lincoln Investment Management, Inc. and
Fidelity Management & Trust Company dated December 20, 1993.*
(e)1.- N/A
(e)2.- Specimen Agents Contract (filed with post-effective
Amendment No. 5 to this Registration Statement)
(f) - NA
(g)1.- Custody Agreement*
(g)2.- Custody Fee Schedule (filed with post-effective
Amendment No 5. to this Registration Statement)
(h)1.- Fund Participation Agreement
(h)2.- Trade Name Agreement*
(h)3.- Service Agreement between Delaware Management Holdings, Inc.,
Delaware Service Company, Inc., Lincoln National Equity
Income Fund 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.
(h)4.- Amendment to Fund Participation Agreement
(i) - Opinion of counsel*
(j) - Consent of Ernst & Young LLP, Independent Auditors
(k) - NA
(l) - Investment Letter*
(m) - NA
(n) - NA
(o) - N/A
(p) - Code of Ethics
1. - Lincoln National Equity Income Fund, Inc.
2. - Lincoln Investment Management, Inc.
3. - Fidelity Investments
(q)1. - Power of Attorney, Kenneth G. Stella is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
2. - Power of Attorney, John B. Borsch, Jr. is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
3. - Power of Attorney, Barbara S. Kowalczyk is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
4. - Power of Attorney, Nancy L. Frisby is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
5. - Power of Attorney, Eric C. Jones is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
6. - Power of Attorney, Janet C. Chrzan is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
7. - Power of Attorney, Kelly D. Clevenger is incorated by
reference to Post-Effective Amendment No. 9 filed on
April 16, 1999
(r) - Org Chart
(s) - Memorandum Concerning Books and Records
* Filed with Post-Effective Amendment No. 7 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 its Variable Life Account K, is
the sole shareholder in the Fund.
No persons are controlled by the Registrant. A diagram of all
persons under common control with the Registrant is filed as
Exhibit 15(a) to the Form N-4 Registrant Statement filed by
Lincoln National Variable Annuity Account C (File No. 33-25990),
and is incorporated by reference into this Registration
Statement.
Item 25. Indemnification
As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the "1940 Act") and pursuant to Article
VII of the Fund's By-Laws (Exhibit (b) to the Registration
Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, and
Sotickholder, officer, director, emplyee, agent or other
person for any action or failure to act, except for bad faith,
willful misfeasance, gross negligence or reckless disregard of
duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the
same exceptions. Section 2-418 of Maryland General
Corporation Law permits indemnification of directors who acted
in good faith and reasonably believed that the conduct was in
the best interests of the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted
to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1940 Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in
connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the 1940 Act and will
be governed by the final adjudication of such issue.
The Registrant will purchase an insurance policy insuring its
officers and directors against liabilities, and certain costs
of defending claims against such officers and directors, to
the extent such officers and directors are not found to have
committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of
their duties. The insurance policy will also insure the
Registrant against the cost of indemnification payments to
officers and directors under certain circumstances.
Section 9 of the Investment Advisory Agreement (Exhibit (d)1
to the Registration Statement) and Section 4 of the
Sub-Advisory Agreement (Exhibit (d)2 to the Registration
Statement) limit the liability of Lincoln National Investment
Management Company and Fidelity Management Trust Company to
liabilities arising from willful misfeasance, bad faith or gross
negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and
duties under the agreements.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its By-Laws in a manner
consistent with Release No. 11330 of the Securities and
Exchange Commission under the 1940 Act so long as the
interpretations of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
<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, Fidelity Management Trust Co. ("Fidelity") 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 Fidelity's Form ADV filed
separately with the Commission (File No. 801-7884).
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 Fidelity are hereby
incorporated by reference, respectively, from Schedules A and D
of Lincoln Investment's Form ADV and from Schedules A and D of
Fidelity's Form ADV.
(a) As of March 23, 2000, the officers and/or directors of the
Investment Adviser held the following positions:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS
INVESTMENT PROFESSION, VOCATION OR
NAME ADVISER EMPLOYMENT; ADDRESS
- ------------------------ --------------------- ---------------------------------------------------------
<S> <C> <C>
David A. Berry 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
Steven R. Brody Vice President President and Director, Lincoln National Realty
and Director Corporation; Vice President, The Lincoln National Life
Insurance Company, 200 East Berry Street,
Fort Wayne, Indiana 46802
Philip C. Byrde Vice President Vice President, Lincoln National Life Insurance Company
and Second Vice President, Lincoln Life & Annuity Company
of New York 200 East Berry Street, Fort Wayne, Indiana 46802
Mark Laurent Second Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
J. Michael Keefer Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
General Counsel and
Assistant Secretary,
And Director
H. Thomas McMeekin President and President and Director, Lincoln National Convertible
Director Securities Fund, Inc., Lincoln National Income Fund,
Inc., Executive Vice President and Chief Investment
Officer, Lincoln National Corporation; Executive Vice
President and Chief Investment Officer, Fixed-Income
Delaware Management Company, and Director of Lincoln
National Investments, Inc. (Formerly Lincoln National
Investment Companies, Inc.) Director, Delaware
Management Holdings, Inc., Lincoln National Realty
Corporation, Lynch & Mayer, Inc., Vantage Global Advisors,
Lincoln National Life Insurance Company, 200 East Berry
Street, Fort Wayne, Indiana 46802
David C. Patch Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Luke Girard Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
David J. Miller Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
Howard R. Lodge Vice President 200 East Berry Street, Fort Wayne, Indiana 46802
</TABLE>
(b) The Sub-Advisor. As of March 23, 2000, the officers and/or
directors of the Sub-Advisor are as follows:
Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
The proposed roster of Officers and Committees of Fidelity Management
Trust Company listed below has been modified to include personnel changes
through March 23, 2000.
FMTC OFFICERS AND DIRECTORS
----------------------------
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
John F. McNamara* Chairman of the Board, President and
Chief Executive Officer:
Edward E. Madden* Vice Chairman:
LEGAL, ADMINISTRATION AND COMPLIANCE
John P. O'Reilly, Jr.* Executive Vice President:
Vincent P. Walsh Vice President:
CLIENT SERVICES
Thomas Leavitt III(1) Senior Vice President:
Garrett Williams
Paul M. Cahill, Jr. Vice President:
James Carroll
Mary Cross
Patrick DeMayo
Kenneth Fazio
HUMAN RESOURCES
Eileen M. Pyne Senior Vice President:
Ann McKenzie Vice President:
<PAGE>
OPERATIONS/FINANCE/CHANNELS
John E. Murphy* Senior Vice President, Chief
Financial Officer and Treasurer:
Daniel Persechini Vice President, Finance:
Marybeth Richardson
David Censorio Vice President, Operations:
Michael Hall
Ian Johnson
Doug Knox
Sally Miller
Louis Russo
Rhonda Snow
Cheryl Gladstone Vice President, Channels:
Steven M. Quackenbush
PRODUCT DEVELOPMENT, MARKETING AND MARKETING SUPPORT
Michael Forrester Senior Vice President:
Bill Fink
John F. Haley
Michael Strong
Kim Adelman Vice President:
Jeffrey Gandel
Alan Kirby
Robert Swanson
Derek Young
SALES MANAGEMENT
Arthur J. Greenwood Senior Vice President:
Thomas Leavitt III(1)
Walter Lindsay
William Lynch
R. Reuel Stanley
David Yearwood
SALES MANAGEMENT (CONTINUED)
Robert Allen Vice President:
Matthew Appelstein
Stephen Bard
Christopher Blair
Robert Fitzpatrick
James T. Mattera
Lawrence Reale
Mark D. Toomey
SYSTEMS
Margaret Smith Senior Vice President:
Tricia Cristoforo Vice President:
Kevin Long
INVESTMENTS, EQUITY
Karen Firestone Senior Vice President:
Ren Y. Cheng
Jennifer Farrelly
Timothy Heffeman
Cesar Hernandez
Robert Lawrence*
Robert L. Macdonald
John McDowell
Neal Miller
Stephen Petersen
Kennedy Richardson
Scott Stewart
Beth Terrana
George Vanderheiden
John Avery Vice President:
Joseph Day
Stephen DuFour
Bahaa Fam
Richard Fentin
Richard Mace
Steve Snider
Tom Sprague
Myra Wonisch
INVESTMENT, FIXED INCOME
Dwight Churchill Senior Vice President:
Boyce Greer
INVESTMENT, FIXED INCOME (CONTINUED)
Robert K. Duby Vice President:
Andrew J. Dudley
George Fischer
Robin Lee Foley
Robert Galusza
Kevin Grant
Norm Lind
Charles Morrison
David L. Murphy
Ford E. O'Neil
Thomas J. Silvia
Mark Sommer
Christine Thompson
INVESTMENTS, HIGH YIELD
Margaret Eagle Senior Vice President:
Bart Grenier
Thomas T. Soviero
John Carlson Vice President:
Barry Coffman
Tom Hense
Mark Notkin
Jonathan Kelly
INVESTMENTS, REAL ESTATE
Barry Greenfield Senior Vice President:
Lee Sandwen
David Bagnani
Michael Elizondo
Thomas P. Lavin
Steve Rosen
Mark P. Snyderman
PERSONAL TRUST
James Cornell Senior Vice President:
Deborah C. Segal Vice President:
Katheleen Brooks Trust Oficer:
Maryanne Duca
Karen Grenthen
Amy Z. Resnic
Jeffrey Richman
TRADING DESK
Jacques Perold Vice President:
<PAGE>
OTHER OFFICERS:
Name Title
---- -----
John P. O'Reilly, Jr.* INSTITUTIONAL TRUST
Eileen M. Pyne AFFIRMATIVE ACTION OFFICER
John E. Murphy* BANK SECRECY ACT COMPLIANCE OFFICER
Eileen M. Pyne CRA LIAISON
John E. Murphy* SECURITY OFFICER
Lisa Menelly CLERK
William Corson ASSISTANT CLERK
Douglas Kant
John Kimpel
John P. O'Reilly, Jr.*
* Denotes Director
</TABLE>
<PAGE>
COMMITTEES
----------
EXECUTIVE COMMITTEE
-------------------
Edward E. Madden*
John E. Murphy*
John F. McNamara*
John P. O'Reilly, Jr.*
TRUST COMMITTEE
---------------
Dwight D. Churchill
John F. Haley
Robert A. Lawrence*
John F. McNamara*
James M. McKinney
John P. O'Reilly, Jr.*
Richard Spillane
AUDIT COMMITTEE
---------------
Denis M. McCarthy*
Ralph B. Vogel*, Chairman
John P. Wilkins*
CRA COMMITTEE
-------------
John F. McNamara*
John E. Murphy*
Meg Morton
Daniel Persechini
Eileen Pyne
ASSET LIABILITY COMMITTEE (ALCO)
-------------------------------
John F. McNamara*
John E. Murphy*
Daniel Persechini
* Denotes Director
<PAGE>
DIRECTORS
---------
Robert A. Lawrence*
Edward E. Madden*
Denis M. McCarthy
John F. McNamara*
John E. Murphy*
John P. O'Reilly, Jr.*
Robert L. Reynolds
Ralph B. Vogel
John P. Wilkins
* Denotes Officer
<PAGE>
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
See Exhibit (s).
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under
Rule 485(b) under the Securities Act and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Wayne, and State of Indiana,
on the 10th day of April, 2000.
LINCOLN NATIONAL
EQUITY INCOME FUND, INC.
By /s/ Kelly D. Clevenger
----------------------------
Kelly D. Clevenger
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below on April 10, 2000, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
/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. 9 filed on
Steven M. Kluever April 16, 1999.
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Equity-Income Fund, Inc. a corporation organized
under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE
CO., an Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively referred to as
"Variable Insurance Products," the owners of such products being referred to as
"Product owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange
Commission (the "SEC") and the SEC has declared effective a registration
statement (referred to herein as the "Fund Registration Statement" and the
prospectus contained therein, or filed pursuant to Rule 497 under the 1933 Act,
referred to herein as the "Fund Prospectus") on Form N-lA to register itself as
an open-end management investment company (File No. 811-3212) under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund shares
(File No. 2-80743) under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Company has filed a registration statement with the
SEC to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts and/or variable life insurance policies described in Schedule
2 to this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly
authorized by the Company on the date set forth on Schedule 1, sets aside and
invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company and the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which
the Company orders on behalf of the Account, executing such orders on a daily
basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it being
understood that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any
full or fractional shares of the Fund held by the Account or the Company,
executing such requests at the net asset value on a daily basis (LL will expect
same day redemption wires unless unusual circumstances evolve which cause the
Fund to have to redeem securities) in accordance with Section 1.4 of this
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the
Company shall be the agent of the Fund for the limited purpose
of receiving redemption
2
<PAGE>
and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business
Day by the Company as such limited agent of the Fund prior to
the time prescribed in the current Fund Prospectus (which as
of the date of execution of this Agreement is 4 p.m., E.S.T.)
shall constitute receipt by the Fund on that same Business
Day, provided that the Fund receives notice of such redemption
or purchase request by 9:00 a.m., E.S.T. on the next following
Business Day. For purposes of this Agreement, "Business Day"
shall mean any day on which the New York Stock exchange is
open for trading.
(b) The Company shall pay for the shares on the same
day that it places an order with the Fund to purchase those
Fund shares for an Account. Payment for Fund shares will be
made by the Account or the Company in Federal Funds
transmitted to the Fund by wire to be received by 11:00 a.m.,
E.S.T. on the day the Fund is properly notified of the
purchase order for shares. The Fund will confirm receipt of
each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds
are not received on time, such funds will be invested, and
shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the
Company by wire on the same day the Fund is notified of the
redemption order of shares, except that the Fund reserves the
right to delay payment of redemption proceeds, but in no event
may such payment be delayed longer than the period permitted
under Section 22(e) of the 1940 Act. The Fund shall not bear
any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be
redeemed; the Company alone shall be responsible for such
action.
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income dividends or capital gain distributions
payable on any shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any shares in the form of additional shares of that Fund. The Company reserves
the right, on its behalf and on behalf of the Account, to revoke this election
and to receive all such dividends in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset
value per share available to the Company by 7:00 p.m., E.S.T. each Business Day,
and in any event, as soon as reasonably practicable after the net asset value
per share is calculated, and shall calculate such net asset value in accordance
with the then currently effective Fund Prospectus. The Fund shall not be liable
for
3
<PAGE>
any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company to the
Fund.
1.8. (a) The Company may withdraw the Account's investment
in the Fund only: (i) as necessary to facilitate Contract
owner requests; (ii) upon a determination by a majority of the
Fund Board, or a majority of disinterested Fund Board members,
that an irreconcilable material conflict exists among the
interests of (x) any Product Owners or (y) the interests of
the Participating Insurance Companies investing in the Fund;
(iii) upon requisite vote of the Contractowners having an
interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of
the Contracts; (iv) as required by state and/or federal laws
or regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant
to an order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the
arrangement contemplated by this Agreement is not exclusive
and that the Fund shares may be sold to other insurance
companies (subject to Section 1.9 hereof) and the cash value
of the Contracts may be invested in other investment
companies.
(c) The Company shall not, without prior notice to
the Fund (unless otherwise required by applicable law), take
any action to operate the Accounts as management investment
companies under the 1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to
Participating Insurance Companies and their separate accounts. The Fund will not
sell Fund shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts
are registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
4
<PAGE>
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The Fund further represents and warrants that it is a corporation duly
organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund further represents and warrants
that it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies,
fees and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of
the current Fund Prospectus as the Company may reasonably request. If requested
by the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for
5
<PAGE>
the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund and the Fund
shall provide such Statement free of charge to the Company and to any
outstanding or prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the
Company a camera-ready copy of the Fund's shareholder reports
and other communications to shareholders (except proxy
material), in each case in a form suitable for printing, as
determined by the Company. The Fund shall be responsible for
the costs of printing and distributing these materials to
Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material. The
Company will provide the appropriate Contractowner names and
addresses to the Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use,
each piece of sales literature or other promotional material in which the Fund
is named. No such material shall be used, except with the prior written
permission of the Fund. The Fund agrees to respond to any request for approval
on a prompt and timely basis. Failure of the Fund to respond within 10 days of
the request by the Company shall relieve the Company of the obligation to obtain
the prior written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus, as such Registration
Statement and Prospectus may be amended or supplemented from time to time, or in
published reports of the Account which are in the public domain or approved in
writing by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved in writing by the Company,
except with the prior written permission of the Company. The Company agrees to
respond to any request for permission on a prompt and timely basis. If the
Company fails to respond within 10 days of a request by the Fund, then the Fund
is relieved of the obligation to obtain the prior written permission of the
Company.
6
<PAGE>
3.7. The Fund will provide to the Company at least one complete
copy of all Fund Registration Statements, Fund Prospectuses, Statements of
Additional Information, annual and semi-annual reports and other reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements to
any of the above, that relate to the Fund or Fund shares, within 20 days after
the filing of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts Prospectuses,
Statements of Additional Information, Annual and Semi-annual Reports, sales
literature and other promotional materials, and all amendments or supplements to
any of the above, that relate to the Contracts, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, computer net site, signs or billboards, motion pictures or
other public media), sales literature (I.E., any written communication
distributed or made generally available to customers or the public, in print or
electronically, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
Statements of Additional Information, shareholder reports and proxy materials,
and any other material constituting sales literature or advertising under NASD
rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article
VII, the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of
Article VII, the Company shall:
(a) vote Fund shares attributable to
Contract owners in accordance with
7
<PAGE>
instructions or proxies received in timely fashion from such
Contract owners;
(b) vote Fund shares attributable to
Contract owners for which no instructions have been received
in the same proportion as Fund shares of such Series for
which instructions have been received in timely fashion; and
(c) vote Fund shares held by the Company on
its own behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion as
Fund shares of such Series for which instructions have been
received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing
Fund Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account Prospectuses
and SAIs for existing Contractowners. The Company shall have the final decision
on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration
Statements under the 1933 Act and the Account's Registration Statement under the
1940 Act from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable law. The
Company shall register and qualify the Contracts for sale to the extent
8
<PAGE>
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under
the 1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by applicable
securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will describe
the circumstances under which a Contract could be treated as a modified
endowment contract (or policy).
6.5. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of
any applicable state-mandated investment restrictions with
which the Fund must comply, the Company shall arrange with
the Fund to amend Schedule 3, pursuant to the requirements
of Article XI.
(b) Should the Fund become aware of any restrictions
which may be appropriate for inclusion in Schedule 3, the
Company shall be informed immediately of the substance of
those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of
the Fund (the "Board") any potential or existing conflicts between the
interests of Product Owners of all separate accounts investing in the Fund,
and to assist the Board in carrying out its responsibilities under Section
6e-3(T) of the 1940 Act, by providing all information reasonably necessary
for the Board to consider any issues raised, including information as to a
decision to disregard voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested
Board Members, determines that a material irreconcilable conflict exists, the
Board shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice
to the Company and a reasonable opportunity for the Company
to appear before it and present its case, determines that the
Company is responsible for said conflict, and if the Company
9
<PAGE>
agrees with that determination, the Company shall, at its sole
cost and expense, take whatever steps are necessary to remedy
the material irreconcilable conflict. These steps could
include: (i) withdrawing the assets allocable to some or all
of the affected Accounts from the Fund and reinvesting such
assets in a different investment vehicle, or submitting the
question of whether such segregation should be implemented to
a vote of all affected Contractowners and, as appropriate,
segregating the assets of any particular group (i.e., variable
annuity Contractowners, variable life insurance policyowners,
or variable Contractowners of one or more Participating
Insurance Companies) that votes in favor of such segregation,
or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered
mutual fund or management separate account; or (iii) taking
such other action as is necessary to remedy or eliminate the
material irreconcilable conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with
the Board, reserving its right to dispute the determination as
between just the Company and the Fund and to seek
reimbursement from the Fund for the reasonable costs and
expenses of resolving the conflict. After reserving that
right the Company, although disagreeing with the Board that it
(the Company) was responsible for the conflict, shall take the
necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for
the protection of Contractowners.
(c) As between the Company and the Fund, if within 45
days after the Board's determination the Company elects to
press the dispute, it shall so notify the Board in writing.
The parties shall then attempt to resolve the matter amicably
through negotiation by individuals from each party who are
authorized to settle the matter. If the matter has not been
amicably resolved within 60 days from the date of the
Company's notice of its intent to press the dispute, then
before either party shall undertake to litigate the dispute it
shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator; PROVIDED, HOWEVER, that if one party has requested
the other party to seek an amicable resolution and the other
party has failed to participate, the requesting party may
initiate arbitration before expiration of the 60-day period
set out just above.
If within 45 days of the commencement of the process to
select an arbitrator the parties cannot agree upon the
arbitrator, then he or she will be selected from the CPR
Panels of Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Sec. 1-16. The place
of arbitration shall be Fort Wayne, Indiana. The Arbitrator is
not empowered to award damages in excess of compensatory
damages.
(d) If the Board shall determine that the Fund
or another was responsible for the conflict, then the Board
shall notify the Company immediately
10
<PAGE>
of that determination. The Fund shall assure the Company that
it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever
steps are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall
constitute a waiver of any right of action which the Company
may have against other Participating Insurance Companies for
reimbursement of all or part of the costs and expenses of
resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the
disinterested members of the Board shall determine whether or not any
proposed action adequately remedies any irreconcilable conflict. However, in
no event will the Fund be required to establish a new funding medium for any
variable contract, nor will the Company be required to establish a new
funding medium for any Contract, if in either case an offer to do so has been
declined by a vote of a majority of affected Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund and each person who controls or is
associated with the Fund (other than another Participating Insurance Company)
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any
and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid with the prior written consent of the Company in
settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the Contracts Registration Statement, Contracts
Prospectus, sales literature or other promotional material for
the Contracts or the Contracts themselves (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
11
<PAGE>
statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Fund
(or a person authorized in writing to do so on behalf of the
Fund) for use in the Contracts Registration Statement,
Contracts Prospectus or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact by or
on behalf of the Company (other than statements or
representations contained in the Fund Registration Statement,
Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or
distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Fund
Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or
on behalf of the Company; or
(d) arise as a result of any failure by the Company
to provide the services and furnish the materials or to make
any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company
of this Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares
on a timely basis in accordance with the procedures set forth
in Article I; or
(f) arise as a result of the Company's
providing the Fund with inaccurate information, which causes
the Fund to calculate its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify
and hold harmless the Company and each person who controls or is associated with
the Company within the meaning of such terms under the federal securities laws
and any officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
12
<PAGE>
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the Fund Registration Statement, Fund Prospectus
(or any amendment or supplement thereto) or sales literature
or other promotional material of the Fund, or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing by the Company to the Fund for use in the
Fund Registration Statement, Fund Prospectus (or any amendment
or supplement thereto) or sales literature for the Fund or
otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact made
by the Fund (other than statements or representations
contained in the Fund Registration Statement, Fund Prospectus
or sales literature or other promotional material of the Fund
not supplied by the Distributor or the Fund or persons under
their control) or wrongful conduct of the Fund or persons
under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the
Contract's Registration Statement, Contracts Prospectus or
sales literature or other promotional material for the
Contracts (or any amendment or supplement thereto), or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in
writing by the Fund to the Company (or a person authorized in
writing to do so on behalf of the Fund); or
(d) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including, but not by way of limitation, a
failure, whether unintentional or in good faith or otherwise:
(i) to comply with the diversification requirements specified
in Sections 2.4 and 6.1 in Article VI of this Agreement; and
(ii) to provide the Company with accurate information
sufficient for it to calculate its accumulation and/or annuity
unit values
13
<PAGE>
in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Fund of
this Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party
entitled to indemnification ("indemnified party") under this Article VIII of
notice of the commencement of any action, if a claim in respect thereof is to be
made by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement thereof
as soon as practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Article
VIII, except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give such notice. The indemnifying party, upon the
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those
14
<PAGE>
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120
days advance written notice to the other parties; or
(b) at the option of the Company if shares
of the Fund are not available to meet the requirements of the
Contracts as determined by the Company. Prompt notice of the
election to terminate for such cause shall be furnished by
the Company. Termination shall be effective ten days after
the giving of notice by the Company; or
(c) at the option of the Fund upon
institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any
other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the
operation of the Account, the administration of the Contracts
or the purchase of Fund shares;
(d) at the option of the Company upon
institution of formal proceedings against the Fund, the
investment advisor or any sub-investment advisor, by the
NASD, the SEC, or any state securities or insurance commission
or any other regulatory body; or
(e) upon requisite vote of the Contract
owners having an interest in the Fund (unless otherwise
required by applicable law) and written approval of the
Company, to substitute the shares of another investment
company for the corresponding shares of the Fund in accordance
with the terms of the Contracts; or
(f) at the option of the Fund in the event
any of the Contracts are not registered, issued or sold in
accordance with applicable Federal and/or state law; or
(g) at the option of the Company or the Fund
upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of
(i) any Product owners or (ii) the interests of the
Participating Insurance Companies investing in the Fund; or
(h) at the option of the Company if the Fund ceases
to qualify as a Regulated Investment Company under Subchapter
M of the Code, or under any
15
<PAGE>
successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund
may fail to so qualify; or
(i) at the option of the Company if the Fund fails to
meet the diversification requirements specified in Section
817(h) of the Code and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease
to qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes
that the Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall
determine, in its sole judgment exercised in good faith, that
either (1) the Company shall have suffered a material adverse
change in its business or financial condition; or (2) the
Company shall have been the subject of material adverse
publicity which is likely to have a material adverse impact
upon the business and operations of the Fund; or
(l) at the option of the Company, if the Company
shall determine, in its sole judgment exercised in good faith,
that: (1) the Fund shall have suffered a material adverse
change in its business or financial condition; or (2) the Fund
shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company; or
(m) automatically upon the assignment of this
Agreement (including, without limitation, any transfer of the
Contracts or the Accounts to another insurance company
pursuant to an assumption reinsurance agreement) unless the
non-assigning party consents thereto or unless this Agreement
is assigned to an affiliate of the Company or the Fund, as the
case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon
the provisions of Article VII or the provisions of Section
10.1(a) of this Agreement, such prior written notice shall be
given in advance of the effective date of termination as
required by such provisions; and
(b) in the event that any termination is based upon
the provisions of Section 10.1(c) or 10.1(d) of this
Agreement, such prior written notice shall be given at least
ninety (90) days before the effective date of termination, or
sooner if required by law or regulation.
10.3. EFFECT OF TERMINATION
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 Equity-Income 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 EQUITY-INCOME FUND, INC.
Signature:
--------------------------------------------------------
Name: Kelly D.Clevenger
------------------------------------------------------------
Title: President
-----------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
--------------------------------------------------------
Name: Stephen H. Lewis
------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
--------------------------------------------------------------
19
<PAGE>
SCHEDULE 1
Lincoln National Equity-Income 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
- --------------------------------------------
20
<PAGE>
SCHEDULE 2
Lincoln National Equity-Income 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
- ---------------------------
21
<PAGE>
SCHEDULE 3
Lincoln National Equity-Income Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if
it is invested in a minimum of three different countries at all times,
and has invested no more than 50 percent of total assets in any one
second-tier country and no more than 25 percent of total assets in any
one third-tier country. First-tier countries are: Germany, the United
Kingdom, Japan, the United States, France, Canada, and Australia.
Second-tier countries are all countries not in the first or third tier.
Third-tier countries are countries identified as "emerging" or
"developing" by the International Bank for Reconstruction and
Development ("World Bank") or International Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a
minimum of three countries. The name of the fund must accurately
describe the FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
22
<PAGE>
Amendment to
Schedule 2
----------
Lincoln National Equity-Income 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 CVUL
MULTI FUND - NON-REGISTERED
DB
LINCOLN VUL
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule 2 to be executed in its name and behalf by its duly authorized officer
on the date specified below.
LINCOLN NATIONAL EQUITY-INCOME
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 Equity-Income 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 Equity-Income 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 CVUL
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 EQUITY-INCOME
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
Equity-Income 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 EQUITY-INCOME
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. 10 to the Registration Statement (Form N-1A) (No.
33-71158) of Lincoln National Equity-Income 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
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<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.
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<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.
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<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;
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<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.
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<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.
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<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>
Exhibit A
To: The Ethics Office, Mailzone N8A
ACKNOWLEDGMENT OF RECEIPT - 2000
------------------------------ --------------------------------
Date Signature
------------------------------ --------------------------------
Internal Phone Please Print Your Name Here
------------------------------ --------------------------------
Social Security Number Badge Number
/ / Regular Employee / / Temporary Employee
I acknowledge receipt of the Policy Package dated January 1, 2000, containing:
- --------------------------------------------------------------------------------
POLICY NAME APPLICABILITY
- --------------------------------------------------------------------------------
The Code of Ethics and the Insider All employees
Trading Policy Statement
- --------------------------------------------------------------------------------
Personal Conduct Rules Registered employees (e.g., series 6, 7,
63, etc.) and employees of Fidelity
Brokerage Services, Inc., National
Financial Services Corporation, Fidelity
Investments Institutional Services
Company, Inc., and Fidelity Distributors
Corporation.
- --------------------------------------------------------------------------------
I represent that I have read and understand the policies that apply to me, and
acknowledge that my personal and beneficially owned securities transactions are
subject to the terms of the Fidelity Code of Ethics and the Insider Trading
Policy Statement and, if applicable, the Personal Conduct Rules. I certify to
the best of my knowledge that all my personal and beneficially owned securities
transactions, for the current calendar year or since my date of employment, have
been reported as required and are consistent with the terms of the Fidelity Code
of Ethics and the Insider Trading Policy Statement and that I have conducted
myself in accordance with the Insider Trading Policy Statement and, if
applicable, the Personal Conduct Rules. I certify that I have shared the
provisions of the Code of Ethics and the Insider Trading Policy Statement with
family members sharing my household. In addition, I certify my understanding
that Fidelity's Professional Conduct Policies apply to me. (HR Web at
http://mgs.fmr.com/hr/polproc)
I authorize access to my Fidelity mutual fund and/or brokerage accounts by
Fidelity as deemed necessary pursuant to Rule 204-2(a)(12) of the Investment
Advisers Act of 1940, and I further authorize Fidelity to receive duplicate
confirmations and statements for any personal or beneficially owned brokerage
account I maintain outside Fidelity. I acknowledge that any communications with
the Ethics Office including pre-clearances of reportable securities transactions
required pursuant to this Code may be recorded.
I understand that Fidelity may amend any of the attached policies at any time,
and that it is my responsibility to be aware of and adhere to the most current
version of the policies.
RETURN TO THE ETHICS OFFICE, N8A
COE---YR2K
<PAGE>
[LOGO] MEMO
|X| Fidelity Internal
|_| Fidelity Confidential
|_| Fidelity Highly Confidential
TO: ALL FIDELITY EMPLOYEES
FROM: THE ETHICS OFFICE
CORPORATE COMPLIANCE
DATE: December 10, 1999
SUBJECT: The Code of Ethics for Personal Investing and the Personal Conduct
Rules
The attached policy package contains policies and
procedures which you are expected to comply with as a
condition of your employment. They are:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
POLICY NAME APPLICABILITY
---------------------------------------------------------------------------------
<S> <C>
The Code of Ethics for Personal All employees
Investing and The Insider Trading
Policy Statement
---------------------------------------------------------------------------------
Personal Conduct Rules Registered employees (e.g., series
6, 7, 63, etc.) and employees of
Fidelity Brokerage Services, Inc.,
National Financial Services
Corporation, Fidelity Investments
Institutional Services Company,
Inc., and Fidelity Distributors
Corporation.
---------------------------------------------------------------------------------
</TABLE>
Please read the policies that apply to you and
immediately sign the Acknowledgment of Receipt. THE
ACKNOWLEDGMENT MUST BE RETURNED TO THE ETHICS OFFICE,
MAILZONE N8A, NO LATER THAN JANUARY 31, 2000 (OR WITHIN
SEVEN DAYS OF YOUR DATE OF HIRE).
This year, we would like to report a 100% return of
Acknowledgments to senior management by January 31.
Please help us reach this goal by immediately taking the
time to read the policies and to return your signed
Acknowledgment. In addition to improving the timeliness
of returns, you will directly assist in our ongoing
effort to decrease Fidelity's distribution and
collection costs.
In addition, there are Professional Conduct Policies
that are separate from this package that also apply to
you. These policies include, but are not limited to:
FIDELITY INVESTMENTS 82 Devonshire Street, N8A Memo - Page 1
THE ETHICS OFFICE Boston, MA 02109
<PAGE>
[LOGO] MEMO
|X| Fidelity Internal
|_| Fidelity Confidential
|_| Fidelity Highly Confidential
- Outside Activities and Affiliations
- Gifts and Gratuities
- Electronic Communications.
You may view these policies and others that will apply to you on HR Web on the
Intranet at HTTP://MGS.FMR.COM/HR/POLPROC.
Please use the following contacts to direct your questions to the appropriate
party:
- For questions about the Personal Conduct Rules, contact your local
compliance advisor or Corporate Compliance at (617)563-3149.
- For questions about the Code of Ethics and the Insider Trading Policy
Statements, you may contact the Ethics Office by calling
(617)563-5566, or emailing "Code of Ethics."
SUMMARY OF CHANGES, EFFECTIVE JANUARY 1, 2000
The Code of Ethics has recently been amended to clarify existing policy. The
substantive changes are as follows:
APPLICABLE TO ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES.
- HOLDINGS DISCLOSURE (SECTION IV. A.): Access Persons must provide a
list of personal and beneficially owned holdings within 7 days of
commencement of employment or designation as an Access Person. In
addition, Access Persons must file an annual holdings update. This is
a new requirement under amended Rule 17j-1 of the Investment Company
Act of 1940.
STEPS TO HELP YOU COMPLY
1. Determine if you are a Non-Access Person, Access Person, Investment
Professional or Senior Executive as defined in the Code of Ethics (Section
III). If you have any questions regarding your access designation, please
contact us by calling (617)563-5566 or by emailing us at "Code of Ethics."
2. Read the Code of Ethics and, if applicable, the Personal Conduct Rules and
return your signed Acknowledgment (Exhibit A) to the Ethics Office,
mailzone N8A, by January 31. If you were hired after January 1, the signed
Acknowledgment, your Personal Brokerage Account Disclosure Form (Exhibit
E), and, if applicable, your Personal Holdings Disclosure Form (Exhibit F)
must be returned within 7 days of your hire date.
FIDELITY INVESTMENTS 82 Devonshire Street, N8A Memo - Page 2
THE ETHICS OFFICE Boston, MA 02109
<PAGE>
[LOGO] MEMO
|X| Fidelity Internal
|_| Fidelity Confidential
|_| Fidelity Highly Confidential
3. Familiarize yourself with the general provisions of the Code of Ethics that
apply to all employees as well as the specific provisions that will apply
to you based upon your access designation.
4. If you have executed transactions in an approved external brokerage account
and find that they have not been reported to the Ethics Office as required,
immediately forward copies of account statements with the transaction
information to us. If an account statement is not available, complete the
Report of Securities Transactions (Exhibit B) with the requested
information, and send it to us at N8A. Once again, it is your
responsibility to ensure that duplicate confirmations and statements for
approved external accounts are forwarded to the Ethics Office.
5. If you are a new employee:
a) Disclose to the Ethics Office all personal and beneficially owned
brokerage accounts you currently maintain, whether with Fidelity
Brokerage Services, Inc. (FBSI) or another broker-dealer. (Exhibit E).
b) Immediately initiate a transfer, or close, all personal and
beneficially owned brokerage accounts at brokers other than those
approved for the region unless you receive written permission from the
Ethics Officer, or his designee, to maintain an external account (see
Exhibit G). If you receive written permission from the Ethics Officer,
or his designee, to maintain an account outside of the approved broker
for the region, it is your responsibility to ensure that duplicate
confirmations and statements are being sent to the Ethics Office.
c) If you are an Access Person, Investment Professional or Senior
Executive, disclose to the Ethics Office all personal and beneficially
owned holdings using Exhibit F. Your disclosure should include private
placements and certificated shares.
6. Notify the Ethics Office if you are a beneficial owner of a Fidelity
Brokerage Services, Inc. (FBSI) account that is not under your name
(Exhibit E).
FIDELITY INVESTMENTS 82 Devonshire Street, N8A Memo - Page 3
THE ETHICS OFFICE Boston, MA 02109
<PAGE>
FIDELITY INTERNAL INFORMATION
FIDELITY INVESTMENTS'
CODE OF ETHICS FOR PERSONAL INVESTING
AND
THE STATEMENT OF POLICIES AND
PROCEDURES ON INSIDER TRADING
JANUARY 1, 2000
page 4
<PAGE>
FIDELITY INTERNAL INFORMATION
TABLE OF CONTENTS
CODE OF ETHICS
I. PURPOSE AND SCOPE OF THIS CODE........................................6
A. PERSONAL SECURITIES TRANSACTIONS...................................6
B. GUIDING PRINCIPLES.................................................6
II. PERSONS (AND ACCOUNTS) TO WHOM THIS CODE APPLIES......................7
A. ACCESS PERSONS.....................................................7
B. NON-ACCESS TRUSTEES................................................8
C. PORTFOLIO MANAGERS.................................................8
D. FIDELITY EMPLOYEES.................................................8
E. OTHER PERSONS......................................................8
F. COVERED ACCOUNTS (BENEFICIAL OWNERSHIP)............................8
III. PROVISIONS APPLICABLE TO FIDELITY EMPLOYEES AND THEIR ACCOUNTS.....9
A. PROCEDURAL REQUIREMENTS............................................9
B. PROHIBITED ACTIVITIES.............................................11
C. RESTRICTED ACTIVITIES.............................................12
IV. ADDITIONAL REQUIREMENTS APPLICABLE TO ACCESS PERSONS..............13
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS........................13
B. PRE-CLEARANCE.....................................................13
C. GOOD-TILL-CANCELED ORDERS.........................................14
D. PURCHASE OF CLOSED-END FUNDS......................................14
V. ADDITIONAL REQUIREMENTS APPLICABLE TO INVESTMENT PROFESSIONALS AND
SENIOR EXECUTIVES....................................................14
A. PRIVATE PLACEMENTS................................................14
B. SURRENDER OF SHORT-TERM TRADING PROFITS...........................15
C. PURCHASE OF SECURITIES OF CERTAIN BROKER-DEALERS..................15
D. RESEARCH NOTES....................................................15
E. AFFIRMATIVE DUTY TO RECOMMEND SUITABLE SECURITIES.................16
F. AFFIRMATIVE DUTY TO DISCLOSE......................................16
G. SERVICE AS A DIRECTOR OR TRUSTEE..................................16
VI. PROHIBITION ON CERTAIN TRADES BY PORTFOLIO MANAGERS...............16
VII. NON-ACCESS TRUSTEES...............................................17
VIII. WAIVERS AND EXCEPTIONS............................................17
A. REQUESTS TO WAIVER A PROVISION OF THE CODE OF ETHICS..............17
B. EXCEPTIONS........................................................17
IX. ENFORCEMENT.......................................................17
A. REVIEW............................................................17
B. BOARD REPORTING...................................................18
C. VIOLATIONS........................................................18
D. SANCTIONS.........................................................18
E. APPEALS PROCEDURES................................................18
INSIDER TRADING POLICY STATEMENT...........................................23
PERSONAL CONDUCT RULES(only applicable to employees affiliated with a
broker-dealer)...........................................................30
EXHIBITS...................................................................37
page 5
<PAGE>
CODE OF ETHICS FOR PERSONAL INVESTING
This document constitutes the Code of Ethics adopted by the Fidelity Funds (the
"Funds"), the subsidiaries of FMR Corp. that serve as investment advisors or
principal underwriters and their affiliated companies (collectively, the
"Fidelity Companies") pursuant to the provisions of Rule 17j-1 under the
Investment Company Act of 1940 and of Rules 204-2(a)(12) and 204-2(a)(13) under
the Investment Advisers Act of 1940 (collectively, the "Rules").
I. PURPOSE AND SCOPE OF THIS CODE
A. PERSONAL SECURITIES TRANSACTIONS
This Code focuses on personal transactions in securities by persons
associated with the various Fidelity Companies. Accordingly, the Code
does not attempt to address all areas of potential liability under
applicable laws. For example, provisions of the Investment Company Act
of 1940 prohibit various transactions between a fund and affiliated
persons, including the knowing sale or purchase of property to or from
a fund on a principal basis and joint transactions between a fund and
an affiliated person. This Code does not address these other areas of
potential violation. Accordingly, persons covered by this Code are
advised to seek advice from the Ethics Officer, or his or her designee
(collectively, the "Ethics Office"), before engaging in any
transaction other than the normal purchase or sale of fund shares or
the regular performance of their business duties if the transaction
directly or indirectly involves themselves and one or more of the
Funds.
B. GUIDING PRINCIPLES
The Code is based on the principle that the officers, directors,
partners and employees of the Fidelity Companies owe a fiduciary duty
to, among others, the shareholders of the Funds to place the interests
of the Fund shareholders above their own and to conduct their personal
securities transactions in a manner which does not interfere with Fund
transactions, create an actual or potential conflict of interest with
a Fund or otherwise take unfair advantage of their relationship to the
Funds. Persons covered by this Code must adhere to this general
principle as well as comply with the Code's specific provisions. It
bears emphasis that technical compliance with the Code's procedures
will not automatically insulate from scrutiny trades which show a
pattern of abuse of the individual's fiduciary duties to the Fidelity
Funds in general or a specific Fund in particular. For officers and
employees of Fidelity Management & Research Company ("FMR") and its
affiliates, the fiduciary responsibility applies to all of the
investment companies advised by FMR or any of its affiliates as well
as any account holding the assets of third parties for which FMR or
any of its affiliates acts in an investment advisory capacity (both
types of portfolios hereinafter referred to as the "Fidelity Funds" or
"Funds").
Recognizing that certain requirements are imposed on investment
companies and their advisers by virtue of the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, considerable thought
has been given to devising a code of ethics designed to provide legal
protection to accounts for which a fiduciary relationship exists and
at the same time maintain an atmosphere within which conscientious
professionals may develop and maintain investment skills. It is the
combined judgment of the Fidelity Companies and the Boards of the
Funds that as a matter of policy a code of ethics should not inhibit
page 6
<PAGE>
responsible personal investment by professional investment personnel,
within boundaries reasonably necessary to insure that appropriate
safeguards exist to protect the Funds. This policy is based on the
belief that personal investment experience can over time lead to
better performance of the individual's professional investment
responsibilities. The logical extension of this line of reasoning is
that such personal investment experience may, and conceivably should,
involve securities which are suitable for the Funds in question. This
policy quite obviously increases the possibility of overlapping
transactions. The provisions of this Code, therefore, are designed to
foster personal investments while minimizing conflicts under these
circumstances and establishing safeguards against overreaching.
II. PERSONS (AND ACCOUNTS) TO WHOM THIS CODE APPLIES
Unless otherwise specified, each provision of this Code applies to all
members of the Board of the Funds, and all officers, directors, partners
and employees of every Fidelity Company. In addition, the provisions apply
to any individual designated and so notified in writing by the Ethics
Office. Where the applicability of a particular provision is more limited,
the provision will so state. For example, particular provisions may state
they are limited to:
A. ACCESS PERSONS
This category includes Investment Professionals, Senior Executives and
certain other employees specified in paragraph II. A. 2. below.
1. INVESTMENT PROFESSIONALS are (i) portfolio managers, research
analysts and traders employed by FMR; (ii) employees seconded to
FMR from Fidelity International Limited ("FIL") performing
similar functions; (iii) all employees of the Capital Markets
Division of Fidelity Investment Institutional Brokerage Group
("FIIBG"); (iv) officers (vice-president and above) and members
of the Boards of Directors of FMR; and (v) such other employees
as the Ethics Office may designate and so notify in writing.
2. SENIOR EXECUTIVES are (i) officers (vice-president and above) and
members of the Boards of Directors of FMR Corp.; (ii) attorneys
within Administrative and Government Affairs' ("AGA") Legal
Department; (iii) employees of the Fund Treasurer's Department,
the FMR Investment & Advisor Compliance Department and the
Compliance Systems Technology Group; and (iv) such other
employees as the Ethics Office may designate and so notify in
writing.
3. OTHER ACCESS PERSONS are all other employees who, in connection
with their regular duties, make, participate in, or obtain timely
information regarding the purchase or sale of a security by a
Fund or of any investment recommendation to a Fund. This includes
(i) employees of FMR, Fidelity Management Trust Company ("FMTC"),
and Fidelity Pricing and Cash Management Services ("FPCMS"); (ii)
other employees seconded from FIL to the foregoing companies;
(iii) all employees with access to the BOS E (AS400 trading
machine), BOS H (AS400 development machine), INVIEW, BONDVIEW or
OVERVIEW systems or any other system containing timely
information about the Funds' activities or investment
recommendations made to the Funds; (iv) all employees within
AGA's Operations Audit and Analysis Department, and (v) such
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other employees as the Ethics Office may designate and so notify
in writing.
Although the Ethics Office seeks to notify Access Persons of
their status as such, you are required to comply with all
provisions applicable to Access Persons if you are within the
above definitions even if the Ethics Office does not notify you
of your status. Please contact the Ethics Office if you believe
you are an Access Person or if you are unsure of your status
under the Code.
B. NON-ACCESS TRUSTEES
1. Trustees of the Fidelity Group of Funds will generally be deemed
Access Persons; however, Trustees who fulfill both of the
following conditions will be deemed "Non-Access Trustees" and
treated as a separate category:
a) The Trustee is not an "interested person" (as defined in
Section 2(a)(19) of the Investment Company Act of 1940) of
any Fidelity Fund; and
b) The Trustee elects not to receive the Daily Directors'
Report and further elects not to have access to the INVIEW,
BONDVIEW, or OVERVIEW systems; PROVIDED that this condition
shall only be considered fulfilled as of the fifteenth day
after the Trustee has notified the Ethics Office of such
election.
C. PORTFOLIO MANAGERS.
This category includes employees whose assigned duties are to manage
any Fund, or portion thereof, and who have the power and authority to
make investment decisions on behalf of such Fund or portion thereof.
D. FIDELITY EMPLOYEES.
This category includes all employees of the Fidelity Companies,
including employees seconded to any Fidelity Company by FIL.
E. OTHER PERSONS.
These are persons as specified in a particular provision of the Code
or as designated by the Ethics Office.
F. COVERED ACCOUNTS (BENEFICIAL OWNERSHIP).
It bears emphasis that the provisions of the Code apply to
transactions in reportable securities for any account "beneficially
owned" by any person covered by the Code. The term "beneficial
ownership" is more encompassing than one might expect. For example, an
individual may be deemed to have beneficial ownership of securities
held in the name of a spouse, minor children, or relatives sharing his
or her home, or under other circumstances indicating a sharing of
financial interest. See the Appendix to this Code for a more
comprehensive explanation of beneficial ownership. Please contact the
Ethics Office if you are unsure as to whether you have beneficial
ownership of particular securities or accounts.
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III. PROVISIONS APPLICABLE TO FIDELITY EMPLOYEES AND THEIR ACCOUNTS
A. PROCEDURAL REQUIREMENTS
1. REPORTS ON REPORTABLE SECURITIES. Fidelity has established
certain procedures to monitor individual transactions in
reportable securities (as defined below) for compliance with this
Code, and to avoid situations which have the potential for
conflicts of interest with the Funds. You and all persons subject
to this Code are required to comply with the procedures described
below. Failure to follow these procedures or the filing of a
false, misleading or materially incomplete report will itself
constitute a violation of this Code.
Reports required under Section III.A.5. are necessary only for
transactions in reportable securities. If an investment is made
in an entity substantially all of whose assets are shares of
another entity or entities, the security purchased should be
reported and the underlying security or securities identified.
Furthermore, if an investment is made in a private placement,
this transaction must be reported. (See Exhibit B.)
"REPORTABLE SECURITIES" are ALL securities except:
a) U.S. Treasury Notes, Bills and Bonds;
b) money market instruments such as certificates of deposit,
banker's acceptances and commercial paper;
c) shares of registered open-end investment companies;
d) securities issued by FMR Corp.;
e) any obligations of agencies and instrumentalities of the
U.S. government if the remaining maturity is one year or
less; and
f) commodities and options and futures on commodities provided
that the purchase of these instruments may not be utilized
to indirectly acquire interests or securities which could
not be acquired directly or which could not be acquired
without reporting or pre-clearance. See Section III.B.4.
2. ACKNOWLEDGMENT. Each new Fidelity employee will be given a copy
of this Code of Ethics upon commencement of employment. Within 7
days thereafter, you must file an acknowledgment (Exhibit A.)
stating that you have read and understand the provisions of the
Code of Ethics, and provide a written list to the Ethics Office
of all brokerage accounts in which you are a beneficial owner of
any securities in the account (Exhibit E.). Additionally, your
acknowledgment accords Fidelity the authority to access at any
time records for any beneficially owned brokerage account for the
period of time you were employed by Fidelity.
3. ANNUAL UPDATE. Each year, on or before January 31, you must file
an annual update stating that you have reviewed the provisions of
the Code of Ethics, understand the provisions of the Code and
that the Code applies to you, and believe that your personal
transactions in reportable securities for the previous calendar
year, and those of your family members which are deemed to be
beneficially owned by you, have been reported as required under
the Code and were consistent with its provisions (Exhibit A.).
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4. USE OF BROKERS.
a) ALL FIDELITY EMPLOYEES must conduct all personal and
beneficially owned transactions in reportable securities
through a brokerage account at Fidelity Brokerage Services,
Inc. (FBSI), or with an approved broker outside the U.S.
(See Exhibit G.). By opening an account with FBSI you agree
to allow FBSI to forward to the Ethics Office reports of
your account transactions and to allow the Ethics Office
access to all account information. Upon opening such an
account you are required to notify FBSI of your status as an
employee.
b) HARDSHIP EXCEPTION: Under circumstances evidencing special
hardship and then only with the express written approval of
the Ethics Office, you may be granted a waiver to establish
accounts for trading reportable securities with brokers
other than FBSI or those approved for the region. (See
Section VIII.). If you maintain an account with an external
broker pursuant to permission from the Ethics Office, you
must ensure duplicate reporting as specified in "Transaction
Reporting." (See Section III. A. 5.).
5. TRANSACTION REPORTING. Each employee must report personal
transactions in reportable securities to the Ethics Office.
Failure to file a report will be treated as the equivalent of a
report indicating that there were no transactions in reportable
securities. This reporting obligation may be met as follows:
a) FBSI Accounts: The Ethics Office will assume responsibility
for obtaining trade information from FBSI for accounts in
your name and all other related FBSI accounts that have been
disclosed to the Ethics Office by you.
b) Non-FBSI (External) Accounts: If any transactions in
reportable securities are not being conducted through a FBSI
account (including those conducted through an approved
broker outside the U.S. or another external broker pursuant
to permission from the Ethics Office), you are responsible
for ensuring that the institution where the account is
maintained agrees to, and promptly provides, regular copies
of confirmations and statements directly to the Ethics
Office. These confirmations and statements must include the
trade date, security description, number of shares or
principal amount of each security, the nature of the
transaction (e.g., purchase or sale), the total price and
the name of the institution that effected the transactions.
If transactions cannot or are not reported by the external
institution in this fashion, permission to open the account
will not be granted or will be revoked by the Ethics Office.
c) Failure to Report by External Brokers. As noted above,
employees are responsible for ensuring their transactions in
reportable securities not conducted through a FBSI account
are reported to the Ethics Office. If you have executed
transactions through an external broker and the broker does
not report the transactions as specified in paragraph b)
above, you must promptly forward the necessary information
to the Ethics Office. If
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account statements with the necessary information are not
available, you must complete the REPORT OF SECURITIES
TRANSACTIONS (Exhibit B) with the information and forward it
to the Ethics Office.
B. PROHIBITED ACTIVITIES
1. ACTIVITIES FOR PERSONAL BENEFIT. Inducing or causing a Fund to
take action, or to fail to take action, for personal benefit
rather than for the benefit of the Fund is prohibited. For
example, you would violate this Code by causing a Fund to
purchase a security you owned for the purpose of supporting or
increasing the price of that security. Causing a Fund to refrain
from selling a security in an attempt to protect a personal
investment, such as an option on that security, also would
violate this Code.
2. PROFITING FROM KNOWLEDGE OF FUND TRANSACTIONS. Using your
knowledge of Fund transactions to profit by the market effect of
such transactions is prohibited.
3. VIOLATIONS OF THE ANTIFRAUD LAWS AND REGULATIONS. Violations of
the antifraud provisions of the federal securities laws and the
rules and regulations promulgated thereunder, including the
antifraud provision of Rule 17j-1 under the Investment Company
Act of 1940, are prohibited. In that Rule, the Securities and
Exchange Commission specifically makes it unlawful for any person
affiliated with a Fund, investment adviser or principal
underwriter of a Fund in connection with the purchase or sale,
directly or indirectly, by such person of a "security held or to
be acquired" by such Fund:
"(1) To employ any device, scheme or artifice to defraud the
Fund;
(2) To make any untrue statement of a material fact to the Fund
or omit to state a material fact necessary in order to make
the statements made to the Fund, in light of the
circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit upon the
Fund; or
(4) To engage in any manipulative practice with respect to the
Fund."
Rule 17j-1 defines "security held or to be acquired" very broadly
to include any security (other securities that are not reportable
securities) that, "within the most recent 15 days, (i) is or has
been held by such company, or (ii) is being or has been
considered by such company or its investment adviser for purchase
by such company, and (iii) any option to purchase or sell, and
any security convertible into or exchangeable for" a reportable
security. Thus the antifraud provisions of Rule 17j-1 may apply
to transactions in securities even if not recently traded by a
Fund. Under Rule 17j-1, a sufficient nexus exists if a fraud is
effected in connection with a security held for a long period in
a portfolio or merely considered for inclusion in a portfolio. In
addition, the receipt of compensation in the form of an
opportunity to purchase a security that is intended to induce a
Fund to purchase other securities must be reported under this
Rule, whether or not the compensation is in the form of an
opportunity to purchase a security "held or to be acquired" by a
Fund. Moreover, the
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general antifraud provisions of the Securities Exchange Act of
1934 and other federal securities statutes make unlawful fraud in
connection with the purchase or sale of securities, even if such
securities do not fall within the scope of Rule 17j-1.
4. USE OF DERIVATIVES. Derivatives, including futures and options,
and other arrangements may not be used to evade the restrictions
of this Code. Accordingly, you may not use derivatives or other
arrangements with similar effects to take positions in securities
that the Code would prohibit if the positions were taken
directly. For purposes of this section, "futures" are futures on
securities or securities indexes; "options" are options (puts or
calls) on securities or securities indexes, or options on futures
on securities or securities indexes. Options and futures on
commodities are not "reportable securities" except as specified
in Section III. A. 1. f).
5. GIFTS AND HOSPITALITIES. The Fidelity Companies generally
prohibit employees from receiving gifts, gratuities, and other
from any person or entity that does business with the Funds or
with any Fidelity Company or from any entity which is a potential
portfolio investment for the Funds. Fidelity's Gifts and
Gratuities Policy, which is separate from this Code, sets forth
the specific policies, restrictions and procedures to be observed
by employees with respect to business-related gifts and related
matters.
6. RESTRICTED SECURITIES. From time to time, the Ethics Office may
place a security on a restricted list. Certain employees, as
designated on a case-by-case basis by the Ethics Office, may not
effect transactions in securities on the restricted list.
7. INVESTMENTS IN HEDGE FUNDS AND INVESTMENT CLUBS. You may not
invest in hedge funds or investment clubs because such funds or
clubs cannot normally be expected to comply with the provisions
of this Code.
C. RESTRICTED ACTIVITIES
The following are restricted by this Code of Ethics:
1. SHORT SALE ACTIVITIES. Purchasing puts to open, selling calls to
open or selling a security short where there is no corresponding
long position in the underlying security is prohibited; short
sales against the box are permitted. This prohibition includes
purchasing puts and selling calls on all market indexes with the
exception of the following indexes: S&P 100, S&P Mid Cap 400, S&P
500, Morgan Stanley Consumer Index, FTSE 100 and Nikkei 225.
Short sales of the Fidelity Select Portfolios are also
prohibited.
2. PUBLIC OFFERINGS FOR WHICH NO PUBLIC MARKET PREVIOUSLY EXISTED.
The purchase of an initial public offering of securities for
which no public market in the same or similar securities of that
issuer has previously existed is prohibited except as noted
below. This prohibition includes "secondary" public offerings
(where the securities are offered publicly by a substantial
shareholder and not from the company's treasury) and so-called
"free stock offers" through the Internet, and applies both to
equity and debt securities.
EXCEPTIONS. Exceptions from this prohibition may be granted in
special circumstances with the written permission of the Ethics
Office (e.g.,
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receipt of securities or their subsequent sale by an insurance
policyholder or depositor of a company converting from mutual to
stock form).
3. EXCESSIVE TRADING. While active personal trading does not in and
of itself raise issues under Rule 17j-1, the Fidelity Companies
and Boards of the Funds believe that a very high volume of
personal trading can be time consuming and can increase the
possibility of actual or apparent conflicts with portfolio
transactions. Accordingly, an unusually high level of personal
trading activity is strongly discouraged and may be monitored by
the Ethics Office to the extent appropriate for the category of
person, and a pattern of excessive trading may lead to the taking
of appropriate action under the Code.
4. DISCRETIONARY AUTHORIZATION. You may not exercise investment
discretion over accounts in which you have no beneficial
interest. If you wish to do so, you must contact the Ethics
Office for approval.
IV. ADDITIONAL REQUIREMENTS APPLICABLE TO ACCESS PERSONS
Because of their access to information about Fund investments and/or
investment recommendations, Access Persons are necessarily subject to
somewhat greater restrictions and closer scrutiny than are other persons
subject to the Code. Accordingly, in addition to complying with the
provisions detailed in Section III of this Code, Access Persons are
required to comply with the provisions of this section.
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS.
Access Persons must disclose in writing all personal securities
holdings owned directly or otherwise beneficially owned. (See Exhibit
F.)
1. INITIAL REPORT. Each new Access Person must file a holdings
disclosure within 7 days of the commencement of employment or of
being designation an Access Person.
2. ANNUAL REPORT. Each Access Person must file a holdings report
containing current information as of a date no more than 30 days
before the report is submitted.
B. ALL PERSONAL TRADES IN REPORTABLE SECURITIES MUST BE CLEARED IN
ADVANCE BY THE APPROPRIATE PRE-CLEARANCE DESK.
One of the most important objectives of this Code is to prevent Access
Persons from making personal trades on the basis of information about
portfolio transactions made by the Funds. Trading on such information
for personal benefit not only constitutes a violation of this Code,
but also may influence the market in the security traded and thus
prevent transactions for the Funds from being conducted at the most
favorable price. To further reduce the possibility that Fund
transactions will be affected by such trades, Access Persons must
comply with the following procedures before effecting a personal
transaction in any securities which are "reportable securities":
1. PRE-CLEARANCE PROCEDURES.
a) On any day that you plan to trade a reportable security, you
must first contact the appropriate pre-clearance desk for
approval. (See Exhibit H.) (PLEASE NOTE THAT PRE-CLEARANCE
COMMUNICATIONS MAY BE RECORDED FOR THE PROTECTION OF
FIDELITY AND ITS EMPLOYEES.) By seeking pre-clearance, you
will be deemed to be advising the
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Ethics Office that you (i) do not possess any material,
nonpublic information relating to the security; (ii) are not
using knowledge of any proposed trade or investment program
relating to the Funds for personal benefit; (iii) believe
the proposed trade is available to any market participant on
the same terms; and (iv) will provide any other relevant
information requested by the Ethics Office. The
pre-clearance desk will consider approval of the trade for
execution only upon the day the request is made. Generally,
a pre-clearance request will not be approved if the
pre-clearance desk determines that the trade will have a
material influence on the market for that security or will
take advantage of, or hinder, trading by the Funds.
Additionally, the pre-clearance desk will evaluate a
pre-clearance request for a transaction to determine if you
are in compliance with the other provisions of the Code
relevant to such transaction. Securities and transaction
types that do not require pre-clearance include the
following: currency warrants; rights subscriptions; gifting
of securities; automatic dividend reinvestments; and options
on the following indexes: S&P 100, S&P Mid Cap 400, S&P 500,
Morgan Stanley Consumer Index, FTSE 100 and Nikkei 225.
b) Transactions in accounts beneficially owned by an employee
where investment discretion has been provided to a third
party in a written document and for which the employee
provides no input regarding investment decision making will
not be subject to pre-clearance. Transactions in reportable
securities in such accounts, however, still must be reported
under this Code.
c) In addition to any other sanctions provided for under the
Code (see Section IX. D.), failure to pre-clear a
transaction as required above may result in a requirement to
surrender any profits realized in connection with the
transaction.
C. GOOD-TILL-CANCELED ORDERS.
Access Persons may not place good-till-canceled orders.
Good-till-canceled orders may inadvertently cause an employee to
violate the pre-clearance provisions of this Code.
D. PURCHASE OF CLOSED-END FUNDS.
The purchase of closed-end funds for which a Fidelity Company performs
the pricing and bookkeeping services is prohibited without prior
approval by the Ethics Office.
V. ADDITIONAL REQUIREMENTS APPLICABLE TO INVESTMENT PROFESSIONALS AND SENIOR
EXECUTIVES
In addition to complying with the provisions detailed in Sections III and
IV of this Code, Investment Professionals and Senior Executives are
required to comply with the provisions of this section.
A. PRIVATE PLACEMENTS.
Private placements are in many cases not suitable investments for the
Funds. However, in various circumstances, they may be suitable
investments. In order
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to avoid even the appearance of a conflict of interest between their
personal investment activities and their fiduciary responsibility to
the Funds' shareholders, Investment Professionals and Senior
Executives must follow the procedures outlined below to participate in
a private placement.
1. PRIOR APPROVAL TO PARTICIPATE.
You must receive written approval from your Division or
Department Head and the Ethics Office, utilizing Exhibit C, prior
to any purchase of a privately placed security. If you are a
Division or Department Head, then approval shall be received from
the President of FMR. (See Exhibit C.)
2. TRANSACTION REPORTING.
If approved, you must report the purchase to the Ethics Office
within 10 days of the end of the month in which the purchase
occurred, using the REPORT OF SECURITIES TRANSACTIONS form
(Exhibit B.).
3. IN THE EVENT OF SUBSEQUENT INVESTMENT BY A FUND OR FUNDS.
After approval is granted, if you have any material role in
subsequent consideration by any Fund of an investment in the same
or an affiliated issuer, you must disclose your interest in the
private placement investment to the person(s) making the
investment decision. Notwithstanding such a disclosure, any
decision by any Fund to purchase the securities of the issuer, or
an affiliated issuer, must be subject to an independent review by
your Division or Department Head.
B. SURRENDER OF SHORT-TERM TRADING PROFITS.
Short-term trading can be both time consuming and can increase the
possibility of actual or apparent conflicts with Fund transactions. To
reduce instances of short-term trading, the Fidelity Companies and the
Boards of the Funds have determined that Investment Professionals and
Senior Executives will be required to surrender short-term trading
profits. )
Short-term trading profits are profits generated from the purchase and
sale of the same (or equivalent) security within 60 calendar days.
Transactions will be matched with any opposite transaction within the
most recent 60 calendar days. Options on the following indexes are not
subject to this provision: S&P 100, S&P Mid Cap 400, S&P 500, Morgan
Stanley Consumer Index, FTSE 100 and Nikkei 225. Exhibit D contains
further information and examples concerning application of this
policy.
C. PURCHASE OF SECURITIES OF CERTAIN BROKER-DEALERS.
Investment Professionals and Senior Executives, unless specifically
excluded by the Ethics Office, may not purchase securities of certain
broker-dealers or parent companies as identified from time to time by
the Ethics Office based upon the level and nature of services provided
to the Funds.
D. RESEARCH NOTES.
Investment Professionals and Senior Executives specifically designated
by the Ethics Office must wait two business days after the day on
which a research note is issued prior to trading for their
beneficially owned accounts in the securities of the issuer(s) that is
the subject of the note.
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E. AFFIRMATIVE DUTY TO RECOMMEND SUITABLE SECURITIES.
A portfolio manager or a research analyst may not fail to timely
recommend a suitable security to, or purchase or sell a suitable
security for, a Fund in order to avoid an actual or apparent conflict
with a personal transaction in that security. Before trading any
security, a portfolio manager or research analyst has an affirmative
duty to provide to Fidelity any material, public information that
comes from the company about such security in his or her possession.
As a result, portfolio managers or research analysts should (a)
confirm that a Research Note regarding such information on such
security is on file prior to trading in the security, or (b) if not,
should either contact the Director of Research or publish such
information in their possession and wait two business days prior to
trading in the security.
F. AFFIRMATIVE DUTY TO DISCLOSE.
Investment Professionals and Senior Executives who own a security, or
who have decided to effect a personal transaction in a security, have
an affirmative duty to disclose this information in the course of any
communication about that security when the purpose or reasonable
consequence of such communication is to influence a portfolio to buy,
hold or sell that security. The disclosure of ownership should be part
of the initial communication but need not be repeated in the case of
continuing communications directed to a specific person.
G. SERVICE AS A DIRECTOR OR TRUSTEE.
Service on a board of directors or Trustees poses several forms of
potential conflicts for employees. These include potentially
conflicting fiduciary duties to the company and a Fund, receipt of
possibly material, nonpublic information and conflicting demands on
the time of the employee. Accordingly, service by any Investment
Professional or Senior Executive on a board of directors of a
non-Fidelity publicly-traded or privately-held company likely to issue
shares is prohibited absent prior authorization. Approval will be
based upon a determination that the board service would be in the best
interests of the Funds and their shareholders. Requests for approval
of board service should be submitted in writing to the Ethics Office.
VI. PROHIBITION ON CERTAIN TRADES BY PORTFOLIO MANAGERS
Portfolio managers are the people most familiar with the investment
decisions they are making for the Funds they manage. Even the appearance of
a portfolio manager trading the same securities for his or her personal
account on or about the same time as he or she is trading for the Fund is
not in the best interest of the Funds. Accordingly, as a portfolio manager,
you may not buy or sell a security your Fund has traded within 7 calendar
days on either side of the Fund's trade date (i.e., date of execution, not
the settlement date). For example, assuming the day your Fund trades a
security is day 0, day 8 is the first day you may trade that security for
your own account. This prohibition is in addition to the restrictions that
apply generally to all persons subject to this Code and those applicable to
Access Persons. If application of this rule would work to the disadvantage
of a Fund (e.g., you sold a security on day 0 and on day 3, after new
events had occurred, determined that the Fund should buy the same security)
you must apply to the Ethics Officer for an exception (see Section VIII.
below).
In addition to any other sanction provided for under the Code of Ethics
(see Section IX. D.), any profit realized from a transaction within the
prescribed period may be required to
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be surrender to FMR. Transactions in accounts beneficially owned by you
where investment discretion has been provided to a third party in a
written document and for which you provide no input regarding investment
decision making will not be subject to this 7 day provision.
VII. NON-ACCESS TRUSTEES
Pursuant to Rule 17j-1, a Non-Access Trustee need not file reports of his
or her transactions in reportable securities unless at the time of the
transaction the Board member knew, or in the ordinary course of fulfilling
his or her duties as a Fidelity Fund Board member should have known: (a)
that one or more of the Funds had purchased or sold or was actively
considering the purchase or sale of that security within the 15-day period
preceding the Board member's transaction, or (b) that one or more Funds
would be purchasing, selling or actively considering the purchase or sale
of that security within the 15 days following the Board member's
transaction. The knowledge in question is the Board member's knowledge at
the time of the Board member's transaction, not knowledge subsequently
acquired. Although a Non-Access Trustee is not required to report
transactions unless the above conditions are met, the Boards of Trustees
of the Funds have adopted a policy that requires a Non-Access Trustee to
report personal securities transactions on at least a quarterly basis.
VIII. WAIVERS AND EXCEPTIONS
A. REQUESTS TO WAIVER A PROVISION OF THE CODE OF ETHICS.
An employee may request in writing to the Ethics Office a waiver of
any Code of Ethics provision. If appropriate, the Ethics Office will
consult with the Ethics Oversight Committee (a committee which
consists of representatives from senior management) in considering
such request. The Ethics Office will inform you in writing whether
or not the waiver has been granted. If you are granted a waiver to
any Code of Ethics provision, you will be expected to comply with
all other provisions of the Code. You may contact the Ethics Office
for specific requirements.
B. EXCEPTIONS.
Special approval to make any trade prohibited by this Code may be
sought from the Ethics Office. Special approvals will be considered
on a case-by-case basis. The decision to grant special approval will
be based on whether the trade is consistent with the general
principles of this Code and whether the trade is consistent with the
interest of the relevant Fund(s). The Ethics Office will maintain a
written record of exceptions, if any, that are permitted.
IX. ENFORCEMENT
The Rules adopted by the SEC require that a code of ethics must not only
be adopted but must also be enforced with reasonable diligence. Records of
any violation of the Code and of the actions taken as a result of such
violations will be kept.
A. REVIEW.
The Ethics Office will review on a regular basis the reports filed
pursuant to this Code. In this regard, the Ethics Office will give
special attention to evidence, if any, of potential violations of
the antifraud provisions of the federal securities laws or the
procedural requirements or ethical standards set forth in this Code
and the
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Statement of Policies and Procedures with Respect to the Flow and
Use of Material Nonpublic (Inside) Information ("Insider Trading
Policy Statement" to follow).
The policies and procedures described in this Code do not create any
obligations to any person or entity other than the Fidelity
Companies and the Funds. This Code is not a promise or contract, and
it may be modified at any time. The Fidelity Companies and the Funds
retain the discretion to decide whether this Code applies to a
specific situation, and how it should be interpreted.
B. BOARD REPORTING.
The Ethics Office will provide to the Boards of Trustees of the
Funds no less frequently than annually a summary of significant
sanctions imposed for material violations of this Code or the
Insider Trading Policy Statement.
C. VIOLATIONS.
When potential violations of the Code of Ethics or the Insider
Trading Policy Statement come to the attention of the Ethics Office,
the Ethics Office may investigate the matter. This investigation may
include a meeting with the employee. Upon completion of the
investigation, if necessary, the matter will be reviewed with senior
management or other appropriate parties, and a determination will be
made as to whether any sanction should be imposed as detailed below.
The employee will be informed of any sanction determined to be
appropriate.
D. SANCTIONS.
Since violations of the Code or the Insider Trading Policy Statement
will not necessarily constitute violations of federal securities
laws, the sanctions for violations of the Code or the Insider
Trading Policy Statement will vary. Sanctions may be issued by (i)
the appropriate Board(s) of Trustees of the Fund(s) or Fidelity
Company, (ii) senior management, (iii) the Ethics Office, or (iv)
other appropriate entity. Sanctions may include, but are not limited
to, (i) warning, (ii) fine or other monetary penalty, (iii) personal
trading ban, (iv) dismissal, and (v) referral to civil or criminal
authorities. Additionally, other legal remedies may be pursued.
E. APPEALS PROCEDURES.
If you feel that you are aggrieved by any action rendered with
respect to a violation of the Code of Ethics or a waiver request,
you may appeal the determination by providing the Ethics Office with
a written explanation within 30 days of being informed of such
determination. The Ethics Office will arrange for a review by senior
management or other appropriate party and will advise you whether
the action will be imposed, modified or withdrawn. During the review
process, you will have an opportunity to submit a written statement.
In addition, you may elect to be represented by counsel of your own
choosing.
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APPENDIX -- BENEFICIAL OWNERSHIP
As used in the Code of Ethics, beneficial ownership will be interpreted using
Section 16 of the Securities Exchange Act of 1934 ("1934 Act") as a general
guideline, except that the determination of such ownership will apply to all
securities, including debt and equity securities. For purposes of Section 16, a
beneficial owner means:
Any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, has or
shares a direct or indirect pecuniary interest in the
securities.
In general, "pecuniary interest" means the opportunity, directly or indirectly,
to profit or share in any profit derived from a transaction in the subject
securities.
Using the above-described definition as a broad outline, the ultimate
determination of beneficial ownership will be made in light of the facts of the
particular case. Key factors to be considered are the ability of the person to
benefit from the proceeds of the security, and the degree of the person's
ability to exercise control over the security.
1. SECURITIES HELD BY FAMILY MEMBERS. As a general rule, a person is regarded
as having an indirect pecuniary interest in, and therefore is the
beneficial owner of, securities held by any child, stepchild, grandchild,
parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (collectively, "immediate family") sharing the same
household. Adoptive relationships are included for purposes of determining
whether securities are held by a member of a person's immediate family.
2. SECURITIES HELD BY A CORPORATION OR SIMILAR ENTITY. A person shall not be
regarded as having a DIRECT or indirect pecuniary interest in, and
therefore shall not be the beneficial owner of, portfolio securities held
by a corporation or similar entity in which the person owns securities
provided that (i) the person is not a controlling shareholder of the
entity or (ii) the person does not have or share investment control over
the entity's portfolio securities. "Portfolio securities" means all
securities owned by an entity other than securities issued by the entity.
Business trusts are treated as corporations for these purposes. In
addition, the 1934 Act makes no distinction between public and private
corporations for purposes of determining beneficial ownership.
3. SECURITIES HELD IN TRUST. In general, a person's interest in a trust will
amount to an indirect pecuniary interest in the securities held by that
trust. However, the following persons shall generally not be deemed
beneficial owners of the securities held by a trust:
a) Beneficiaries, unless (i) the beneficiary has or shares investment
control with the trustees with respect to transactions in the
trust's securities, (ii) the beneficiary has investment control
without consultation with the trustee, or (iii) if the trustee does
not exercise exclusive investment control, the beneficiary will be
the beneficial owner to the extent of his or her pro rata interest
in the trust.
b) Trustees, unless the trustee has a pecuniary interest in any holding
or transaction in the securities held by the trust. A trustee will
be deemed to have a pecuniary interest in the trust's holdings if at
least one beneficiary of the trust is a member of the trustee's
immediate family.
c) Settlors, unless a settlor reserves the right to revoke the trust
without the consent of another person; provided, however, that if
the settlor does not exercise or
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share investment control over the issuer's securities held by the
trust the settlor will not be deemed to be the beneficial owner of
those securities.
Indirect pecuniary interest for purposes of Section 16 also includes a general
partner's proportionate interest in the portfolio securities held by a general
or limited partnership.
Finally, beneficial ownership is not deemed to be conferred by virtue of an
interest in:
a) portfolio securities held by any holding company registered under
the Public Utility Holding Company Act of 1935;
b) portfolio securities held by any investment company registered under
the Investment Company Act of 1940; or
c) securities comprising part of a broad-based publicly-traded market
basket or index of stocks approved for trading by the appropriate
federal governmental authority.
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EXAMPLES OF BENEFICIAL OWNERSHIP
1. Securities Held by Family Members
(a) Example 1-A:
X and Y are married. Although Y has an independent source of income
from a family inheritance and segregates her funds from those of her
husband, Y contributes to the maintenance of the family home. X and
Y have engaged in joint estate planning and have the same financial
adviser. Since X and Y's resources are clearly significantly
directed towards their common property, they will be deemed to be
beneficial owners of each other's securities.
(b) Example 1-B:
X and Y are separated and have filed for divorce. Neither party
contributes to the support of the other. X has no control over the
financial affairs of his wife and his wife has no control over his
financial affairs. Neither X nor Y is a beneficial owner of the
other's securities.
(c) Example 1-C:
X's adult son Z lives in X's home. Z is self-supporting and
contributes to household expenses. X is a beneficial owner of Z's
securities.
(d) Example 1-D:
X's mother A lives alone and is financially independent. X has power
of attorney over his mother's estate, pays all her bills and manages
her investment affairs. X borrows freely from A without being
required to pay back funds with interest, if at all. X takes out
personal loans from A's bank in A's name, the interest from such
loans being paid from A's account. X is a significant heir of A's
estate. X is a beneficial owner of A's securities.
2. Securities Held by a Company
(a) Example 2-A:
O is a holding company with 5 shareholders. X owns 30% of the shares
in the company. X will be presumed to have beneficial ownership of
the securities owned by O.
3. Securities Held in Trust
(a) Example 3-A:
X is trustee of a trust created for his two minor children. When
both of X's children reach 21, each will receive an equal share of
the corpus of the trust. X is a beneficial owner of the securities
in the trust.
(b) Example 3-B:
X is trustee of an irrevocable trust for his daughter. X is a
director of the issuer of the equity securities held by the trust.
The daughter is entitled to the income of the trust until she is 25
years old, and is then entitled to the corpus. If the daughter dies
before reaching 25, X is entitled to the corpus. X should report the
holdings and transactions of the trust as his own.
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FIDELITY INTERNAL INFORMATION
FIDELITY INVESTMENTS'
INSIDER TRADING POLICY STATEMENT
FORMALLY KNOWN AS
THE STATEMENT OF POLICIES AND
PROCEDURES ON INSIDER TRADING
JANUARY 1, 2000
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STATEMENT OF POLICIES AND PROCEDURES
WITH RESPECT TO THE FLOW AND USE OF MATERIAL
NONPUBLIC (INSIDE) INFORMATION
INTRODUCTION
The Fidelity Companies' reputation for integrity and high ethical standards in
the conduct of their affairs is of paramount importance to all of us. To
preserve this reputation, it is essential that all transactions in securities be
effected in conformity with applicable securities laws. In particular, it has
been the Fidelity Companies' long-standing policy that no employee should
knowingly trade in securities on the basis of material, nonpublic information.
This is sometimes referred to as "insider trading".
For many years, the Fidelity Companies have operated under a written Code of
Ethics. The Code prohibits trading by employees and their family members which
is in conflict with trading by the Funds. It establishes a broad range of
restrictions and trading procedures for employees who have access to information
relating to fund or account investment activity. This Statement of Policies and
Procedures (the "Statement") is issued in response to legislative and regulatory
initiatives and activities, and constitutes a written supplement to the
principles of the Code of Ethics.
In November, 1988, the Insider Trading and Securities Fraud Enforcement Act of
1988 ("the Act") was enacted into law. The Act is designed to add to the
enforcement of securities laws, particularly in the area of insider trading, by
imposing severe penalties on persons who violate the laws by trading on
material, nonpublic information. The Act also imposes on broker-dealers and
investment advisers the explicit obligation to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the misuse of
inside information. In addition, in recent years insider trading has become a
top enforcement priority of the SEC and the United States Attorneys. As a result
of insider trading violations, both the firm and the employee(s) involved could
be subject to disciplinary action or fines by the SEC, damage actions brought by
private parties and criminal prosecutions.
PURPOSE OF STATEMENT
The purpose of this statement is to explain: (1) the general legal prohibitions
regarding insider trading; (2) the meaning of the key concepts underlying the
prohibition; (3) the sanctions for insider trading and expanded liability for
controlling persons; (4) your obligations in the event you learn of material,
nonpublic information; and (5) Fidelity's educational program regarding insider
trading.
APPLICABILITY
This Statement applies to all officers, directors and employees of all Fidelity
Companies, and any that may be formed in the future. In addition, this statement
applies to employees seconded to Fidelity Management & Research Company (FMR) or
Fidelity Management Trust Company (FMTC) from Fidelity International Limited
(FIL).
I. THE BASIC INSIDER TRADING PROHIBITION
The Act does not define insider trading. However, in general, the "insider
trading" doctrine under federal securities laws prohibits any person
(including investment advisers) from knowingly or recklessly breaching a
duty owed by that person:
- trading while in possession of material, nonpublic information;
- communicating ("tipping") such information to others;
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- recommending the purchase or sale of securities on the basis of such
information; or
- providing substantial assistance to someone who is engaged in any of
the above activities.
In addition, an SEC rule prohibits an individual from trading while in
possession of material, nonpublic information relating to a tender offer,
whether or not trading involves a breach of duty, except for a firm acting
in compliance with Chinese Wall procedures. See Section IV. B. below.
NO FIDUCIARY DUTY TO USE INSIDE INFORMATION. Although various Fidelity
Companies, including FMR and FMTC, have a fiduciary relationship with their
clients, they have no legal obligation to trade or recommend trading on the
basis of information their employees know to be "inside" information. In
fact, such conduct could violate the federal securities laws.
NO BROKERAGE ALLOCATION FOR INSIDE INFORMATION. Although the Fidelity
Companies have adopted policies which permit consideration of the receipt
of research and brokerage services in selecting brokers to execute client
portfolio transactions, it is the policy of the firm not to allocate
brokerage in consideration of receipt of "inside" information.
II. BASIC CONCEPTS
As noted the Act did not specifically define insider trading. However,
federal law prohibits knowingly or recklessly purchasing or selling
directly or indirectly a security while in possession of material,
nonpublic information or communicating ("tipping") such information in
connection with a purchase or sale. Under current case law, the Securities
and Exchange Commission ("SEC") must establish that the person misusing the
information has breached either a fiduciary duty to the shareholders or
some other duty not to misappropriate insider information.
Thus, the key aspects of insider trading are: (A) materiality, (B)
nonpublic information, (C) knowing or reckless action and (D) breach of
fiduciary duty or misappropriation. Each aspect is briefly discussed below.
A. MATERIALITY. Insider trading restrictions arise only when information
that is used for trading, recommending or tipping is "material."
Information is considered "material" if there is a substantial
likelihood that a reasonable investor would consider it important in
making his or her investment decisions, or if it could reasonably be
expected to affect the price of a company's securities. It need not be
so important that it would have changed the investor's decision to buy
or sell. On the other hand, not every tidbit of information about a
security is material. The courts have held that information that
merely tests "the meaning of public information" or that fills in the
mosaic of various pieces of research analysis is not material.
B. NONPUBLIC INFORMATION. Information is considered public if it has been
disseminated in a manner making it available to investors generally
(e.g., national business and financial news wire services, such as Dow
Jones and Reuters; national news services, such as Associated Press,
New York Times or Wall Street Journal; broad tapes; SEC reports;
brokerage firm reports). Just as an investor is permitted to trade on
the basis of nonpublic information that is not material, he or she may
also trade on the basis of information that is public.
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However, information given by a company director to an acquaintance of
an impending takeover prior to that information being made public
would be considered both "material" and "nonpublic." Trading by either
the director or the acquaintance prior to the information being made
public would violate the federal securities laws.
C. KNOWING. Under the federal securities laws, a violation of the insider
trading limitations requires that the individual act with "scienter"
-- with knowledge that his or her conduct may violate these
limitations or in a reckless manner. Recklessness involves acting in a
manner which ignores circumstances which a reasonable person would
conclude would result in a violation of insider trading limitations.
D. FIDUCIARY DUTY. The general tenor of recent court decisions is that
insider trading does not violate the federal securities laws if the
trading, recommending or tipping of the insider information does not
result in a breach of duty. Over the last decade, the SEC has brought
cases against accountants, lawyers and stockbrokers because of their
participation in a breach of an insider's fiduciary duty to the
corporation and its shareholders. The SEC has also brought cases
against noncorporate employees who misappropriated information about a
corporation and thereby allegedly violated their duties to their
employers. Consequently, the situations in which a person can trade on
the basis of material, nonpublic information without raising a
question whether a duty has been breached are so rare, complex and
uncertain that the only prudent course is not to trade, tip or
recommend based on inside information. In addition, trading by an
individual while in possession of material, nonpublic information
relating to a tender offer is illegal irrespective of whether such
conduct breaches a fiduciary duty of such individual. Set forth below
are several situations where courts have held that such trading
involves a breach of fiduciary duty or is otherwise illegal.
CORPORATE INSIDER. In the context of interviews or other contact with
corporate management, the Supreme Court held that an investment
analyst who obtained material, nonpublic information about a
corporation from a corporate insider does not violate insider trading
restrictions in the use of such information unless the insider
disclosed the information for "personal gain." However, personal gain
may be defined broadly to include not only a pecuniary benefit, but
also a reputational benefit or a gift. Moreover, selective disclosure
of material, nonpublic information to an analyst might be viewed as a
gift.
TIPPING INFORMATION. The Act includes a technical amendment clarifying
that tippers can be sued as primary violators of insider trading
prohibitions, and not merely as aidors and abettors of a tippee's
violation. In enacting this amendment, Congress intended to make clear
that tippers cannot avoid liability by misleading their tippees about
whether the information conveyed was nonpublic or whether its
disclosure breached a duty. However, Congress recognized the crucial
role of securities analysts in the smooth functioning of the markets,
and emphasized that the new direct liability of tippers was not
intended to inhibit "honest communications between corporate officials
and securities analysts."
CORPORATE OUTSIDER. Additionally, liability could be established when
trading occurs based on material, nonpublic information that was
stolen or misappropriated from any other person, whether a corporate
insider or not. An example of an area where trading on information may
give rise to liability, even though from outside the company whose
securities are traded, is material,
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nonpublic information secured from an attorney or investment banker
employed by the company.
TENDER OFFERS. The SEC has adopted a rule specifically prohibiting
trading while in possession of material information about a
prospective tender offer before it is publicly announced. This rule
also prohibits trading while in possession of material information
during a tender offer which a person knows or has reason to know is
not yet public. Under the rule, there is no need for the SEC to prove
a breach of duty. Furthermore, in the SEC's view, there is no need to
prove that the nonpublic, material information was actively used in
connection with trading before or during a tender offer. However, this
rule has an exception that allows trading by one part of a securities
firm where another part of that firm has material, nonpublic
information about a tender offer if certain strict (Chinese Wall)
procedures are followed. See Section IV. B. below.
III. SANCTIONS AND LIABILITIES
A. SANCTIONS. Insider trading violations may result in severe sanctions
being imposed on the individual(s) involved and on Fidelity Companies.
These could involve SEC administrative sanctions, such as being barred
from employment in the securities industry, SEC suits for disgorgement
and civil penalties of, in the aggregate, up to three times profits
gained or losses avoided by the trading, private damage suits brought
by persons who traded in the market at about the same time as the
person who traded on inside information, and criminal prosecution
which could result in substantial fines and jail sentences. Even in
the absence of legal action, violation of insider trading prohibitions
or failure to comply with this Statement and the Code may result in
termination of your employment and referral to the appropriate
authorities.
B. CONTROLLING PERSONS. The Act increases the liability of "controlling
persons" -- defined to include both an employer and any person with
the power to influence or control the activities of another. For
purposes of the Act, any individual or firm that is a director or
officer exercising policy making responsibility is presumed to be a
controlling person. Thus, a controlling person may be liable for
another's actions as well as his or her own.
A controlling person of an insider trader or tipper may be liable if
such person failed to take appropriate steps once such person knew of,
or recklessly disregarded the fact that the controlled person was
likely to engage in, a violation of the insider trading limitations.
The Act does not define the terms, but "reckless" is discussed in the
legislative history as a "heedless indifference as to whether
circumstances suggesting employee violations actually exist."
A controlling person of an insider trader or tipper may also be liable
if such person failed to adopt and implement measures reasonably
designed to prevent insider trading. This Statement and the Code are
designed for this purpose, among others.
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IV. PROCEDURES TO BE FOLLOWED WHEN RECEIVING INSIDE INFORMATION
A. GENERAL. Whenever an employee receives what he or she believes may be
material, nonpublic information, he or she
- should not trade on his or her own behalf or on behalf of a Fund,
private proprietary accounts or other accounts in the securities to
which the information relates, tip the information to others or
recommend purchase or sale of securities while that information
remains nonpublic.
- should promptly contact the Legal Department and refrain from
disclosing the information to anyone else, including persons within
the Fidelity organization, unless specifically advised to do so by the
Legal Department.
B. CHINESE WALLS. Employees of the Fidelity Companies may from time to time
receive inside information in the normal course of their job related
responsibilities. For example, employees of FMR and FMTC in the high yield
bond area may be provided with material, nonpublic information on a
confidential basis in connection with their potential purchase of high
yield bonds to be issued in an acquisition or corporate restructuring. Of
course, such employees will be precluded from trading or recommending
action with respect to the securities of the target or bidding company.
However, it is possible to limit these constraints to such employees by
constructing a "Chinese Wall" between them and other Fidelity investment
personnel.
The following policies and procedures are designed to prevent the flow of
material, nonpublic information about a public company from employees with
knowledge of such information ("Confidential Employees") to others involved
in the Fidelity Companies' investment and investment management activities.
In most instances, following these policies and procedures will permit
these other investment personnel to continue trading and recommending the
company's securities.
1. ACKNOWLEDGMENT LETTERS. Before receiving material, nonpublic
information about a company in connection with a prospective tender
offer or other event, every Confidential Employee will be required to
submit to the General Counsel of FMR Corp. or FMR a letter
acknowledging their responsibilities and the limitations on their
activities regarding the subject company(ies).
2. ORAL AND WRITTEN COMMUNICATIONS. Confidential Employees receiving
material, nonpublic information about a company or Confidential
Employees receiving nonpublic information about a company in
connection with an analytical assignment should not discuss or
exchange ANY such information with any Fidelity employees unless they
are also Confidential Employees. For example, this would specifically
preclude a high yield bond analyst who is a Confidential Employee from
discussing any such information with, or signaling that a company was
under review to, any other Fidelity employee (including another member
of the high yield bond group) who was not a Confidential Employee.
3. ATTENDANCE AT MEETINGS. Attendance at any meetings at which such
material, nonpublic information is to be discussed, and dissemination
of the notes from such meetings, shall be limited to Confidential
Employees.
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4. ACCESS TO FILES. Access to files containing any material, nonpublic
information provided to Confidential Employees shall be prohibited to
any investment management personnel and any other employee except
another Confidential Employee.
C. COMPLIANCE
1. TRADE REPORTING. All Fidelity employees are required to report all
personal and beneficially owned securities transactions to the Ethics
Office. The Ethics Office regularly reviews these personal
transactions relative to the securities trades of the Funds, and may
undertake a special review if deemed necessary or appropriate, if the
Ethics Office has reason to believe that any Fidelity employee has
engaged, is engaged or is about to engage in insider trading. The
Ethics Office will consult with FMR Corp. Compliance where
appropriate.
2. TRADING. As required by the Code of Ethics, all securities
transactions by employees and accounts of which they are beneficial
owner (as defined within the Code of Ethics) must be effected through
Fidelity Brokerage Services, Inc. unless special permission is granted
in writing by the Ethics Office to utilize another broker-dealer. If
another broker-dealer is used, duplicate confirmations and account
statements must be provided to the Ethics Office. In addition, trades
effected by Access Persons, Investment Professionals and Senior
Executives must be effected in accordance with the procedures for
clearance of personal securities transactions as outlined in the Code
of Ethics.
3. REPORTING TO THE LEGAL DEPARTMENT. Whenever an employee receives what
he or she believes to be material, nonpublic information about a
security or becomes aware that such information has been utilized by
another employee in the purchase or sale of a security, he or she
shall immediately notify the General Counsel of FMR Corp. or FMR.
"Immediately" means as soon as humanly practical. Employees are
expected to bring this information immediately to the attention of the
General Counsel of FMR Corp. or FMR and refrain from disclosing the
information to ANYONE else, including persons within the Fidelity
organization, unless specifically advised to do so by such General
Counsel.
4. CONTACTS. All Fidelity employees must consult with the Legal
Department before communicating (orally or in writing) with the SEC or
any other regulatory agency about insider trading or related matters.
Similarly, all Fidelity employees must consult with the Public
Relations Department before communicating (orally or in writing) with
any representative of the newspapers or other mass media on insider
trading or related matters.
V. EMPLOYEE EDUCATION
To ensure that every employee of FMR and FMTC understands the firm's
policies and procedures with respect to insider trading, the following will
occur:
A. INITIAL REVIEW FOR NEW EMPLOYEES. All new employees will be given a
copy of this Statement along with the Code of Ethics at the time of
their employment and will be required to read and sign each. A
representative of Fidelity will review the Statement with each new
research analyst, portfolio manager and trader at the time of his or
her employment.
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B. ANNUAL REVIEW WITH INVESTMENT PROFESSIONALS. A representative of the
Ethics Office will review this Statement and the Code of Ethics at
least annually with all research analysts, portfolio managers, traders
and other investment personnel.
C. ANNUAL CERTIFICATION. Fidelity employees may be required by Fidelity
management to certify compliance with this statement in writing on at
least an annual basis.
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FIDELITY INTERNAL INFORMATION
FIDELITY INVESTMENTS'
PERSONAL CONDUCT RULES
JANUARY 1, 2000
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PERSONAL CONDUCT RULES
FOR BROKER-DEALER EMPLOYEES AND REGISTERED PERSONS ONLY
[SIDENOTE]
CORPORATE COMPLIANCE OVERSEES COMPLIANCE FOR FIDELITY'S BROKER-DEALERS, TRANSFER
AGENTS AND RETAIL INVESTMENT ADVISORS, AND ISSUES THE PERSONAL CONDUCT RULES.
Fidelity is committed to delivering products and services to its customers in
accordance with the highest standards of integrity. In furtherance of that goal,
Corporate Compliance has implemented the Personal Conduct Rules. The contents of
the Personal Conduct Rules are driven by regulatory rules (of the Securities and
Exchange Commission, New York Stock Exchange, and National Association of
Securities Dealers, Inc.) pertaining to the personal conduct of broker-dealer
employees, and by Fidelity policies designed to create a work environment that
avoids violations of rules, and the APPEARANCE of violations of rules, conflicts
of interest and impropriety. For broker-dealer employees and registered persons
only (hereinafter referred to as "employees"), acknowledgment of this
distribution will constitute acknowledgment of receipt and review of these
Personal Conduct Rules. Violation by an employee of any of these rules may
result in disciplinary action up to and including termination of employment with
Fidelity.
[SIDENOTE]
THE ETHICS OFFICE OVERSEES COMPLIANCE FOR THE FUND COMPANIES AND ISSUES THE CODE
OF ETHICS FOR PERSONAL INVESTING AND THE INSIDER TRADING POLICY STATEMENT.
Although Corporate Compliance will monitor for compliance with the Personal
Conduct Rules, as with any initiative relating to personal conduct, successful
compliance depends on self-implementation by conscientious employees dedicated
to maintaining the highest standards of personal responsibility and professional
conduct. Employees with questions regarding the Personal Conduct Rules should
contact their manager or Corporate Compliance Advisor.
[SIDENOTE]
EXTERNAL BROKERAGE ACCOUNT STATEMENTS MUST BE FORWARDED TO:
CORPORATE COMPLIANCE DEPT.
ATTN: SURVEILLANCE, 82
DEVONSHIRE STREET, G12A,
BOSTON, MA 02109-3614
1. EMPLOYEE AND FAMILY BROKERAGE ACCOUNTS MUST BE DISCLOSED
In accordance with the Fidelity Code of Ethics, the brokerage accounts of
employees and "immediate family" (as defined in the appendix to the Code of
Ethics) members must be disclosed to the Fidelity Ethics Office and
generally must be maintained by FBSI. Employee and immediate family member
brokerage accounts will be reviewed by Corporate Compliance and the
employee's manager or a person designated by the employee's company.
Employee and immediate family member commodities accounts must also be
disclosed and reviewed, but cannot be maintained at FBSI (FBSI does not
carry commodities accounts). Employees are responsible for furnishing
Corporate Compliance with their external account statements IMMEDIATELY
after they begin employment with Fidelity.
Employees are prohibited from:
- Sharing in the profits or losses of any brokerage account not
disclosed to the Fidelity Ethics Office and in which the employee is
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not an accountholder (such as the account of a customer, relative or
friend), or mutual fund or commodities account in which the employee
is not an accountholder.
- Using fictitious or nominee accounts.
[SIDENOTE]
THE EMPLOYEE TRADING GATE
NUMBER IS:
800-343-2428
2. TRADING ACTIVITY MUST BE CONDUCTED THROUGH FIDELITY AUTOMATED BROKERAGE
SERVICES OR THE EMPLOYEE TRADING GATE
Employees must use Fidelity's automated services, or, if necessary, the
Employee Trading Gate, for all FBSI brokerage transactions. Employees must
use the Employee Trading Gate for all trade-related adjustments to their
brokerage or mutual fund accounts.
Employees are prohibited from:
- Having commissions adjusted on personal or immediate family member
trades without authorization from the employee's manager and Corporate
Compliance
- Entering trades or adjustments, or performing maintenance (such as
address changes and dividend instructions), on their accounts or the
accounts of their immediate family members
- Transferring or journaling securities and/or funds between their
accounts and other accounts
- Violating any of the provisions of the customer agreement that they
sign to open their accounts
General inquiries and maintenance requests do not have to go through
Fidelity's automated services or the Employee Trading Gate.
[SIDENOTE]
ADDITIONAL TRADING RESTRICTIONS SUCH AS INSIDER TRADING, EXCESSIVE TRADING,
SHORT SALES AND PURCHASING PUTS AND SELLING CALLS ARE LISTED IN THE CODE OF
ETHICS.
3. EMPLOYEES MUST NOT MAKE TRADES THAT VIOLATE REGULATIONS OR FIDELITY POLICY
Employees are prohibited from the following trading activities:
- Trading ahead of (frontrunning), immediately after (tailgating), or in
tandem with, orders of customers or other Fidelity employees
- Purchasing an initial public offering (IPO) for themselves or an
immediate family member
- Placing orders for opening positions of 51 or more option contracts on
one side of the market for one security without the prior approval of
the employee's manager
- Placing orders for opening positions in the employee's brokerage
account for $75,000 or more without the prior approval of the
employee's manager
- Contacting other broker-dealers to prearrange trades for their
accounts
- Entering into cross transactions between the employee's account and
any other account without obtaining prior approval from the
page 32
<PAGE>
employee's manager and Corporate Compliance; for example, if a
customer is selling a bond, the employee may not buy it for his/her
own account, without the appropriate approvals
- Entering into any purchase or sale of any security, option or
commodity which would be in violation of federal and/or state
securities laws or the rules and regulations of the various exchanges,
markets or other regulatory agencies
Additional trading prohibitions are listed in the Code of Ethics and
Fidelity Insider Trading Policy, which are attached to this
distribution.
[SIDENOTE]
THE CODE OF ETHICS LISTS ADDITIONAL TRADING RESTRICTIONS FOR INVESTMENT
PROFESSIONALS, SENIOR FIDELITY OFFICIALS AND ACCESS PERSONS.
4. EMPLOYEES MUST PAY IN FULL FOR SECURITIES AND MAY NOT USE LOANS TO MAKE
THEIR PURCHASE
- Employees must pay for all their securities purchases, and deliver
securities for securities sales, on a timely basis - employees will
not be granted payment extensions in their accounts
- Employees may not buy and then sell the same security without paying
for the purchase in full by the settlement date of the purchase
(otherwise known as "freeriding")
- Employees may not purchase a security, and instead of paying for it in
full, sell another security (other than a money market account) after
the trade date of the purchase and apply the proceeds to the purchase,
unless both trades settle on the same day
- Employees are prohibited from obtaining loans or credit (other than
through a margin account) from banks or other lenders for the purpose
of buying securities
[SIDENOTE]
APPROVAL IS NOT NECESSARY FROM CORPORATE COMPLIANCE OR THE EMPLOYEE'S MANAGER
FOR AN EMPLOYEE TO ACT AS CUSTODIAN FOR UTMA/UGMA ACCOUNTS FOR A RELATED CHILD.
5. OBTAINING DISCRETIONARY AUTHORITY OVER A CUSTOMER ACCOUNT IS PROHIBITED
Fidelity policy states that, generally, no employee may exercise
discretionary authorization over a brokerage or mutual fund account in
which he or she has no beneficial interest. Under limited circumstances,
employees may, however, be granted trading authorization over brokerage
accounts - but not mutual fund accounts - of an incapacitated immediate
family member or relative. Employees seeking trading authorization over a
brokerage account must complete and submit the Request for Approval of
Trading Authorization form (Exhibit I) and receive PRIOR WRITTEN APPROVAL
from their manager and Corporate Compliance. Additional documentation may
be required. If permission to exercise trading authorization is granted,
all trades entered pursuant to such authorization must be conducted in
accordance with all provisions of the Personal Conduct Rules and the Code
of Ethics. In addition, such trades must be conducted through the Employee
Trading Gate - NOT THROUGH FIDELITY'S AUTOMATED SERVICES - and will be
reviewed by the employee's manager.
Acting as custodian for UTMA/UGMA accounts for a related child, or
page 33
<PAGE>
as trustee for a personal, immediate family, or parent's trust account does
NOT require approval.
[SIDENOTE]
WRITTEN APPROVAL IS REQUIRED PRIOR TO ENGAGING IN A PRIVATE SECURITIES
TRANSACTION
6. PRIOR WRITTEN APPROVAL IS REQUIRED FOR PRIVATE SECURITIES TRANSACTIONS
Employees must request in writing and receive written approval from their
manager and Corporate Compliance before they offer, buy, sell, create,
transfer, exchange or in any way participate (E.G., as an agent) in a
private securities transaction. A "private securities transaction" is a
securities transaction made outside the regular course or scope of
employment and/or not made through a Fidelity or authorized external
account. Examples are transactions in:
- Securities of privately held companies (except in FMR shares or other
FMR instruments)
- Private placements
- Non-publicly traded limited partnerships
- Securities between two parties without the use of a broker-dealer
intermediary
- Certain securities not registered with the SEC
Employees requesting approval must complete and submit the Request for
Approval of Private Securities Transaction form (Exhibit J). Approval
will generally be denied to employees requesting to act as a
securities solicitor or broker for a person or entity not affiliated
with Fidelity.
Transactions between an employee and an immediate family member do not
require approval unless the employee receives compensation.
[SIDENOTE]
MANAGERS AND CORPORATE COMPLIANCE WILL DETERMINE WHETHER EMPLOYMENT OUTSIDE OF
FIDELITY PRESENTS A POSSIBLE CONFLICT OF INTEREST OR APPEARANCE OF IMPROPRIETY.
7. CERTAIN OUTSIDE ACTIVITIES MAY PRESENT CONFLICTS OF INTEREST
Engaging in certain activities which are outside the scope or regular
course of employment at Fidelity may require pre-approval or be prohibited.
For example, the following activities require prior approval:
- Employment outside of Fidelity
- Running for political office
- Raising money for a business venture
- Certain speaking engagements and writing activities
- Acting as a trustee for compensation
Other activities are prohibited, such as lending or loaning money to a
customer, and giving any gift or remuneration to anyone for referring
securities business. Employees should consult with their manager prior to
engaging in ANY activity or affiliation that could present a conflict of
interest or which could interfere with an employee's ability to effectively
perform his/her job. Fidelity's "Outside Activities and Affiliations"
policy and "Publications, Speeches and Endorsements"
page 34
<PAGE>
policy specify activities that require prior approval. Employees may obtain
an approval request form from the HR Web at http://mgs.fmr.com/hr/polproc.
[SIDENOTE]
FIDELITY'S "OUTSIDE ACTIVITIES AND AFFILIATIONS", "PUBLICATIONS, SPEECHES AND
ENDORSEMENTS", AND "GIFTS AND GRATUITIES" POLICIES ARE AVAILABLE ON THE HR WEB.
8. CERTAIN GIFTS RECEIVED OR GIVEN BY EMPLOYEES MUST BE REPORTED
Certain gifts given to or received by employees from prospective or current
customers, suppliers or vendors, must be reported to Corporate Compliance.
In addition, there are restrictions as to the type and value of gifts that
employees may give and receive. For example, Fidelity generally prohibits
employees from giving or receiving gifts with a value of more than $100 per
calendar year, although certain Fidelity business units have a lower
threshold. Fidelity's "Gifts and Gratuities" policy specifies what is
considered a reportable gift, as well as the type and value of gifts that
may be received. Employees should contact their managers to determine their
companies' thresholds.
[SIDENOTE]
EMPLOYEES MUST NOTIFY CORPORATE COMPLIANCE IF THEY ARE THE SUBJECT OF CERTAIN
LITIGATION, AN ARREST, A BANKRUPTCY, AN UNSATISFIED JUDGMENT OR A DENIED
BONDING.
9. EMPLOYEES MUST REPORT CERTAIN EVENTS TO CORPORATE COMPLIANCE
The NASD and NYSE require that firms report certain events involving the
member firm or its registered persons and employees. In addition,
registered persons are required to keep their Forms U-4 current. An
employee must contact Corporate Compliance if the employee, or an
organization with whom the employee is affiliated, is:
- The subject of litigation, arbitration, investigation or a proceeding
involving investment-related activity or conduct alleged to be
dishonest, unfair or unethical
- Arrested, arraigned, convicted, indicted, or pleads guilty or no
contest, in connection with any criminal offense (other than a minor
traffic violation)
- The subject of a bankruptcy
- The subject of an unsatisfied judgment
- Denied bonding, or has bonding paid out or revoked
- Engaged in employment outside Fidelity
Corporate Compliance, in consultation with the employee, will make a
determination whether the event should be reported to the NASD or NYSE.
[SIDENOTE]
FIDELITY'S ELECTRONIC COMMUNICATIONS USAGE POLICY CONTAINS POLICIES REGARDING
THE USE OF ELECTRONIC MAIL, THE INTERNET AND
10. EMPLOYEES SHOULD BE FAMILIAR WITH OTHER RULES AND RESOURCES PERTAINING TO
PERSONAL CONDUCT
Other resources which specify Fidelity policy concerning activities and/or
events within the purview of "personal conduct" include the Fidelity
broker-dealer Compliance Manuals. For example, the Compliance Manuals may
address Fidelity policy pertaining to:
- The circulation of rumors
page 35
<PAGE>
THE FIDELITY INTRANET.
- Personal investment advice and recommendations
- Personal correspondence
- Contact with regulators and/or the media
- Political contributions
Another critical resource is Fidelity's Electronic Communications Usage
Policy, which is available on the HR Web..
[SIDENOTE]
QUESTIONS REGARDING THE PERSONAL CONDUCT RULES MAY BE DIRECTED TO THE CORPORATE
COMPLIANCE DEPARTMENT AT:
617-563-3149
In addition, other employee personal conduct responsibilities are addressed
in Fidelity's Professional Conduct Policies (which can be accessed on the
HR Web), Code of Ethics and Employee Handbook.
These Personal Conduct Rules are not intended to be all-inclusive. Whenever
an employee thinks that an activity which occurs outside the scope or
regular course of employment may create an environment or appearance of
impropriety or conflict of interest, the employee should discuss the
activity with his/her manager and/or Corporate Compliance. Working together
for excellence, Fidelity employees and their supervisors and compliance
advisors will continue to be the cornerstone of Fidelity's reputation for
integrity.
page 36
<PAGE>
EXHIBITS
JANUARY 1, 2000
<PAGE>
Exhibit B
REPORT OF SECURITIES TRANSACTIONS
To:
The Ethics Office
82 Devonshire Street, N8A
Boston, MA 02109
----------------------------- -----------------------------
Date Signature
------------------------------ -----------------------------
Your Social Security Number Please Print Your Name
For the Month of ____________, 19____
The following is a record of every transaction which I had, or by reason of
which I acquired, any direct or indirect beneficial ownership during the month
of _________, 2000 (excluding (1) transactions effected in any account over
which I had no direct or indirect influence or control; (2) transactions in
mutual fund shares, money market securities, or direct obligations of the United
States, or instrumentalities thereof; and (3) transactions previously reported
automatically by Fidelity Brokerage Services, Inc., or via duplicate
confirmations and statements from an approved external brokerage account):
<TABLE>
<CAPTION>
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
TRADE DATE BUY OR # OF SECURITY NAME PRICE PER UNIT BROKERAGE ACCOUNT # BROKER/ PRIVATE
SELL UNITS PLACEMENT
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
- --------------- ----------- ---------- --------------------------- --------------------- -------------------- -------------------
</TABLE>
PLEASE FILL IN ALL NECESSARY INFORMATION IN EVERY COLUMN
Note 1: For the transactions which have been marked by me with an asterisk (*),
this report shall not be construed as an admission by me that I have acquired
any direct or indirect beneficial ownership in the securities involved in the
reported transactions. Such transactions are reported solely to meet the
standards imposed by the Investment Company Act Release No. 4516.
RETURN TO THE ETHICS OFFICE, N8A
<PAGE>
Exhibit C
PRIVATE PLACEMENT APPROVAL REQUEST
INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
DATE SUBMITTED: ___________________
- -------------------------------------- -----------------------
Employee Name (please print) Social Security Number
Employee Group (check one):
/ / High Yield / / Equity / / Fixed Income / / Money Market / / Trading
/ / FCM / / FMTC / / CORP / / Other: ________________
1. Company Name
---------------------------------------------------------------
2. Business Operations Summary
------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
3. Who contacted you regarding this investment?
-------------------------------
4. Which firm employs this individual?
----------------------------------------
5. Does the above individual or firm have a relationship with the Fidelity
Funds? If yes, please explain.
---------------------------------------------
6. What is the individual's relationship to the company?
----------------------
7. What is your relationship to the contact person?
---------------------------
8. What is the total amount of the private placement?
-------------------------
9. What is the value of your proposed investment?
-----------------------------
10. Does this company have publicly traded securities?
-------------------------
11. Is this investment suitable for the funds? / / Yes / / No
If no, please explain.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
___________________________________ / / Approved / / Disapproved
Employee Signature
----------------------------------
Division Head Signature and Date
----------------------------------
Ethics Office Signature and Date
RETURN TO THE ETHICS OFFICE, N8A
<PAGE>
Exhibit D
SHORT-TERM PROFIT RECOVERY
INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
Section VI. C. of the Code of Ethics provides for the surrender of any
profit realized by an Investment Professional or Senior Executive on
transactions in the same or equivalent security within 60 days. This applies to
the purchase and sale (or sale and purchase) of a security within a 60-day
period in any beneficially owned account.
The following are various questions and answers to help you understand this
provision. If you have any further questions regarding this provision, you
should contact the Ethics Office, at 8-563-5566, internally, or (617)563-5566,
externally.
Q. How is the 60-day period measured?
A. A purchase or sale is ordinarily deemed to occur on trade date. If a
purchase is considered to be made on day 0, day 61 is the first day a sale
of those securities may be made without regard to the profit recovery rule.
Q. How are profits measured when there is a series of purchases and sales
within a 60 calendar day period?
A. A series of purchases and sales will be measured on a first-in, first-out
basis until all purchase and sale transactions within a 60-day period are
matched. The sum of the profits realized on these paired purchases and
sales will be subject to surrender. No reduction will be made for losses.
Q. Is a short sale of a security considered a sale?
A. Yes, a short sale is considered a sale for all purposes (reporting,
pre-clearance and the 60-day profit recovery rule). It is important to keep
in mind that when profits are computed under the 60-day rule, the order of
the transactions is not relevant in calculating profit; for example, a sale
(or short sale) can be matched against a subsequent purchase. Please note
that naked short sales are prohibited under the Code of Ethics.
DERIVATIVE TRANSACTIONS
For the purposes of reporting, pre-clearance and the 60-day profit recovery
rule, a transaction in any put or call option (except an option on an exempt
security or index) or any future on a security (except a future on an exempt
security or index), will be treated as a derivative transaction. For the
purposes of this Code, derivative transactions will be divided into two
categories: "call equivalent positions" and "put equivalent positions." A "call
equivalent position" is treated as a purchase of the underlying security.
Conversely, a "put equivalent position" is treated as a sale of the underlying
security. Please note that writing or acquiring naked options are prohibited
under the Code of Ethics.
Q. Does this mean that if I purchase a security and later hedge it with a put,
the two transactions will be matched if they occur within 60 days of each
other?
A. Yes, the purchase of the put on the security would be considered a sale and
matched with the prior purchase.
Q. If a call option is exercised, does that constitute a purchase?
A. No. Generally, it is the acquisition of the call that constitutes the
purchase transaction for the purpose of the 60-day profit recovery rule.
Exercise of the call will not result in a recoverable profit; the purchase
will be treated as having occurred as of the date the call option was
acquired. For example, the sale of any shares received due to exercise of
an
THE ETHICS OFFICE, N8A
<PAGE>
Exhibit D
option will be analyzed for profit recovery purposes if there are purchase
transactions in such securities within the most recent 60 calendar day
period, including the purchase of the call option for such shares.
Q. If a put option is exercised, does that constitute a sale?
A. No. Generally, it is the acquisition of the put that constitutes the sale
transaction. Exercising the put will not result in a recoverable profit;
the sale will be treated as having occurred on the date that the put option
was acquired.
Q. Am I effectively foreclosed from acquiring an option with a term of 60 days
or less?
A. Not necessarily. For example, exercising a call option and receiving the
underlying securities will not constitute a sale. Of course, a sale of the
securities received or of the option itself will constitute a sale which
would be matched against any purchase within 60 days.
THE ETHICS OFFICE, N8A
<PAGE>
Exhibit E
PERSONAL BROKERAGE ACCOUNT DISCLOSURE
ALL NEW EMPLOYEES MUST COMPLETE WITHIN 7 DAYS OF HIRE
--------------------------------- --------------------------------
Social Security Number) Name (Please Print
-------------------------------------
Your Manager's Name
- - SEND THE COMPLETED FORM TO THE ETHICS OFFICE, N8A WITHIN 7 DAYS OF YOUR
DATE OF HIRE.
- - DISCLOSE IN THE SPACE PROVIDED BELOW ALL PERSONAL BROKERAGE ACCOUNTS AND
BROKERAGE ACCOUNTS IN WHICH YOU HAVE BENEFICIAL OWNERSHIP.(1) INCLUDE ANY
BROKERAGE ACCOUNTS CURRENTLY MAINTAINED WITH FIDELITY BROKERAGE SERVICES,
INC. (FBSI) AS WELL AS ANY EXTERNALLY HELD BROKERAGE ACCOUNTS.
- - COMPLETION OF THIS FORM WILL NOT INITIATE A TRANSFER OF ACCOUNT. PLEASE SEE
BELOW FOR INSTRUCTIONS.
I hereby acknowledge that Fidelity requires that I maintain my personal
brokerage accounts and any brokerage accounts beneficially owned by me at
Fidelity Brokerage Services, Inc. ("FBSI").
I maintain the following personal and beneficially owned brokerage account(s) at
this time (including FBSI accounts):
<TABLE>
<CAPTION>
(Attach additional sheets if necessary.)
- -------------------------------------------- ------------------------------------------ -----------------------------------
ACCOUNT # NAME(S) ON ACCOUNT NAME OF BROKERAGE FIRM
- -------------------------------------------- ------------------------------------------ -----------------------------------
<S> <C> <C>
- -------------------------------------------- ------------------------------------------ -----------------------------------
- -------------------------------------------- ------------------------------------------ -----------------------------------
- -------------------------------------------- ------------------------------------------ -----------------------------------
- -------------------------------------------- ------------------------------------------ -----------------------------------
</TABLE>
ATTACH A COPY OF THE MONTHLY STATEMENT FOR ANY EXTERNAL BROKERAGE
ACCOUNT. IF YOUR ACCOUNTS ARE MAINTAINED BY FBSI, YOU DO NOT NEED TO
ATTACH MONTHLY STATEMENTS.
-----------------------------------------------------------------------
______ PLACE AN "X" HERE IF YOU DO NOT MAINTAIN ANY BROKERAGE ACCOUNTS.
-----------------------------------------------------------------------
I understand the requirement to transfer accounts to FBSI or to request a
waiver(2) in order to continue to maintain an account with a firm other than
FBSI. I certify that I will comply with this policy.
- ------------------------------------ -----------------------
Signature Date
To request an EMPLOYEE TRANSFER KIT to transfer brokerage accounts to FBSI, call
the Employee Trading Gate at 1-800-343-2428.
- --------------------
(1) Beneficial ownership may exist when you have a direct or indirect ability to
(1) benefit economically or (2) exercise investment control. See the Appendix to
the Code of Ethics for more specific details.
(2) For information about requesting a waiver, contact the Ethics Office at
8-563-5566, or via email, "Code of Ethics" mailbox.
RETURN TO THE ETHICS OFFICE, N8A
<PAGE>
Exhibit F
PERSONAL HOLDINGS DISCLOSURE
REQUIRED FROM ALL ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES
Social Security Number: ______________ Employee Name: ____________________
Badge Number: ________________________ Manager's Name: ___________________
Internal Phone: ______________________ Mailzone: _________________________
I certify to the best of my knowledge that the information on this disclosure
includes all information required to be reported pursuant to Section V of the
Code of Ethics. Furthermore, I certify that I have provided copies of the most
recent statements for all personal and beneficially owned brokerage accounts.
Employee Signature: ____________________ Date: ______________________
FORMS WILL NOT BE ACCEPTED WITHOUT ALL REQUIRED INFORMATION.
Submission of this form is required of all Access Persons under Rule 17j-1 of
the Investment Company Act of 1940. Failure to return this required disclosure
within 7 days after your hire date or the date on which you became an "Access
Person" will be considered a violation of this Code of Ethics and could result
in sanctions as outlined in Section IX of the Code of Ethics.
- --------------------------------------------------------------------------------
Section A. Private Placement Disclosure (Check one.)
- --------------------------------------------------------------------------------
1. / / I have no private placement investment at this time.
2. / / I am listing below all private placements I am currently involved in:
<TABLE>
<CAPTION>
------------------------------ ---------------------------- ---------------------------- -----------------------
Date of Investment $ Amount Company Name Is Company Publicly
Traded?
------------------------------ ---------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
------------------------------ ---------------------------- ---------------------------- -----------------------
------------------------------ ---------------------------- ---------------------------- -----------------------
------------------------------ ---------------------------- ---------------------------- -----------------------
</TABLE>
- --------------------------------------------------------------------------------
Section B. Reportable Securities (Check one.)
- --------------------------------------------------------------------------------
1. / / I do not have any personal or beneficially owned holdings in reportable
securities. (You may skip Section C. Make sure this form is signed and
dated above, then return it to the Ethics Office, N8A.)
2. / / I have personal or beneficially owned reportable securities to
disclose. (You must complete Section C.)
- --------------------------------------------------------------------------------
Section C. Disclosure of Reportable Securities
- --------------------------------------------------------------------------------
1. / / I have attached the most recent statement for each account in which I
hold reportable securities.
These include, but are not limited to, securities accounts with:
- Fidelity Brokerage Services, Inc - Other Broker-Dealers
- Dividend Re-Investment Programs - Bank Accounts
- Employee Stock Purchase Plans
If you have had any reportable securities transactions since the
statement date, you must also include a copy of each trade
confirmation. Statements need to be current (within 30 days of the
date this report is completed). If you do not have a current
statement, you will need to list the individual holdings in the table
below.
(OVER)
RETURN TO THE ETHICS OFFICE, N8A
<PAGE>
Exhibit F
2. / / For the accounts in which I hold reportable securities and have not
attached a statement or for securities that are not held in an account
(i.e., stock certificates) I am listing my current holdings below.
PERSONAL HOLDINGS DISCLOSURE
TO BE COMPLETED BY ALL ACCESS PERSONS, INVESTMENT PROFESSIONALS AND
SENIOR EXECUTIVES
<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------- ------------------ ---------------------------
SECURITY NAME TICKER # OF SHARES $ VALUE
- ------------------------------------------------------- --------------- ------------------ ---------------------------
<S> <C> <C> <C>
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
- ------------------------------------------------------- --------------- ------------------ ---------------------------
</TABLE>
Attach additional sheets if necessary.
RETURN TO THE ETHICS OFFICE, N8A
<PAGE>
Exhibit G
APPROVED BROKER FOR THE REGION
<TABLE>
- ---------------------------------------------------- -----------------------------------------------------------------
<S> <C>
Employees of any U.S.-based Fidelity Company FIDELITY BROKERAGE SERVICES, INC. (FBSI)
- ---------------------------------------------------- -----------------------------------------------------------------
Employees of any Canada-based Fidelity Company TD WATERHOUSE (DISCOUNT)
TD EVERGREEN (FULL SERVICE)
- ---------------------------------------------------- -----------------------------------------------------------------
FIL Employees UK and Europe - NATWEST STOCKBROKERS, LTD., REDMAYNE
BENTLEY STOCKBROKERS, BANQUE DE LUXEMBOURG, FIDELITY
BROKERAGE SERVICES, INC.
Japan - NOMURA SECURITIES, FIDELITY BROKERAGE SERVICES, INC.
Southeast Asia/Pacific - WI CARR, FIDELITY BROKERAGE
SERVICES, INC.
Bermuda - FIRST BERMUDA LIMITED, FIDELITY BROKERAGE
SERVICES, INC.
- ---------------------------------------------------- -----------------------------------------------------------------
FISC Ireland Employees FEXCO
- ---------------------------------------------------- -----------------------------------------------------------------
</TABLE>
THE ETHICS OFFICE, N8A
<PAGE>
Exhibit H
PRE-CLEARANCE GUIDELINES
ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
1. Receive the appropriate approval*
A. All employees of any U.S. or Canada-based Fidelity Company regardless
of location and FIL employees located in the U.S. need to pre-clear
using Online Pre-Clearance:
- http://w3iis.fmrco.com/preclear
- HOURS: 10:15AM - 4PM, EST
- ALTERNATIVELY, CALL THE PRE-CLEARANCE DESK:
- EQUITY/FIXED INCOME: 617-563-6109
- HIGH YIELD : 617-563-7882
B. FIL employees based in FIL regional offices should contact the
Pre-Clearance Desk in the nearest FIL office:
- HOURS: 10:00AM - 4PM, LOCAL TIME
- UK AND EUROPE: 44-1737-837041, 8-723-7041 INTERNAL
- TOKYO: (813) 5470-4871
- HONG KONG: (852) 2848-1752
2. Keep a record of your pre-clearance confirmation number.
3. If the transaction is approved, contact the approved broker to place your
order.
4. Keep in mind that pre-clearance is good for the day of execution only.
- --------------------
* Pre-clearance is not required for non-reportable securities, currency
warrants, rights subscriptions, gifting of securities, automatic dividend
reinvestments and options on the following market indexes: S&P 100, S&P Mid Cap
400, S&P 500, Morgan Stanley Consumer, FTSE 100, and Nikkei 225.
THE ETHICS OFFICE, N8A
<PAGE>
Exhibit I
REQUEST FOR APPROVAL OF TRADING AUTHORIZATION
CORPORATE COMPLIANCE
This requirement refers to a Fidelity employee's family member granting trading
power to the employee. Authorization is not permitted prior to specific approval
by Corporate Compliance. You will be notified by Compliance if your request is
approved. Please note that Compliance will not consider the request until all
forms are received and are in proper order. Call Corporate Compliance if you
require assistance completing the form or have any questions.
EMPLOYEE INSTRUCTIONS
1. Complete this form and give it to your manager for review and
signature.
2. If your manager approves the request, she/he will forward the request
to Corporate Compliance for further review.
3. A copy of the request form will be returned to you and your manager,
whether approved or denied.
4. If the request is denied, an explanation will be provided.
MANAGER INSTRUCTIONS
1. Review the form for completeness. If any information is missing,
return to the employee to obtain the necessary information.
2. Determined if the activity is limited to immediate family members or
relatives, e.g., spouse, children or other relative who is legally
incompetentor mentally incapacitated.
3. Ensure that the authorization is limited to trading in the cash
account in which margin and options transactions will not be effected.
4. If you sign the request, you understand that a supervisor will:
- Approve and document the approval for each discretionary
order on the day it is entered.
- Ensure the order meets the customer's investment objective
as noted on the account, and
- Ensure that the employee does not effect transactions which
are excessive in size or frequency in view of the financial
resources and character of the customer.
5. If you feel that proper supervision will not be performed, do not
approve the request. Return it to the employee explaining why the
request is being denied.
6. If the form is complete and you determine that the request is valid,
sign and return it to Corporate Compliance for approval.
CORPORATE COMPLIANCE, G12A
<PAGE>
REQUEST FOR APPROVAL OF TRADING AUTHORIZATION
Please Print
EMPLOYEE NAME: _____________________ INTERNAL PHONE #: _________________
SOCIAL SECURITY #: _____________________ EXTERNAL PHONE #: _________________
FIDELITY COMPANY: _____________________ MAIL ZONE: ________________________
ACCOUNT NUMBER FOR WHICH AUTHORIZATION IS REQUESTED:
- --------------------------------------------------------------------------------
NAME OF INDIVIDUAL(S) ON THE
ACCOUNT:
------------------------------------------------------------------------
RELATIONSHIP:
- --------------------------------------------------------------------------------
REASON OR BASIS FOR REQUEST, E.G., LEGALLY INCOMPETENT OR MENTAL HANDICAP, ETC.
PLEASE ATTACH SUPPORTING DOCUMENTATION OR PROOF.
PROOF MAY BE REQUESTED. ATTACH ANY ADDITIONAL INFORMATION.
- --------------------------------------------------------------------------------
IF THIS REQUEST IS APPROVED, I UNDERSTAND I MUST DO THE FOLLOWING:
- - PLACE ALL TRADES THROUGH THE EMPLOYEE TRADING GATE.
- - INFORM THE TRADING GATE THAT THE ORDER IS BEING ENTERED PURSUANT TO LIMITED
TRADING AUTHORIZATION
- - EFFECT TRANSACTIONS IN THE CASH ACCOUNT ONLY AND NOT PLACE OPTION ORDERS OR
TRADE ON MARGIN.
- - ENTER TRANSACTIONS WHICH ARE SUITABLE AND NOT EXCESSIVE IN SIZE, FREQUENCY
OR NATURE RELATIVE TO THE CUSTOMER'S OBJECTIVES AND MEANS.
EMPLOYEE SIGNATURE:_____________________________ DATE _________________________
MANAGER APPROVAL
BY APPROVING THIS REQUEST, I UNDERSTAND THAT A SUPERVISOR WILL:
- - APPROVE AND DOCUMENT THE APPROVAL FOR EACH DISCRETIONARY ORDER ON THE DAY
IT IS ENTERED.
- - ENSURE THE ORDER MEETS THE CUSTOMER'S INVESTMENT OBJECTIVE.
- - ENSURE THAT THE EMPLOYEE DOES NOT ENTER INTO TRANSACTIONS THAT ARE
EXCESSIVE IN SIZE OR FREQUENCY IN VIEW OF THE FINANCIAL RESOURCES AND
CHARACTER OF THE CUSTOMER.
MANAGER NAME:
- ---------------------- ---------------------------- -------- -----------
PLEASE PRINT SIGNATURE MAIL ZONE DATE
MANAGER PHONE:
- -------------------------------- --------------------------------
INTERNAL EXTERNAL
- ----------------------------------------------------- ---------------------
COMPLIANCE APPROVAL DATE
RETURN TO CORPORATE COMPLIANCE, G12A
<PAGE>
Exhibit J
REQUEST FOR APPROVAL OF PRIVATE SECURITIES TRANSACTION
CORPORATE COMPLIANCE
This requirement refers to transactions outside the regular course, or scope, of
employment with Fidelity Investments, including but not limited to new offerings
of securities not registered with the SEC, limited partnerships, private
placements and transactions in privately held securities, with or without
compensation. It does not apply to transactions involving immediate family
members, nor does it apply to personal transactions in investment company and
variable annuity securities, FMR shares and subordinated debentures, or to
transactions in brokerage accounts that you have previously disclosed to
Corporate Compliance.
EMPLOYEE INSTRUCTIONS
1. Complete this form and give it to your manager for review and
signature.
2. If your manager approves the request, she/he will forward the request
to Corporate Compliance for further review.
3. A copy of the requested form will be returned to you and your manager,
whether approved or denied.
4. If the request is denied, an explanation will be provided.
MANAGER INSTRUCTIONS
1. Review the form for completeness. If any information is missing,
return to the employee to obtain the necessary information.
2. As the employee's manager you are in the best position to know how
this proposed transaction could affect the employee's obligation to
Fidelity and its customers. If you believe this transaction could
adversely affect that relationship, do not sign the form. Return it to
the employee.
3. If the form is complete, sign and date the request and send it to
Corporate Compliance for approval.
CORPORATE COMPLIANCE, G12A
<PAGE>
Exhibit J
REQUEST FOR APPROVAL OF PRIVATE SECURITIES TRANSACTION
Please Print
EMPLOYEE NAME: _________________________ INTERNAL PHONE #:__________________
SOCIAL SECURITY #: _____________________ EXTERNAL PHONE #: _________________
FIDELITY COMPANY: ______________________ MAIL ZONE: _______________________
Please describe in detail (please list buyer/seller) the nature of the proposed
private securities transaction and your involvement in the events: (attach any
supporting documents describing the transaction)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WILL YOU BE COMPENSATED? YES______ NO______
IF YES, PROVIDE DETAILS (INCLUDE SPECIFIC AMOUNT):
- --------------------------------------------------------------------------------
ANY POSSIBLE CONFLICT OF INTEREST WITH FIDELITY AND ITS RELATED BUSINESSES?
YES______ NO______
IF YES, PLEASE DESCRIBE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COULD THIS PRIVATE SECURITIES TRANSACTION INVOLVE ANY CUSTOMERS OR VENDORS OF
FIDELITY INVESTMENTS?
YES______ NO_____
IF YES, PLEASE DESCRIBE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMPLOYEE SIGNATURE:__________________________ _________________________
DATE
MANAGER APPROVAL:
- ----------------------- ------------------------- ----------- ----------
PLEASE PRINT NAME SIGNATURE MAILZONE DATE:
FOR COMPLIANCE USE ONLY
- --------------------------------------------- ------------------------
COMPLIANCE APPROVAL DATE
RETURN TO CORPORATE COMPLIANCE, G12A
<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 EQUITY-INCOME FUND, INC.
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having
Transactions with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every underwriter,
broker, dealer, or investment advisor which is a majority-owned subsidiary of
such a company, shall maintain and keep current the accounts, books, and other
documents relating to its business which constitute the record forming the basis
for financial statements required to be filed pursuant to Section 30 of the
Investment Company Act of 1940 and of the auditor's certificates relating
thereto.
<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
RECEIPTS AND DELIVERIES OF SECURITIES (SHARES)
Not Applicable.
PORTFOLIO SECURITIES
Debit and Delaware Fund Accounting Permanently, the first two
Credit Advices years in an easily accessible
from Bankers place
(bank statement)
RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Daily Journals Delaware Fund Accounting Permanently, the first two
Journals years in an easily accessible
place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of
the collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
GENERAL LEDGER
General Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
SECURITIES IN TRANSFER
File consisting State Mutual Funds Permanently, the first two
of bank advices, Street Bank Division years in an easily accessible
confirmations, and Trust place
and Notification Company
of Securities
Transaction
SECURITIES IN PHYSICAL POSSESSION
Securities State Mutual Funds Permanently, the first two
Ledger Street Bank Division years in an easily accessible
and Trust place
Company
Portfolio State Mutual Funds Permanently, the first two
Listings Street Bank Division years in an easily accessible
and Trust place
Company
SECURITIES BORROWED AND LOANED
Their files State Mutual Funds Permanently, the first two
Street Bank Division years in an easily accessible
and Trust place
Company
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
Interest File Delaware Fund Accounting Permanently, the first two
Accrual years in an easily accessible
Activity place
Journal
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held. in
respect of share accumulation accounts (arising from periodic investment plans,
dividend reinvestment plans, deposit of issued shares by the owner thereof,
etc.), details shall be available as to the dates and number of shares of each
accumulation, and except with respect to already issued shares deposited by the
owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
LNL - only Finance Eric Jones Permanently, the first two
shareholder years in an easily accessible
place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
SECURITIES POSITION RECORD
Maintained by State Mutual Funds Permanently, the fist two
Custodian of Street Bank Division years in an easily accessible
Securities and Trust place
Company
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
CORPORATE DOCUMENTS
Corporate Secretary Cindy Rose Permanently, the first two
charter, cer- years in an easily accessible
tificate of place
incorporation.
Bylaws and Secretary Cindy Rose Permanently, the first two
minute books. years in an easily accessible
place
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
Sales Order or Fidelity Mutual Funds Six years, the first two
Purchase Order Division years in an easily accessible
place
Notification State Mutual Funds Six years, the first two
Form (From Street Bank Division years in an easily accessible
AOS Trading and Trust place
System) Company
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
SHORT-TERM INVESTMENTS
Notification State Mutual Funds Six years, the first two
Form (From Street Bank Division years in an easily accessible
AOS S-T and Trust place
System) Company
Bank Advice Delaware Fund Accounting Six years, the first two
and Issuer years in an easily accessible
Confirmation place
<PAGE>
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
RECORD OF PUTS, CALLS, SPREADS, ETC.
Trade Notification Delaware Fund Accounting Six years, the first two
years in an easily accessible
place
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
TRIAL BALANCE
General Ledger Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Brokerage Fidelity Mutual Funds Six Years, the first two
Allocation Division years in an easily accessible
Report place
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Trading Fidelity Mutual Funds Six years, the first two
Authorization Division years in an easily accessible
place
Advisory Law Products and Distribution, Six years, the first two
Agreements Division LNL Law Division years in an easily accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence Product Nancy Alford Six years, the first two
Admin. years in an easily accessible
Product place
Management
Pricing Sheets Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
Bank State- Delaware Fund Accounting Six years, the first two
ments, Can- years in an easily accessible
celled Checks place
and Cash
Reconciliations
</TABLE>
March 24, 2000
