Exhibit 5
SUB-INVESTMENT MANAGEMENT AGREEMENT
This Sub-Investment Management Agreement (this "Agreement") is entered into
as of January 1, 1994 by and between Lincoln National Investment Management
Company, an Illinois corporation ("Investment Manager") and Janus Capital
Corporation, a Colorado corporation ("Sub-Investment Manager").
WHEREAS, Investment Manager has entered into an Investment Management
Agreement dated September 23, 1993 (the "Investment Management Agreement") with
Lincoln National Capital Appreciation Fund, Inc. (the "Fund"), to act as
Investment Manager to the Fund;
WHEREAS, the Investment Management Agreement provides that Investment
Manager may engage a sub-investment manager to furnish investment information
and advice to assist Investment Manager in carrying out its responsibilities
under the Investment Management Agreement;
WHEREAS, Investment Manager and the Fund desire to retain Sub-Investment
Manager to render investment advisory services to Investment Manager in the
manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, Investment Manager and Sub-Investment Manager agree as
follows:
1. Sub-Investment Management Services.
(a) Sub-Investment Manager shall, subject always to the control of the
Fund's Board of Directors and to the supervision of Investment Manager, manage
the investment and reinvestment of the assets of the Fund. Sub-Investment
Manager is authorized, in its discretion and without prior consultation with
Investment Manager, to buy, sell, lend, and otherwise trade in any stocks,
bonds, and other securities and investment instruments on behalf of the Fund.
Subject to the investment objectives, policies, and restrictions concerning the
Fund set forth in the Fund's registration statements under the Investment
Company Act of 1940, the Fund may be invested in such proportions of stocks,
bonds, other securities or investment instruments, or cash, as Sub-Investment
Manager shall determine. Sub-Investment Manager is responsible for compliance
with the provisions of Section 817(h) of the Internal Revenue Code of 1986, as
amended, applicable to the Fund.
(b) Sub-Investment Manager shall furnish Investment Manager monthly,
quarterly, and annual reports concerning transactions and performance of the
Fund in such form as may be mutually agreed upon, and agrees to review the Fund
and discuss the management of it. Sub-Investment Manager shall permit the
financial statements, books and records with respect to the Fund to be inspected
and audited by Investment Manager (and/or the independent accountants for
Investment Manager or the Fund) at all reasonable times during normal business
hours. Sub-Investment Manager shall also provide Investment Manager with such
other information and reports as may reasonably be requested by Investment
Manager from time to time.
(c) Sub-Investment Manage shall provide to Investment Manager a copy
of Sub-Investment Manager's Form ADV as filed with the Securities and Exchange
Commission and a list of persons who Sub-Investment Manager wishes to have
authorized to give written and/or oral instructions to the Custodian of the
Fund's assets.
2. Obligations of Investment Manager and the Fund.
(a) Investment Manager shall provide timely information to Sub-
Investment Manager regarding such matters as the cash requirements and cash
available for investment in the Fund, and all other information as may be
reasonably necessary for Sub-Investment Manager to perform its responsibilities
hereunder.
(b) Investment Manager has herewith furnished Sub-Investment Manager a
copy of the Fund's registration statement currently in effect and agrees during
the continuance of this Agreement to furnish Sub-Investment Manager copies of
any amendments or supplements thereto before or at the time the amendments or
supplements become effective. Investment Manager agrees to furnish Sub-
Investment Manager with minutes of meetings of the Board of Directors of the
Fund to the extent they may affect the duties of Investment Manager, a certified
copy of any financial statements or reports prepared for the Fund by certified
or independent public accountants, and with copies of any financial statements
or material reports made by the Fund to its shareholders or to any governmental
body or securities exchange, and any further materials or information which Sub-
Investment Manager may reasonably request to enable it to perform its functions
under this Agreement.
3. Custodian. Investment Manager shall provide Sub-Investment Manager
with a copy of the Fund's agreement with the Custodian (the "Custodian")
designated to hold the assets in the Fund and any modification thereto (the
"Custody Agreement") in advance. The Fund assets shall be maintained in the
custody of the Custodian identified in, and in accordance with the terms and
conditions of, the Custody Agreement. Sub-Investment Manager shall have no
liability for the acts or omissions of the Custodian which do not arise out of
the acts or omissions of Sub-Investment Manager. Any assets added to the Fund
shall be delivered directly to the Custodian.
4. Proprietary Rights. Investment Manager agrees and acknowledges that
Sub-Investment Manager is the sole owner of the name and ▇▇▇▇ "▇▇▇▇▇" and that
all use of any designation comprised in whole or part of Janus (a "▇▇▇▇▇ ▇▇▇▇")
under this Agreement shall inure to the benefit of Sub-Investment Manager.
Consequently, the use by Investment Manager on its own behalf or on behalf of
the Fund of any ▇▇▇▇▇ ▇▇▇▇ in any advertisement or sales literature or other
materials promoting the Fund shall be with the prior written consent of Sub-
Investment Manager. Investment Manager shall not, and Investment Manager shall
use its best efforts to cause the Fund not to, without the prior written consent
of Sub-Investment Manager, make representations regarding Sub-Investment Manager
in any disclosure document, advertisement or sales literature or other materials
promoting the Fund. Upon termination of this Agreement for any reason,
Investment Manager shall cease, and Investment Manager shall use its best
efforts to cause the Fund to cease,
2
all use of any ▇▇▇▇▇ ▇▇▇▇(s) as soon as reasonably practicable.
5. Expenses. Except for expenses that Sub-Investment Manager has
specifically assumed or agreed to pay, it shall not be responsible for the
expenses of the Fund or of Investment Manager. Expenses for which Sub-Investment
Manager shall not be responsible include, without limitation: (a) interest and
taxes; (b) brokerage commissions and other costs in connection with the purchase
or sale of securities or other investment instruments with respect to the Fund;
and (c) custodian fees and expenses. Any reimbursement of advisory fees
required by any expense limitation provision shall be the sole responsibility of
Investment Manager. Investment Manager and Sub-Investment Manager shall not be
considered as partners or participants in a joint venture. Sub-Investment
Manager will pay its own expenses for the services to be provided pursuant to
this Agreement to the extent not assumed by Investment Manager above, and will
not be obligated to pay any expenses of Investment Manager or the Fund.
6. Purchase and Sale of Assets. Absent instructions from Investment
Manager to the contrary, Sub-Investment Manager shall place all orders for the
purchase and sale of securities for the Fund with brokers or dealers selected by
Sub-Investment Manager which may include brokers or dealers affiliated with Sub-
Investment Manager. Purchase or sell orders for the Fund may be aggregated with
contemporaneous purchase or sell orders of other clients of Sub-Investment
Manager. Sub-Investment Manager shall use its best efforts to obtain execution
of Fund transactions at prices which are advantageous to the Fund and at
commission rates that are reasonable in relation to the benefits received.
However, Sub-Investment Manager may select brokers or dealers on the basis that
they provide brokerage, research, or other services or products to the Fund
and/or other accounts serviced by Sub-Investment Manager. Sub-Investment
Manager may pay a broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission or dealer spread
another broker or dealer would have charged for effecting that transaction if
Sub-Investment Manager determines in good faith that such amount of commission
as reasonable in relation to the value of the brokerage and research products
and/or services provided by such broker or dealer. This determination, with
respect to brokerage and research services or products, may be viewed in terms
of either that particular transaction or the overall responsibilities which Sub-
Investment Manager and its affiliates have with respect to the Fund and to
accounts over which they exercise investment discretion, and not all such
services or products may be used by Sub-Investment Manager in managing the Fund.
7. Compensation of Sub-Investment Manager. Investment Manager shall pay
to Sub-Investment Manager a monthly fee in accordance with the fee schedule
attached to this Agreement. Monthly fees shall be calculated by Investment
Manager based upon the average daily net assets of the Fund (including cash or
cash equivalents) for the preceding month for investment advisory services
rendered during the preceding month, and shall be payable to Sub-Investment
Manager by the fifteenth day of the succeeding month. The fee for the first
month during which Sub-Investment Manager shall render investment advisory
services under this Agreement shall be based upon the number of days the account
was open in that month. If this Agreement is terminated, the fee shall be based
upon the number of days the account was open during the month in which the
Agreement
3
is terminated.
8. Non-Exclusivity. Investment Manager and the Fund agree that the
services of Sub-Investment Manager are not to be deemed exclusive and that Sub-
Investment Manager and investment companies and other managed accounts. This
Agreement shall not in any way limit or restrict Sub-Investment Manager or any
of its directors, officers, employees, or agents from buying, selling, or
trading any securities or other investment instruments for its or their own
account or for the account of others for whom it or they may be acting, provided
that such activities will not adversely affect or otherwise impair the
performance by Sub-Investment Manager of its duties and obligations under this
Agreement. Investment Manager and the Fund recognize and agree that Sub-
Investment Manager may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Fund. Sub-Investment Manager shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund or Investment Manager in any
way or otherwise be deemed an agent of the Fund or Investment Manager other than
in furtherance of its duties and responsibilities as set forth in this
Agreement.
9. Liability.
(a) Except as may otherwise be provided by the Investment Company Act
of 1940 or federal securities laws, neither Sub-Investment Manager nor any of
its officers, directors, or employees shall be subject to any liability to
Investment Manager, the Fund, or any shareholder of the Fund for any error of
judgment or any loss arising out of any investment or other act or omission in
the course of, connected with, or arising out of any service to be rendered
under this Agreement, except by reason of willful misfeasance, bad faith, or
gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Agreement. Investment Manager
and the Fund shall hold harmless and indemnify Sub-Investment Manager for any
loss, liability, cost, damage, or expense (including reasonable attorneys fees
and costs) arising from any claim or demand by any past or present shareholder
of the Fund, in their capacity as shareholder, the is not based upon or does not
arise from the investment advice and/or other services provided by Sub-
Investment Manager pursuant to this Agreement. Investment Manager acknowledges
and agrees that Sub-Investment Manager makes no representation or warranty,
express or implied, that any level of performance or investment results will be
achieved by the Fund or that the Fund will perform comparably with any standard
or index, including other clients of Sub-Investment Manager, whether public or
private.
(b) Notwithstanding anything to the contrary in sub-Paragraph (a) just
above, Sub-Investment Manager agrees to indemnify the Fund, Investment Manager,
the Separate Account and the Lincoln National Life Insurance Company (the
"Lincoln Entities") for, and hold them harmless against, any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Sub-Investment Manager) or litigation (including legal
and other expenses) to which the Lincoln Entities, or any of them, may become
subject under any statute, at common law
4
or otherwise, insofar as those losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements arise as a result of any failure
by the Sub-Investment Manager, whether unintentional or in good faith or
otherwise, to adequately diversify the investment program of the Fund, pursuant
to the requirements of Section 816(h) of the Code, and the regulations issued
thereunder (including, but not by way of limitation, Reg. Sec. 1.817-5, March 2,
1989, 54 F.R. 8730), relating to the diversification requirements for variable
annuity, endowment, and life insurance contracts.
10. Effect of Assignment, Termination of Investment Management Agreement,
and Amendment. This Agreement shall automatically terminate, without the
payment of any penalty, in the event of its assignment or in the event that the
Investment Management Agreement shall have terminated for any reason; and this
Agreement shall not be amended unless such amendment be approved at a meeting by
the affirmative vote of a majority of the outstanding shares of the Fund and by
the vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the Directors of the Fund who are not interested
persons of the Fund or of Investment Manager or of Sub-Investment Manager, and
with the approval of Sub-Investment Manager.
11. Effective Period; Termination. This Agreement shall become effective
upon its execution, and shall remain in full force and effect continuously
thereafter (unless terminated automatically as set forth in Section 10) until
terminated as follows:
(a) The Fund may at any time terminate this Agreement by giving not
less than 60 days' written notice delivered or mailed by registered mail,
postage prepaid, to Investment Manager and Sub-Investment Manager; or
(b) If (i) the Directors of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund and (ii) a
majority of the Directors who are not interested persons of the Fund or of
Investment Manager or of Sub-Investment Manager by vote cast in person at a
meeting called for the purpose of voting on such approval, do not specifically
approve at least annually the continuance of this Agreement, then this Agreement
shall automatically terminate at the close of business on the second anniversary
of its execution, or upon the expiration of one year from the effective date of
the last such continuance, whichever is later; provided, however, that if the
continuance of this Agreement is submitted to the shareholders of the Fund for
their approval and such shareholders fail to approve such continuance of this
Agreement as provided herein, Sub-Investment Manager may continue to serve
hereunder in a manner consistent with the Investment Company Act of 1940 and the
Rules and Regulations thereunder; or
(c) Investment Manager may at any time terminate this Agreement by
giving not less than 60 days' written notice delivered or mailed by certified
mail, postage prepaid, to Sub-Investment Manager, and Sub-Investment Manager may
at any time terminate this Agreement by giving not less than 60 days' written
notice delivered or mailed by registered mail, postage prepaid, to Investment
Manager.
5
Action by the Fund under (a) above may be taken either (i) by vote of
a majority of its directors, or (ii) by the affirmative vote of a majority of
the outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 11 shall be
without the payment of any penalty.
12. Certain Definitions. For the purposes of this Agreement, the
"affirmative vote of a majority of the outstanding shares" means the affirmative
vote, at a duly called and held meeting of shareholders, (a) of the holders of
67% or more of the shares of the Fund present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at such meeting are present in
person or by proxy, or (b) of the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
13. Certain Information. Sub-Investment Manager shall promptly notify
Investment Manager in writing of the occurrence of any of the following events:
(a) Sub-Investment Manager shall have been served or otherwise have
notice of any action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, public board or body, involving the affairs of
the Fund;
(b) Any of Sub-Investment Manager's portfolio managers for the Fund
shall have changed.
14. General.
(a) Sub-Investment Manager may perform its services through any
employee, officer, or agent of Sub-Investment Manager, and Investment Manager
shall not be entitled to the advice, recommendation, or judgment of any specific
person.
(b) If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
6
(c) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Colorado exclusive of conflicts of laws.
LINCOLN NATIONAL INVESTMENT
MANAGEMENT COMPANY
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------
Title: Executive Vice President
---------------------------
JANUS CAPITAL CORPORATION
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Assistant Vice President
Accepted and Agreed to by:
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Title: President
------------------------
7
ATTACHMENT
to the
Sub-Investment Management Agreement
dated January 1, 1994
between
LINCOLN NATIONAL INVESTMENT MANAGEMENT COMPANY
and
JANUS CAPITAL CORPORATION
Investment Manager shall pay to Sub-Investment Manager a monthly fee,
calculated pursuant to Section 7 of the Agreement, as follows:
0.60% of the first $100,000,000 of average daily net assets of the Fund;
and 0.55% of any excess over $100,000,000.
V10NORBY
8
AMENDMENT
(effective November 1, 1994)
to the
SUB-INVESTMENT MANAGEMENT AGREEMENT
(effective January 1, 1994)
between
LINCOLN NATIONAL INVESTMENT MANAGEMENT COMPANY and
JANUS CAPITAL CORPORATION
Sub-paragraph 1(b) of the Agreement relating to investment management for
Lincoln National Capital Appreciation Fund, Inc. is hereby amended to insert the
following sentence after the first sentence in that sub-paragraph:
"The Fund shall own and control all the pertinent records pertaining to
transactions under this Agreement."
THE LINCOLN NATIONAL INVESTMENT MANAGEMENT COMPANY
By: /S/ H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
JANUS CAPITAL CORPORATION
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
9