<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON September 24, 1996
Registration No. 333-5827
Registration No. 811-7645
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
(Group Variable Annuity II)
Pre-Effective Amendment No. 1 /X/
Post-Effective Amendment No. / /
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 4 /X/
___________
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L
(Exact Name of Registrant)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 46801
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code: 219-455-2000
JOHN L. STEINKAMP, ESQUIRE
Vice President & Associate General Counsel
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
(Name and Complete Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
Variable Annuity Contracts -- Registration of an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940.
The amount of the filing fee is $500.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
Showing Location of Information in Prospectus
FORM N-4 PROSPECTUS CAPTION
- -------- ------------------
1. Cover Page ...................... Cover Page
2. Definitions...................... Definitions
3. Synopsis or Highlights........... Summary
4. Condensed Financial Information.. Condensed Financial Information
5. General Description of
Registrant, Depositor and
Portfolio Companies.............. Lincoln Life, The Variable Investment
Division and the Funds
6. Deductions and Expenses.......... Deductions and Charges
7. General Description of Variable
Annuity Contracts................ Contract Provisions; Other Contract
Provisions
8. Annuity Period................... Annuity Period
9. Death Benefit.................... Contract Provisions, Death Benefits
10. Purchases and Contract Values.... Contract Provisions
11. Redemptions...................... Contract Provisions, Withdrawals
12. Taxes............................ Federal Income Tax Considerations
13. Legal Proceedings................ Not Applicable
14. Table of Contents of the
Statement of Additional
Information...................... Contents of Statement of Additional
Information
CROSS REFERENCE SHEET
Showing Location of Information in Statement of Additional Information
FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------- -------------------------------------------
15. Cover Page....................... Cover Page
16. Table of Contents................ Table of Contents
17. General Information and History.. Prospectus-Lincoln Life, The Variable
Investment Division and the Funds
18. Services......................... Not Applicable
19. Purchase of Securities Being
Offered.......................... Not Applicable
20. Underwriters..................... Distribution of the Contracts
21. Calculation of Yield Quotations
of Money Market Sub-Accounts..... Not Applicable
22. Annuity Payments................. Determination of Variable Annuity Payment
23. Financial Statements............. Financial Statements
CROSS REFERENCE SHEET
Showing Location of Information in Part C-Other Information
24(a) Financial Statements and
Exhibits....................... Not Applicable
24(b) Exhibits....................... Exhibits
25. Directors and Officers of the
Depositor........................ Directors and Officers of the Depositor
26. Persons Controlled by or Under
Common Control with the Depositor
or Registrant.................... Organizational Chart
27. Number of Contract Owners........ Number of Contract Owners
<PAGE>
28. Indemnification.................. Indemnification
29. Principal Underwriters........... Principal Underwriters
30. Location of Accounts and Records. Location of Accounts and Records
31. Management Services.............. Management Services
32. Undertakings..................... Undertakings
<PAGE>
THE LINCOLN NATIONAL
LIFE INSURANCE
COMPANY
Group Variable Annuity Contracts
Lincoln National Variable Annuity Account L
P.O. Box 9740
Portland, Maine 04104
VARIABLE ANNUITY II
- --------------------------------------------
PROSPECTUS
- --------------------------------------------
_______, __ 1996
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY WHEN
ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE APPLICABLE UNDERLYING FUNDS WHICH
SHOULD BE RETAINED FOR FUTURE REFERENCE.
INVESTMENT IN THE CONTRACTS INVOLVES
INVESTMENT RISK, INCLUDING MARKET
FLUCTUATION AND POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This prospectus describes group annuity
contracts ("Contracts") offered by the
Lincoln National Life Insurance Company
("Lincoln Life"), a wholly-owned company
of Lincoln National Corp. The Contracts
are designed to enable Participants and
Employers to accumulate funds for
retirement programs meeting the
requirements of the following Sections of
the Internal Revenue Code of 1986, as
amended (the "Code"): 401(a), 403(b), 408
and 457 and other related Sections as
well as for programs offering
non-qualified annuities. A Participant
is an employee or other person affiliated
with the Contractholder on whose behalf a
Participant Account is maintained under
the terms of the Contract.
The Contracts permit Contributions to
be deposited in the Guaranteed Interest
Division, which is part of Lincoln Life's
General Account, and in certain
Sub-Accounts in Lincoln National Variable
Annuity Account L ("Variable Investment
Division"). Contributions to the
Guaranteed Interest Division earn
interest at a guaranteed rate declared by
Lincoln Life. Contributions to the
Variable Investment Division will
increase or decrease in dollar value
depending on the investment performance
of the underlying funds in which the
Sub-Accounts invest.
Currently, the Variable Investment
Division consists of the nine
Sub-Accounts listed below: Next to each
listed Sub-Account is the name of the
fund (the "Fund") in which the
Sub-Account invests. For more
information about the investment
objectives, policies and risks of the
Funds please refer to the prospectus for
each of the Funds.
Index Account........................Dreyfus Stock Index Fund
Growth I Account ....................Fidelity's Variable
Insurance Products Fund:
Growth Portfolio
Asset Manager Account................Fidelity's Variable Insurance
Products Fund II: Asset Manager
Portfolio
Growth II Account....................Twentieth Century's TCI
Portfolios, Inc.: TCI Growth
Balanced Account.....................Twentieth Century's TCI
Portfolios, Inc.: TCI Balanced
International Stock Account..........T. Rowe Price International
Series, Inc.
Socially Responsible Account.........Calvert Responsibly Invested
Balanced Portfolio
Equity-Income Account................Fidelity's Variable Insurance
Products' Fund: Equity-Income
Portfolio
Small Cap Amount.....................Dreyfus Variable Investment
Fund: Small Cap Portfolio
This prospectus is intended to provide information regarding
the Contracts offered by Lincoln Life that you should know before
investing. Please read and retain this prospectus for future
reference. A Statement of Additional Information ("SAI"), dated
_________, 1996, has been filed with the Securities and Exchange
Commission and is incorporated by this reference into this
Prospectus. If you would like a free copy, write to Lincoln
National Life Insurance Co., P.O. Box 9740, Portland, Maine 04104
or call 1-800-341-0441. A table of contents for the SAI appears
on the last page of this Prospectus.
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS......................................................... 3
SUMMARY (Including Fee Table and Performance Information)........... 6
CONDENSED FINANCIAL INFORMATION.....................................11
FINANCIAL STATEMENTS ...............................................11
LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION AND THE FUNDS........11
CONTRACT PROVISIONS.................................................15
DEDUCTIONS AND CHARGES .............................................21
ANNUITY PERIOD .....................................................24
FEDERAL INCOME TAX CONSIDERATIONS...................................26
VOTING RIGHTS.......................................................32
OTHER CONTRACT PROVISIONS...........................................33
GUARANTEED INTEREST DIVISION .......................................34
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION...........36
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DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each
Sub-Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation
Date and terminating when the Participant's Account balance is reduced to
zero, either through withdrawal(s), annuitization, imposition of charges,
payment of a Death Benefit or a combination thereof.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which Lincoln Life makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account
balance in the event of the Participant's death during the Accumulation
Period or the person(s) designated to receive any applicable remainder of an
annuity in the event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which the New York Stock Exchange is customarily
open for business except for the following business holidays: Veterans Day
(November 11) and the day after Thankgiving.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another contract or Trustee.
CONTRACT: A Group Variable Annuity contract issued by Lincoln Life to the
Contractholder.
CONTRACTHOLDER: The party named as the Contractholder on the group annuity
contract issued by Lincoln Life. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the
law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan
to its employees.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts.
GENERAL ACCOUNT: All assets of Lincoln Life other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is
reduced when a withdrawal occurs, including any applicable contingent
deferred sales charge and Annual Administration Charge.
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<PAGE>
GUARANTEED ANNUITY: An annuity for which Lincoln Life guarantees the amount
of each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by Lincoln Life for
the Contracts and other contracts for which Lincoln Life guarantees the
principal amount and interest credited thereto subject to any fees and
charges as set forth in the Contract. Amounts allocated to the Guaranteed
Interest Division are part of the General Account.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including
principal and due and accrued interest) and amounts converted to a Payout
Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
PARTICIPANT: An employee or other person affiliated with the Contractholder
on whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's
Account balance in the Variable Investment Division plus the Participant's
Account balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year
intervals from the Participant's Participation Date. If an anniversary
occurs on a non-Business Day, it is treated as occurring on the next Business
Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is
received by Lincoln Life. A Participant will receive a new Participation
Date if such Participant makes a Total Withdrawal, as defined in this
prospectus, and Contributions on behalf of the Participant are resumed under
any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary
and ending the day before the next Participation Anniversary, except for the
first Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid under the terms of a Contract to a
person. A Payout Annuity may be either a Guaranteed Annuity or a Variable
Annuity or a combination Guaranteed and Variable Annuity.
PLAN: The retirement program offered by an Employer to its employees for
which a Contract is used to accumulate funds.
RECEIPT: Receipt by Lincoln Life at its service office in Portland, Maine.
SUB-ACCOUNT: An account established in the Variable Investment Division
which invests in shares of a corresponding Fund.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
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<PAGE>
VALUATION PERIOD: A period used in measuring the investment experience of
each Sub-Account. The Valuation Period begins at the close of trading on the
New York Stock Exchange on one Valuation Date and ends at the corresponding
time on the next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
VARIABLE INVESTMENT DIVISION: The Division which is maintained by Lincoln
Life for these Contracts and other Lincoln Life contracts for which Lincoln
Life does not guarantee the principal amount or investment results. The
Variable Investment Division is the Lincoln National Variable Annuity Account
L which is a group of assets segregated from the General Account whose
income, gains and losses, realized or unrealized, are credited to or charged
against the Variable Investment Division without regard to other income,
gains or losses of Lincoln Life. The Variable Investment Division currently
consists of nine Sub-Accounts. Additional Sub-Accounts may be added in the
future.
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<PAGE>
SUMMARY
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Lincoln Life was founded in 1905 and is organized under Indiana
law. Lincoln Life is one of the largest stock life insurance companies in the
United States. Lincoln Life is the issuer of the Contracts offered by this
prospectus. Lincoln Life is owned by Lincoln National Corp. ("LNC") which is
also organized under Indiana law. LNC's primary businesses are the issuing
of annuities, life insurance, property-casualty insurance and reinsurance,
and the providing of investment management services.
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are
available to Employers and other entities to provide a way to accumulate
funds for retirement and to provide Payout Annuities. Lincoln Life offers
Contracts designed to enable Participants and Employers to accumulate funds
for retirement programs meeting the requirements of the following Sections of
the Internal Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b),
408, 457 and other related Sections as well as for programs offering
non-qualified annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the
Contractholder. Depending upon the type of Plan offered, Contributions may
consist of salary reduction Contributions, Employer Contributions or
Participant post-tax Contributions. Contributions are forwarded by the
Contractholder to Lincoln Life and allocated among the two Divisions in
accordance with information provided by the Contractholder. See "Contract
Provisions, Contributions under the Contract."
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division
or to the Variable Investment Division or to both Divisions. The Variable
Investment Division currently consists of nine Sub-Accounts. A
Contractholder may choose to offer between zero and nine of the Sub-Accounts
to its Participants under a Contract. The Sub-Accounts invest their assets
in shares of a corresponding Fund. For a full description of the Funds, see
the prospectuses for the Funds.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder
under certain Plans may make transfers between and among Divisions and
Sub-Accounts. Certain Plans may limit the transfers in dollar amount, type
of Contribution, or frequency. Certain Plans may require Contractholder
approval for a transfer. See "Transfers between Divisions and Sub-Accounts."
WITHDRAWALS AND DISTRIBUTIONS
During the Accumulation Period, a Participant may withdraw any part
of their Account balance subject to the restrictions imposed by the Code and
regulations thereof and by the applicable Plan. With respect to Section
401(a) Plans and Plans subject to Title I of the Employee Retirement Income
Security Act of 1974 (ERISA), the Contractholder must authorize Lincoln Life
to process a withdrawal request by a Participant.
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<PAGE>
Withdrawal requests under Section 457 Plans must also be authorized by the
Contractholder. With respect to withdrawal requests by Participants under
Plans not subject to Title I of ERISA, certain Contracts may require that the
Participants must certify to Lincoln Life that an eligible event under the
Code has occurred. Withdrawal and Distribution requests must be in writing
and in a form acceptable to Lincoln Life.
Certain Plans are also subject to the distribution requirements
under Section 401(a)(9) of the Code including the incidental death benefit
requirements of Section 401(a)(9)(G). Certain transfers from one Qualified
Plan contract to another Qualified Plan contract are not subject to
withdrawal restrictions under the Code. Withdrawals and distributions may
have tax consequences, including possibly a 10% Federal Excise Tax for
premature distributions. See "Federal Income Tax Considerations."
Certain types of withdrawals are subject to a contingent deferred
sales charge. See "Contract Provisions, Deductions and Charges."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who
dies during the Accumulation Period. See "Contract Provisions, Death
Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Contractholder or a
Participant who requests a withdrawal or a Beneficiary of a deceased
Participant may elect to convert all or part of the Participant's Account
balance or the Death Benefit, as appropriate, to a Payout Annuity. Lincoln
Life offers both Guaranteed and Variable Annuities or a combination
Guaranteed and Variable Annuity. The range of annuity options available
includes life annuities and annuities for a specific time period as well as
others described more fully in this prospectus. See "Annuity Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain
Non-qualified Plans has ten days, in most cases, from the date the
Participant receives an Active Life Certificate to notify Lincoln Life in
writing that the Participant does not choose to participate under the
Contract and to receive a return of funds. See "Free-Look Period."
FEE TABLE
The following table and examples, prescribed by the SEC, are
included to assist Contractholders and Participants in understanding the
transaction and operating expenses imposed directly or indirectly under the
Contracts. The standardized tables and examples assume the highest
deductions possible under the Contracts, whether or not such deductions
actually would be made from a Participant's Account. Contingent deferred
sales charges ("CDSC") are deducted from a Participant's Account balance only
if a total or partial withdrawal is made, and then only if one of the
exceptions does not apply.
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<PAGE>
CONTRACT RELATED TRANSACTION EXPENSES(1)
Sales Load Imposed on Purchases: 0%
MAXIMUM CDSC
(as a percentage of the Gross Withdrawal Amount): 6%
ANNUAL ADMINISTRATION CHARGE(2) $25
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.20%
Other Charges: 0.00%
Total Separate Account
Annual Expenses: 1.20%
FUND EXPENSES(3)
(as a percentage of average daily net assets)
INDEX(4) G-1 AMGR(5) G-II BAL INT'L SOC RES(6) EQL SMCAP
-------- --- ------- ---- --- ----- ---------- --- -----
Management Fees: .27% .61% .71% 1.0% 1.0% 1.05% .70% .51% .75%
Other Expenses .12 .09 .08 .13 .10 .08
(after expense
reimbursements):
Total Fund Expenses: .39 .70 .79 1.0 1.0 1.05 .83 .61 .83
Example #1: Assuming total withdrawal of the Participant's Account
balance at the end of the period shown.(7)
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
INDEX G-1 AMGR G-II BAL INT'L SOC RES EQL SMCAP
----- --- ---- ---- --- ----- ------- --- -----
1 Year $79 $82 $83 $85 $85 $85 $83 $81 $83
3 Years 118 127 130 136 136 137 131 125 131
Example #2: Assuming annuitization of the Participant's Account at the
end of the period shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
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<PAGE>
INDEX G-1 AMGR G-II BAL INT'L SOC RES EQL SMCAP
----- --- ---- ---- --- ----- ------- --- -----
1 Year $17 $20 $21 $23 $23 $23 $21 $19 $21
3 Years 52 62 65 71 71 72 65 59 65
Example #3: Assuming persistency of the Participant's Account through
the periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
INDEX G-1 AMGR G-II BAL INT'L SOC RES EQL SMCAP
----- --- ---- ---- --- ----- ------- --- -----
1 Year $17 $20 $21 $23 $23 $23 $21 $19 $21
3 Years 52 62 65 71 71 72 65 59 65
For purposes of these examples, the effect of the Annual Administration
Charge has been computed based on an estimated aggregate amount of Annual
Administration Charges collected equal to $683,000 and an estimated
total Account value of $1,123,769,000.
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(1) The examples do not take into account any deduction for premium taxes
which may be applicable. Loans taken by a Participant with respect to the
Participant's Account balance in the Guaranteed Interest Division may be
subject to a charge for establishing the loan.
(2) The Employer has the option of paying the Annual Administration Charge on
behalf of the Participants under a Contract. In such a situation, the
projected expenses would be lower than those indicated in the examples.
This charge is not imposed during the Annuity Period. In certain
situations the Annual Administrative Charge may be reduced or eliminated.
See "Deductions & Charges-Annual Administrative Charge".
(3) Until complete order instructions are received, initial Contributions may
be allocated temporarily to Fidelity's Variable Insurance Products Fund:
Money Market Portfolio. Management fees for this fund are 0.24%. Other
expenses are 0.09%. Total Fund Expenses are 0.33%. The Mortality and
Expense Risk Charge is not assessed. For a discussion of the Money
Market Portfolio, please see "Initial Contributions".
(4) Total Fund Operating Expenses, excluding brokerage commissions and
transaction fees, are guaranteed not to exceed .40% of the Dreyfus Stock
Index Fund, Inc.'s average daily net assets. To the extent these Fund
expenses exceed .40% of the Fund's average daily net assets, The Dreyfus
Corporation, the Fund's administrator, has voluntarily undertaken to bear
such excess expense. In the absence of such reimbursement, the Other
Expenses and Total Fund Expenses for fiscal year ending December 31, 1995
would have been 0.15% and 0.42% respectively.
(5) A portion of the brokerage commissions the Fund paid was used to reduce
its expenses. Without these reductions, total operating expenses would
have been: Asset Manager-0.81%.
(6) "Other Expenses" reflect an indirect fee of 0.02%. Total Fund Expenses
after reductions for fees paid indirectly (relating to an expense offset
arrangement with the Fund's custodian) would be 0.81%.
(7) The Contracts are designed for retirement planning. Withdrawals prior to
retirement or the Annuity Commencement Date are not consistent with the
long-term purposes of the Contracts and the applicable tax laws. Early
withdrawals may be subject to a 10% Federal tax penalty.
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<PAGE>
The fee table and examples reflect expenses and charges of the
Sub-Accounts and the expenses of the applicable Fund for the year ended
December 31, 1995. However, the examples should not be considered a
representation of past or future expenses and charges of the Sub-Accounts or
the Funds. Similarly, the assumed 5% annual rate of return is not an
estimate or a guarantee of future investment performance. See "Deductions
and Charges" in this prospectus and the discussion of Fund Management in the
prospectus for each of the Funds for further information.
PERFORMANCE INFORMATION
The Variable Investment Division may advertise or use in sales
literature information concerning the investment performance of the various
Sub-Accounts. No performance presentation should be considered as
representative of future investment results. Actual performance is a
function not only of the investment management of the underlying Funds and
market forces, but of the time and frequency of Contributions, the charges
and fees imposed under the Contract, the fees and expenses of the Funds, and
transfers made by a Participant, among other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other
investment companies (such as mutual funds), and recognized indices (such as
the Dow Jones Industrial Average, Standard & Poor's 500 Composite Stock Price
Index, NASDAQ Index, Consumer Price Index), and data published by Lipper
Analytical Services, Inc., Morningstar, and Variable Annuity Research and
Data Service or comparable services. Performance of the Sub-Accounts may
also be compared with performance of other types of investments. Some
advertisements may also include published editorial comments and performance
rankings by independent organizations and publications that monitor the
performance of separate accounts and mutual funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the
value of a hypothetical $1,000 contribution allocated to a Sub-Account from
the beginning to the end of each specified period of time. The SEC
standardized formula gives effect to all applicable charges under the
Contracts. This method of calculating performance further assumes that (i) a
$1,000 contribution was allocated to a Sub-Account, (ii) no transfers or
additional payments were made and (iii) the withdrawal of the investment
occurs at the end of the period. Premium taxes are not included in this
calculation. The Sub-Accounts may also advertise this total return
performance as described above on a cumulative basis.
The Sub-Accounts may present total return information computed on a
calendar year basis. The Sub-Accounts may also present total return
information over specified periods of time (computed on an average annual or
cumulative basis) either assuming that no CDSC will be deducted or assuming
that no CDSC or administrative charge will be deducted. The Sub-Accounts may
present hypothetical examples that apply the total return to a hypothetical
initial investment. The Sub-Accounts may also present total return
information based on different amounts of periodic investments. For
additional performance information, please refer to the Statement of
Additional Information.
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders,
Lincoln Life may reflect endorsements. Endorsements are often in the form of
a list of organizations, individuals or other parties which recommend Lincoln
Life or the Contracts. The endorser's name will be used only with the
endorser's consent. It should be noted that the list of endorsements may
change from time to time.
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<PAGE>
Also, from time to time, the rating of Lincoln Life as an Insurance
company by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial
status of thousands of Insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance Industry. Best's
ratings range from A++ to F.
In addition, the claims-paying ability of Lincoln Life as measured by
the Standard and Poor's Rating Group may be referred to in advertisements or
in reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC.
From time to time Lincoln Life may refer to Moody's Investors Service
rating of Lincoln Life. Moody's Investors Service financial strength ratings
indicate an insurance company's ability to discharge policyholder obligations
and claims and are based on an analysis of the insurance company and its
relationship to its parent, subsidiaries, and affiliates. Moody's Investors
Service ratings range from Aaa to C.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance contracts in accordance
with their terms. Claims-paying ability ratings do not refer to an insurer's
ability to meet non-contract obligations (i.e., debt/commercial paper).
Lincoln Life's ratings should not be considered as bearing on the investment
performance of assets held in the Variable Investment Division or the safety
(or lack thereof) for an investment in the Variable Investment Division.
CONDENSED FINANCIAL INFORMATION
No condensed financial information for the Variable Investment Division
is presented because, as of the date of this Prospectus, the Variable
Investment Division had not yet commenced operations.
FINANCIAL STATEMENTS
The consolidated financial statements and schedules of Lincoln Life may
be found in the Statement of Additional Information. As of the date of this
Prospectus, the Variable Investment Division had not yet commenced
operations. Accordingly, it has no financial statements.
LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Lincoln Life is a stock life insurance company incorporated under the
laws of Indiana on June 12, 1905. Lincoln Life is principally engaged in
offering life insurance policies and annuity policies, and ranks among the
ten largest United States stock life insurance companies in terms of assets
and life insurance in force. Lincoln Life is also one of the leading life
reinsurers in the United States. Lincoln Life is licensed in all states
(except New York) and the District of Columbia, Guam, and the Virgin Islands.
Lincoln Life is wholly owned by Lincoln National Corporation ("LNC"), a
publicly held insurance holding company incorporated under Indiana law on
January 5, 1968. The principal offices of both Lincoln Life and LNC are
located at 1300 South Clinton Street, Fort Wayne, Indiana 46801. Through
subsidiaries, LNC engages primarily in the issuance of life insurance and
annuities, property-casualty insurance, and other financial services.
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Administrative services necessary for the operation of the Variable
Investment Division and the Contracts are currently provided by Lincoln Life.
See "Deductions and Charges-Annual Administration Charge."
LNC EQUITY SALES CORPORATION
LNC Equity Sales Corporation ("LNC Equity"), a registered broker-dealer,
is the principal underwriter of the Contracts. As such, LNC Equity will be
offering the Contracts and performing all duties and functions that are
necessary and proper for distribution of the Contracts. LNC Equity has also
entered into sales agreements with independent broker-dealers for the sale of
the Contracts. LNC Equity may pay sales commissions to broker-dealers up to
an amount equivalent to 3.5% of Contributions under a Contract.
THE VARIABLE INVESTMENT DIVISION
The Variable Investment Division was established by Lincoln Life as a
separate account on April 29, 1996. Although the assets of the Variable
Investment Division are the property of Lincoln Life, the laws of Indiana
under which the Variable Investment Division was established provide that the
assets in the Variable Investment Division attributable to the Contracts are
not chargeable with liabilities arising out of any other business which
Lincoln Life may conduct. The assets of the Variable Investment Division
shall, however, be available to cover the liabilities of the General Account
of Lincoln Life to the extent that the Variable Investment Division's assets
exceed its liabilities arising under the Contracts supported by it. The
Variable Investment Division is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company
Act of 1940 ("1940 Act"). Registration with the SEC does not involve
supervision of the management or investment practices or policies of either
the Variable Investment Division or Lincoln Life by the SEC.
The Variable Investment Division currently consists of nine
Sub-Accounts. The Sub-Accounts invest in shares of the Funds. Therefore, the
investment experience of the Sub-Accounts depends on the performance of the
Funds.
The income, gains and losses, realized or unrealized, from assets
allocated to each Sub-Account of the Variable Investment Division are
credited to or charged against that Sub-Account, without regard to other
income, gains or losses in Lincoln Life's general account or any other
separate account or Sub-Account. Lincoln Life is the issuer of the Contracts
and the obligations set forth therein, other than those of the Contractholder
or the Participant, are obligations of Lincoln Life.
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each
of these Funds was formed as an investment vehicle for insurance company
separate accounts.
Information about each of the Funds, including their investment
objectives and investment management, is contained below. Additional
information about the Funds, their investment policies, risks, fees and
expenses and all other aspects of their operations, can be found in the
prospectuses for the Funds, which should be read carefully before investing.
There is no assurance that any fund will achieve its stated objectives.
Additional copies of the Funds' prospectuses, as well as their Statements of
Additional Information, can be obtained directly from each
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of the Funds without charge by writing to the particular Funds at the
addresses noted on the front of the prospectus. Shares of the Funds are sold
not only to the Sub-Accounts but also to variable annuity and variable life
separate accounts of other insurance companies and qualified retirement
plans. For a disclosure of possible conflicts involved in the Sub-Accounts
investing in Funds that are so offered, see the applicable Fund prospectus.
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation. The Fund sells its shares to the Index
Account at net asset value, without the imposition of a sales charge.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the
Fund index manager.
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO
The Calvert Responsibly Invested Balanced Portfolio is a series of
Acacia Capital Corporation (the "Fund"), an open-end management investment
company whose investment advisor is Calvert Asset Management Company, Inc.
located at 4550 Montgomery Avenue, Suite 1000N, Bethesda, Maryland 20814.
The Calvert Responsibly Invested Balanced Portfolio seeks total return
above the rate of inflation through an actively managed, non-diversified
portfolio of common and preferred stocks, bonds, and money market instruments
which offer income and growth opportunity and which satisfy the social
concern criteria established for the Portfolio. Shares of the Fund are
offered only to insurance companies for allocation to certain of their
variable accounts.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company that is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of various life insurance companies.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital
appreciation. The Small Cap Portfolio seeks out companies that The Dreyfus
Corporation believes have the potential for significant growth. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets
in companies with market capitalization of less than $750 million, at the
time of purchase, both domestic and foreign where there is a belief that new
or innovative products or services should enhance prospects for growth in
future earnings. The Portfolio may also invest in special situations such as
corporate restructurings, mergers or acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Fund's investment adviser.
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FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
The Variable Insurance Products Fund was designed to provide investment
vehicles for variable annuity and variable life insurance contracts of various
life insurance companies.
EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by normally
investing at least 65% of its total assets in income-producing common or
preferred stock and the remainder in debt securities.
GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of
current income as is consistent with preserving capital and providing liquidity.
For more information regarding the Portfolio, into which initial Contributions
are invested pending Lincoln Life's receipt of a complete order, please see the
"Initial Contributions" section.
Fidelity Management & Research Company ("FMR") is the manager of the
Equity-Income Portfolio, the Growth Portfolio and the Money Market Portfolio and
is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund II is designed to provide investment
vehicles for variable annuity and variable life insurance contracts.
ASSET MANAGER PORTFOLIO: The Portfolio seeks high total return with reduced
risk over the long term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed income instruments.
FMR is the manager of the Portfolio and is located at 82 Devonshire
Street, Boston, Massachusetts 02109.
TWENTIETH CENTURY'S TCI PORTFOLIOS, INC.
TCI Portfolios, Inc. is a fund which offers its shares only to life
insurance companies to fund the benefits of variable annuity or variable life
insurance contracts. The Portfolios are managed by Investors Research
Corporation which also manages the Twentieth Century family of mutual funds.
Investors Research Corporation has its principal place of business at Twentieth
Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
Lincoln Life may perform certain administrative services that would
otherwise be performed by Twentieth Century Services, Inc., and Investors
Research may pay Lincoln Life for such services.
TCI GROWTH: The Portfolio seeks capital growth by investing in common stocks
(including securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in the
opinion of the fund's management, have better than average potential for
appreciation.
TCI BALANCED: The Portfolio seeks capital growth and current income. Its
investment team intends to maintain approximately 60% of the portfolio's assets
in common stocks that are considered by its manager to have better than average
prospects for appreciation and the balance in bonds and other fixed income
securities.
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T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series is a fund which offers its shares only
to life insurance companies to fund the benefits of variable annuity and
variable life contracts. It is managed by Rowe Price-Fleming International,
Inc., one of America's largest international no load mutual fund managers with
approximately $20.0 billion under management as of December 31, 1995, from its
offices in Baltimore, London, Tokyo and Hong Kong.
The International Stock Portfolio seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
CONTRACT PROVISIONS
GENERAL
These Contracts were designed for Employers and other entities to enable
Participants and Employers to accumulate funds for retirement programs meeting
the requirements of the following Sections of the Internal Revenue Code of 1986,
as amended (the "Code"): 401(a), 403(b), 408, 457 and other related Sections as
well as for programs offering non-qualified annuities. An Employer, Association
or trustee in some circumstances, may enter into a Contract with Lincoln Life by
filling out an application and returning it to Lincoln Life. Upon Lincoln
Life's acceptance of the application, Contractholders or an affiliated Employer
can forward Contributions on behalf of employees who then become Participants
under the Contracts. For Plans that have allocated rights to the Participant,
Lincoln Life will issue to each Participant a separate Active Life Certificate
that describes the basic provisions of the Contract to each Participant.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to Lincoln Life for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division in
which the Contributions are deposited. Contributions to the Guaranteed Interest
Division become part of Lincoln Life's General Account and are guaranteed a
minimum rate of interest. Contributions to the Variable Investment Division
increase or decrease in value daily to reflect the investment experience of the
Sub-Accounts in which the Contributions are invested.
Contributions by Participants may be in any amount unless there is a
minimum amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other contracts and qualified rollover Contributions will be accepted.
Section 830.205 of the Texas Education Code provides that Employer or
state Contributions (other than salary reduction Contributions) on behalf of
Participants in the Texas Optional Retirement Program ("ORP") vest after one
year of participation in the program. Lincoln Life will return Employer
Contributions to the Contractholder for those employees who terminate employment
in all Texas institutions of higher education before
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becoming vested. During this first participation year in the ORP, ORP
Participants may only direct Employer and state Contributions to the
Guaranteed Interest Division.
Contributions must be in United States funds. All withdrawals and
distributions under this Contract will be in U.S. funds. If a bank or other
financial institution does not honor the check or other payment method
constituting a Contribution, Lincoln Life will treat the Contribution as
invalid. All allocation and subsequent transfers resulting from the invalid
Contributions shall be reversed and the party responsible for the invalid
Contribution shall reimburse Lincoln Life for any losses or expenses resulting
from the invalid Contribution.
INITIAL CONTRIBUTIONS
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two Business Days after it is received by
Lincoln Life at its service office if it is preceded or accompanied by a
completed enrollment form containing all the information necessary for
processing the Participant's Contribution. If Lincoln Life does not receive a
complete enrollment form, Lincoln Life will notify the Contractholder or the
Participant that Lincoln Life does not have the necessary information to process
the Contribution. If the necessary information is not provided to Lincoln Life
within five (5) Business Days after Lincoln Life first receives the initial
Contribution, Lincoln Life will return the initial Contribution less any
withdrawal(s) by the Participant or by the Contractholder, unless the
Participant or the Contractholder specifically consents to Lincoln Life
retaining the Contribution until the enrollment form is made complete.
Notwithstanding the above, when the Contract includes language regarding
the "Pending Allocation Account", the following shall apply: Where state
approval has been obtained, if Lincoln Life receives Contributions which are not
accompanied by a properly completed Enrollment Form, Lincoln Life will notify
the Contractholder of that fact and deposit the Contributions to the Pending
Allocation Account, unless such Contributions are designated to another Account
in accordance with the Plan. Within two Business Days of receipt of a properly
completed Enrollment Form, the Participant's Account balance in the Pending
Allocation Account will be transferred in accordance with the allocation
percentages elected on the Enrollment Form. All future Contributions will also
be allocated in accordance with these percentages until such time as the
Participant may notify Lincoln Life of a change. If a properly completed
Enrollment Form is not received after three monthly notices have been sent, the
Participant's Account balance in the Pending Allocation Account will be refunded
to the Contractholder within 105 days of the date of the initial Contribution.
The Pending Allocation Account invests in Fidelity's Variable Insurance Products
Fund Money Market Portfolio and is not available as an investment option under
the group annuity contract. Mortality & Expense Risk Charges and the Annual
Administration Charge do not apply to this Account. These charges will be
applicable upon receipt of a properly completed Enrollment Form and the
Participant's contract Participation Date will be the date money was deposited
in the Pending Allocation Account.
ALLOCATION OF CONTRIBUTIONS
A Participant must designate in writing, subject to the Plan, the percent
of their Contribution which will be allocated to each Division and to each Sub-
Account available under their Contract. The Contributions allocation percentage
to the Guaranteed Investment Division or any Sub-Account can be in any whole
percent. Participants, whose Employer offers two or more Lincoln Life contracts
for the same type of Qualified or Non-qualified Plans, may allocate
Contributions to a maximum of ten Sub-Accounts and the Guaranteed Interest
Division. Participants, subject to the terms of the Plan, may change the
allocation of Contributions by notifying Lincoln Life in writing or by telephone
in accordance with procedures published by Lincoln Life. Telephone requests for
allocation changes follow the same verification of identity rules as for
Transfers. (See "Telephone Transfers.") When Lincoln Life receives a notice in
writing, the form must be acceptable to Lincoln Life. Upon receipt by Lincoln
Life, the change will be effective for all Contributions received concurrently
with the allocation change form and for all future
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Contributions, unless a later date is requested. Changes in the allocation
of future Contributions have no effect on amounts a Participant may have
already contributed. Such amounts, however, may be transferred between
Divisions and Sub-Accounts pursuant to the requirements described in
"Transfers between Divisions and Sub-Accounts." Allocations of Employer
Contributions may be restricted by the applicable plan.
SUBSEQUENT CONTRIBUTIONS
The Contractholder will forward Contributions to Lincoln Life specifying
the amount being contributed on behalf of each Participant. The Contractholder
must send Contributions and provide such allocation information in accordance
with procedures established by Lincoln Life. The Contributions shall be
allocated among the Guaranteed Interest Division and the Variable Investment
Division in accordance with the Contractholder's or the Participant's written
instructions as described above in "Allocation of Contributions."
INVESTMENT OF CONTRIBUTIONS
Contributions are invested as of the date of receipt at Lincoln Life's
service office, provided that they are received prior to 4:00 p.m. (Eastern
Time) on a Business Day and allocation information is provided in a form
acceptable to Lincoln Life in accordance with procedures established by Lincoln
Life. If the Contribution is received after 4:00 p.m. (Eastern Time), Lincoln
Life will invest the Contribution on the next Business Day. Contributions on
behalf of a Participant which are allocated to the Variable Investment Division
will be credited with Accumulation Units as of that date. A Participant's
interest in the Variable Investment Division during the Accumulation Period is
represented by the value of the Accumulation Units credited to the Participant's
Account balance in the Variable Investment Division. The number of Accumulation
Units credited to a Participant's Account in a Sub-Account is calculated by
dividing the Contribution allocated to the Sub-Account by the dollar value of an
Accumulation Unit next determined after receipt of the Contribution. The number
of Accumulation Units purchased will not vary as a result of any subsequent
fluctuations in the Accumulation Unit Value. The Accumulation Unit Value, of
course, fluctuates with the investment performance of the underlying Fund and
also reflects deductions and charges made against the Variable Investment
Division.
DETERMINATION OF ACCUMULATION UNIT VALUE
Lincoln Life determines the Accumulation Unit Value of each Sub-Account on
each Valuation Date. Accumulation Unit Values are determined by multiplying the
Net Investment Factor for the current Valuation Period by the Accumulation Unit
Value as of the end of the immediately preceding Valuation Period.
Lincoln Life uses a Net Investment Factor to measure the daily
fluctuations in value of a Sub-Account. The Net Investment Factor for any
Valuation Period is determined as follows:
(a) The net asset value per share of the underlying Fund as of the end of
a Valuation Period is added to the amount per share of any dividends or capital
gain distributions paid by the Fund during that Valuation Period;
(b) The amount in (a) above is then divided by the net asset value per
share of the underlying Fund as of the end of the immediately preceding
Valuation Period;
(c) The result of (a) divided by (b) is then multiplied by one minus the
annual mortality and expense risk charge to the n/365th power where n equals the
number of calendar days since the immediately preceding Valuation Date.
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The above calculation will be adjusted by the amount per share of any
taxes which are incurred by Lincoln Life because of the existence of the
Variable Investment Division.
The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, transfers may be made of all or part of a
Participant's Account balance in any Division or Sub-Account to another Sub-
Account or Division subject to the limitations described below and in the
applicable Plan. Transfers will not change the allocation of future
Contributions to the Divisions and Sub-Accounts. Lincoln Life does not require
that any minimum amount be transferred. To effect a transfer, Lincoln Life must
receive a written transfer request in a form acceptable to Lincoln Life.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following Lincoln Life's receipt of the
written transfer request.
TELEPHONE TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
Lincoln Life may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, Lincoln Life will require a Participant to provide certain
identifying information before Lincoln Life will act upon their instructions.
Lincoln Life may also assign the Participant a Personal Identification Number
(PIN) to serve as identification. Lincoln Life will not be liable for following
telephone instructions it reasonably believes are genuine. Telephone transfer
requests may be recorded and written confirmation of all transfer requests will
be mailed to the Participant or Contractholder on the next Business Day.
Telephone transfers will be processed on the Business Day that they are received
when they are received at the Lincoln Life service office before 4:00 P.M.
Eastern Time. If the Participant or Contractholder determines that a transfer
has been made in error, the Participant or Contractholder must notify Lincoln
Life within 30 days of the confirmation notice date. See "Contract Provisions,
Transfers between Divisions and Sub-Accounts."
WITHDRAWALS
During the Accumulation Period, withdrawals may be made from either or
both Divisions of all or part of the Participant's Account balance in a Division
or Sub-Account remaining after deductions for any applicable (1) Contingent
Deferred Sales Charge ("CDSC"); (2) Annual Administration Charge (imposed on
Total Withdrawals), (3) premium taxes, and (4) outstanding loan including loan
security. Annuity Conversion Amounts are not considered withdrawals. See
"Annuity Period, Annuities: General."
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to Lincoln Life. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Investment Division. Lincoln Life does not require that any
minimum amount be withdrawn. Telephone withdrawal requests are not permitted.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, Lincoln Life uses
the Accumulation Unit Value next computed after Lincoln Life's receipt of the
written withdrawal request.
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Payment of all Variable Investment Division withdrawal amounts generally
will be made within seven days after receipt by Lincoln Life of the withdrawal
request in a form acceptable to Lincoln Life. See "Market Emergencies."
TOTAL WITHDRAWALS
A Total Withdrawal can only be made by a Participant who has no
outstanding loans under the Contract. A Total Withdrawal of a Participant's
Account will occur when (a) the Participant or Contractholder requests the
liquidation of the Participant's entire Account balance, or (b) the amount
requested plus any CDSC results in a remaining Participant's Account balance of
less than or equal to the Annual Administration Charge, in which case the
request is treated as if it were a request for liquidation of the Participant's
entire account balance.
Any Active Life Certificate must be surrendered to Lincoln Life when a
Total Withdrawal occurs. If a Contractholder resumes Contributions on behalf of
a Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a
Total Withdrawal.
PARTIAL WITHDRAWALS
A Partial Withdrawal of a Participant's Account will occur when less than
a Total Withdrawal is made from a Participant's Account.
SYSTEMATIC WITHDRAWAL OPTION
Participants who are at least age 59 1/2, are separated from service from
their employer or are disabled and certain spousal beneficiaries and alternate
payees who are former spouses may be eligible for a Systematic Withdrawal Option
("SWO") under the Contract. Payments are made only from the Guaranteed Interest
Division. Under the SWO a Participant may elect to withdraw either a monthly
amount which is an approximation of the interest earned between each payment
period based upon the interest rate in effect at the beginning of each
respective payment period or a flat dollar amount withdrawn on a periodic basis.
A Participant must have a vested pre-tax account balance of at least $10,000 in
the Guaranteed Interest Division in order to select the SWO. A Participant may
transfer amounts from the Variable Investment Division to the Guaranteed
Interest Division in order to support SWO payments. These transfers, however,
are subject to the transfer restrictions described in this Prospectus and/or
imposed by any applicable Plan. A one-time fee of up to $30 may be charged to
set up the SWO. This charge is waived for total vested pre-tax account balances
of $25,000 or more. More information about SWO, including applicable fees and
charges, is available in the Contracts and Active Life Certificates as well as
from Lincoln Life.
MAXIMUM CONSERVATION OPTION
Under certain Contracts Participants who are at least age 70 1/2 may
request that Lincoln Life calculate and pay to them the minimum annual
distribution required by Sections 401(a)(9), 403(b)(10), 408 or 457(d) of the
Code. The Participant must complete forms as required by Lincoln Life in order
to elect this option. Lincoln Life will base its calculation solely on the
Participant's Account value with Lincoln Life. Participants who select this
option are responsible for determining the minimum distributions amount
applicable to their non-Lincoln Life contracts.
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WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died; (2) become disabled; (3) attained age 59 1/2; (4) separated from
service; or (5) incurred a hardship. If amounts accumulated in a Section
403(b)(7) custodial account are deposited in a Contract, such amounts will be
subject to the same withdrawal restrictions as are applicable to post-1988
salary reduction Contributions under the Contracts. For more information on
these provisions see "Federal Income Tax Considerations."
Withdrawal requests for a Participant under Section 401(a) Plans, Section
457(b) Plans and Plans subject to Title I of ERISA must be authorized by the
Contractholder on behalf of a Participant. All withdrawal requests will require
the Contractholder's written authorization and written documentation specifying
the portion of the Participant's Account balance which is available for
distribution to the Participant. Withdrawal requests for Section 457(f) Plans
must be requested by the Contractholder.
As required by Section 830.105 of the Texas Education Code, withdrawal
requests by Participants in the Texas Optional Retirement Program ("ORP") are
only permitted in the event of (1) death; (2) retirement; (3) termination of
employment in all Texas institutions of higher education; or (4) attainment of
age 70 1/2. A Participant in an ORP Contract is required to obtain a
certificate of termination from the Participant's Employer before a withdrawal
request can be granted.
For withdrawal requests (other than transfers to other investment
vehicles), by Participants under Plans not subject to Title I of ERISA and non-
401(a) Plans and non-457 Plans, the Participant must certify to Lincoln Life
that one of the permitted distribution events listed in the Code has occurred
(and provide supporting information, if requested) and that Lincoln Life may
rely on such representation in granting such withdrawal request. See "Federal
Income Tax Considerations." A Participant should consult their tax adviser as
well as review the provisions of their Plan before requesting a withdrawal.
In addition to the restrictions noted above, a Plan and applicable law may
contain additional withdrawal or transfer restrictions.
Withdrawals may have Federal tax consequences. In addition, early
withdrawals, as defined under Section 72(q) and 72(t) of the Code, may be
subject to a ten percent excise tax.
DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, Lincoln Life will pay the Beneficiary, if one is
living, or the Plan the greater of the following amounts:
(1) The Net Contributions, or
(2) The Participant's Account balance less any outstanding loan
(including principal and due and accrued interest),
PROVIDED THAT, if Lincoln Life is not notified of the Participant's death within
six months of such death, the Beneficiary will receive the Death Benefit amount
described in paragraph (2).
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A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum,
(2) converted to a Payout Annuity or (3) as a combination of a lump sum payment
and a Payout Annuity.
Lincoln Life will calculate the Death Benefit as of the end of the
Valuation Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election generally will be made within seven days
following such calculation. Payment of an annuity option will be paid in
accordance with the provisions regarding annuities. See "Annuity Period." If no
election is made within sixty days following Lincoln Life's receipt of
satisfactory notice of the Participant's death, the Death Benefit will be paid
in the form of a lump sum payment and will be calculated as of the end of the
Valuation Period during which that sixtieth day occurs (and payment generally
will be made within seven days after such calculation date). See "Market
Emergencies".
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who attended
the deceased at the time of death; or any other proof satisfactory to Lincoln
Life.
Notwithstanding the above, under qualified annuities, if the Beneficiary
is someone other than the spouse of the deceased Participant, the Code provides
that the Beneficiary may not elect an annuity which would commence later than
December 31st of the calendar year following the calendar year of the
Participant's death. If a non-spousal Beneficiary elects to receive payment in
a single lump sum, the Code provides that such payment must be received no later
than December 31st of the fourth calendar year following the calendar year of
the Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
distributions generally are not required under the Code to begin earlier than
December 31st of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before the date distributions
commence, then, for purposes of determining the date distributions to the
Beneficiary must commence, the date of death of the surviving spouse is
substituted for the date of death of the Participant.
Other rules apply to non-qualified annuities. See Federal Income Tax
Considerations.
If there is no living named Beneficiary on file with Lincoln Life at the
time of a Participant's death and unless the Plan directs otherwise, Lincoln
Life will pay the Death Benefit to the Participant's estate in the form of a
lump sum payment, upon receipt of satisfactory proof of the Participant's death,
but only if such proof of death is received by Lincoln Life no later than the
end of the fourth calendar year following the year of the Participant's death.
In such case, valuation of the Death Benefit will occur as of the end of the
Valuation Period during which due proof of death is received by Lincoln Life,
and the lump sum Death Benefit generally will be paid within seven days of that
date. See "Market Emergencies".
DEDUCTIONS AND CHARGES
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate Lincoln Life for risks
assumed in connection with the Contracts.
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MORTALITY AND EXPENSE RISK CHARGES
Lincoln Life deducts from the net assets of the Variable Investment
Division a daily charge of 1.20% on an annual basis.
This charge is assessed both during the Accumulation Period and the
Annuity Period although, during the Annuity Period, Lincoln Life will bear no
mortality risk with respect to the Annuity Options that do not involve life
contingencies. This amount is intended to compensate Lincoln Life for certain
Mortality and Expense Risks Lincoln Life assumes in operating the Variable
Investment Division and for providing services to the Participant. The 1.2%
total charge consists of .25% for the Expense Risk and .95% for the Mortality
Risk. The relative proportion of these charges, consistent with industry
practice, is estimated and, therefore, may change based on Lincoln Life's
experience in administering the Contracts. However, the total charge may not be
altered.
The Expense Risk is the risk that Lincoln Life's actual expenses in
issuing and administering the Contract will be more than Lincoln Life estimated.
The Mortality Risk borne by Lincoln Life arises from the chance that Lincoln
Life's actuarial estimate of mortality rates during the Annuity Period, as
guaranteed in the Contract, may prove erroneous and that an Annuitant may live
longer than expected. This contractual guarantee assures that neither an
Annuitant's own longevity nor an improvement in life expectancy generally will
have any adverse effect under the Contracts. In addition, Lincoln Life bears
the Mortality Risk because it guarantees to pay a Death Benefit that may be
higher than the Participant's Account balance upon the death of the Participant
prior to the Annuity Period.
Lincoln Life may ultimately realize a profit from these charges to the
extent they are not needed to meet the actual expenses incurred.
CHARGES AGAINST THE CONTRACTS
The charges that Lincoln Life assesses in connection with the Contracts
are described below.
ANNUAL ADMINISTRATION CHARGE
Lincoln Life provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, Lincoln Life provides Participants with Account statements and
accounting services that keep track of pre-tax monies, employee and Employer
monies, vested Account balances and rollover or transferred monies.
In consideration for these administrative services, Lincoln Life currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn. The charge may be increased or decreased (subject to any
appropriate regulatory approvals) but Lincoln Life does not anticipate a profit
from this charge.
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another Lincoln Life contract which
imposes an Annual Administration Charge or where Lincoln Life's interest costs
or expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
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Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under contracts not offering this provision. For contracts offering this
provision, the Annual Administration Charge will be deducted as described in
this section.
PREMIUM TAXES
Certain states require that a premium tax be paid on contributions to a
variable annuity contract. Others assess a premium tax at the time of
annuitization. Lincoln Life will deduct a charge for any applicable premium tax
from the Participant's Account balance either: (1) at the time of a Total
Withdrawal of a Participant's Account balance; (2) on the Annuity Commencement
Date; (3) at such other date as the taxes are assessed. Various states levy a
premium tax, currently ranging from 0.5% to 4.0%, on variable annuity contracts.
CONTINGENT DEFERRED SALES CHARGE
Lincoln Life does not impose a sales charge at the time a Contribution is
made to a Participant's Account under the Contract. During the Accumulation
Period Lincoln Life charges a Contingent Deferred Sales Charge ("CDSC") in
the amount of 6% on all Total or Partial Withdrawals of a Participant's Account
balance unless Lincoln Life receives at the time of the withdrawal request
reasonable proof necessary to verify that: (a) the Participant has attained
age 59 1/2; (b) the Participant has died; (c) the Participant has incurred a
disability as defined under the Contract; or (d) the Participant has terminated
employment with the Employer and is at least 55 years of age.
The CDSC reimburses Lincoln Life for part or all of its expenses related
to distributing the Contracts. If the revenues generated by the CDSC are not
sufficient to cover Lincoln Life's actual costs of distribution, such costs will
be paid from Lincoln Life's General Account assets, which may include any
ultimate profit derived from the mortality and expense risk charge.
Under certain Contracts, the Contractholders may choose to add "financial
hardship" as another event under the Contract which is not subject to a CDSC.
A Contractholder may also choose to eliminate the requirement that a
Participant must be at least 55 years of age when he terminates employment.
Finally, a Contractholder can add a provision to their Contract entitling
Participants to withdraw once each calendar year, 20% of their Account
balance without the imposition of a CDSC. These Contracts, which provide
additional benefits to Participants, may have a declared guaranteed interest
rate which is lower than other Contracts not providing these additional
benefits.
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The CDSC on any withdrawal may be reduced or eliminated but only to the
extent that Lincoln Life anticipates that it will incur lower sales expenses or
perform fewer sales services due to economies arising from (a) the size of the
particular group, (b) an existing relationship with the Contractholder or
Employer, (c) the utilization of mass enrollment procedures, or (d) the
performance of sales functions by the Contractholder or an Employer which
Lincoln Life would otherwise be required to perform.
The CDSC is imposed on the Gross Withdrawal Amount. A Participant may
request to receive a specific Net Withdrawal Amount. If the Participant
requests a specific Net Withdrawal Amount, the CDSC will be imposed on a Gross
Withdrawal Amount, which after deducting the CDSC, gives the Participant the Net
Withdrawal Amount requested. The following example illustrates the formula:
Participant requests a Net Withdrawal Amount of $100 in their tenth
Participation Year. Lincoln Life will impose the 6% CDSC on a Gross
Withdrawal Amount of $106.38 and the Participant will receive $100. This
is the standard procedure for withdrawals.
The CDSC will be deducted from the Divisions and Sub-Accounts in
proportion to amounts withdrawn therefrom. Death Benefit payments and amounts
converted to an annuity are not subject to a CDSC. In no event will the CDSC,
when added to any CDSC previously imposed due to a Participant withdrawal,
exceed 8.5% of the cumulative Contributions to a Participant's Account.
MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net
asset value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
GENERAL
To the extent permitted by the Plan, the Participant, or the Beneficiary
of a deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination of both.
Annuity payments from the Guaranteed Interest Division remain constant
throughout the annuity period. Annuity payments from the Variable Investment
Division fluctuate depending upon the investment experience of the applicable
Sub-Accounts. Variable Annuity payments are based upon Annuity Unit Values.
See "Annuity Payments" below and "Determination of Variable Annuity Payments" in
the Statement of Additional Information for further information.
The Annuity Commencement Date marks the date on which Lincoln Life makes
the first annuity payment to an Annuitant. For Plans subject to Section
401(a)(9)(B) of the Code, a Beneficiary must select an Annuity Commencement Date
that is not later than one year after the date of the Participant's death. A
Participant or Contractholder may select any Annuity Commencement Date for the
Annuitant which is then reflected in the Retired Life Certificate. However,
since an annuity payment is considered a distribution under the Code, selection
of an Annuity Commencement Date may be affected by the distribution restrictions
under the Code and the minimum distribution requirements under Section 401(a)(9)
of the Code. See "Federal Income Tax Considerations." The
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selection of an Annuity Commencement Date, the annuity option, the amount of
the Payout Annuity and whether the amount is to be paid as a Guaranteed or a
Variable Annuity must be made by the Participant in writing, in a form
satisfactory to Lincoln Life, and received by Lincoln Life at least 30 days
in advance of the Annuity Commencement Date. After the Annuity Commencement
Date an Annuitant may not change either their annuity option or the type
(i.e., variable or guaranteed) of Payout Annuity for any amount applied
toward the purchase of an annuity.
The Annuity Conversion Amount is either the Participant's Account balance,
or a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. The initial Annuity Payment Calculation Date will be
the first day of the calendar month next following the Annuity Commencement Date
for a Guaranteed Annuity and 10 Business Days prior to the first day of the
calendar month next following the Annuity Commencement Date for a Variable
Annuity. For Guaranteed Annuities, the Annuity Payment Calculation Date is the
first day of a calendar month. For Variable Annuities, the Annuity Payment
Calculation Date is the date 10 Business Days prior to the first day of a
calendar month; the 10 Business Days being necessary to calculate the amount of
the Payout Annuity payments and to mail the checks in advance of their first-of-
month due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000.00 or if the amount of the first scheduled payment is less than
$20.00, Lincoln Life may, at its option, cancel the annuity and pay the
Participant or Beneficiary the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount applied to an annuity option, the form of the annuity option selected and
the age of the Participant at the Annuity Commencement Date. Unless otherwise
notified, Lincoln Life will apply the Participant's Account balance in the
Guaranteed Interest Division toward a Guaranteed Annuity and the Participant's
Account balance in the Variable Investment Division toward a Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract.
The initial payment amount for a Variable Annuity is determined by
dividing the Participant's Annuity Conversion Amount(s) in the applicable Sub-
Account(s) as of the initial Annuity Payment Calculation Date by the applicable
Annuity Conversion Factor as defined in the Contract. The amounts of subsequent
payments vary depending on the investment experience of the Sub-Account(s) and
the interest rate option selected by the Contractholder or Annuitant. The
payment amounts will not be affected by Lincoln Life's mortality or expense
experience and will not be reduced by an Annual Administration Charge. For
additional information on the determination of subsequent payment amounts, refer
to the Statement of Additional Information, "Determination of Variable Annuity
Payments."
PAYOUT ANNUITY OPTIONS
Lincoln Life offers a range of annuity options including, but not limited
to, the following:
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LIFE ANNUITY
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Payments are made monthly during the lifetime of the Annuitant with a
monthly payment guaranteed to the Beneficiary for the remainder of the selected
number of years, if the Annuitant dies before the end of the period selected.
Payments under this annuity option are smaller than a Life Annuity without a
guaranteed payment period.
JOINT AND SURVIVOR ANNUITIES
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum. Such lump sum payment will be treated as a Total Withdrawal during the
Accumulation Period and may be subject to a CDSC. See, "Deductions and Charges"
and "Federal Income Tax Considerations."
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
NOTE CAREFULLY: Under the Life Annuity and Joint and Survivor Annuities
options it would be possible for only one annuity payment to be made if the
Annuitant(s) were to die before the due date of the second annuity payment; only
two annuity payments if the Annuitant(s) were to die before the due date of the
third annuity payment; and so forth.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all of
the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of the
current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
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The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
Payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the Beneficiary may depend on the tax status of the individual concerned.
In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax qualified retirement plan in order
to continue receiving favorable tax treatment. Therefore, you should consult
your legal counsel and tax adviser regarding the suitability of the Contract for
your situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. This summary assumes that Qualified Contracts are
purchased with proceeds from retirement plans that qualify for the intended
special Federal income tax treatment.
All dollar amounts and percentages stated below are subject to change
according to Federal law. For additional Federal Income Tax Consideration,
please refer to the Statement of Additional Information.
NON-QUALIFIED CONTRACTS
In general, under non-qualified annuity contracts, an individual may make
Contributions to the Contracts which are not tax-deductible. A participant is
generally not taxed on increases in the value of a contract until a distribution
occurs. This can be in the form of a lump sum payment received by requesting
all or part of the cash value (I.E., withdrawals) or as Annuity Payouts. For
this purpose, the assignment or pledge of, or the agreement to assign or pledge,
any portion of the value of a contract will be treated as a distribution. A
transfer of ownership of a contract, or designation of an annuitant (or other
beneficiary) who is not also the participant, may also result in tax
consequences. The taxed portion of a distribution (in the form of a lump sum
payment or an annuity) is taxed as ordinary income. For Contributions made
after February 28, 1986, a participant who is not a natural person (for example,
a corporation) will, subject to limited exceptions, be taxed on any increase in
the contract's cash value over the investment in the contract during the taxable
year, even if no distribution occurs. The following discussion applies to
contracts owned by or on behalf of participants who are natural persons.
IN GENERAL. Section 72 of the Code governs taxation of annuities in
general. The Company believes that an Owner who is a natural person generally
is not taxed on increases in the Owner's Account Value until distribution occurs
by withdrawing all or part of such Account Value (E.G., withdrawals or Annuity
payments under the Annuity Option elected). For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Account Value (and
in the case of a Qualified Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. (The Contracts are not
assignable without Lincoln Life's prior written consent. See "Assignability.")
The taxable portion of a distribution (in the form of a single sum payment or
an annuity) is taxable as ordinary income.
The owner of any Contract who is not a natural person generally must
include in income any increase in the excess of the Account Value over the
"investment in the contract" (discussed below) during the taxable year. There
are some exceptions to this rule and prospective Owners that are not natural
persons may wish to discuss these with a competent tax adviser.
WITHDRAWALS. In the case of a withdrawal, generally amounts received are
first treated as taxable income to the extent that the cash value of the
contract immediately before the withdrawal exceeds the investment in the
contract at that time. Any additional amount withdrawn is not taxable. The
investment in the contract generally equals the portion, if any, of any
contributions paid by or on behalf of a participant under a contract which is
not excluded from the participant's gross income.
ANNUITY PAYOUTS. Even though the tax consequences may vary depending on
the form of Annuity Payout selected under the contract, the recipient of an
Annuity Payout generally is taxed on the portion of such payout that exceeds the
investment in the contract. For variable Annuity Payouts the taxable portion is
determined by a formula that establishes a specific dollar amount of each payout
that is not taxed. The dollar amount is determined by dividing the investment
in the contract by the total number of expected periodic payouts. For fixed
Annuity Payouts, there generally is no tax on the portion of each payout that
represents the same ratio that the investment in the contract bears to the total
expected value of payouts for the term of the annuity; the remainder of each
payout is taxable. For individuals whose annuity starting date is after
December 31, 1986, the entire distribution will be fully taxable once the
recipient is deemed to have recovered the dollar amount of the investment in the
contract.
EXCISE TAX. There may be imposed an excise tax on distributions equal to
10% of the amount treated as taxable income. The excise tax is not imposed in
certain circumstances, which generally are distributions:
1. Received on or after the participant attains age 59 1/2;
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2. Made as a result of the participant's death or disability
3. Received in substantially equal installments as a life annuity
(subject to special recapture rules if the series of payouts is
subsequently modified);
4. Allocable to the investment in the contract before August 14, 1982;
5. Under a qualified funding asset in a structured settlement;
6. Under an Immediate Annuity contract as defined in the Code; and/or
7. Under a contract purchased in connection with the termination of
certain retirement plans.
MULTIPLE CONTRACTS. All non-qualified annuity contracts entered into
after October 21, 1988, and issued by the same insurance company (or its
affiliates) to the same participant during any calendar year will be treated as
a single contract for tax purposes.
DIVERSIFICATION. Section 817(h) of the Code provides that separate
account investments (or the investments of a mutual fund the shares of which are
owned by separate accounts of insurance companies) underlying a non-qualified
annuity contract must be "adequately diversified" in accordance with treasury
regulations in order for the contract to qualify as an annuity contract under
section 72 of the Code. The Variable Investment Division, through the Fund,
intends to comply with the diversification requirements prescribed in the
regulations.
REQUIRED DISTRIBUTIONS. In addition to the requirements of section
817(h), the Code (section 72(s)) provides that non-qualified annuity contracts
issued after January 18, 1985, will not be treated as annuity contracts for
purposes of section 72 unless the contract provides that (a) if any Participant
dies on or after the annuity starting date but prior to the time the entire
interest in the contract has been distributed, the remaining portion of such
interest must be distributed at least as rapidly as under the method of
distribution in effect at the time of the Participant's death; and (B) if any
Participant dies prior to the annuity starting date, the entire interest must be
distributed within five years after the death of the Participant. These
requirements are considered satisfied if any portion of the Participant's
interest that is payable to or for the benefit of a "designated beneficiary" is
distributed over that designated beneficiary's life, or a period not extending
beyond the designated beneficiary's life expectancy, and if that distribution
begins within one year of the Participant's death. The "designated beneficiary"
must be a natural person. Contracts issued after January 18, 1985 contain
provisions intended to comply with these Code requirements, although regulations
interpreting these requirements have yet to be issued. The Company intends to
review such provisions and modify them, if necessary, to assure that they comply
with the requirements of section 72(s) when clarified by regulation or
otherwise.
QUALIFIED CONTRACTS
IN GENERAL. The Qualified Contract is designed for use with several types
of retirement plans. The tax rules applicable to participants and beneficiaries
in retirement plans vary according to the type of plan and the terms and
conditions of the plan. Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse tax consequences may
result from contributions in excess of specified limits; distributions prior to
age 59 1/2 (subject to certain exceptions); distributions that do not conform
to specified commencement and minimum distribution rules; aggregate
distributions in excess of a specified annual amount; and in other specified
circumstances.
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The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans. Owners
and participants under retirement plans as well as annuitants and beneficiaries
are cautioned that the rights of any person to any benefits under Qualified
Contracts may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract issued in connection with
such a plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the Contracts.
Owners are responsible for determining that contributions, distributions and
other transactions with respect to the Contracts satisfy applicable law.
Purchasers of Contracts for use with any retirement plan should consult their
legal counsel and tax adviser regarding the suitability of the Contract.
SECTION 401(a) PLANS. Section 401(a) of the Code provides special tax
treatment for pension, profit sharing and stock bonus Plans established by
Employers for their employees. Contributions to a Section 401(a) Plan and any
earnings attributable to such Contributions are currently excluded from the
Participant's income. Section 401(a) Plans are subject to, among other things,
limitations on: maximum Contributions, minimum coverage and participation,
minimum funding, minimum vesting requirements and distribution requirements.
The specific limitations are outlined in the plan document adopted by the
employer.
A Participant who makes a withdrawal from a Section 401(a) program
generally must include that amount in current income. In addition, Section
401(k)(2) of the Code requires that salary reduction Contributions made and/or
earnings credited on any salary reduction Contributions may not be withdrawn
from the Participant's Section 401(k) program prior to the Participant having
(1) attained age 59 1/2, (2) separated from service, (3) become disabled (4)
died or (5) incurred a hardship. Hardship withdrawals may not include any
income credited after December 31, 1988 that is attributable to any salary
reduction Contributions. In addition, Section 402 of the Code permits tax-free
rollovers from Section 401(a) programs to individual retirement annuities or
certain other Section 401(a) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly to
an eligible retirement plan.
SECTION 403(b) PLANS. A Participant who is an employee of a hospital or
other tax-exempt organization described in Section 501(c)(3) or 501(e) of the
Code may exclude from current earnings amounts contributed to a Section 403(b)
program. Under the terms of a Section 403(b) program, an Employer may make
Contributions directly to the program on behalf of the Participant, the
Participant may enter into a salary reduction agreement with the Participant's
Employer authorizing the Employer to contribute a percentage of the
Participant's salary to the program and/or the Participant may authorize the
Employer to make after tax Contributions to the program. Currently, the Code
permits employees to defer up to $9,500 of their income through salary reduction
agreements. All Contributions made to the Section 403(b) program are subject to
the limitations described in Code Sections 402(g) regarding elective deferral
amounts, 403(b)(2) regarding the maximum exclusion allowance, and 415(a)(2) and
415(c) regarding the limitations on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program
generally must include that amount in current income. In addition, Section
403(b)(11) of the Code requires that salary reduction Contributions made and/or
earnings credited on any salary reduction Contributions after December 31, 1988
may not be withdrawn from the Participant's Section 403(b) program prior to the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled (4) died or (5) incurred a hardship. Hardship withdrawals may
not include any income credited after December 31, 1988 that is attributable to
any salary reduction Contributions. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that amounts may be transferred between Section 403(b)
investment vehicles as long as the transferred funds retain withdrawal
restrictions at least as restrictive as that of the transferring investment
vehicle. Such transferred amounts are considered withdrawals under the Contract
and will be subject to a CDSC, if applicable. See "Deductions and
Charges Contingent-Deferred Sales Charges." In addition, Section 403(b)(8) of
the Code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances. Qualified distributions eligible
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for rollover treatment may be subject to a 20% federal tax withholding
depending on whether or not the distribution is paid directly to an eligible
retirement plan.
SECTION 408 PLANS (IRAs). Under current law, individuals may contribute
and deduct the lesser of $2,000 or 100% of their compensation to an IRA. In the
case of a spousal IRA, the maximum deduction is the lesser of $2,250 or 100% of
compensation. The deduction for Contributions is phased out for individuals who
are considered active participants under qualified Plans and whose Adjusted
Gross Income attains a certain level. For a single person the $2,000 deduction
is available when the taxpayers Adjusted Gross Income is $25,000 or less. For
each $50 that the taxpayer's Adjusted Gross Income rises above $25,000, the
taxpayer's deductible IRA is reduced by $10. When the single taxpayer's
Adjusted Gross Income is $35,000 or greater, a tax deduction for an IRA is no
longer available. For a married couple filing jointly, the threshold level is
$40,000 rather than $25,000. For a married person filing separately, the
threshold is $0.
In addition, certain amounts distributed from Section 401(a) and 403(b)
Plans may be rolled over to an IRA on a tax-free basis if done in a timely
manner (within 60 days of the Participant's receipt of the distribution). The
limitations on contributions discussed above do not apply to amounts rolled over
to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document
explains the tax rules that apply to IRAs in greater detail.
ELIGIBLE SECTION 457 PLANS. Eligible Section 457 Plans may be established
by state and local governments as well as private tax-exempt organizations
(other than churches). Participants may contribute on a before tax basis to a
deferred compensation Plan of their employer in accordance with the employer's
Plan and Section 457 of the Code. Section 457 places limitations on the amount
of Contributions to these Plans. Generally, the limitation is one-third of
includable compensation or $7,500 whichever is less. In the Participant's final
three years of employment before normal retirement age, the $7,500 limit is
increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal. In general, all amounts received under a Section 457
Plan are taxable.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the Employer retains all rights under the contract
issued with respect to the Plan. Depending on the terms of the particular Plan,
the Employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 Plan obligations. Participants under Eligible Section 457
Plans should look to the terms of their Plan for any charges in regard to
participation other than those disclosed in this Prospectus.
SECTION 457(f) PLANS. Section 457(f) Plans may be established by state
and local governments as well as private tax-exempt organizations. Employers
and Participants may contribute on a before-tax basis to a deferred compensation
Plan of their Employer in accordance with the Employer's Plan. Section 457(f)
does not place limitations on the amount of Contributions to these Plans;
however, the Internal Revenue Service may review these plans to determine if the
deferral amount is acceptable to the IRS based on the nature of the 457(f) Plan.
Participants in 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the
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<PAGE>
Employer retains all rights under the contract issued with respect to the
Plan. Participants under Section 457(f) Plans should look to the terms of
their Plan for any charges in regard to participating other than those
disclosed in this Prospectus.
TAXATION OF QUALIFIED ANNUITIES: GENERAL. In Qualified Plans such as
401(a), 403(b) and 408 and Eligible 457, the Participant is not taxed on the
value in their Accounts until they receive payments from the Account. In some
situations, default or forgiveness of a loan, assignment or other transactions
will result in taxable income. Distributions from all these Plans are taxed
under the rules of Sections 72 and 402 of the Code.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS. Section 72(t) imposes a 10%
excise tax on certain premature distributions for non-qualified and Section
401(a), 403(b) and 408 Plans. The penalty tax will not apply to distributions
made on account of the Participant having (i) attained age 59 1/2; (ii) become
disabled; or (iii) died. The penalty tax will also not apply under 401(a) and
403(b) retirement plans where a Participant separates from service after age 55.
In addition, the penalty does not apply if the distribution is received as a
series of substantially equal periodic payments made for the life (or life
expectancy) of the Participant or the joint lives (or life expectancies) of the
Participant and a designated Beneficiary. Certain other exceptions may also
apply. The 10% excise tax is an additional tax; it does not apply to any money
that the Participant receives as a return of their cost basis. The 10% excise
tax does not apply to Section 457 Plans.
MINIMUM DISTRIBUTIONS. Participants in Plans subject to Code Sections
401(a), 403(b), 408 and Eligible 457 Plans are subject to Minimum Distribution
Rules. For a Participant who attains age 70 1/2 after December 31, 1987,
distributions generally must begin by April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2. For a Participant
who attains age 70 1/2 before January 1, 1988, distributions must begin on the
April 1 of the calendar year following the later of (1) the calendar year in
which the Participant attains age 70 1/2 or (2) the calendar year in which the
Participant retires. Additional requirements may apply with respect to certain
Plans.
Participants in Eligible 457 Plans are taxed when Plan benefits are
distributed or made available to them. Participants in 457(f) Plans are taxed
when services related to contributions are performed or when distributions are
not subject to a substantial risk of forfeiture. Distributions under Eligible
457 or 457(f) Plans are taxed as ordinary income.
The following discussion generally applies to a Contract owned by a
natural person.
WITHDRAWALS. In the case of a withdrawal under a Qualified Contract,
including withdrawals under the Systematic Withdrawal Option, a proratable
portion of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the individual's total accrued benefit under the
retirement plan. The "investment in the contract" generally equals the amount
of any non-deductible Contributions paid by or on behalf of any
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individual. For a Contract issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax rules may be available
for certain distributions from a Qualified Contract.
With respect to Non-Qualified Contracts, partial withdrawals are
generally treated as taxable income to the extent that the Account Value
immediately before the withdrawal exceeds the "investment in the contract" at
that time.
Full surrenders of a Non-qualified Contract are treated as taxable income
to the extent that the amount received exceeds the "investment in the contract".
ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract". For
Fixed Annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable. If Annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect
to the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
INVESTOR CONTROL
The Treasury Department has indicated that guidelines may be issued
under which a variable annuity contract will not be treated as an annuity
contract for tax purposes if the contract owner has excessive control over
the investments underlying the contract. The issuance of those guidelines
may require us to impose limitations on your right to control the investment.
We do not know whether any such guidelines would have a retroactive effect.
VOTING RIGHTS
Lincoln Life is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, Lincoln Life is entitled to vote those
Fund shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, Lincoln Life
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each Contractholder will
receive a number of votes in proportion to the Contractholder's investment in
the corresponding Sub-Account as of the record date established by the Fund.
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During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
Lincoln Life will furnish Contractholders with sufficient Fund proxy
material and voting instruction forms for all Participants who have voting
rights under the Contract. Lincoln Life will vote those Fund shares
attributable to the Contract for which Lincoln Life receives no voting
instructions in the same proportion as Lincoln Life will vote shares for which
Lincoln Life has received instructions. Lincoln Life will vote shares
attributable to amounts Lincoln Life may have in the Variable Investment
Division in the same proportion as votes that Lincoln Life receives from
Contractholders. If the federal securities laws or regulations or any
interpretation of them changes so that Lincoln Life is permitted to vote shares
of the Fund in Lincoln Life's own right or to restrict Participant voting,
Lincoln Life may do so.
Fund shares may be held by separate accounts of insurance companies
unaffiliated with Lincoln Life. Fund shares held by those separate accounts
will be voted, in most cases, according to the instruction of owners of
insurance policies and contracts issued by those other unaffiliated insurance
companies. This will dilute the effect of the voting instructions of the
Contractholders in the Variable Investment Division. Lincoln Life does not
foresee any disadvantage to this. Pursuant to conditions imposed in connection
with regulatory relief, the Fund's Board of Directors has an obligation to
monitor events to identify conflicts that may arise and to determine what
action, if any, should be taken. For further information, see the prospectuses
for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY LINCOLN LIFE
Lincoln Life reserves the right, subject to compliance with applicable
law, including approval by the Contractholder or the Participants if required by
law, (1) to create additional Sub-Accounts in the Variable Investment Division,
(2) to combine or eliminate Sub-Accounts in the Variable Investment Division,
(3) to transfer assets from one Sub-Account in the Variable Investment Division
to another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration of the Variable Investment Division
under the Investment Company Act of 1940, (6) to operate the Variable Investment
Division under a committee and to discharge such committee at any time, and (7)
to eliminate any voting rights which the Contractholder or the Participants may
have with respect to the Variable Investment Division, (8) to amend the Contract
to meet state law requirements or to meet the requirements of the Investment
Company Act of 1940 or other federal securities laws and regulations, (9) to
operate the Variable Investment Division in any form permitted by law, (10) to
substitute shares of another fund for the shares held by a Sub-Account, and (11)
to make any change required by the Internal Revenue Code, ERISA or the
Securities Act of 1933. Participants will be notified if any changes are made
that result in a material change in the underlying investments of the Variable
Investment Division.
ASSIGNABILITY
The Contracts are not assignable without Lincoln Life's prior written
consent. In addition, a Participant, a Beneficiary or an Annuitant may not,
unless permitted by law, assign or encumber any payment due under the Contract.
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<PAGE>
MARKET EMERGENCIES
While Lincoln Life generally may not suspend the right of redemption or
delay payment from the Variable Investment Division for more than seven days,
the following events may delay payment for more than seven days: (1) any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings); (2) any period when trading in the markets normally utilized
is restricted, or an emergency exists as determined by the Securities and
Exchange Commission, so that disposal of investments or determination of the
Accumulation Unit Value or Variable Annuity payment value is not reasonably
practicable; or (3) for such other periods as the Securities and Exchange
Commission by order may permit for the protection of the Participants.
CONTRACT DEACTIVATION
Under certain Contracts, Lincoln Life may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. Lincoln Life will give the Contractholder and the Participants at
least 90 days notice of the date of deactivation.
FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-qualified Plans
will receive an Active Life Certificate upon Lincoln Life's receipt of a duly
completed participation enrollment form. If the Participant chooses not to
participate under the Contract, the Participant may exercise the free-look right
by sending a written notice to Lincoln Life that the Participant does not wish
to participate under the Contract, within 10 days after the date the Active Life
Certificate is received by the Participant. For purposes of determining the
date on which the Participant has sent written notice, the postmark date will be
used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, Lincoln Life will refund in full the Participant's
aggregate Contributions less aggregate withdrawals made on behalf of the
Participant or, if greater, with respect to Contributions to the Variable
Investment Division, the Participant's Account balance in the Variable
Investment Division on the date the Participant's written notice is received by
Lincoln Life.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of Lincoln
Life's General Account. The General Account is subject to regulation and
supervision by the Indiana Insurance Department as well as the insurance laws
and regulations of the jurisdictions in which the Contracts are distributed.
IN RELIANCE ON CERTAIN EXEMPTIONS, EXCLUSIONS AND RULES, LINCOLN LIFE HAS
NOT REGISTERED THE INTERESTS IN THE GENERAL ACCOUNT AS A SECURITY UNDER THE
SECURITIES ACT OF 1933 AND HAS NOT REGISTERED THE GENERAL ACCOUNT AS AN
INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY, NEITHER THE GENERAL ACCOUNT
NOR ANY INTERESTS THEREIN ARE SUBJECT TO REGULATION UNDER THE 1933 ACT OR THE
1940 ACT. LINCOLN LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT MADE
A REVIEW OF THE DISCLOSURES WHICH ARE INCLUDED IN THIS PROSPECTUS WHICH RELATE
TO THE GENERAL ACCOUNT AND THE GUARANTEED INTEREST DIVISION. THESE DISCLOSURES,
HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE
FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS
MADE IN PROSPECTUSES. THIS PROSPECTUS IS GENERALLY INTENDED TO SERVE AS A
DISCLOSURE DOCUMENT ONLY FOR ASPECTS OF THE CONTRACT INVOLVING THE VARIABLE
INVESTMENT DIVISION AND CONTAINS ONLY SELECTED INFORMATION REGARDING THE
GUARANTEED INTEREST DIVISION. COMPLETE DETAILS REGARDING THE GUARANTEED
INTEREST DIVISION ARE IN THE CONTRACT.
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<PAGE>
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate of at least 3.0%. A Participant who makes a Contribution
to the Guaranteed Interest Division is credited with interest from the day of
deposit in the Guaranteed Interest Division.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN LINCOLN LIFE'S SOLE
DISCRETION. THE PARTICIPANTS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0%
WILL BE DECLARED.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on
any Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, CDSC, Annual Administration Charges and loan-
related charges allocated to the Guaranteed Interest Division and any transfers
to the Variable Investment Division.
TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
Amounts in the Guaranteed Interest Division are generally subject to the
same rights and limitations and will be subject to the same charges as are
amounts allocated to the Variable Investment Division with respect to Total or
Partial Withdrawals. See "Deferral Periods."
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan
permits loans, may apply for a loan under the Contract by completing a loan
application available from Lincoln Life. Loans are secured by the Participant's
Account balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000.00. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account balance without regard to the 50% limitation stated above.
A Participant may have only one loan outstanding at any time and may not
establish more than one loan in any six month period. Amounts serving as
collateral for the loan are not subject to the minimum interest rate under the
Contract and will accrue interest at a rate which is below the loan interest
rate as provided in the Contract. Under certain Contracts, a one-time fee of up
to $50 may be charged to set up a loan. More information about loans,
including interest rates and applicable fees and charges, is available in the
Contracts, Active Life Certificates, and Annuity Loan Agreement as well as from
Lincoln Life.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division, Lincoln
Life may defer the payment for the period permitted by the law of the
jurisdiction in which the Contract is distributed, but in no event, for more
than 6 months after a written election is received by Lincoln Life. During the
period of deferral, interest at the then current interest rate will continue to
be credited to a Participant's Account in the Guaranteed Interest Division.
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<PAGE>
TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DETERMINATION OF ACCUMULATION UNIT VALUES. . . . . . . . . . . . . . . . . 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS . . . . . . . . . . . . . . . . 3
PERFORMANCE CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 4
TAX LAW CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . 12
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Financial Statements
and Schedules of Lincoln Life . . . . . . . . . . . . . . . . . . . . 13
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<PAGE>
VARIABLE ANNUITY II
STATEMENT OF ADDITIONAL INFORMATION
_____ __, 1996
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE SUB-ACCOUNTS OF
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
PAGE
----
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Determination of Accumulation Unit Values . . . . . . . . . . . . . . . . 2
Determination of Variable Annuity Payments . . . . . . . . . . . . . . . . 3
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tax Law Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution of Contracts . . . . . . . . . . . . . . . . . . . . . . . . 12
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Financial Statements
and Schedules of Lincoln Life . . . . . . . . . . . . . . . . . . . . . 13
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the prospectus for the Group Annuity Contracts (the
"Contracts"), dated _____ __, 1996.
A copy of the prospectus to which this SAI relates is available at no charge by
writing to Lincoln Life at Lincoln National Life Insurance Company, P.O. Box
9740, Portland, Maine 04104; or by calling Lincoln Life at 1-800-341-0441.
<PAGE>
DEFINITIONS
ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion Amount
in determining the dollar amount of an annuitant's annuity payments for
Guaranteed Annuities or the initial payment for Variable Annuities.
ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the first
day of a calendar month. For Variable Annuities, this is the Valuation Date ten
(10) business days prior to the first day of a calendar month.
ANNUITY UNIT: An accounting unit of measure that is used in calculating the
amounts of annuity payments to be made from a Sub-Account during the Annuity
Period.
ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in a Sub-Account on any
Valuation Date.
CODE: The Internal Revenue Code of 1986, as amended.
DETERMINATION OF ACCUMULATION UNIT VALUES
As described more fully in the prospectus, Contributions are allocated to the
Divisions in accordance with directions from the Employer. A Participant who
makes Contributions which are allocated to the Variable Investment Division is
credited with Accumulation Units. The following examples illustrate the method
by which Lincoln Life determines the Net Investment Factor (NIF) for the current
Valuation Period and the Accumulation Unit Value as of the end of the current
Valuation Period.
DETERMINATION OF NIF:
(a) Assumed Fund net asset value as of the close of the New York Stock
Exchange on June 1 = 10.45
(b) Assumed Fund net asset value as of the close of the New York Stock
Exchange on June 2 = 10.56 (no capital gains or dividend distributions or
deductions for taxes)
(c) The NIF for the current Valuation Period = (b) divided by (a) times (1-
annual M & E) to the 1/365th power
(d) 1.010526 x .999966 = 1.0104916
DETERMINATION OF ACCUMULATION UNIT VALUE:
The Accumulation Unit Value as of the end of the current Valuation Period is
determined by multiplying the NIF for the current Valuation Period by the
Accumulation Unit Value as of the end of the immediately preceding Valuation
Period.
(a) Assumed Accumulation Unit Value as of the end of the immediately preceding
Valuation Period = 11.125674.
(b) Accumulation Unit Value as of the end of the current Valuation Period =
11.125674 x 1.0104916 (NIF) = 11.2424.
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The number of Accumulation Units which are credited to the Participant's Account
for each Sub-Account on each Valuation Date equals the amount of Contributions
allocated to the Sub-Account on each Valuation Date divided by the Accumulation
Unit Value rounded to four decimal places. For example,
(a) Participant's assumed Contribution allocated to a Sub-Account on June 2
= $150.
(b) Number of Accumulation Units credited to Participant = $150 divided by
11.2424 = 13.3423.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on the investment experience of the selected Sub-Accounts.
The initial payment amount of the Annuitant's Variable Annuity for each Sub-
Account is determined by dividing his Annuity Conversion Amount in each Sub-
Account as of the initial Annuity Payment Calculation Date ("APCD") by the
Applicable Annuity Conversion Factor as defined as follows:
The Annuity Conversion Factors which are used to determine the initial payments
are based on the 1983 Individual Annuity Mortality Table, set back four (4)
years, and an interest rate in an integral percentage ranging from zero to six
percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each Sub-
Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial APCD; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent APCDs.
Each Annuity Unit Value for a Sub-Account for an interest rate option is
determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of subsequent
APCD by the Accumulation Unit Value for the Sub-Account as of the
immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate option
to the n/365 power where n is the number of days from the immediately
preceding APCD to the subsequent APCD; and
Multiplying this factor times the Annuity Unit Value as of the immediately
preceding APCD.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
1. Annuity Unit Value as of immediately preceding Annuity Payment
Calculation Date. . . . . . . . . . . . . . . . . . . . . . . . $11.0000
2. Accumulation Unit Value as of Annuity Payment Calculation Date. . $20.0000
3. Accumulation Unit Value as of immediately preceding Annuity
Payment Calculation Date. . . . . . . . . . . . . . . . . . . . . $19.0000
4. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00%
5. Interest Rate Factor (30 days). . . . . . . . . . . . . . . . . . 1.0048
6. Annuity Unit Value as of Annuity Payment Calculation Date =
1 times 2 divided by 3 divided by 5. . . . . . . . . . . . $11.5236
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<PAGE>
ILLUSTRATION OF ANNUITY PAYMENTS
<TABLE>
<CAPTION>
<S> <C>
1. Annuity Conversion Amount as of Participant's initial Annuity Payment
Calculation Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000.00
2. Assumed Annuity Conversion Factor per $1 of Monthly Income for an
individual age 65 selecting a Life Annuity with Assumed Interest Rate of 6%. . . . $138.63
3. Participant's initial Annuity Payment = 1 divided by 2 . . . . . . . . . . . . . . $721.34
4. Assumed Annuity Unit Value as of Participant's initial Annuity Payment
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.5236
5. Number of Annuity Units = 3 divided by 4 . . . . . . . . . . . . . . . . . . . . . 62.5968
6. Assumed Annuity Unit Value as of Participant's second Annuity Payment
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.9000
7. Participant's second Annuity Payment = 5 times 6 . . . . . . . . . . . . . . . . . $744.90
</TABLE>
PERFORMANCE CALCULATIONS
STANDARD TOTAL RETURN CALCULATION
The Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a Sub-
Account at the beginning of each period and surrender or withdrawal of the value
of that amount at the end of each specified period, giving effect to any CDSC
and all other charges and fees applicable under the Contract. This method of
calculating performance further assumes that (i) a $1,000 Contribution was
allocated to a Sub-Account and (ii) no transfers or additional payments were
made. Premium taxes are not included in the term "charges" for purposes of this
calculation. Average annual total return is calculated by finding the average
annual compounded rates of return of a hypothetical Contribution that would
compare the Accumulation Unit value on the first day of the specified period to
the ending redeemable value at the end of the period according to the following
formula:
T = (ERV/C) 1/n - 1
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
NON-STANDARDIZED CALCULATION OF TOTAL RETURN PERFORMANCE
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. The Variable Investment Division may
present total return information computed on the same basis as the standardized
method except that charges deducted from the hypothetical Contribution will not
include any CDSC. Consistent with the long-term investment and retirement
objectives of the Contract, this total return presentation assumes investment in
the Contract continues beyond the period when the CDSC applies. The Variable
Investment Division may also present total return information computed on the
same basis as the standardized method except that charges deducted from the
hypothetical Contribution will not include either the CDSC or the Annual
Administration Charge. The total return percentage under both of these non-
standardized methods will be higher than that resulting from the standardized
method.
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a period
from the Accumulation Unit Value of that Sub-Account at the end of the period
and dividing that difference (in that Sub-Account's Accumulation Unit Value) by
the Accumulation Unit
-4-
<PAGE>
Value of that Sub-Account at the beginning of the period. This computation
results in a total growth rate for the specified period which we annualize in
order to obtain the average annual percentage change in the Accumulation Unit
Value for the period used. This method of calculating performance does not
take into account CDSC, the Annual Administration Charge and premium taxes,
and assumes no transfers. Such percentages would be lower if these charges
were included in the calculation.
In addition, the Variable Investment Division may present actual aggregate total
return figures for various periods, reflecting the cumulative change in value of
an investment in the Variable Investment Division for the specified period.
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1995. For the periods prior to the date
the Sub-Accounts commenced operations, performance information for the Contracts
will be calculated based on the performance of the fund portfolios and the
assumption that the Sub-Accounts were in existence for the same periods as those
indicated for the fund portfolios, with the level of Contract charges that were
in effect at the inception of the Sub-Accounts (this is referred to as
"hypothetical performance data"). This information does not indicate or
represent future performance.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Sub-Account over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline had been constant over the period. Contractholders and
participants should recognize that average annual returns represent averaged
returns rather than actual year-to-year performance.
The respective underlying funds in which the Sub-Accounts invest had performance
history prior to the Sub-Accounts' inception. Performance information covering
those periods reflects a hypothetical performance as if the funds were part of
the Variable Annuity Account L at that time, using the charges applicable to the
Contracts.
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period via the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/95. The rates thus reflect the mortality and expense
risk charge, the withdrawal charge and a pro rata portion of the Annual
Administrative Charge. Table 1B shows the cumulative total return on the same
basis.
-5-
<PAGE>
TABLE 1A -- SUB-ACCOUNT STANDARDIZED "HYPOTHETICAL" AVERAGE ANNUAL TOTAL RETURN
<TABLE>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 8.43 6.30 9.91 8.70
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 20.53 7.13 8.48 8.11
(Socially Responsible)
TCI Balanced 05/01/91 12.45 5.94 N/A 7.04
(Balanced)
VIP Equity-Income 10/09/86 25.38 15.70 18.36 11.19
(Equity-Income)
Dreyfus Stock Index 09/29/89 26.93 10.92 13.08 9.81
(Index Account)
Fund VIP Growth 10/09/86 25.52 13.42 17.77 12.62
(Growth I)
TCI Growth 11/20/87 21.65 8.96 12.05 10.60
(Growth II)
T. Rowe Price International Stock 03/31/94 3.21 N/A N/A 2.30
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 20.06 28.55 55.85 52.12
(Small Cap)
</TABLE>
TABLE 1B -- SUB-ACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN
<TABLE>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 -2.92 8.43 8.43 20.12 60.39 69.45
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 -2.87 20.53 20.53 22.95 50.21 107.10
(Socially Responsible)
TCI Balanced 05/01/91 -4.18 12.45 12.45 18.91 N/A 37.42
(Balanced)
VIP Equity-Income 10/09/86 -0.63 25.38 25.38 54.86 132.25 166.26
(Equity-Income)
Dreyfus Stock Index 09/29/89 -0.94 26.93 26.93 36.47 84.94 79.57
(Index)
Fund VIP Growth 10/09/86 -10.40 25.52 25.52 45.89 126.55 199.60
(Growth I)
TCI Growth 11/20/87 -9.92 21.65 21.65 29.35 76.65 126.46
(Growth II)
T. Rowe Price International Stock 03/31/94 -3.86 3.21 3.21 N/A N/A 4.07
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 -5.52 20.06 20.06 112.44 819.61 838.17
(Small Cap)
</TABLE>
-6-
<PAGE>
Table 2A below shows annual average total return on the same assumptions as
Table 1A except that the value in the Sub-Account is not withdrawn at the end
of the period or is withdrawn to affect an annuity. Table 2B shows the
cumulative total return on the same basis. The rates of return shown below
reflect the mortality and expense risk charge and a pro rata portion of the
Annual Administrative Charge.
TABLE 2A -- SUB-ACCOUNT "HYPOTHETICAL" AVERAGE TOTAL RETURN ASSUMING NO
WITHDRAWAL
<TABLE>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 15.35 8.52 11.28 9.77
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 28.22 9.36 9.83 8.83
(Socially Responsible)
TCI Balanced 05/01/91 19.62 8.15 N/A 8.47
(Balanced)
VIP Equity-Income 10/09/86 33.38 18.11 19.83 11.94
(Equity-Income)
Dreyfus Stock Index 09/29/89 35.03 13.23 14.49 10.90
(Index Account)
Fund VIP Growth 10/09/86 33.53 15.78 19.24 13.38
(Growth I)
TCI Growth 11/20/87 29.41 11.23 13.45 11.44
(Growth II)
T. Rowe Price International Stock 03/31/94 9.80 N/A N/A 5.97
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.72 31.23 57.80 53.89
(Small Cap)
</TABLE>
TABLE 2B -- SUB-ACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN ASSUMING NO
WITHDRAWAL
<TABLE>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 3.28 15.35 15.35 27.79 70.62 80.26
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 09/02/86 3.33 28.22 28.22 30.79 59.80 120.32
(Socially Responsible)
TCI Balanced 05/01/91 1.93 19.62 19.62 26.50 N/A 46.20
(Balanced)
VIP Equity-Income 10/09/86 5.72 33.38 33.38 64.75 147.08 183.26
(Equity-Income)
Dreyfus Stock Index 09/29/89 5.39 35.03 35.03 45.18 96.74 91.03
(Index)
Fund VIP Growth 10/09/86 -4.68 33.53 33.53 55.20 141.01 218.73
(Growth I)
TCI Growth 11/20/87 -4.17 29.41 29.41 37.60 87.92 140.92
(Growth II)
T. Rowe Price International Stock 03/31/94 2.27 9.80 9.80 N/A N/A 10.71
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.51 27.72 27.72 126.00 878.31 898.05
(Small Cap)
</TABLE>
-7-
<PAGE>
Tables 3A and 3B show performance information on the same assumptions as
Tables 2A and 2B except that Tables 3A and 3B do not reflect deductions of
the pro rata portion of the Annual Administrative Charge because certain
Contract and Participants are not assessed such a charge.
TABLE 3A -- SUB-ACCOUNT "HYPOTHETICAL" AVERAGE ANNUAL TOTAL RETURN ASSUMING NO
WITHDRAWAL AND NO ANNUAL ADMINISTRATIVE CHARGE
<TABLE>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 15.57 8.71 11.42 9.92
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 28.24 9.38 9.84 8.84
(Socially Responsible)
TCI Balanced 05/01/91 19.68 8.20 N/A 8.52
(Balanced)
VIP Equity-Income 10/09/86 33.49 18.18 19.88 11.99
(Equity-Income)
Dreyfus Stock Index 09/29/89 35.16 13.33 14.57 10.98
(Index Account)
Fund VIP Growth 10/09/86 33.75 15.95 19.35 13.47
(Growth I)
TCI Growth 11/20/87 29.55 11.33 13.53 11.51
(Growth II)
T. Rowe Price International Stock 03/31/94 9.86 N/A N/A 6.04
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.85 31.30 57.82 53.91
(Small Cap)
</TABLE>
-8-
<PAGE>
TABLE 3B -- SUB-ACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN ASSUMING NO
WITHDRAWAL AND NO ANNUAL ADMINISTRATIVE CHARGE
<TABLE>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 3.50 15.57 15.57 28.46 71.74 81.82
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 3.35 28.24 28.24 30.85 59.90 120.51
(Socially Responsible)
TCI Balanced 05/01/91 1.99 19.68 19.68 26.68 N/A 46.50
(Balanced)
VIP Equity-Income 10/09/86 5.82 33.49 33.49 65.06 147.61 184.31
(Equity-Income)
Dreyfus Stock Index 09/29/89 5.51 35.16 35.16 45.56 97.36 91.90
(Index)
Fund VIP Growth 10/09/86 -4.46 33.75 33.75 55.88 142.14 221.00
(Growth I)
TCI Growth 11/20/87 -4.04 29.55 29.55 38.00 88.59 142.11
(Growth II)
T. Rowe Price International Stock 03/31/94 2.33 9.86 9.86 N/A N/A 10.83
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.64 27.85 27.85 126.38 878.94 898.82
(Small Cap)
</TABLE>
Table 4 below shows total return information on a calendar year basis using
the same assumptions as Tables 3A and 3B. The rates of return shown reflect
the mortality and expense risk charge. Similar to Tables 3A and 3B, Table 4
does not reflect deduction of the pro rata portion of the Annual
Administrative Charge because certain Contracts and Participants are not
assessed such a charge.
TABLE 4 -- SUB-ACCOUNT "HYPOTHETICAL" CALENDAR YEAR ANNUAL RETURN ASSUMING NO
WITHDRAWAL AND NO ANNUAL ADMINISTRATIVE CHARGE*
<TABLE>
1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager na na na 5.45 21.11 10.53 19.60 -7.20 15.57
Socially Responsible 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39 28.24
Balanced na na na na na -7.17 6.38 -0.58 19.68
Equity-Income -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80 33.49
Index na na na -4.69 28.29 5.82 8.02 -0.32 35.16
Growth I 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75
Growth II na -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55
International Stock na na na na na na na na 9.86
Small Cap na na na na 156.65 69.25 66.31 6.47 27.85
</TABLE>
*The above calendar-year returns assume a hypothetical investment of $1,000
on January 1 of the first full calendar year that the underlying fund was in
existence. The returns assume that the money will be left on account until
-9-
<PAGE>
retirement and thus no CDSC will be deducted. Returns are provided for years
before the fund was an available investment option under the contract.
Returns for those periods reflect a hypothetical return as if those funds
were available under the contract, and reflect the deduction of the mortality
and expense risk charge. The returns do not reflect deductions for the pro
rata portion of the Annual Administrative Charge or the CDSC.
SEC regulations require that any product performance data be accompanied by
standardized performance data.
TAX LAW CONSIDERATIONS
Retirement Programs:
Participants are urged to discuss the income taxes considerations of their
retirement plan with their tax advisors. In many situations special rules
may apply to the plans and/or to the participants. See the Prospectus for a
more complete discussion of tax considerations and for limitations on the
following discussion.
Contributions to retirement programs subject to Sections 401(a), 403(b), 408
and 457(b) may be excludable from a Participant's reportable gross income if
the Contributions do not exceed the limitations imposed under the Code.
Certain plans allow employees to make Elective Salary Deferral Contributions.
Certain Plans allow Employers to make Contributions. The information below
is a brief summary of some the important federal tax considerations that
apply to retirement plans. When there is a written Plan, often the
Contribution limits, withdrawal rights and other provisions of the Plan may
be more restrictive than those allowed by the Code.
Elective Salary Deferral Contributions
For calendar year 1996 the maximum elective salary deferral contributions to
a 401(k) Plan which is a type of 401(a) Plan is limited to $9,500; For a
403(b) plan the limit is $9,500 unless the employee is a qualified employee;
For an Eligible 457 Plan the limit is $7,500. When an employee is covered by
two or more of these Plans, the elective salary deferral contribution limits
for all the Plans must be coordinated.
Total Salary Deferral & Employer Contributions
QUALIFIED RETIREMENT PLAN - 401(a) PLAN.
The Code limits the Contributions to a defined contribution 401(a) plan to
the lesser of $30,000 or 25% of compensation.
TAX SHELTERED ANNUITY PLAN - 403(b) PLAN
Total contributions which include both salary deferral contributions and
employer contributions are also limited.
The combined limit is:
(a) the amount determined by multiplying 20 percent of the employee's
includable compensation by the number of years of service, over
(b) the aggregate of the amount contributed by the employer for annuity
contracts and excludable from the gross income of the employee for the prior
taxable year.
Therefore, if the maximum exclusion allowance is less than $9,500 a year, the
employee's elective deferrals plus any other employer Contributions cannot
exceed this lesser amount.
-10-
<PAGE>
Section 415 of the Code imposes limitations with respect to annual
contributions to all Section 403(b) programs, qualified plans and simplified
employee pensions maintained by the Employer. A Participant's annual
contributions to these programs and defined contribution plans generally
cannot exceed the lesser of $30,000 or 25 percent of the employee's
compensation. This amount is subject to the maximum exclusion allowance and
the salary deferral amount limitations.
ELIGIBLE 457 PLAN - 457(b) PLAN
For a 457(b) plan the contribution limit is generally the lesser of $7,500 or
33% of the employee's compensation.
SECTION 457(f) PLANS
These are non-qualified deferred compensation arrangements between an
Employer and its employees. There are no stated limits in the Code regarding
this type of Plan.
INDIVIDUAL RETIREMENT ACCOUNT - IRA OR 408 PLAN
For IRA's, the maximum deductible contribution is the lesser of $2,000 or 100%
of taxable income. The $2,000 is increased to $2,250 when the IRA covers the
taxpayer and a non-working spouse.
Transfers and Rollovers
Participants who receive distributions from their 401(a) or 403(b) contract may
transfer the amount not representing employee contributions to an Individual
Retirement Account or Annuity (IRA) or another Section 401(a) or 403(b) program
without including that amount in gross income for the taxable year in which
paid. Note 401(a) distributions may not be transferred to a 403(b) plan or vice
versa. If the amount is paid directly to an acceptable rollover account,
Lincoln Life is not required to withhold any amount. In order for the
distribution to qualify for rollover, the distribution must be made on account
of the employee's death, after the employee attains age 59 1/2, on account of
the employee's separation from service, or after the employee has become
disabled. The distribution cannot be part of a series of substantially equal
payments made over the life expectancy of the employee or the joint life
expectancies of the employee and his or her spouse or made for a specified
period of 10 years or more. The rollover must be made within sixty days of the
distribution to avoid taxation.
Pursuant to Revenue Ruling 90-24, a Participant, to the extent permitted by any
applicable Contract or Plan, may transfer funds between Section 403(b)
investment vehicles, including both Section 403(b)(1) annuity contracts and
Section 403(b)(7) custodial accounts. Any amount transferred must continue to
be subject to withdrawal restrictions at least as restrictive as that of the
transferring investment vehicle. Lincoln Life considers any total or partial
transfer from a Lincoln Life investment vehicle to a non-Lincoln Life investment
vehicle to be a withdrawal.
Once every twelve months a participant in an IRA may roll the money from one IRA
to another IRA.
The rollover rules are not available to Section 457 Plans; limited transfers are
permitted under Eligible 457 Plans. If the rollover amount is paid directly to
the Participant, the amount distributed may be subject to a 20% federal tax
withholding.
Excise Tax on Early Distributions
Section 72(t) of the Code provides that any distribution made to a
Participant in a 401(a), 403(b) or 408 plan other than on account of the
following events will be subject to a 10 percent excise tax on the taxable
amount distributed:
a) the employee has attained age 59 1/2;
b) the employee has died;
c) the employee is disabled;
d) the employee is 55 and has separated from service (Does not apply to
IRA's).
Distributions which are received as a life annuity where payment is made at
least annually will not be subject to an excise tax. Certain amounts paid for
medical care may also not be subject to an excise tax.
Minimum Distribution Rules
The value in a contract under Sections 401(a), 403(b), 408 and Eligible 457
Plans are subject to the distribution rules provided in Section 401(a)(9) of the
Code. Generally, that section requires that an employee must begin receiving
distributions of his post-1986 balance by April 1 of the calendar year following
the calendar year in which
-11-
<PAGE>
the employee attains age 70 1/2. Such distributions must not exceed the life
expectancy of the employee or the life expectancy of such employee and the
designated beneficiary (as defined under the plan). An employee who attained
age 70 1/2 before January 1, 1988 must begin receiving distributions by April 1
of the calendar year following the later of (a) the calendar year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. There are special rules for Section 403(b) Plans. Amounts contributed
to an Eligible 457 contract must be distributed not earlier than the earliest of
: 1) calendar year in which the Participant attains age 70 1/2, 2) the
Participant separates from service with the Employer, or 3) when the Participant
has an unforeseen emergency. However, in no event may the distribution begin
any later than described in Sections 401(a)(9) and 457(d) of the Code.
Additionally, distribution of an employee's entire account balance (including
pre-1987 funds) must satisfy the minimum distribution incidental benefit
requirement. In general, this requires that death and other non-retirement
benefits payable under the above plans be incidental to the primary purpose of
the program which is to provide deferred compensation to the employee. A payee
is subject to a penalty for failing to receive the required minimum annual
distribution. Section 4974(a) of the Code provides that a payee will be subject
to a penalty equal to 50 percent of the amount by which the required minimum
distribution exceeds the actual amount distributed during the taxable year.
Additional information on federal income taxation is included in the prospectus.
DISTRIBUTION OF CONTRACTS
LNC Equity Sales Corporation ("LNC Equity"), an indirect subsidiary of Lincoln
National Corporation, is registered with the Securities and Exchange Commission
as a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. LNC Equity is the Variable
Investment Division's principal underwriter and also enters into selling
agreements with other unaffiliated broker-dealers authorizing them to offer the
Contracts.
INDEPENDENT AUDITORS
The consolidated financial statements and schedules of Lincoln Life appearing
in this SAI and registration statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their report thereon also
appearing elsewhere herein and in the Registration Statement. Such consolidated
financial statements and schedules have been included herein in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
As of the date of this SAI, the Variable Investment Division had not yet
commenced operations, had no assets or liabilities and no income. Accordingly,
it has no financial statements for prior periods.
The consolidated financial statements and schedules of Lincoln Life which are
included in this SAI, should be considered only as bearing on the ability of
Lincoln Life to meet its obligations under the Contracts. The consolidated
financial statements and schedules of Lincoln Life are presented in accordance
with generally accepted accounting principles.
-12-
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost: 1995-$18,852,837;
1994-$18,193,928) $20,414,785 $17,692,214
Equity (cost: 1995-$480,261; 1994-$416,351) 598,435 456,333
Mortgage loans on real estate 3,147,783 2,795,914
Real estate 746,023 679,512
Policy loans 565,325 528,731
Other investments 241,219 158,196
Total investments 25,713,570 22,310,900
Cash and invested cash 802,743 990,880
Property and equipment 53,830 54,989
Deferred acquisition costs 953,834 1,736,526
Premiums and fees receivable 117,634 123,494
Accrued investment income 352,301 367,370
Assets held in separate accounts 18,461,629 13,000,540
Federal income taxes -- 134,463
Amounts recoverable from reinsurers 2,940,976 2,069,292
Goodwill 5,149 3,385
Other assets 185,398 233,708
Total assets $49,587,064 $41,025,547
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Liabilities and shareholder's equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits, claims and
claims expenses $ 8,435,019 $ 7,540,772
Unearned premiums 55,174 61,472
Total policy liabilities and accruals 8,490,193 7,602,244
Contractholder funds 18,171,822 17,028,628
Liabilities related to separate accounts 18,461,629 13,000,540
Federal income taxes 166,430 --
Short-term debt 124,783 153,656
Long-term debt 40,827 54,794
Other liabilities 1,412,534 1,264,730
Total liabilities 46,868,218 39,104,592
Shareholder's equity:
Common stock, $2.50 par value:
Authorized, issued and outstanding
shares-10 million (owned by Lincoln
National Corporation) 25,000 25,000
Additional paid-in capital 809,557 791,605
Retained earnings 1,440,994 1,428,969
Net unrealized gain (loss) on
securities available-for-sale 443,295 (324,619)
Total shareholder's equity 2,718,846 1,920,955
Total liabilities and shareholder's equity $49,587,064 $41,025,547
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Revenue:
Insurance premiums $ 846,873 $1,099,480 $1,972,630
Insurance fees 450,423 390,384 425,083
Net investment income 1,899,630 1,673,981 1,823,459
Realized gain (loss) on investments 136,195 (138,522) 92,150
Gain (loss) on sale of affiliates -- 68,954 (98,500)
Other 3,405 20,946 35,781
Total revenue 3,336,526 3,115,223 4,250,603
Benefits and expenses:
Benefits and settlement expenses 2,122,616 2,194,047 3,033,139
Underwriting, acquisition,
insurance and other expenses 764,346 660,363 881,703
Interest expense 67 615 96
Total benefits and expenses 2,887,029 2,855,025 3,914,938
Income before Federal income taxes
and cumulative effect of
accounting change 449,497 260,198 335,665
Federal income taxes 127,472 40,400 142,544
Income before cumulative
effect of accounting change 322,025 219,798 193,121
Cumulative effect of accounting
change (postretirement benefits) -- -- 45,582
Net income $ 322,025 $ 219,798 $ 147,539
Earnings per share:
Income before cumulative
effect of accounting change $ 32.20 $ 21.98 $ 19.31
Cumulative effect of accounting
change (postretirement benefits) -- -- (4.56)
Net income $ 32.20 $ 21.98 $ 14.75
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Shareholder's Equity
Year ended December 31
1995 1994 1993
(000's omitted)
Common stock-balance
at beginning and end of year $ 25,000 $ 25,000 $ 25,000
Additional paid-in capital:
Balance at beginning of year 791,605 791,444 791,223
Contribution from Lincoln
National Corporation 17,952 161 221
Balance at end of year 809,557 791,605 791,444
Retained earnings:
Balance at beginning of year 1,428,969 1,334,171 1,198,632
Net income 322,025 219,798 147,539
Dividends declared (310,000) (125,000) (12,000)
Balance at end of year 1,440,994 1,428,969 1,334,171
Net unrealized gain (loss) on
securities available-for-sale:
Balance at beginning of year (324,619) 621,161 47,303
Cumulative effect of
accounting change -- -- 564,153
Other change during the year 767,914 (945,780) 9,705
Balance at end of year 443,295 (324,619) 621,161
Total shareholder's equity
at end of year $2,718,846 $1,920,955 $2,771,776
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from operating activities
Net income $ 322,025 $ 219,798 $ 147,539
Adjustments to reconcile net income
to net cash provided
by operating activities:
Deferred acquisition costs 124,526 (171,063) (92,183)
Premiums and fees receivable 6,082 10,755 80,582
Accrued investment income 15,069 (54,434) (18,827)
Policy liabilities and accruals 621,603 114,038 345,142
Contractholder funds 1,335,625 1,769,240 1,248,058
Amounts recoverable from reinsurers (883,425) (884,388) (700,622)
Federal income taxes 95,745 8,364 (130,308)
Provisions for depreciation 39,089 38,870 41,516
Amortization of discount and premium (86,653) 7,928 (100,274)
Realized loss (gain) on investments (244,995) 219,682 (115,881)
Loss (gain) on sale of affiliates -- (68,954) 98,500
Cumulative effect of
accounting change -- -- 45,582
Other 458,542 (4,599) 51,369
Net adjustments 1,481,208 985,439 752,654
Net cash provided by
operating activities 1,803,233 1,205,237 900,193
Cash flows from investing activities
Securities available-for-sale:
Purchases (13,549,807) (12,100,213) (7,171,684)
Sales 12,163,673 9,326,809 7,139,781
Maturities 929,018 958,065 42,707
Fixed maturity securities
held for investment:
Purchases -- -- (5,903,805)
Sales -- -- 2,805,980
Maturities -- -- 1,639,739
Purchases of other investments (1,711,427) (1,421,321) (1,936,013)
Sale or maturity of other investments 1,198,536 1,457,157 1,142,872
Sale of affiliates -- 520,340 --
Decrease in cash collateral
on loaned securities (39,681) (163,872) (40,454)
Other (213,708) (37,606) 83,751
Net cash used in
investing activities (1,223,396) (1,460,641) (2,197,126)
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from financing activities
Principal payments on long-term debt $ (13,967) $ (200) $ (1,138)
Issuance of long-term debt -- -- 10,314
Net increase (decrease) in
short-term debt (28,873) 3,629 13,047
Universal life and investment
contract deposits 1,716,239 2,381,829 2,418,037
Universal life and
investment contract withdrawals (2,149,325) (1,604,450) (1,503,105)
Capital contribution from
Lincoln National Corporation 17,952 161 221
Dividends paid to shareholder (310,000) (125,000) (12,000)
Net cash provided by
(used in) financing activities (767,974) 655,969 925,376
Net increase (decrease) in cash (188,137) 400,565 (371,557)
Cash at beginning of year 990,880 590,315 961,872
Cash at end of year $ 802,743 $ 990,880 $ 590,315
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include The Lincoln National
Life Insurance Company ("Company") and its majority-owned subsidiaries. The
Company and its subsidiaries operate multiple insurance businesses. Operations
are divided into two business segments (see Note 9). These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles.
Use of Estimates
The nature of the insurance business requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments
The Company classifies its fixed maturity securities and equity securities
(common and non-redeemable preferred stocks) as available-for-sale and,
accordingly, such securities are carried at fair value. The cost of fixed
maturity securities is adjusted for amortization of premiums and discounts.
The cost of fixed maturity and equity securities is adjusted for declines in
value that are other than temporary.
For the mortgage-backed securities portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When estimates of prepayments change, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the securities. This adjustment is reflected in net investment
income.
Mortgage loans on real estate are carried at outstanding principal balances
less unaccrued discounts and net of reserves for declines that are other than
temporary. Investment real estate is carried at cost less allowances for
depreciation. Such real estate is carried net of reserves for declines in
value that are other than temporary. Real estate acquired through foreclosure
proceedings is recorded at fair value on the settlement date which establishes
a new cost basis. If
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
a subsequent periodic review of a foreclosed property indicates the fair
value, less estimated costs to sell, is lower than the carrying value at the
settlement date, the carrying value is adjusted to the lower amount. Policy
loans are carried at the aggregate unpaid balances. Any changes to the
reserves for mortgage loans on real estate and real estate are reported as a
realized gain (loss) on investments.
Cash and invested cash are carried at cost and include all highly liquid debt
instruments purchased with a maturity of three months or less, including
participation in a short-term investment pool administered by Lincoln National
Corporation ("LNC"), the Company's parent.
Realized gain (loss) on investments is recognized in net income, net of
related amortization of deferred acquisition costs, using the specific
identification method. Changes in the fair values of securities carried at
fair value are reflected directly in shareholder's equity after deductions for
related adjustments for deferred acquisition costs and amounts required to
satisfy policyholder commitments that would have been recorded if these
securities would have been sold at their fair value, and after deferred taxes
or credits to the extent deemed recoverable.
Derivatives
The Company hedges certain portions of its exposure to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risk by entering into derivative
transactions. A description of the Company's accounting for its hedge of such
risks is discussed in the following two paragraphs.
The premium paid for an interest rate cap is deferred and amortized to net
investment income on a straight-line basis over the term of the interest rate
cap. Any settlement received in accordance with the terms of the interest
rate caps is recorded as investment income. Spread-lock agreements, interest
rate swaps and financial futures, which hedge fixed maturity securities
available-for-sale, are carried at fair value with the change in fair value
reflected directly in shareholder's equity. Realized gain (loss) from the
settlement of such derivatives is deferred and amortized over the life of the
hedged assets as an adjustment to the yield. Foreign exchange forward
contracts, foreign currency options and foreign currency swaps, which hedge
some of the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies, are carried at fair value with the change
in fair value reflected in earnings. Realized gain (loss) from the settlement
of such derivatives is also reflected in earnings.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate fluctuations,
the widening of bond yield spreads over comparable maturity U.S. Government
obligations and foreign exchange risk; and the derivatives used are designated
as a hedge and reduce the indicated risk by having a high correlation of
changes in the value of the derivatives and the items being hedged at both the
inception of the hedge and throughout the hedge period. Should such criteria
not be met, the change in value of the derivatives is included in net income.
Property and Equipment
Property and equipment owned for company use is carried at cost less
allowances for depreciation.
Premiums and Fees
Revenue for universal life and other interest-sensitive life insurance policies
consists of policy charges for cost of insurance, policy initiation and
administration, and surrender charges that have been assessed. Traditional
individual life-health and annuity premiums are recognized as revenue over the
premium-paying period of the policies. Group health premiums are prorated over
the contract term of the policies.
Assets Held in Separate Accounts/Liabilities Related to Separate Accounts
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable life
and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's consolidated statements of
income.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
Deferred Acquisition Costs
Commissions and other costs of acquiring universal life insurance, variable
universal life insurance, traditional life insurance, annuities and group
health insurance which vary with and are primarily related to the production
of new business, have been deferred to the extent recoverable. Acquisition
costs for universal and variable universal life insurance policies are being
amortized over the lives of the policies in relation to the incidence of
estimated gross profits from surrender charges and investment, mortality and
expense margins, and actual realized gain (loss) on investments. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of policies are revised. The
traditional life-health and annuity acquisition costs are amortized over the
premium-paying period of the related policies using assumptions consistent
with those used in computing policy reserves.
Expenses
Expenses for universal and variable universal life insurance policies include
interest credited to policy account balances and benefit claims incurred
during the period in excess of policy account balances. Interest crediting
rates associated with funds invested in the Company's general account during
1993 through 1995 ranged from 6.1% to 8.25%.
Goodwill
The cost of acquired subsidiaries in excess of the fair value of net assets
(goodwill) is amortized using the straight-line method over periods that
generally correspond with the benefits expected to be derived from the
acquisitions. Goodwill is amortized over 40 years. The carrying value of
goodwill is reviewed periodically for indicators of impairment in value.
Policy Liabilities and Accruals
The liabilities for future policy benefits and expenses for universal and
variable universal life insurance policies consist of policy account balances
that accrue to the benefit of the policyholders, excluding surrender charges.
The liabilities for future policy benefits and expenses for traditional life
policies and immediate and deferred paid-up annuities are computed using a net
level premium method and assumptions for investment yields, mortality and
withdrawals based principally on Company experience projected at the time of
policy issue, with provision for possible adverse deviations. Interest
assumptions for traditional direct individual life reserves for all policies
range from 2.3% to 11.7% graded to 5.7% after 30 years depending on time of
policy issue. Interest rate assumptions for reinsurance reserves range from
5.0% to 11.0% graded to 8.0% after 20 years. The interest assumptions for
immediate and deferred paid-up annuities range from 4.5% to 8.0%.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
With respect to its policy liabilities and accruals, the Company carries on a
continuing review of its 1) overall reserve position, 2) reserving techniques
and 3) reinsurance arrangements, and as experience develops and new
information becomes known, liabilities are adjusted as deemed necessary. The
effects of changes in estimates are included in the operating results for the
period in which such estimates occur.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of their business. The Company may assume reinsurance from
unaffiliated companies and/or cede reinsurance to such companies.
Assets/liabilities and premiums/benefits from certain reinsurance contracts
which grant statutory surplus to other insurance companies have been netted on
the balance sheets and income statements, respectively, since there is a right
of offset. All other reinsurance agreements are reported on a gross basis.
Depreciation
Provisions for depreciation of investment real estate and property and
equipment owned for Company use are computed principally on the straight-line
method over the estimated useful lives of the assets.
Postretirement Medical and Life Insurance Benefits
The Company accounts for its postretirement medical and life insurance
benefits using the full accrual method.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company and eligible subsidiaries have elected to file consolidated
Federal and state income tax returns with their parent, LNC. Pursuant to an
intercompany tax sharing agreement with LNC, the Company and its eligible
subsidiaries provide for income taxes on a separate return filing basis. The
tax sharing agreement also provides that the Company and eligible subsidiaries
will receive benefit for net operating losses, capital losses and tax credits
which are not usable on a separate return basis to the extent such items may
be utilized in the consolidated income tax returns of LNC.
The Company uses the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax return purposes. The Company
establishes a valuation allowance for any portion of its deferred tax assets
which are unlikely to be realized.
2. Changes in Accounting Principles and Changes in Estimates
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement medical and life insurance benefits for its eligible employees
and agents from a pay-as-you-go method to a full accrual method in accordance
with Financial Accounting Standards No. 106 entitled "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("FAS 106"). This full
accrual method recognizes the estimated obligation for retired employees and
agents and active employees and agents who are expected to retire in the
future. The effect of the change was to increase net periodic postretirement
benefit cost by $7,800,000 and decrease income before cumulative effect of
accounting change by $5,100,000 ($0.51 per share). The implementation of FAS
106 resulted in a one-time charge to the first quarter 1993 net income of
$45,600,000 or $4.56 per share ($69,000,000 pre-tax) for the cumulative effect
of the accounting change. See Note 6 for additional disclosures regarding
postretirement benefits other than pensions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Accounting by Creditors for Impairment of a Loan
Financial Accounting Standards No. 114 entitled "Accounting by Creditors for
Impairment of a Loan" ("FAS 114") issued in May 1993, was adopted by the
Company effective January 1, 1993. FAS 114 requires that if an impaired
mortgage loan's fair value as described in Note 3 is less than the recorded
investment in the loan, the difference is recorded in the mortgage loan
allowance for losses account. The adoption of FAS 114 resulted in additions
to the mortgage loan allowance for losses account and reduced first quarter
1993 income before cumulative effect of accounting change and net income by
$37,700,000 or $3.77 per share ($57,200,000 pre-tax). See Note 3 for further
mortgage loan disclosures. Most of the effect of this change in accounting
was within the Life Insurance and Annuities business segment.
Accounting for Certain Investments in Debt and Equity Securities
Financial Accounting Standards No. 115 entitled "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115") issued in May 1993, was
adopted by the Company as of December 31, 1993. In accordance with the rules,
the prior year financial statements have not been restated to reflect the
change in accounting principle. Under FAS 115, securities can be classified
as available-for-sale, trading or held-to-maturity according to the holder's
intent. The Company classified its entire fixed maturity securities portfolio
as "available-for-sale." Securities classified as available-for-sale are
carried at fair value and unrealized gains and losses on such securities are
carried as a separate component of shareholder's equity. The ending balance
of shareholder's equity at December 31, 1993 was increased by $564,200,000
(net of $377,500,000 of related adjustments to deferred acquisition costs,
$50,700,000 of policyholder commitments and $303,700,000 in deferred income
taxes, all of which would have been recognized if those securities would have
been sold at their fair value, net of amounts applicable to Security-
Connecticut Corporation) to reflect the net unrealized gain on fixed maturity
securities classified as available-for-sale previously carried at amortized
cost. Prior to the adoption of FAS 115, the Company carried a portion of its
fixed maturity securities at fair value with unrealized gains and losses
carried as a separate component of shareholder's equity. The remainder of
such securities were carried at amortized cost.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Change in Estimate for Net Investment Income Related to Mortgage-Backed
Securities
At December 31, 1993, the Company had $5,942,100,000 invested in mortgage-
backed securities. As indicated in Note 1, the Company recognizes income on
these securities using a constant effective yield based on anticipated
prepayments. With the implementation of new investment software in December
1993, the Company was able to significantly refine its estimate of the
effective yield on such securities to better reflect actual prepayments and
estimates of future prepayments. This resulted in an increase in the
amortization of purchase discount on these securities of $58,000,000 and,
after related amortization of deferred acquisition costs ($18,300,000) and
income taxes ($14,300,000), increased 1993's income before cumulative effect
of accounting change and net income by $25,500,000 or $2.55 per share. Most
of the effect of this change in estimate was within the Life Insurance and
Annuities business segment.
Change in Estimate for Disability Income Reserves
During the fourth quarter of 1993, income before cumulative effect of
accounting change and net income decreased by $15,500,000 or $1.55 per share
as the result of strengthening reinsurance disability income reserves by
$23,900,000. The need for this reserve increase within the Reinsurance
segment was identified as the result of management's assessment of current
expectations for morbidity trends and the impact of lower investment income
due to lower interest rates.
During the fourth quarter of 1995, the Company completed an in-depth review of
the experience of its disability income business. As a result of this study,
and based on the assumption that recent experience will continue in the
future, income before cumulative effect of accounting change and net income
decreased by $33,500,000 or $3.35 per share ($51,500,000 pre-tax) as a result
of strengthening disability income reserves by $15,200,000 and writing-off
deferred acquisition costs of $36,300,000 in the Reinsurance segment.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $1,549.4 $1,357.4 $1,497.6
Equity securities 8.9 7.4 4.3
Mortgage loans on real estate 268.3 271.3 294.2
Real estate 110.0 97.8 75.2
Policy loans 35.4 32.7 36.0
Invested cash 55.4 46.4 24.8
Other investments 15.8 7.3 8.0
Investment revenue 2,043.2 1,820.3 1,940.1
Investment expenses 143.6 146.3 116.6
Net investment income $1,899.6 $1,674.0 $1,823.5
</TABLE>
The realized gain (loss) on investments is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Gross gain $239.6 $ 69.6 $ 91.1
Gross loss (87.8) (294.1) (8.4)
Equity securities available-for-sale:
Gross gain 82.3 50.2 88.3
Gross loss (31.3) (50.5) (33.7)
Fixed maturity securities held for investment:
Gross gain -- -- 209.9
Gross loss -- -- (69.5)
Other investments 42.2 5.1 (161.8)
Related restoration or amortization
of deferred acquisition costs and
provision for policyholder
commitments (108.8) 81.2 (23.7)
Total $136.2 $(138.5) $ 92.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Provisions (credits) for write-downs and net changes in provisions for losses,
which are included in realized gain (loss) on investments shown above, are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $10.4 $14.2 $ 55.6
Equity securities 3.3 6.8 --
Mortgage loans on real estate 14.7 19.5 136.7
Real estate (7.2) 13.0 21.8
Other long-term investments (1.5) .3 3.9
Guarantees (2.2) 4.3 1.7
Total $17.5 $58.1 $219.7
</TABLE>
The change in unrealized appreciation (depreciation) on investments in fixed
maturity and equity securities is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities
available-for-sale $2,063.7 $(1,903.7) $1,387.1
Equity securities available-for-sale 78.1 (26.0) 9.2
Fixed maturity securities
held for investment -- -- (959.7)
Total $2,141.8 $(1,929.7) $ 436.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost, gross unrealized gain and loss and fair value of securities
available-for-sale are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $12,412.1 $1,141.0 $28.7 $13,524.4
U.S. Government bonds 569.6 83.9 .1 653.4
Foreign governments bonds 927.9 70.3 .6 997.6
Mortgage-backed securities:
Mortgage pass-through securities 1,072.5 41.0 3.2 1,110.3
Collateralized mortgage obligations 3,816.3 262.5 7.4 4,071.4
Other mortgage-backed securities 2.8 .3 -- 3.1
State and municipal bonds 12.3 .1 -- 12.4
Redeemable preferred stocks 39.3 2.9 -- 42.2
Total fixed maturity securities 18,852.8 1,602.0 40.0 20,414.8
Equity securities 480.3 123.6 5.5 598.4
Total $19,333.1 $1,725.6 $45.5 $21,013.2
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $11,519.3 $143.3 $514.4 $11,148.2
U.S. Government bonds 1,048.4 6.9 25.5 1,029.8
Foreign governments bonds 541.2 4.7 12.5 533.4
Mortgage-backed securities:
Mortgage pass-through securities 1,176.8 3.0 44.1 1,135.7
Collateralized mortgage obligations 3,835.5 85.8 148.6 3,772.7
Other mortgage-backed securities 5.0 .1 .1 5.0
State and municipal bonds 16.3 .4 -- 16.7
Redeemable preferred stocks 51.4 .2 .9 50.7
Total fixed maturity securities 18,193.9 244.4 746.1 17,692.2
Equity securities 416.3 56.4 16.4 456.3
Total $18,610.2 $300.8 $762.5 $18,148.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Future maturities of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Fair
Cost Value
(in millions)
<S> <C> <C>
Due in one year or less $ 278.4 $ 282.6
Due after one year through five years 2,955.7 3,102.1
Due after five years through ten years 4,918.2 5,265.9
Due after ten years 5,808.9 6,579.4
Subtotal 13,961.2 15,230.0
Mortgage-backed securities 4,891.6 5,184.8
Total $18,852.8 $20,414.8
</TABLE>
The foregoing data is based on stated maturities. Actual maturities will
differ in some cases because borrowers may have the right to call or pre-pay
obligations.
At December 31, 1995, the current par, amortized cost and estimated fair value
of investments in mortgage-backed securities summarized by interest rates of
the underlying collateral are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Current Fair
Par Cost Value
(in millions)
<S> <C> <C> <C>
Below 7% $ 292.6 $ 290.5 $ 293.6
7%-8% 1,302.8 1,276.9 1,318.2
8%-9% 1,607.0 1,564.7 1,669.8
Above 9% 1,810.5 1,759.5 1,903.2
Total $5,012.9 $4,891.6 $5,184.8
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The quality ratings of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
Treasuries and AAA 34.1%
AA 8.0
A 25.9
BBB 24.5
BB 3.9
Less than BB 3.6
100.0%
</TABLE>
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When the Company determines that a loan is impaired, a provision
for loss is established for the difference between the carrying value of the
mortgage loan and the estimated value. Estimated value is based on either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. The provision for losses is reported as realized gain (loss) on
investments. Mortgage loans deemed to be uncollectible are charged against
the provision for losses and subsequent recoveries, if any, are credited to
the provision for losses.
The provision for losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the provision for losses is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires estimating the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Impaired loans along with the related allowance for losses are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Impaired loans with allowance for losses $144.7 $246.0
Allowance for losses (28.5) (56.6)
Impaired loans with no allowance for losses 2.1 2.2
Net impaired loans $118.3 $191.6
</TABLE>
Impaired loans with no allowance for losses are a result of direct write-downs
or for collateral dependent loans where the fair value of the collateral is
greater than the recorded investment in such loans.
A reconciliation of the mortgage loan allowance for losses for these impaired
mortgage loans is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Balance at beginning of year $56.6 $220.7 $129.1
Provisions for losses 14.7 19.5 79.5
Provision for adoption of FAS 114 -- -- 57.2
Releases due to write-downs (12.0) -- --
Releases due to sales (15.9) (164.7) (12.2)
Releases due to foreclosures (14.9) (18.9) (32.9)
Balance at end of year $28.5 $ 56.6 $220.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Average recorded investment in impaired loans $181.7 $467.5 $703.6
Interest income recognized on impaired loans 16.6 36.1 47.3
</TABLE>
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of December 31, 1995 and 1994, the Company had restructured loans of
$62,500,000 and $36,200,000, respectively. The Company recorded $6,300,000
and $800,000 interest income on these restructured loans in 1995 and 1994,
respectively. Interest income in the amount of $6,600,000 and $3,900,000
would have been recorded on these loans according to their original terms in
1995 and 1994, respectively. As of December 31, 1995 and 1994, the Company
had no outstanding commitments to lend funds on restructured loans.
As of December 31, 1995, the Company's investment commitments for fixed
maturity securities (primarily private placements), mortgage loans on real
estate and real estate were $543,100,000.
Fixed maturity securities available-for-sale, mortgage loans on real estate
and real estate with a combined carrying value at December 31, 1995 of
$1,300,000 were non-income producing for the year ended December 31, 1995.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost information for mortgage loans on real estate, real estate and other
long-term investments are net of allowances for losses. The balance sheet
account for other liabilities includes a reserve for guarantees of third-party
debt. The amount of allowances and a reserve for such items is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Mortgage loans on real estate $28.5 $56.6
Real estate 46.6 65.2
Other long-term investments 11.8 13.5
</TABLE>
Details underlying the balance sheet caption "Net Unrealized Gain (Loss) on
Securities Available-for-Sale," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Fair value of securities available-for-sale $21,013.2 $18,148.5
Cost of securities available-for-sale 19,333.1 18,610.2
Unrealized gain (loss) 1,680.1 (461.7)
Adjustments to deferred acquisition costs (492.1) 158.2
Amounts required to satisfy
policyholder commitments (510.1) 8.6
Deferred income credits (taxes) (234.6) 105.9
Valuation allowance for deferred tax assets -- (135.6)
Net unrealized gain (loss) on
securities available-for-sale $ 443.3 $ (324.6)
</TABLE>
Adjustments to deferred acquisition costs and amounts required to satisfy
policyholder commitments are netted against the Deferred Acquisition Costs
asset account and included with the Future Policy Benefits, Claims and Claims
Expense liability account on the balance sheet, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes
The Federal income tax expense (benefit) before cumulative effect of
accounting change is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Current $172.5 $(93.4) $261.3
Deferred (45.0) 133.8 (118.8)
Total $127.5 $ 40.4 $142.5
</TABLE>
Cash paid for Federal income taxes in 1995, 1994 and 1993 was $27,500,000,
$41,400,000 and $272,600,000, respectively. The cash paid in 1995 is net of a
$146,900,000 cash refund related to the carryback of 1994 capital losses to
prior years.
The effective tax rate on pre-tax income before cumulative effect of
accounting change is lower than the prevailing corporate Federal income tax
rate. A reconciliation of this difference is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Tax rate times pre-tax income $157.3 $91.1 $117.5
Effect of:
Tax-exempt investment income (22.0) (21.5) (16.2)
Participating policyholders' share 5.4 3.4 4.1
Loss (gain) on sale of affiliates -- (24.1) 34.5
Other items (13.2) (8.5) 2.6
Provision for income taxes $127.5 $40.4 $142.5
Effective tax rate 28.4% 15.5% 42.5%
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Federal income tax recoverable (liability) is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Current $ (25.0) $118.2
Deferred (141.4) 16.3
Total $(166.4) $134.5
</TABLE>
Significant components of the Company's net deferred tax asset (liability) are
as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Deferred tax assets:
Policy liabilities and accruals
and contractholder funds $ 694.5 $430.9
Loss on investments -- 16.8
Net unrealized loss on
securities available-for-sale -- 161.6
Postretirement benefits other than pensions 25.3 24.2
Other 39.5 34.6
Total deferred tax assets 759.3 668.1
Valuation allowance for deferred tax assets -- (135.6)
Net deferred tax assets 759.3 532.5
Deferred tax liabilities:
Deferred acquisition costs 218.8 475.5
Net unrealized gain on
securities available-for-sale 579.6 --
Gain on investments 7.7 --
Other 94.6 40.7
Total deferred tax liabilities 900.7 516.2
Net deferred tax (liability) asset $(141.4) $ 16.3
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Company is required to establish a "valuation allowance" for any portion
of its deferred tax assets which are unlikely to be realized. At December 31,
1994, $161,600,000 of deferred tax assets relating to net unrealized capital
losses on fixed maturity and equity securities available-for-sale were
available to be recorded in shareholder's equity before considering a
valuation allowance. For Federal income tax purposes, capital losses may only
be used to offset capital gains in the current year or during a three year
carryback and five year carryforward period. Due to these restrictions, and
the uncertainty at that time of future capital gains, these deferred tax
assets were substantially offset by a valuation allowance of $135,600,000. By
December 31, 1995, the fair values of fixed maturity and equity securities
available-for-sale were greater than the cost basis resulting in unrealized
capital gains. Accordingly, no valuation allowance was established as of
December 31, 1995 since management believes it is more likely than not that
the Company will realize the benefit of its deferred tax assets.
Prior to 1984, a portion of the life companies' current income was not subject
to current income tax, but was accumulated for income tax purposes in a
memorandum account designated as "policyholders' surplus." The total of the
life companies' balances in their respective "policyholders' surplus" accounts
at December 31, 1983 of $204,800,000 was "frozen" by the Tax Reform Act of
1984 and, accordingly, there have been no additions to the accounts after that
date. That portion of current income on which income taxes have been paid
will continue to be accumulated in a memorandum account designated as
"shareholder surplus," and is available for dividends to the shareholder
without additional payment of tax. The December 31, 1995 total of the life
companies' account balances for their "shareholder surplus" was
$1,554,000,000. Should dividends to the shareholder for each life company
exceed its respective "shareholder surplus," amounts would need to be
transferred from its respective "policyholders' surplus" and would be subject
to Federal income tax at that time. In connection with the 1993 sale of a
life insurance affiliate (see Note 10), $8,800,000 was transferred from
policyholders' surplus to shareholder surplus and current income tax of
$3,100,000 was paid. Under existing or foreseeable circumstances, the Company
neither expects nor intends that distributions will be made from the remaining
balance in "policyholders' surplus" of $196,000,000 that will result in any
such tax. Accordingly, no provision for deferred income taxes has been
provided by the Company on its "policyholders' surplus" account. In the event
that such excess distributions are made, it is estimated that income taxes of
approximately $68,600,000 would be due.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data
The balance sheet captions, "Real Estate," "Other Investments" and "Property
and Equipment," are shown net of allowances for depreciation as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate $ 51.6 $ 37.0
Other investments 14.6 12.2
Property and equipment 100.7 104.7
</TABLE>
Details underlying the balance sheet caption, "Contractholder Funds," are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Premium deposit funds $17,886.9 $16,770.3
Undistributed earnings on participating business 91.9 63.6
Other 193.0 194.7
Total $18,171.8 $17,028.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
Details underlying the balance sheet captions, "Short-term and Long-term
Debt," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Short-term debt:
Short-term notes $123.5 $150.8
Current portion of long-term debt 1.3 2.9
Total short-term debt $124.8 $153.7
Long-term debt less current portion:
7% mortgage note payable, due 1996 $ -- $ 4.9
9.48% mortgage note payable, due 1996 -- 7.7
12% mortgage note payable, due 1996 -- .2
8.42% mortgage note payable, due 1997 7.0 7.2
8.25% mortgage note payable, due 1997 10.1 10.2
8% mortgage note payable, due 1997 2.1 --
8.75% mortgage note payable, due 1998 18.4 18.8
9.75% mortgage note payable, due 2002 3.2 5.8
Total long-term debt $ 40.8 $ 54.8
</TABLE>
Future maturities of long-term debt are as follows (in millions):
1996 -- $ 1.3 1998 -- $18.4 2000 -- $ --
1997 -- 19.2 1999 -- -- Thereafter -- 3.2
Cash paid for interest for 1995, 1994 and 1993 was $67,000, $615,000 and
$96,000, respectively.
Reinsurance transactions included in the income statement caption, "Insurance
Premiums," are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Insurance assumed $777.6 $910.8 $807.5
Insurance ceded 441.7 716.7 568.6
Net reinsurance premiums $335.9 $194.1 $238.9
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
The income statement caption, "Benefits and Settlement Expenses," is net of
reinsurance recoveries of $456,000, $524,000 and $438,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The income statement caption, "Underwriting, Acquisition, Insurance and Other
Expenses," includes amortization of deferred acquisition costs of
$399,700,000, $115,200,000 and $241,000,000 for the years ended December 31,
1995, 1994 and 1993, respectively. An additional $(85,200,000), $81,200,000
and ($23,700,000) of deferred acquisition costs was restored (amortized) and
netted against "Realized Gain (Loss) on Investments" for the years ended
December 31, 1995, 1994 and 1993, respectively.
6. Employee Benefit Plans
Pension Plans
LNC maintains funded defined benefit pension plans for most of its employees
and, prior to January 1, 1995, full-time agents. The benefits for employees
are based on total years of service and the highest 60 months of compensation
during the last 10 years of employment. The benefits for agents were based on
a percentage of each agent's yearly earnings. The plans are funded by
contributions to tax-exempt trusts. The Company's funding policy is
consistent with the funding requirements of Federal laws and regulations.
Contributions are intended to provide not only the benefits attributed to
service to date, but also those expected to be earned in the future. Plan
assets consist principally of listed equity securities and corporate
obligations and government bonds.
All benefits applicable to the funded defined benefit plan for agents were
frozen as of December 31, 1994. The curtailment of this plan did not have a
significant effect on net pension cost for 1994. Effective January 1, 1995,
pension benefits for agents have been provided by a new defined contribution
plan. Contributions to this plan will be based on 2.3% of an agent's earnings
up to the social security wage base and 4.6% of any excess.
LNC also administers two types of unfunded, nonqualified, defined benefit
plans for certain employees and agents. A supplemental retirement plan
provides defined benefit pension benefits in excess of limits imposed by
Federal tax law. A salary continuation plan provides certain officers of the
Company defined pension benefits based on years of service and final monthly
salary upon death or retirement.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The status of the funded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(162.1) $(130.5)
Nonvested benefits (9.2) (7.3)
Accumulated benefit obligation (171.3) (137.8)
Effect of projected future compensation increases (37.2) (24.3)
Projected benefit obligation (208.5) (162.1)
Plan assets at fair value 196.4 159.3
Projected benefit obligations in
excess of plan assets (12.1) (2.8)
Unrecognized net loss (gain) 12.6 (.5)
Unrecognized prior service cost 1.2 1.1
Prepaid (accrued) pension cost
included in other liabilities $ 1.7 $ (2.2)
</TABLE>
The status of the unfunded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(7.0) $(5.4)
Nonvested benefits (1.5) (1.0)
Accumulated benefit obligation (8.5) (6.4)
Effect of projected future compensation increases (2.4) (2.5)
Projected benefit obligation (10.9) (8.9)
Unrecognized transition obligation -- --
Unrecognized net loss (gain) 1.0 (.3)
Unrecognized prior service cost .8 .8
Accrued pension costs included in other liabilities $(9.1) $(8.4)
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The determination of the projected benefits obligation for the defined benefit
plans was based on the following assumptions:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation:
Salary continuation plan 6.0 6.5 6.0
All other plans 5.0 5.0 5.0
Expected long-term rate of return on plan assets 9.0 9.0 9.0
</TABLE>
The components of net pension cost for the defined benefit pension plans are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 5.0 $ 8.9 $ 8.5
Interest cost on projected benefit obligation 13.2 12.9 12.4
Actual return on plan assets (36.3) 4.7 (20.1)
Net amortization (deferral) 22.9 (18.6) 6.1
Net pension cost $ 4.8 $ 7.9 $ 6.9
</TABLE>
401(k)
LNC and the Company sponsor contributory defined contribution plans for
eligible employees and agents. The Company's contributions to the plans are
equal to each participant's pre-tax contribution, not to exceed 6% of base
pay, multiplied by a percentage, ranging from 25% to 150%, which varies
according to certain incentive criteria as determined by LNC's Board of
Directors. Expense for these plans amounted to $8,000,000, $13,200,000 and
$11,800,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
Postretirement Medical and Life Insurance Benefit Plans
LNC sponsors unfunded defined benefit plans that provide postretirement
medical and life insurance benefits to full-time employees and agents who,
depending on the plan, have worked for the Company 10 to 15 years and attained
age 55 to 60. Medical benefits are also available to spouses and other
dependents of employees and agents. For medical benefits, limited
contributions are required from individuals retired prior to November 1, 1988;
contributions for later retirees, which can be adjusted annually, are based on
such items as years of service at retirement and age at retirement. The life
insurance benefits are noncontributory, although participants can elect
supplemental contributory benefits.
The status of the postretirement medical and life insurance benefit plans and
the amounts recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(39.8) $(34.9)
Fully eligible active plan participants (9.9) (7.0)
Other active plan participants (20.8) (15.0)
Accumulated postretirement benefit obligation (70.5) (56.9)
Unrecognized net gain (.8) (5.5)
Accrued plan cost included in other liabilities $(71.3) $(62.4)
</TABLE>
The components of periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost $1.5 $1.7 $2.6
Interest cost 4.4 4.2 4.6
Amortization cost (credit) (.8) .1 --
Net periodic postretirement benefit cost $5.1 $6.0 $7.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The calculation of the accumulated postretirement benefit obligation assumes a
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) of 9.5% for 1996 gradually
decreasing to 5.5% by 2004 and remaining at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation as of December 1995 and 1994 by $5,100,000 and $4,100,000,
respectively, and the aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by $488,000. The calculation assumes a long-term rate of
increase in compensation of 5.0% for both December 31, 1995 and 1994. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 8.0% at December 31, 1995 and
1994, respectively.
7. Restrictions, Commitments and Contingencies
Shareholder's Equity Restrictions
Net income as determined in accordance with statutory accounting practices for
the Company and its insurance subsidiaries in 1995, 1994 and 1993 was
$284,500,000, $366,700,000 and $237,000,000, respectively. The Company's
shareholder's equity as determined in accordance with statutory accounting
practices at December 31, 1995 and 1994 was $1,732,900,000 and $1,679,700,000,
respectively.
The Company is subject to certain insurance department regulatory restrictions
as to the transfer of funds and payments of dividends to LNC. In 1996, the
Company can transfer up to $284,500,000 without seeking prior approval from
the insurance regulators.
Disability Income Claims
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1995 and 1994 is a net
liability of $602,600,000 and $441,700,000, respectively, excluding deferred
acquisition costs. The bulk of the increase to this liability relates to the
assumption of a large block of disability claim reserves and related assets
during the third quarter of 1995. In addition, as indicated in Note 2, the
Company strengthened its disability income reserves and wrote off certain
related deferred acquisition costs in the fourth quarter of 1995. The
reserves were established on the assumption that the recent experience will
continue in the future. If incidence levels or claim termination rates vary
significantly from these assumptions, further adjustments to reserves may be
required in the future. It is not possible to provide a meaningful estimate
of a range of possible outcomes at this time. The Company reviews and updates
the level of these reserves on an on-going basis.
Compliance of Qualified Annuity Plans
Tax authorities continue to focus on compliance of qualified annuity plans
marketed by insurance companies. If sponsoring employers cannot demonstrate
compliance and the insurance company is held responsible due to its marketing
efforts, the Company and other insurers may be subject to potential liability.
It is not possible to provide a meaningful estimate of the range of potential
liability at this time. Management continues to monitor this matter and to
take steps to minimize any potential liability.
Group Pension Annuities
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold, are supported by a single portfolio of assets
which attempts to match the duration of these liabilities. Due to the very
long-term nature of group pension annuities and the resulting inability to
exactly match cash flows, a risk exists that future cash flows from
investments will not be reinvested at rates as high as currently earned by the
portfolio. This situation could cause losses which would be recognized at
some future time.
Leases
The Company and certain of its subsidiaries lease their home office properties
through sale-leaseback agreements. The agreements provide for a 25 year lease
period with options to renew for six additional terms of five years each. The
agreements also provide the Company with the right of first refusal to
purchase the properties during the term of the lease, including renewal
periods, at a price as defined in the agreements. In addition, the Company
has the option to purchase the leased properties at fair market value as
defined in the agreements on the last day of the initial 25 year lease period
ending in 2009 or the last day of any of the renewal periods.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Total rental expense under operating leases in 1995, 1994 and 1993 was
$24,400,000, $21,700,000 and $27,100,000. Future minimum rental commitments
are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 20.9
1997 19.5
1998 18.3
1999 18.3
2000 17.7
Thereafter 172.4
Total $267.1
</TABLE>
Insurance Ceded and Assumed
The Company cedes insurance to other companies, including certain affiliates.
The portion of risks exceeding each companys retention limit is reinsured
with other insurers. The Company seeks reinsurance coverage within the
business segment that sells life insurance that limits its liabilities on an
individual insured to $3,000,000. To cover products other than life
insurance, the Company acquires other insurance coverages with retentions and
limits which management believes are appropriate for the circumstances. The
accompanying financial statements reflect premiums, benefits and settlement
expenses and deferred acquisition costs, net of insurance ceded (see Note 5).
The Company and its subsidiaries remain liable if their reinsurers are unable
to meet their contractual obligations under the applicable reinsurance
agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1995, the Company has provided $92,700,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receivables
from the ceding company, which are secured by future profits on the reinsured
business. However, the Company is subject to the risk that the ceding company
may become insolvent and the right of offset would not be permitted.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Vulnerability from Concentrations
At December 31, 1995, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
Also at December 31, 1995, the Company did not have a concentration of 1)
business transactions with a particular customer, lender or distributor, 2)
revenues from a particular product of service, 3) sources of supply of labor
or services used in the business or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a serve
impact to the Company's financial condition.
Other Contingency Matters
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In some
instances, these proceedings include claims for punitive damages and similar
types of relief in unspecified or substantial amounts, in addition to amounts
for alleged contractual liability or requests for equitable relief. After
consultation with counsel and a review of available facts, it is management's
opinion that these proceedings ultimately will be resolved without materially
affecting the consolidated financial statements of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company has accrued for
expected assessments net of estimated future premium tax deductions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Guarantees
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-balance-
sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
Notional or
Contract Amounts
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate partnerships $ 3.3 $17.6
Mortgage loan pass-through certificates 63.6 78.2
Total $66.9 $95.8
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans. In some cases, the terms of these arrangements involve
guarantees by each of the partners to indemnify the mortgagor in the event a
partner is unable to pay its principal and interest payments. In addition,
the Company has sold commercial mortgage loans through grantor trusts which
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued interest
thereon to the date of repurchase. It is management's opinion that the value
of the properties underlying these commitments is sufficient that in the event
of default the impact would not be material to the Company. Accordingly, both
the carrying value and fair value of these guarantees is zero at December 31,
1995 and 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Derivatives
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risks. In addition, the Company
is subject to the risks associated with changes in the value of its
derivatives; however, such changes in the value generally are offset by
changes in the value of the items being hedged by such contracts. Outstanding
derivatives with off-balance-sheet risks, shown in notional or contract
amounts along with their carrying value and estimated fair values, are as
follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 December 31 December 31
1995 1994 1995 1995 1994 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate
cap agreements $5,110.0 $4,400.0 $22.7 $5.3 $23.3 $34.4
Spread-lock
agreements 600.0 1,300.0 (.9) (.9) 3.2 3.2
Financial
futures contracts -- 382.5 -- -- (7.5) (7.5)
Interest rate swaps 5.0 5.0 .2 .2 .2 .2
5,715.0 6,087.5 22.0 4.6 19.2 30.3
Foreign currency
derivatives:
Foreign exchange
forward contracts 15.7 21.2 (.6) (.6) .2 .2
Foreign currency
options 99.2 -- 1.9 1.4 -- --
Foreign currency
swaps 15.0 -- .4 .4 -- --
129.9 21.2 1.7 1.2 .2 .2
$5,844.9 $6,108.7 $23.7 $5.8 $19.4 $30.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts is as follows:
<TABLE>
<CAPTION>
Interest Rate Caps Spread Locks
December 31 December 31
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $4,400.0 $3,800.0 $1,300.0 $1,700.0
New contracts 710.0 600.0 800.0 --
Terminations and maturities -- -- (1,500.0) (400.0)
Balance at end of year $5,110.0 $4,400.0 $ 600.0 $1,300.0
</TABLE>
<TABLE>
<CAPTION>
Financial Futures
Contracts Options
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 382.5 $ 33.1 $ -- $ --
New contracts 810.5 1,087.7 181.6 308.0
Terminations and maturities (1,193.0) (738.3) (181.6) (308.0)
Balance at end of year $ -- $ 382.5 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Derivatives
Foreign
Exchange Foreign Foreign
Forward Currency Currency
Contracts Options Swaps
1995 1994 1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 21.2 $ -- $ -- $-- $ -- $--
New contracts 131.2 38.5 356.6 -- 15.0 --
Terminations and maturities (136.7) (17.3) (257.4) -- -- --
Balance at end of year $ 15.7 $21.2 $ 99.2 $-- $15.0 $--
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Interest Rate Caps
The interest rate cap agreements, which expire in 1997 through 2003, entitle
the Company to receive payments from the counterparties on specified future
reset dates, contingent on future interest rates. For each cap, the amount of
such quarterly payments, if any, is determined by the excess of a market
interest rate over a specified cap rate times the notional amount divided by
four. The purpose of the Company's interest rate cap agreement program is to
protect its annuity line of business from the effect of fluctuating interest
rates. The premium paid for the interest rate caps is included in other
assets ($22,700,000 and $23,400,000 as of December 31, 1995 and 1994,
respectively) and is being amortized over the terms of the agreements and is
included in net investment income.
Spread Locks
Spread-lock agreements in effect at December 31, 1995 all expire in 2005.
Spread-lock agreements provide for a lump sum payment to or by the Company
depending on whether the spread between the swap rate and a specified U.S.
Treasury note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity U.S. Treasury
security and the price sensitivity of the swap at that time, expressed in
dollars per basis point. The purpose of the Company's spread-lock program is
to protect a portion of its fixed maturity securities against widening of
spreads.
Financial Futures
The Company uses exchange-traded financial futures contracts and options on
those financial futures to hedge against interest rate risks and to manage
duration of a portion of its fixed maturity securities. Financial futures
contracts obligate the Company to buy or sell a financial instrument at a
specified future date for a specified price and may be settled in cash or
through delivery of the financial instrument. Cash settlements on the change
in market values of financial futures contracts are made daily. Options on
financial futures give the Company the right, but not the obligation, to
assume a long or short position in the underlying futures at a specified price
during a specified time period.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Foreign Currency Derivatives
The Company uses a combination of foreign exchange forward contracts, foreign
currency options and foreign currency swaps, all of which are traded over-the-
counter, to hedge some of the foreign exchange risk of investments in fixed
maturity securities denominated in foreign currencies. The foreign currency
forward contracts obligate the Company to deliver a specified amount of
currency at a future date at a specified exchange rate. Foreign currency
options give the Company the right, but not the obligation, to buy or sell a
foreign currency at a specific exchange rate during a specified time period.
A foreign currency swap is a contractual agreement to exchange the currencies
of two different countries pursuant to an agreement to reexchange the two
currencies at the same rate of exchange at a specified future date.
Additional Derivative Information
Expenses for the agreements and contracts described above amounted to
$5,600,000 and $5,400,000 in 1995 and 1994, respectively. Deferred losses of
$21,800,000 as of December 31, 1995, resulting from 1) terminated and expired
spread-lock agreements, 2) financial futures contracts and 3) options on
financial futures, are included with the related fixed maturity securities to
which the hedge applied and are being amortized over the life of such
securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, spread-lock agreements,
interest rate swaps, foreign exchange forward contracts, foreign currency
options and foreign currency swaps, but the Company does not anticipate
nonperformance by any of these counterparties. The credit risk associated
with such agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for such
agreements with each counterparty if the net market value is in the Company's
favor. At December 31, 1995, the exposure was $6,900,000.
8. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of the Company's financial instruments.
Considerable judgment is required to develop these fair values and,
accordingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one time, current market exchange of all of the
Company's financial instruments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Fixed Maturity and Equity Securities
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the coupon rate,
credit quality and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
Mortgage Loans on Real Estate
The estimated fair value of mortgage loans on real estate was established
using a discounted cash flow method based on credit rating, maturity and
future income when compared to the expected yield for mortgages having similar
characteristics. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service coverage,
loan to value, caliber of tenancy, borrower and payment record. Fair values
for impaired mortgage loans are measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
at the loan's market price or the fair value of the collateral if the loan is
collateral dependent.
Policy Loans
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
Other Investments and Cash and Invested Cash
The carrying value for assets classified as other investments and cash and
invested cash in the accompanying balance sheets approximates their fair
value.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Investment Type Insurance Contracts
The balance sheet captions, "Future Policy Benefits, Claims and Claims
Expenses" and "Contractholder Funds," include investment type insurance
contracts (i.e., deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed interest
contracts are based on their approximate surrender values. The fair values
for the remaining guaranteed interest and similar contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered on similar contracts with maturities consistent with those
remaining for the contracts being valued.
The remainder of the balance sheet captions, "Future Policy Benefits, Claims
and Claims Expenses" and "Contractholder Funds," that do not fit the
definition of "investment type insurance contracts" are considered insurance
contracts. Fair value disclosures are not required for these insurance
contracts and have not been determined by the Company. It is the Company's
position that the disclosure of the fair value of these insurance contracts is
important in that readers of these financial statements could draw
inappropriate conclusions about the Company's shareholder's equity determined
on a fair value basis if only the fair value of assets and liabilities defined
as financial instruments are disclosed. The Company and other companies in
the insurance industry are monitoring the related actions of the various rule-
making bodies and attempting to determine an appropriate methodology for
estimating and disclosing the "fair value" of their insurance contract
liabilities.
Short-Term and Long-Term Debt
Fair values for long-term debt issues are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements. For short-term debt, the carrying value
approximates fair value.
Guarantees
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the current status,
which indicates none of the loans are delinquent, the fair value liability for
the guarantees related to the mortgage loan pass-through certificates is
insignificant. Fair values for all other guarantees are based on fees that
would be charged currently to enter into similar agreements, taking into
consideration the remaining terms of the agreements and the counterparties'
credit standing.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Derivatives
The Company's derivatives include interest rate cap agreements, spread-lock
agreements, foreign currency exchange contracts, financial futures contracts,
options on financial futures, interest rate swaps, foreign currency options
and foreign currency swaps. Fair values for these contracts are based on
current settlement values. The current settlement values are based on quoted
market prices for the foreign currency exchange contracts, financial future
contracts and options on financial futures and on brokerage quotes, which
utilized pricing models or formulas using current assumptions, for all other
swaps and agreements.
Investment Commitments
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real estate
are based on the difference between the value of the committed investments as
of the date of the accompanying balance sheets and the commitment date, which
would take into account changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
Carrying Fair Carrying Fair
Assets (Liabilities) Value Value Value Value
(in millions)
<S> <C> <C> <C> <C>
Fixed maturity securities $20,414.8 $20,414.8 $17,692.2 $17,692.2
Equity securities 598.4 598.4 456.3 456.3
Mortgage loans on real estate 3,147.8 3,330.5 2,795.9 2,720.6
Policy loans 565.3 557.4 528.7 508.1
Other investments 241.2 241.2 158.2 158.2
Cash and invested cash 802.7 802.7 990.9 990.9
Investment type
insurance contracts:
Deposit contracts and
certain guaranteed
interest contracts (15,390.8) (15,179.1) (14,294.7) (14,052.5)
Remaining guaranteed
interest and similar
contracts (2,470.9) (2,396.5) (2,485.5) (2,423.9)
Short-term debt (124.8) (124.8) (153.7) (153.7)
Long-term debt (40.8) (36.7) (54.8) (57.0)
Derivatives 23.7 5.8 19.4 30.5
Investment commitments -- (.8) -- (.5)
</TABLE>
As of December 31, 1995 and 1994, the carrying value of the deposit contracts
and certain guaranteed contracts is net of deferred acquisition costs of
$333,797,000 and $399,000,000, respectively, excluding adjustments for
deferred acquisition costs applicable to changes in fair value of securities.
The carrying values of these contracts are stated net of deferred acquisition
costs in order that they be comparable with the fair value basis.
9. Segment Information
The Company has two major business segments: Life Insurance and Annuities and
Reinsurance. The Life Insurance and Annuities segment offers universal life,
pension products and other individual coverages through a network of career
agents, independent general agencies and insurance agencies located within a
variety of financial institutions. These products are sold throughout the
United States by the Company. Reinsurance sells reinsurance products and
services to insurance companies, HMOs, self-funded employers and other primary
risk accepting organizations in the U.S. and economically attractive
international markets. Effective in the fourth quarter of 1995, operating
results of the direct disability income business previously included in the
Life Insurance and Annuities segment is now included in the Reinsurance
segment. This direct disability income business, which is no longer being
sold, is now managed by the Reinsurance segment along with its disability
income business. Prior to the sale of 100% of the ownership of its primary
underwriter of employee life-health benefit coverages in 1994 (see Note 10),
the Employee Life-Health Benefits segment distributed group life and health
insurance, managed health care and other related coverages through career
agents and independent general agencies. Activity which is not included in
the major business segments is shown as "Other Operations."
"Other Operations" includes operations not directly related to the business
segments and unallocated corporate items (i.e., corporate investment income,
interest expense on corporate debt and unallocated corporate overhead
expenses).
The revenue, pre-tax income and assets by segment for 1993 through 1995 are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Revenue:
Life Insurance and Annuities $2,569.2 $2,065.3 $2,341.9
Reinsurance 751.2 660.4 610.7
Employee Life-Health Benefits -- 314.9 1,326.8
Other Operations 16.1 74.6 (28.8)
Total $3,336.5 $3,115.2 $4,250.6
Income (loss) before income taxes and
cumulative effect of accounting change:
Life Insurance and Annuities $ 361.0 $ 75.6 $ 265.3
Reinsurance 83.5 93.9 31.6
Employee Life-Health Benefits -- 22.9 83.0
Other Operations 5.0 67.8 (44.2)
Total $ 449.5 $ 260.2 $ 335.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Segment Information (continued)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Assets:
Life Insurance and Annuities $45,280.0 $37,675.9 $36,021.0
Reinsurance 3,383.5 2,311.5 2,328.9
Employee Life-Health Benefits -- -- 588.5
Other Operations 923.6 1,038.1 770.0
Total $49,587.1 $41,025.5 $39,708.4
</TABLE>
Provisions for depreciation and capital additions were not material.
10. Sale of Affiliates
In December 1993, the Company recorded a provision for loss of $98,500,000
(also $98,500,000 after-tax) in the "Other Operations" segment for the sale of
Security-Connecticut Life Insurance Company ("Security-Connecticut"). The
sale was completed on February 2, 1994 through an initial public offering and
the Company received cash and notes, net of related expenses, totaling
$237,700,000. The loss on sale and disposal expenses did not differ
materially from the estimate recorded in the fourth quarter of 1993. For the
year ended December 31, 1993, Security-Connecticut, which operated in the Life
Insurance and Annuities segment, had revenue of $274,500,000 and net income of
$24,000,000.
In 1994, the Company completed the sale of 100% of the common stock of
EMPHESYS (parent company of Employers Health Insurance Company, which
comprised the Employee Life-Health Benefits segment) for $348,200,000 of cash,
net of related expenses, and a $50,000,000 promissory note. A gain on sale of
$69,000,000 (also $69,000,000 after-tax) was recognized in 1994 in "Other
Operations". For the year ended December 31, 1993, EMPHESYS had revenues of
$1,304,700,000 and net income of $55,300,000. EMPHESYS had revenue and net
income of $314,900,000 and $14,400,000, respectively, during the three months
of ownership in 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
11. Subsequent Event
In January 1996, LNC announced that it had signed a definitive agreement to
acquire the group tax-sheltered annuity business of UNUM Corporation's
affiliates. This purchase is expected to be completed in the form of a
reinsurance transaction with an initial ceding commission of approximately
$70,000,000. This ceding commission represents the present value of business
in-force and, accordingly, will be classified as other intangible assets upon
the close of this transaction. This transaction, which is expected to close
in the third quarter of 1996, will increase LNC's assets and policy
liabilities and accruals by approximately $3,200,000,000.
12. Transactions With Affiliates
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"), has
a nearly exclusive general agents contract with the Company under which it
sells the Company's products and provides the service that otherwise would be
provided by a home office marketing department and regional offices. For
providing these selling and marketing services, the Company paid LFGI override
commissions and operating expense allowances of $81,900,000, $78,500,000 and
$74,500,000 in 1995, 1994 and 1993, respectively. LFGI incurred expenses of
$10,400,000, $10,700,000 and $10,500,000 in 1995, 1994 and 1993, respectively,
in excess of the override commission and operating expense allowances received
from the Company, which the Company is not required to reimburse.
Cash and invested cash at December 31, 1995 and 1994 include the Company's
participation in a short-term investment pool with LNC of $333,800,000 and
$428,300,000, respectively. Related investment income amounted to
$22,500,000, $17,100,000 and $9,100,000 in 1995, 1994 and 1993, respectively.
Short-term debt at December 31, 1995 and 1994 includes $67,000,000 and
$68,600,000, respectively, borrowed from LNC. The Company paid interest to
LNC of $24,000, $8,000 and $137,000 in 1995, 1994 and 1993, respectively.
The Company provides services to and receives services from affiliated
companies which resulted in a net receipt of $7,500,000, $13,900,000 and
$18,900,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Transactions With Affiliates (continued)
The Company both cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income includes reinsurance
transactions with affiliated companies as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1995 1994
(in millions)
<S> <C> <C>
Insurance assumed $ 17.6 $ 19.8
Insurance ceded 214.4 481.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Future policy benefits and claims assumed $ 344.8 $341.3
Future policy benefits and claims ceded 1,344.5 857.7
Amounts recoverable on paid and unpaid losses 65.9 36.8
Reinsurance payable on paid losses 5.5 3.5
Funds held under reinsurance treaties-net liability 712.3 238.4
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit aggregating
$340,800,000 and $308,200,000 at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, LNC had guaranteed $275,300,000 and $298,200,000,
respectively, of these letters of credit. At December 31, 1995, the Company
has a receivable (included in the foregoing amounts) from affiliated insurance
companies in the amount of $241,900,000 for statutory surplus relief received
under financial reinsurance ceded agreements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Lincoln
National Life Insurance Company, a wholly owned subsidiary of Lincoln National
Corporation, as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed on B- . These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Lincoln
National Life Insurance Company at December 31, 1995, and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions, accounting for impairment of loans and accounting for certain
investments in debt and equity securities.
/S/ ERNST & YOUNG LLP
Fort Wayne, Indiana
February 7, 1996
<PAGE>
FINANCIAL SCHEDULES
The following consolidated financial statement schedules of The Lincoln National
Life Insurance Company and subsidiaries are included on Pages B- through
B- .
I Summary of Investments Other than Investments in Related Parties December
31, 1995
III Supplementary Insurance Information Years ended December 31, 1995, 1994 and
1993
IV Reinsurance Years ended December 31, 1995, 1994 and 1993
V Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and
1993
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information is included
in the consolidated financial statements, and therefore have been omitted.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Amount at
Which
Shown in
the Balance
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
United States Government and
government agencies and authorities $ 569,552 $ 653,444 $ 653,444
States, municipalities
and political subdivisions 12,325 12,375 12,375
Mortgage-backed securities 4,891,521 5,184,751 5,184,751
Foreign governments 927,901 997,567 997,567
Public utilities 2,572,309 2,772,990 2,772,990
Convertibles and bonds
with warrants attached 181,431 199,658 199,658
All other corporate bonds 9,658,371 10,551,770 10,551,770
Redeemable preferred stocks 39,427 42,230 42,230
Total fixed maturity securities 18,852,837 20,414,785 20,414,785
Equity securities available-for-sale:
Common stocks:
Public utilities 8,980 10,989 10,989
Banks, trust and insurance companies 74,897 89,197 89,197
Industrial, miscellaneous and all other 345,434 436,556 436,556
Nonredeemable preferred stocks 50,950 61,693 61,693
Total equity securities 480,261 598,435 598,435
Mortgage loans on real estate 3,176,275 3,147,783 (A)
Real estate:
Investment properties 635,135 635,135
Acquired in satisfaction of debt 157,441 110,888 (A)
Policy loans 565,325 565,325
Other investments 253,015 241,219 (A)
Total investments $24,120,189 $25,713,570
</TABLE>
(A) Investments which are deemed to have declines in value that are other than
temporary are written down or reserved for to reduce their carrying value to
their estimated realizable value.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Future Policy
Benefits, Other Policy
Deferred Claims and Claims and
Acquisition Claim Unearned Benefits Premium
Segment Costs Expenses Premiums Payable Revenue (A)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $ 713,213 $6,530,475 $ 9,145 $-- $ 685,258
Reinsurance 247,921 1,855,039 45,951 -- 611,416
Other (including consolidating
adjustments) (7,300) 49,505 78 -- 622
Total $ 953,834 $8,435,019 $ 55,174 $-- $1,297,296
Year ended December 31, 1994:
Life insurance and annuities $1,427,692 $5,888,581 $ 11,201 $-- $ 647,416
Reinsurance 304,913 1,626,033 51,618 -- 542,034
Employee life-health benefits -- -- -- -- 299,338
Other (including consolidating
adjustments) 3,921 26,158 (1,347) -- 1,076
Total $1,736,526 $7,540,772 $ 61,472 $-- $1,489,864
Year ended December 31, 1993:
Life insurance and annuities $ 999,126 $6,782,207 $ 5,188 $-- $ 662,353
Reinsurance 298,787 1,616,088 54,157 -- 491,397
Employee life-health benefits -- 228,892 -- -- 1,243,576
Other (including consolidating
adjustments) -- 171,043 315 -- 387
Total $1,297,913 $8,798,230 $ 59,660 $-- $2,397,713
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information (continued)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
Amortization
Benefits, of Deferred
Net Claims and Policy Other
Investment Claim Acquisition Operating Premium
Segment Income (B) Expenses Costs Expenses (B) Written
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $1,741,231 $1,649,119 $298,020 $261,016 $--
Reinsurance 134,000 472,198 101,729 93,750 --
Other (including consolidating
adjustments) 24,399 1,299 -- 9,898 --
Total $1,899,630 $2,122,616 $399,749 $364,664 $--
Year ended December 31, 1994:
Life insurance and annuities $1,542,552 $1,554,479 $ 85,697 $349,529 $--
Reinsurance 116,957 419,266 29,477 117,238 --
Employee life-health benefits (C) 10,838 218,672 -- 73,355 --
Other (including consolidating
adjustments) 3,634 1,630 -- 5,682 --
Total $1,673,981 $2,194,047 $115,174 $545,804 $--
Year ended December 31, 1993:
Life insurance and annuities $1,676,163 $1,615,883 $197,363 $268,066 $--
Reinsurance 115,582 467,824 38,351 72,840 --
Employee life-health benefits 54,513 943,235 -- 300,648 --
Other (including consolidating
adjustments) (22,799) 6,197 5,275 (744) --
Total $1,823,459 $3,033,139 $240,989 $640,810 $--
(A) Includes insurance fees on universal life and other interest sensitive products.
(B) The allocation of expenses between investments and other operations are based on a number of assumptions and estimates.
Results would change if different methods were applied.
(C) Includes data through the March 21, 1994 date of sale of the direct writer of employee life-health coverages.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance (A)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 51,570,782 $17,612,782 $142,794,000 $176,752,000 80.8%
Premiums:
Health insurance 302,463 299,222 273,572 276,813 98.8
Life insurance (B) 658,936 142,523 504,070 1,020,483 49.4
Total $ 961,399 $ 441,745 $ 777,642 $ 1,297,296
Year ended December 31, 1994:
Life insurance in force $ 79,802,000 $45,822,000 $125,640,000 $159,620,000 78.7%
Premiums:
Health insurance 666,609 496,090 359,659 530,178 67.8
Life insurance (B) 629,185 220,678 551,179 959,686 57.4
Total $ 1,295,794 $ 716,768 $ 910,838 $ 1,489,864
Year ended December 31, 1993:
Life insurance in force $135,401,000 $61,401,000 $109,257,000 $183,257,000 59.6%
Premiums:
Health insurance 1,387,414 217,705 262,171 1,431,880 18.3
Life insurance (B) 771,408 350,907 545,332 965,833 56.5
Total $ 2,158,822 $ 568,612 $ 807,503 $ 2,397,713
(A) Special-purpose bulk reinsurance transactions have been excluded.
(B) Includes insurance fees on universal life and other interest sensitive products.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule V
Valuation and Qualifying Accounts
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Charged
Charged to
Balance at to Other Balance at
Beginning Costs and Accounts- Deductions- End of
of Period Expenses (A) Describe Describe (B) Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $ 56,614 $ 2,659 $-- $ (30,781) $ 28,492
Reserve for real estate 65,186 (7,227) -- (11,406) 46,553
Reserve for other long-term investments 13,492 (1,541) -- (155) 11,796
Year ended December 31, 1994:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $220,671 $ 19,464 $-- $(183,521) $ 56,614
Reserve for real estate 121,427 13,058 -- (69,299) 65,186
Reserve for other long-term investments 26,730 262 -- (13,500) 13,492
Included in other liabilities:
Investment guarantees 1,804 4,280 -- (6,084) --
Year ended December 31, 1993:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $129,093 $136,717 $-- $ (45,139) $220,671
Reserve for real estate 114,178 21,776 -- (14,527) 121,427
Reserve for other long-term investments 31,582 3,905 -- (8,757) 26,730
Included in other liabilities:
Investment guarantees 12,550 1,674 -- (12,420) 1,804
(A) Exclude charges for the direct write-off of assets. The negative amounts represent improvements in the underlying assets for
which valuation accounts had previously been established.
(B) Deductions reflect sales or foreclosures of the underlying holdings.
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - Lincoln National Variable Annuity
Account L.
Consolidated Financial Statements and Schedules of Depositor - The Lincoln
National Life Insurance Company.
(b) Exhibits
1. Resolution adopted by the Board of Directors of The Lincoln
National Life Insurance Company on April 29, 1996
establishing the Lincoln National Variable Annuity Account L
("Account L").
2. Not applicable.
3(a). Principal Underwriting Contract.
3(b). Broker-dealer sales agreement.
4(a). Forms of Group Annuity Contracts for The Lincoln National
Life Insurance Company.
5(a). Form of application for Group Annuity Contract.
5(b). Form of Participant enrollment form (including
acknowledgement of restrictions on redemption imposed by
I.R.C. Section 403(b)).
6. Articles of incorporation and by-laws of The Lincoln
National Life Insurance Company.
7. Not applicable.
8(a). Participation Agreement between The Lincoln National Life
Insurance Company and Dreyfus Life & Annuity Index Fund
Inc. and Dreyfus Variable Investment Fund.
8(b). Participation Agreement between The Lincoln National Life
Insurance Company and Variable Insurance Products Fund and
Fidelity Distributors Corporation.
8(c). Participation Agreement between The Lincoln National Life
Insurance Company and Variable Insurance Products Fund II
and Fidelity Distributors Corporation.
8(d). Participation Agreement between The Lincoln National Life
Insurance Company and Twentieth Century Securities, Inc.
- ------------------------------------
C-1
<PAGE>
8(e). Participation Agreement between The Lincoln National Life
Insurance Company and Acacia Capital Corporation and Calvert
Distributors, Inc.
8(f). Participation Agreement between The Lincoln National Life
Insurance Company and T. Rowe Price International Series,
Inc. and T. Rowe Price Investment Services, Inc.
9. Consent and opinion of Jeremy Sacks, Senior Counsel,
The Lincoln National Life Insurance Company, as to the
legality of the securities being registered.
10(a). Consent of Ernst & Young LLP, Independent Auditors.
10(b). Powers of Attorney. *
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance Quotations.
14(a). Organization Chart of the Lincoln National Holding Company
System
The incorporated herein by rference to the initial Registration Statement filed
June 12, 1996, File Numbers 811-7645 and 333-5827.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of The Lincoln National
Life Insurance Company who are engaged directly or indirectly in activities
relating to Account L as well as the Contracts. The list also shows The Lincoln
National Life Insurance Company's executive officers.
ITEM 25.
<TABLE>
DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name Positions and Officer with Lincoln Life
- ---- ----------------------------------------
<S> <C>
Ian M. Rolland ** Director
Robert A. Anker** Chairman, Chief Executive Officer and Director
Jon A. Boscia* President, Chief Operating Officer and Director
Carolyn P. Brody* Second Vice President
Thomas L. Clagg* Vice President and Associate General Counsel
Kelly D. Clevenger* Vice President
William J. Cooper* Vice President
Jerry Danielson** Chief Compliance Officer
Jack D. Hunter** Executive Vice President and General Counsel
Keith J. Ryan* Vice President, Asst. Treasurer and Chief Financial Officer
Gabriel L. Shaheen*** Executive Vice President
John L. Steinkamp** Vice President and Associate General Counsel
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Assistant Vice President and Secretary
O. Douglas Worthington* Vice President, Controller and Assistant Treasuer
</TABLE>
* Principal business address of each person is 1300 South Clinton Street,
Fort Wayne, Indiana 46802
** Principal business address is 200 East Berry Street, Fort Wayne, Indiana
46802-2706
*** Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne, Indiana 46804.
Item 26. Persons Controlled by or Under Common Control with The Lincoln
National Life Insurance Company or Account L
Account L of The Lincoln National Life Insurance Company ("Lincoln Life") is a
separate account of Lincoln Life and may be deemed to be controlled by Lincoln
Life although Lincoln Life will follow voting instructions of Contractholders
with respect to voting on certain important matters requiring a vote of
Contractholders.
See Exhibit 14(a): The Organizational Chart of the Lincoln National Holding
Company System.
C-2
<PAGE>
Item 27. Number of Contractholders
Not applicable.
Item 28. Indemnification
Under the Participation Agreements entered into between Lincoln Life and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, Acacia Capital
Corporation, and T. Rowe Price (the "Funds"), Lincoln Life and its directors,
officers, employees, agents and control persons have been indemnified by the
Funds against any losses, claims or liabilities that arise out of any untrue
statement or alleged untrue statement or omission of a material fact in the
Funds' registration statements, prospectuses or sales literature. In addition,
the Funds will indemnify Lincoln Life against any liability, loss, damages,
costs or expenses which Lincoln Life may incur as a result of the Funds'
incorrect calculations, incorrect reporting and/or untimely reporting of the
Funds' net asset values, dividend rates or capital gain distribution rates.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) LNC Equity Sales Corporation acts as the principal underwriter
for Lincoln Life & Annuity Variable Annuity Account L and Lincoln
National Variable Annuity Account L.
(b)(1) The following table sets forth certain information regarding the
officers and directors of LNC Equity Sales Corporation:
NAME AND ADDRESS POSITIONS AND OFFICES
- ---------------- WITH LNC EQUITY SALES
---------------------
Priscilla S. Brown* President, Product/Market Officer
and Director
JoAnn E. Becker* Director
John M. Behrendt* Vice President
Richard C. Boyles*** Director and Chief Financial Officer;
Kenneth Ehinger*** Executive Director, Chief Operating
Officer
Gary D. Giller**** Director
Phillip A. Hartman* Director
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary
* Principal business address of each person is 1300 S. Clinton Street, Fort
Wayne, Indiana 46802
** Principal business address of each person is 200 East Berry Street, Fort
Wayne, Indiana 46802-2706
*** Principal business address of each person is 3811 Illinois Road,
Suite 205, Fort Wayne, Indiana 46804-1202
**** Principal business address is 7650 Rivers Edge Dr., Suite. 250, Columbus,
OH 432351
(c)
Name of Net Underwriting
Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
- ----------- ---------------- ------------- ----------- ------------
Not applicable.
C-3
<PAGE>
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by Lincoln Life
at 82 Running Hill Rd., South Portland, ME 04101.
Item 31. Management Services
None
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in this registration statement are never more than 16
months old for so long as payments under the variable annuity
contracts may be accepted, unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
403(b) ANNUITIES
----------------
The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American Council
of Life Insurance concerning the redeemability of Section 403(b) annuity
contracts and the Registrant has complied with the provisions of paragraphs (1)-
(4) thereof.
TEXAS ORP
---------
The Registrant intends to offer Contracts to Participants in the Texas
Optional Retirement Program. In connection with that offering, Rule 6c-7 of the
Investment Company Act of 1940 is being relied upon and paragraphs (a)-(d) of
that Section will be complied with.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Amendment to the initial Registration
Statement to be signed on its behalf, in the City of Fort Wayne, and the State
of Indiana on this 23rd day of September, 1996.
Lincoln National Variable Annuity Account L
(GROUP VARIABLE ANNUITY II)
(Registrant)
By: /s/ Stephen H. Lewis
------------------------------------------
Stephen H. Lewis, Senior Vice President
(Name of Officer of Depositor) (Title)
The Lincoln National Life Insurance Company
(Depositor)
By: /s/ Robert A. Anker
------------------------------------------
Robert A. Anker, Chief Executive Officer
(Signature and Title)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
*/s/ Robert A. Anker Chairman, Chief Executive Sept. 23, 1996
------------------------- Officer and Director
Robert A. Anker (Principal Executive Officer)
*/s/ Ian M. Rolland Director Sept. 23, 1996
-------------------------
Ian M. Rolland
*/s/ Jon A. Boscia President, Chief Operating Sept. 23, 1996
------------------------- Officer and Director
Jon A. Boscia
*/s/ O. Douglas Worthington Vice President, Assistant Sept. 23, 1996
------------------------- Treasurer and Controller
O. Douglas Worthington (Principal Executive Officer)
<PAGE>
*/s/ Keith J. Ryan Vice President, Chief Sept. 23, 1996
------------------------- Financial Officer and
Keith J. Ryan Assistant Treasurer
(Principal Financial Officer)
*/s/ Gabriel Shaheen Executive Vice President Sept. 23, 1996
------------------------- and Director
Gabriel Shaheen
*/s/ Richard C. Vaughan Director Sept. 23, 1996
-------------------------
Richard C. Vaughan
*/s/ H. Thomas McMeekin Director Sept. 23, 1996
-------------------------
H. Thomas McMeekin
*/s/ Jack D. Hunter Executive Vice President Sept. 23, 1996
------------------------- General Counsel and Director
Jack D. Hunter
* By /s/ Jeremy Sachs, attorney-in-fact, pursuant to a
---------------- Power of Attorney filed with the
initial Registration Statement.
<PAGE>
EXHIBIT 99.1
ESTABLISHMENT OF SEGREGATED INVESTMENT ACCOUNT
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Pursuant to the authority given me by Resolution Number 82-28 adopted by
the Board of Directors of The Lincoln National Life Insurance Company (the
"Company") on November 4, 1982, which resolution was amended in its entirety and
adopted by the Board of Directors of the Company on May 13, 1993, [Resolution
Number 93-18], I establish a segregated investment account designated as
"Lincoln National Variable Annuity Account L" (the "Account"). The Account is
to be used in connection with the assumption reinsurance of the tax sheltered
group annuity business of UNUM Life Insurance Company of America. The Account
will be registered as a unit investment trust with the Securities and Exchange
Commission ("SEC") and shall invest in shares of the investment companies which
are registered with the SEC. The Account's investment objectives, policies, and
limitations shall be in accordance with (1) the registration statement for the
policies filed with the SEC under the Securities Act of 1933, and (2) applicable
provisions of Indiana Insurance Law and Regulations and any other legal
requirements.
/S/ ROBERT A. ANKER
-----------------------------------------
Robert A. Anker, Chief Executive Officer
Dated:
4/29/96
<PAGE>
I, C. Suzanne Womack, hereby certify that I am the duly elected and
qualified Secretary of The Lincoln National Life Insurance Company, and that
the following is a true and correct copy of a resolution adopted by the Board
of Directors at their meeting of May 13, 1993, and that such resolution is
in full force and effect as of the date hereof:
RESOLVED, That Resolution No 82-28, adopted by the Board of
Directors on November 4, 1982 relating to the establishment of segregated
investment accounts, is amended in its entirety to read as follows:
"RESOLVED, That the chief executive officer of the Company is
hereby authorized in his discretion from time to time to establish
one or more segregated investment accounts in accordance with the
provisions of the Indiana Insurance Law, any one or more of such
accounts which may be used for the purpose of maintaining principal
and interest as guaranteed by group annuity contracts issued by the
Company, and for any other purpose or purposes as the chief
executive officer may determine and as may be appropriate under the
Indiana Insurance Law; and
RESOLVED FURTHER, That if in the opinion of legal counsel of the
Company it is necessary or desirable to register any of such
accounts under the Investment Company Act of 1940 or to register a
security issued by any such account under the Securities Act of
1933, or to make application for exemption from registration, the
chief executive officer or such other officers as he may designate
are hereby authorized to accomplish any such registration or to
make any such application for exemption, and to perform all other
acts as may be desirable or necessary in connection with the
conduct of business of the Company with respect to any such
account."
*/S/ C. SUZANNE WOMACK
-----------------------
Date: September 20, 1996 C. Suzanne Womack
Secretary
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
THIS AGREEMENT is entered into on this 30th day of September, 1996 between
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY ("LL"), a life insurance company
organized under the laws of the State of Indiana, on behalf of itself and
SEPARATE ACCOUNT L of LINCOLN NATIONAL LIFE INSURANCE COMPANY, ("Separate
Account") a separate account established by LL pursuant to Indiana law, and LNC
EQUITY SALES CORPORATION ("Equity Sales"), a corporation organized under the
laws of the State of Indiana. Both LL and Equity Sales are subsidiaries of
Lincoln National Corporation.
WITNESSETH:
WHEREAS, LL proposes to issue to the public certain group variable annuity
contracts known as Variable Annuity I, Variable Annuity II, and Variable Annuity
III ("Contracts") and has, by resolution of its Board of Directors, authorized
the creation of a segregated investment account in connection therewith; and
WHEREAS, LL has established the Separate Account for the purpose of
issuing the Contracts and has registered the Separate Account with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Contracts to be issued by LL are registered with the
Commission for offer and sale to the public, and otherwise are in compliance
with all applicable laws; and
WHEREAS, Equity Sales is a broker-dealer registered under the Securities
Exchange Act of 1934 (the "1934 Act") and a member of the National Association
of Securities Dealers, Inc., and proposes to form a selling group for the
distribution of said Contracts; and
WHEREAS, LL desires to obtain the services of Equity Sales as principal
underwriter of the Contracts issued by LL through the Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, LL, the Separate Account and Equity Sales hereby agree as
follows:
DUTIES OF EQUITY SALES
1. Equity Sales will form a selling group consisting of broker-dealers
which have as associated individuals persons who are licensed to sell insurance
pursuant to the laws of the state where the contracts will be distributed, and
are appointed by LL to distribute the Contracts which are issued by LL through
the Separate Account and are registered with the Commission for offer and sale
to the public.
1
<PAGE>
2. Equity Sales will enter into and maintain a selling group agreement
on behalf of itself and LL with each broker-dealer (which has as associated
persons individuals who are licensed to sell insurance pursuant to the laws of
the state where such broker-dealer intends to offer such contracts and appointed
by LL to distribute the Contracts) joining such selling group ("member"). An
executed copy of each such selling group agreement will be provided to LL. Any
such selling group agreement will expressly be made subject to this Agreement.
Any such selling group agreement will provide: (i) that each member will
distribute the Contracts only in those jurisdictions in which the Contracts are
registered or qualified for sale and only through duly licensed registered
representatives of the members who are fully licensed and appointed with LL to
sell the Contracts in the applicable jurisdiction(s); (ii) that all applications
and initial and subsequent payments under the Contracts collected by the member
will be forwarded promptly by the member to LL at such address as it may from
time to time designate; and (iii) that each member will comply with all
applicable federal and state laws, rules and regulations.
3. Equity Sales will not distribute any prospectus, sales literature,
advertising material or any other printed matter or material relating to the
Contracts or the funds if, to its knowledge, any of the foregoing misstates the
duties, obligations or liabilities of LL or Equity Sales. Equity Sales will be
responsible for filing sales literature and advertising material, if necessary,
with appropriate federal regulatory authorities, including the NASD.
4. Equity Sales shall not be responsible for (i) taking or transmitting
applications for the Contracts; (ii) examining or inspecting risks or approving,
issuing or delivering Contracts; (iii) receiving, collecting or transmitting
payments; (iv) assisting in the completion of applications for Contracts; and
(v) otherwise offering and selling Contracts directly to the public.
5. Equity Sales will bear all its expenses incurred while performing its
duties as described in this agreement.
6. Equity Sales will advise LL immediately upon Equity Sales becoming
aware of: (a) any request by the Commission for amendment of the registration
statement relating to the Contracts or the funds or for additional information;
(b) the issuance by the Commission of any stop order suspending the
effectiveness of the registration statement of the Contracts or the funds or the
initiation of any proceeding for that purpose; (c ) the institution of any
proceeding, investigation or hearing involving the offer or sale of the
Contracts or the funds of which it becomes aware; or (d) the happening of any
material event, if known, which makes untrue any statement made in the
registration statement of the Contracts or the funds or which requires the
making of a change therein in order to make any statement made therein not
misleading.
DUTIES OF LL
7. LL or its agent will receive and process applications and premium
payments in accordance with the terms of the Contracts. All applications for
Contracts are subject to acceptance
2
<PAGE>
or rejection by LL in its sole discretion. LL will inform Equity Sales of any
such rejection and the reason therefore.
8. LL will be responsible for filing the Contracts, applications, forms,
sales literature and advertising material, where necessary, with appropriate
insurance regulatory authorities. LL will use reasonable efforts to provide
information and marketing assistance to the members, including preparing and
providing members with advertising materials and sales literature, and providing
members with current prospectuses of the Contracts and of the underlying funds.
LL will use reasonable efforts to ensure that members deliver only the currently
effective prospectuses of the Contracts and the funds. Equity Sales and LL will
cooperate in the development of advertising and sales literature, as requested.
LL will deliver to members, and use reasonable efforts to ensure that members
use, only sales literature and advertising material which conforms to the
requirements of federal and state laws and regulations and which has been
authorized by LL and Equity Sales.
9. LL will furnish to Equity Sales such information with respect to the
Separate Account and the Contracts in such form and signed by such of its
officers as Equity Sales may reasonably request, and will warrant that the
statements therein contained when so signed will be true and correct. LL will
advise Equity Sales immediately of : (a) any request by the Commission for
amendment of the registration statement relating to the Contracts of the funds
or for additional information; (b) the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement of the
Contracts or the funds or the initiation of any proceeding for that purpose; (c
) the institution of any proceeding, investigation, hearing or other action
involving the offer or sale of the Contracts or funds of which it becomes aware;
(d) the happening of any material event, if known, which makes untrue any
statement made in the registration statement of the Contracts or the funds or
which requires the making of a change therein in order to make any statement
made therein not misleading.
10. LL will use reasonable efforts to register for sale an indefinite
amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2 of
the Investment Company Act of 1940, and, should it ever be required, under
state securities laws and to file for approval under state insurance laws when
necessary. LL will maintain the registration under the Securities Act of 1933
and the Investment Company Act of 1940.
11. LL will pay to members of the selling group such commissions on
behalf of and as agent of Equity Sales, as are from time to time set forth in
selling group agreements. LL shall pay such commissions and service fees in
compliance with applicable state insurance laws and not inconsistent with the
applicable federal securities laws and the rules and regulations of the NASD.
Such selling group agreements shall provide for the return of sales commissions
by the members to LL if the Contracts are tendered for redemption to LL in
accordance with the "right to examine contract" provision in the Contract.
12. LL will bear its expenses of providing services under this Agreement,
including, but not limited to, the cost of preparing (including typesetting
costs), printing and mailing of
3
<PAGE>
prospectuses of the Contracts to Contract owners, expenses and fees of
registering or qualifying the Contracts and the Separate Account under federal
or state laws, and any expenses incurred by its employees in assisting Equity
Sales in performing its duties hereunder. LL will reimburse Equity Sales for
its services and for the services of its salaried employees, and reimbursement
for its charges and expenses.
WARRANTIES
13. LL represents and warrants to Equity Sales that: (i) registration
statements under the 1933 Act (File No. 33- _____), (File No. 33- _____), (File
No. 33- _____) and under the 1940 Act (File No. 811-_____) on Form N-4 with
respect to the Contracts and the Separate Account have been filed with the
Commission in the form previously delivered to Equity Sales, and copies of any
and all amendments thereto will be forwarded to Equity Sales at the time that
they are filed with the Commission; (ii) the registration statements and any
amendments or supplements thereto have become effective, conform in all material
respects to the requirements of the 1933 Act and the 1940 Act, and the rules and
regulations of the Commission thereunder, and do not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to any
statement or omission made in reliance upon and in conformity with information
furnished in writing to LL by Equity Sales expressly for use therein; (iii) LL
is validly existing as a stock life insurance company in good standing under the
laws of the State of Indiana, with power (corporate or other) to own its
properties and conduct its business as described in the prospectus, and has been
duly qualified for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification; (iv) the Contracts
to be issued through the Separate Account have been duly and validly authorized
and, when issued and delivered against payment therefore as provided in the
prospectus and in the Contracts, will be duly and validly issued and conform to
the description of such Contracts contained in the prospectus relating thereto;
(vi) LL will only accept applications submitted by and pay commissions to
persons who, to the best of LL's knowledge, are appropriately licensed to offer
and sell the Contracts in a manner as to comply with the state insurance laws;
(vi) the performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of the terms
or provisions of, or constitute a default under any statute, any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument to
which LL is a party or by which LL is bound, LL's Charter as a stock life
insurance company or By-Laws, or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over LL or any of its
properties; and no consent, approval, authorization or order of any court or
governmental agency or body which has not been obtained by the effective date of
this Agreement is required for the consummation by LL of the transactions
contemplated by this Agreement; and (vii) there are no material legal or
governmental proceedings pending to which LL or the Separate Account is a party
or of which any property of LL or the Separate Account is the subject, other
than litigation incidental to the kind of business conducted by LL which, if
determined adversely to LL, would not individually or in the aggregate have a
material adverse effect on the financial position, surplus or operations of LL.
4
<PAGE>
14. Equity Sales represents and warrants to LL that: (i) it is a broker-
dealer duly registered with the Commission pursuant to the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and is in compliance with the securities laws in those
states in which it conducts business as a broker-dealer; (ii) the performance of
its duties under this Agreement by Equity Sales will not result in a breach or
violation of any of the terms or provisions of or constitute a default under any
statute, any indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which Equity Sales is a party or by which Equity
Sales is bound, the Certificate of Incorporation or By-Laws of Equity Sales, or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over Equity Sales or its property; and (iii) it will use reasonable
efforts to ensure that no offering, sale or other disposition of the Contracts
will be made until it has been notified by LL that the subject registration
statements have been declared effective and the Contracts have been released for
sale by LL, and that such offering, sale or other disposition shall be limited
to those jurisdictions that have approved or otherwise permit the offer and sale
of the Contracts by LL; (iv) it will comply in all material respects with the
requirements of state broker-dealer regulations and the 1934 Act as each applies
to Equity Sales and shall conduct its affairs in acordance with the Rules of
Fair Practice of the NASD; and (v) any information furnished in writing by
Equity Sales to LL for use in the registration statement for the Contracts will
not result in the registration's failing to conform in all respects to the
requirements of the 1933 Act and the rules and regulations thereunder or
containing any untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
MISCELLANEOUS
15. Equity Sales shall maintain and preserve for the periods prescribed
by law or other agreement such accounts, books and other documents as are
required of it by applicable law and regulation. The books, records and
accounts of LL, of the Separate Account and of Equity Sales as to all
transactions hereunder shall be maintained such that they clearly and accurately
disclose the nature and details of such transactions, including such accounting
information as is necessary to support the reasonableness of the amounts to be
paid by LL.
16. Equity Sales makes no representation or warranty regarding the number
of Contracts to be sold by licensed broker-dealers and insurance agents or the
amount to be paid thereunder. Equity Sales does, however, represent that it
will actively engage in its duties under this Agreement on a continuous basis
while the Agreement is in effect.
17. Equity Sales may act as principal underwriter, sponsor, distributor
or dealer for issuers other than LL or its affiliates in connection with mutual
funds or insurance products and otherwise.
18. Nothing in this Agreement shall obligate LL to appoint any member or
representative of a member its agent for purposes of the distribution of the
Contracts. Nothing in this Agreement
5
<PAGE>
shall be construed as requiring Equity Sales to effect sales of the Contracts
directly to the public or to act as an insurance agent or insurance broker on
behalf of LL for purposes of state insurance laws.
19. Equity Sales agrees to indemnify LL (or any control person,
shareholder, director, officer or employee of LL) for any liability incurred
(including costs relating to defense of any action) arising out of any Equity
Sales act or omission relating to (i) rendering services under this Agreement or
(ii) the purchase, retention or surrender of a Contract by any person or entity;
provided, however that indemnification will not be provided hereunder for any
such liability that results from the willful misfeasance, bad faith or gross
negligence of LL or from the reckless disregard by LL of the duties and
obligations arising under this Agreement.
20. LL agrees to indemnify Equity Sales (or any control person,
shareholder, director, officer or employee of Equity Sales) for any liability
incurred (including costs relating to defense of any action) arising out of any
LL act or omission relating to (i) rendering services under this Agreement or
(ii) the purchase, retention or surrender of a Contract by any person or entity;
provided, however, that indemnification will not be provided hereunder for any
such liability that results from the willful misfeasance, bad faith and gross
negligence of Equity Sales or from the reckless disregard by Equity Sales of the
duties and obligations arising under this Agreement.
21. This Agreement will terminate automatically upon its assignment, as
that term is defined in the Investment Company Act of 1940. The parties
understand that there is no intention to create a joint venture in the subject
matter of this Agreement. Accordingly, the right to terminate this Agreement
and to engage in any activity not inconsistent with this Agreement is absolute.
This Agreement will terminate, without the payment of any penalty by either
party:
(a) at the option of LL upon six months' advance written notice
to Equity Sales; or
(b) at the option of Equity Sales upon six months' advance written
notice to LL; or
(c) at the option of LL upon institution of formal proceedings
against Equity Sales by a regulatory body;
(d) at the option of Equity Sales upon the institution of formal
proceedings against LL by the Department of Insurance of a
state or any other federal or state regulatory body;
(e) as otherwise required by the Investment Company Act of 1940.
(f) at the option of either party upon the termination of the
Administrative Services Agreement(s) entered into between the
Lincoln National Life
6
<PAGE>
Insurance Company and the UNUM Life Insurance Company of
America and/or affiliates of each.
22. Each notice required by this Agreement shall be given in writing and
delivered by certified mail-return receipt requested.
23. This Agreement shall be subject to the laws of the State of Indiana
and construed so as to interpret the Contracts as insurance products written
within the business operation of LL.
24. This Agreement covers and includes all agreements, oral and written
(expressed or implied) between LL and Equity Sales with regard to the marketing
and distribution of the Contracts, and supersedes any and all Agreements between
the parties with respect to the subject matter of this Agreement.
25. This Agreement may be amended from time to time by the mutual
agreement and consent of the undersigned parties, provided such amendment be in
writing and duly executed.
This Agreement shall become effective on September 30, 1996.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed and attested on the date first stated above.
The Lincoln National Life Insurance Company
on behalf of itself and Separate Account L of
Lincoln National Life Insurance Company
Attest:
______________________________ By:_____________________________________
LNC EQUITY SALES CORPORATION
Attest:
______________________________ By:_____________________________________
<PAGE>
Exhibit 99.3(b)
FORM OF
SELLING AGREEMENT
AGREEMENT AMONG LINCOLN NATIONAL LIFE INSURANCE COMPANY
and
LNC EQUITY SALES CORPORATION
and
<PAGE>
FORM OF SELLING AGREEMENT
Agreement made as of the day of , 1996, between Lincoln National
Life Insurance Company ("Lincoln Life"), the principal underwriter of variable
products funded through Lincoln National Variable Annuity Account L Separate
Account, and ("Dealer"), an entity registered as
a broker-dealer under the Securities Exchange Act of 1934. (All variable
products are hereinafter referred collectively as the "Contracts" or
individually as a "Contract".) Dealer desires to sell the Contracts
underwritten by Lincoln Life which are listed on Schedule A.
This Agreement will record the understandings between Lincoln Life, LNC Equity
Sales Corporation ("LNCESC") and Dealer relating to sales of the Contracts and
certain other services agreed to be performed by Dealer pursuant to this
Agreement.
SECTION 1. DEFINITIONS
1.1 "Applicant" shall mean either a prospective Contractholder or a
prospective Participant under the Contract.
1.2 "Commission" shall mean the Securities and Exchange Commission.
1.3 "Contractholder" shall mean any entity that is a party to a Contract with
Lincoln Life.
1.4 "Contributions" shall mean amounts deposited by Contractholders on behalf
of Participants under a Contract.
1.5 "Dealer" shall mean any broker-dealer who has entered into a selling
agreement with Lincoln Life and LNCESC for the purpose of distributing
Contracts.
1.6 "Fund" shall mean the fund or investment company that is the underlying
investment vehicle for Separate Account.
1.7 "Participant" shall mean a person who has enrolled under a Contract and
maintains a Participant Account.
1.8 "Separate Account" shall mean the Lincoln National Variable
Account L, a separate account established by Lincoln Life in accordance
with the laws of the State of Indiana.
SECTION 2. REPRESENTATIONS OF LINCOLN LIFE AND LNCESC
2.1 REGISTRATION STATEMENTS AND PROSPECTUSES.
Lincoln Life and LNCESC represent to Dealer as follows, with respect to each
Contract.
(a) A Registration Statement under the Securities Act of 1933 (the "1933
Act") has become effective.
<PAGE>
(b) The prospectus relating to each Contract contained in the appropriate
Registration Statement or any supplement or amendment thereto
("Prospectus"), as of their respective effective dates, contains all
statements and information which are required to be stated therein by
the 1933 Act and in all respects conform to the requirements thereof,
and the Prospectus does not include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the foregoing representations
shall not apply to information contained in or omitted from the
Prospectus in reliance upon, and in conformity with, information
furnished by any of the Dealers specifically for use in the
preparation thereof.
SECTION 3. REPRESENTATIONS OF DEALER
3.1 LICENSES.
Dealer represents to LNCESC that it is and will remain, registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended, and in
such other jurisdictions as the business transaction by it requires, is a
member in good standing of the National Association of Securities dealers,
Inc. ("NASD"), has obtained any other approvals, licenses, authorizations,
orders or consents which are necessary to enter into this Agreement, and is
bonded as required by all applicable laws and regulations.
Dealer represents that there are no proceedings threatened or pending against
them which could result in the suspension or loss of license to act as a
broker or dealer in any jurisdiction or loss of membership in the NASD.
Dealer further represents that it or its subsidiaries or affiliated
companies, as appropriate, are licensed as insurance agencies in all states
which require such licensing and in which the Contracts are sold by Broker-
Dealer or its subsidiaries or its affiliated companies.
3.2 QUALIFICATIONS OF REGISTERED REPRESENTATIVES.
Dealer represents to LNCESC that each person signing an application as agent
or receiving compensation for soliciting purchases of the Contracts will be a
registered representative or principal of Dealer with all licenses necessary
or appropriate to sell life insurance in the state of such signing or
solicitation (and to sell variable contracts if required by such state), and
will have received an appropriate appointment or license by Lincoln Life and
a level of qualification with the NASD appropriate for the Contracts
("Registered Representative").
3.3 COMPENSATION.
Dealer represents that it will not pay any commissions, or portions thereof,
or other compensation based upon a percentage of Contributions or other
valuable consideration to any person or entity which is not duly licensed or
appointed by Lincoln Life to sell life insurance in the state of such payment
(and to sell variable contracts if required by the state in question).
3.4 REPRESENTATIONS UPON ASSIGNMENT.
If Dealer assigns this Agreement as provided in paragraph 7.1 below, the
representations made in paragraphs 3.1 through 3.3 above shall be read to
apply to the affiliate where the context so requires.
<PAGE>
SECTION 4. SALE OF THE CONTRACTS
4.1 AUTHORIZATION.
Dealer is hereby authorized to solicit applications for the purchase of the
Contracts through its Registered Representatives in such states where Dealer
and its Registered Representatives are appropriately licensed. This
authorization is non-exclusive and is limited to the states in which the
Contracts are approved for sale.
4.2 SUITABILITY.
Lincoln Life and LNCESC wishes to ensure that the Contracts solicited by
Dealer will be issued to persons for whom the Contracts will be suitable.
Dealer shall take reasonable steps to ensure that the Registered
Representatives shall not make recommendations to an Applicant to purchase
any of the Contracts in the absence of reasonable grounds to believe that the
purchase of or participation under any of the Contracts is suitable for such
Applicant. While not limited to the following, a determination of
suitability shall be based on information furnished to a Registered
Representative after reasonable inquiry of such Applicant concerning the
Applicant's insurance and investment objectives, financial situation and
retirement needs.
4.3 DISTRIBUTION ALLOWANCE.
Lincoln Life and LNCESC agree to pay Dealer a sales commission as indicated
on the attached Schedule B as may be amended. The amount of the total sales
commission may be changed from time to time by Lincoln Life and LNCESC and
any such change will apply prospectively to sales of the Contracts.
Where state law prohibits direct payment to Dealer, payments will be made
in accordance with the applicable state law.
Such commissions shall be payable only for a period during which the
Contractholder has designated Dealer as the "Broker-of-Record". The "Broker-
of-Record" designation shall be in writing and in a form satisfactory to
Lincoln Life.
Lincoln Life and LNCESC may offset against commissions due or to become due
hereunder any amounts owed by Dealer to Lincoln Life or LNCESC or to their
affiliates, and the amount of such indebtedness shall be and remain a first
lien against such commissions until the indebtedness has been paid in full.
For purposes of this paragraph affiliate shall mean any corporation directly
or indirectly controlling, controlled by, or under common control with
Lincoln Life or LNCESC. This provision shall survive the termination of
this Agreement.
Subject to paragraph 4.4 below, Dealer agrees to pay on behalf of Lincoln
Life and LNCESC any compensation due to the Registered Representatives.
4.4 NO COMPENSATION PAYABLE.
No compensation shall be payable, and any compensation already paid, shall be
retured to LNCESC on request under each of the following conditions:
(a) If Lincoln Life or LNCESC, in its sole discretion, determine not to
issue the Contracts applied for,
(b) If a Contract is discontinued within the twelve (12) month period
following the effective date of the Contract,
<PAGE>
(c) If Lincoln Life or LNCESC refunds any Contributions deposited by the
Contractholder or Participant, which Lincoln Life or LNCESC will do
by check directly to such person or entity, upon the exercise of any
applicable "free look" period,
(d) If Lincoln Life or LNCESC refunds any Contributions deposited by the
Contractholder or Participant as a result of an error in the amount
contributed,
(e) If Lincoln Life or LNCESC refunds any Contributions deposited by the
Applicant, Contractholder or Participant as a result of a complaint
by such person or entity, which Lincoln Life or LNCESC will do by
direct check, recognizing that Lincoln Life or LNCESC has sole
discretion to refund such Contributions, or
(f) If Lincoln Life or LNCESC determines that any person signing an
application or any person or entity receiving compensation for
soliciting purchases of Contracts is not duly licensed to sell the
Contracts in the jurisdiction of such attempted sale.
4.5 CONTRIBUTIONS.
Contributions under the Contracts must be forwarded by the Applicant directly
to Lincoln Life.
Dealer has no authority to accept for Lincoln Life any Contribution under
the Contracts and payment or delivery of such Contribution to Dealer will
not be considered as having been received by Lincoln Life until Lincoln Life
receives cash therefor.
4.6 APPLICATIONS.
The Registered Representatives shall transmit promptly all applications they
receive for the Contracts, together with required documentation, to LNCESC.
All such applications shall be on the appropriate Lincoln Life form.
4.7 UNDERWRITING.
Lincoln Life and LNCESC maintain responsibility for Contract underwriting
and, in its sole discretion, will determine whether to issue any of the
Contracts to each Applicant.
4.8 PROSPECTUSES AND SALES LITERATURE.
The Prospectus for a Contract, the Fund Prospectus (generally attached
thereto) and any supplements or amendments provided by Lincoln Life or LNCESC
from time to time, shall be delivered to every Applicant by Dealer or its
registered representative. The Statements of Additional Information ("SAI")
shall be delivered to any Applicant who requests one. LNCESC shall keep
Dealer informed of the date for the appropriate current Prospectus, Fund
Prospectus and SAI and the dates of any supplements or amendments required to
be delivered to an Applicant. Dealer shall not use any sales literature or
advertisements, as defined in the next sentence, for the Policies, for the
Fund or mentioning Lincoln Life or LNCESC without the prior written
permission of Lincoln Life or LNCESC. For purposes of this Agreement, "sales
literature and advertisements" means brochures, letters, illustrations,
training materials, materials for oral presentation and all other similar
materials, whether transmitted directly to potential Applicants or published
in print or audio-visual media, but does not include generic materials which
do not make reference to Lincoln Life or LNCESC, the Fund or the Contracts.
<PAGE>
4.9 UNAUTHORIZED INFORMATION.
Dealer shall not give any information or make any representations concerning
any aspect of any of the Contracts, the Fund, Lincoln Life or LNCESC or its
operations unless the information or representations are contained in the
appropriate Prospectus or SAI, as supplemented or amended from time to time,
or are contained in sales literature, advertisements or other promotional
literature approved pursuant to paragraph 4.8 above.
4.10 CONTRACT DELIVERY.
All Contracts issued by Lincoln Life and transmitted to Dealer for delivery
shall be promptly delivered to the Contractholder.
4.11 MATERIALS FURNISHED BY LNCESC.
LNCESC, at its own expense, shall furnish to Dealer the following:
(a) the appropriate Prospectus, SAI, if any, and any supplements or
amendments thereto,
(b) the Fund Prospectus, SAI and any supplements or amendments thereto,
(c) applications,
(d) specimen Contracts,
(e) the most recent Semi-Annual or Annual Report of the Fund and the
Separate Account, and
(f) any sales literature and advertisements which LNCESC chooses to make
available in its sole discretion.
Dealer, either directly or by reimbursing LNCESC on request, shall pay all
other expenses of soliciting applications for the Contracts, including but
not limited to expenses relating to sales literature and advertisements
originated by Dealer.
4.12 MAINTENANCE OF BOOKS AND RECORDS.
LNCESC and Dealer agree to keep all records required by federal and state
laws, to maintain books, accounts and records so as to clearly and accurately
disclose the precise nature and details of the transaction, and to assist one
another in the timely preparation of records. Dealer agrees that all records
and other data pertaining to the Contracts are the exclusive property of
Lincoln Life and LNCESC, but this shall not preclude Dealer from keeping
copies of such data or records for its own files. Furthermore, upon Lincoln
Life or LNCESC's request, Dealer shall deliver to Lincoln Life or LNCESC, as
soon as practical, data held by it pursuant to this Agreement in a form
mutually agreed to by the parties.
4.13 REGULATORY MATTERS.
Lincoln Life, LNCESC and Dealer shall each submit to all regulatory and
administrative bodies which have jurisdiction over the Contracts any
information, reports or other material required pursuant to applicable laws
or regulations.
<PAGE>
4.14 REPORTING.
Each party hereto shall promptly furnish to the other party any reports and
information which the other party may request for the purpose of meeting
reporting and recordkeeping requirements under the insurance laws of the
state of Indiana and any other state or jurisdiction and under the federal or
state securities laws or the rules of the NASD.
4.15 CONFIDENTIALITY.
Dealer shall keep confidential any information obtained pursuant to this
Agreement or the transactions contemplated herein and shall disclose such
information only if Lincoln Life or LNCESC has authorized such disclosure, or
if such disclosure is required by state or federal regulatory bodies.
4.16 NOTIFICATION OF COMPLAINTS.
Dealer shall immediately notify Lincoln Life and LNCESC, at the addresses in
the notice provision of this Agreement, of any sales- related or other
complaint or grievance relating to the Contracts or the transactions
contemplated herein and shall promptly reduce such notice to writing if oral.
Dealer shall promptly furnish all written materials in connection with any
such complaints or grievances to Lincoln Life and LNCESC and will cooperate
in Lincoln Life and LNCESC investigation of all such complaints or
grievances. Lincoln Life and LNCESC retains discretion to resolve complaints
or grievances of Applicants, Contractholders, Participants or others, by
settlement or any other means, against Dealer or any of the Registered
Representatives with respect to the Contracts or any transactions arising out
of this Agreement, upon receipt of proof satisfactory to Lincoln Life or
LNCESC of the justice of such claim. Lincoln Life and LNCESC's decision
shall be binding and conclusive, and Dealer shall be liable for disbursements
and agrees to reimburse LNCESC therefore. If Lincoln Life or LNCESC renders
such a liability to Dealer, it shall do so with full rights of subrogation
to Dealer against any Registered Representative involved.
4.17 COMPLIANCE, SUPERVISION AND TRAINING.
LNCESC and Dealer will each comply with all applicable federal and state laws
and regulations and the rules of the NASD relating to the issuance and sale
of the Contracts. Dealer will bear full responsibility for the supervision
of the Registered Representatives in their solicitation of applications for
the Contracts and all activities relating to this Agreement. Dealer agrees
that the Registered Representatives will maintain a proficiency in insurance
knowledge and sales techniques as is necessary to solicit and service the
Contracts. Lincoln Life and LNCESC will assist Dealer by assisting in the
training of Dealer's training personnel in product specifications and
markets.
Dealer shall establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of the Registered
Representatives and submit reports to LNCESC as requested from time to time
on the result of such inspections and the compliance with such procedures.
4.18 NOTIFICATION OF REGULATORY PROCEEDINGS.
Lincoln Life or LNCESC shall immediately notify Dealer, at the address in the
notice provision of this Agreement, of the issuance by any regulatory body of
any stop order with respect to any of the Prospectuses, or the initiation of
any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Contracts or the Fund shares, and of any
other action or circumstances that may prevent the lawful offer or sale of
any of the Contracts in any state or jurisdiction.
Dealer shall immediately notify Lincoln Life and LNCESC, at the address in
the notice provision of this Agreement, of the issuance by any regulatory
body of any order with respect to the operation or business
<PAGE>
of Dealer, or the initiation of any proceeding for any purpose relating to
the sale of the Contracts, and of any other actions or circumstances that may
prevent the lawful offer or sale of any of the Contracts in any state or
jurisdiction. In addition, Dealer shall promptly advise LNCESC if any of the
Registered Representatives is subject to any proceedings or any sanctioned
or suspended by the NASD or in any state or other jurisdiction.
4.19 RELATIONSHIP BETWEEN THE PARTIES.
Dealer is an independent contractor. Nothing contained in this Agreement
shall create, or shall be construed to create, the relationship of an
employer and employee between Lincoln Life, LNCESC and Dealer or the
Registered Representatives.
4.20 LIMITS ON AUTHORITY.
Neither Dealer nor the Registered Representatives shall have any authority on
behalf of LNCESC or Lincoln Life to:
(a) make, alter or discharge any Contract,
(b) incur any idebtedness or liability or expend or contract for the
expenditure of the funds of Lincoln Life or LNCESC,
(c) bind Lincoln Life or LNCESC to the reinstatement of any terminated
Contract, or accept or give a receipt for any Contributions under the
Contract,
(d) waive or modify any terms, conditions or limitations of any Contract
and related forms or instructions, grant permits, name special rates
or guarantee dividends or interest rates, make endorsements on any
Contracts,
(e) adjust or settle any claim or commit Lincoln Life or LNCESC with
respect thereto, or bind Lincoln Life or LNCESC or any of its
affiliates in any way,
(f) enter into legal proceedings in connection with any matter pertaining
to Lincoln Life or LNCESC's business without the prior written
consent of Lincoln Life or LNCESC unless Dealer is named in such
proceedings. Where Dealer is named, it may retain counsel of its
choice.
4.21 VIOLATION OF LAW.
Nothing contained in this Agreement shall require Lincoln Life, LNCESC or
Dealer to do anything which, in its judgment, would be a violation of any
federal or state law or regulation or NASD rule applicable to it.
SECTION 5. INDEMNIFICATION
5.1 OF DEALER WITH RESPECT TO THE PROSPECTUS.
Lincoln Life and LNCESC will indemnify and hold harmless Dealer against any
losses, claims, damages or liabilities (or actions in respect thereof) to
which Dealer may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Prospectus or SAI for any of the Contracts or any amendment
or supplement thereto, or arise out of or are based upon the omission or
<PAGE>
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse Dealer for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action in respect thereof; provided, however, that Lincoln Life
and LNCESC shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission made in the Prospectus or
SAI for any of the Contracts or any such amendment or supplement in reliance
upon and in conformity with information furnished by Dealer, specifically for
use in the preparation thereof.
Lincoln Life and LNCESC shall not indemnify Dealer for any action where an
Applicant for any of the Contracts was not furnished or sent or given, at or
prior to written confirmation of a Contribution under the Contract, a copy of
the appropriate Prospectus together with the Fund Prospectus, the SAI or Fund
SAI, if requested, and any supplements or amendments to either furnished to
Dealer by Lincoln Life or LNCESC.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Dealer and any
person controlling Dealer.
5.2 OF LINCOLN LIFE AND LNCESC WITH RESPECT TO THE PROSPECTUS.
Except as provided in paragraph 5.3 below, Dealer will indemnify and hold
harmless Lincoln Life and LNCESC against any losses, claims, damages or
liabilities (or actions in respect thereof) to which Lincoln Life and LNCESC
may become subject, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Prospectus or SAI for any of the Contracts or any amendment or supplement
thereto or the Fund Prospectus and SAI or any amendment or supplement
thereto, or arise out of or are based upon 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 each case to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made, in reliance upon and in conformity with information
furnished to Lincoln Life or LNCESC by Dealer, specifically for use in the
preparation thereof; and will reimburse LNCESC or Lincoln Life for any legal
or other expenses reasonably incurred by LNCESC or Lincoln Life in connection
with investigating or defending against any such loss, claim, damage,
liability or action.
The foregoing indemnity agreement shall, upon the same terms and conditions,
extend to and inure to the benefit of each director and officer of LNCESC and
Lincoln Life and any person controlling Lincoln Life and LNCESC.
5.3 OF LNCESC AND LINCOLN LIFE WITH RESPECT TO NEGLIGENCE.
Dealer shall indemnify and hold harmless Lincoln Life and LNCESC from any and
all losses, claims, damages or liabilities (or actions in respect thereof) to
which Lincoln Life or LNCESC may be subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or result
from negligent, intentional, improper, fraudulent or unauthorized acts or
errors or omissions by Dealer, its employees or Registered Representatives or
principals, including but not limited to improper solicitation of
applications for the Contracts, except as stated herein.
Dealer shall indemnify and hold harmless Lincoln Life and LNCESC for any
losses, claims, damages or liabilities (or actions in respect thereof) to
which LNCESC or Lincoln Life may become subject, insofar as the losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any unauthorized use of sales materials or advertisements or
any oral or written misrepresentations or any unlawful sales practices
concerning the Contracts of Lincoln Life and LNCESC by Dealer, except as
stated
<PAGE>
below.
Dealer shall indemnify and hold Lincoln Life and LNCESC harmless for any
penalties, losses or liabilities resulting from Lincoln Life or LNCESC
improperly paying any compensation under this Agreement, unless such improper
payment was caused by Lincoln Life or LNCESC's negligence. Unless such
improper payment was caused by Dealer's negligence, the indemnity under the
immediately preceding sentence shall be limited to all compensation payable
to and by Dealer pursuant to this Agreement.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Lincoln Life and
LNCESC and any person controlling Lincoln Life or LNCESC.
5.4 OF DEALER WITH RESPECT TO NEGLIGENCE.
Lincoln Life and LNCESC shall indemnify and hold harmless Dealer against any
losses, claims, damages or liabilities (or actions in respect thereof) to
which Dealer may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) result from negligent,
intentional, improper, fraudulent or unauthorized acts or errors or omissions
by LNCESC or Lincoln Life or their employees.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Dealer and any
person controlling Dealer.
5.5 OF LINCOLN LIFE AND LNCESC WITH RESPECT TO COMPENSATION OF THE REGISTERED
REPRESENTATIVES.
Dealer shall indemnify and hold harmless LNCESC and Lincoln Life for any
losses, claims, damages or liabilities (or actions in respect thereof) to
which Lincoln Life or LNCESC may become subject, insofar as the losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or result from the payments to the Registered Representatives for sale of the
Contracts. The foregoing indemnities shall, upon the same terms and
conditions, extend to and inure to the benefit of each director and officer
of Lincoln Life and LNCESC and any person controlling Lincoln Life and
LNCESC.
5.6 NOTICE OF ACTIONS.
Promptly after receipt by an indemnified party of notice of the commencement
of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
otherwise have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party, similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
SECTION 6. EFFECTIVENESS AND TERMINATION
6.1 EFFECTIVENESS.
This Agreement shall be effective upon execution of both parties and will
remain in effect unless terminated
<PAGE>
as provided in paragraph 6.2, 6.3 or 7.1 below.
6.2 TERMINATION.
This Agreement may be terminated by either Lincoln Life, LNCESC or Dealer at
any time by sixty (60) days written notice to the other.
6.3 AUTOMATIC TERMINATION.
This Agreement shall terminate:
(a) On the death or adjudication of incompetency of Dealer if name is a
natural person,
(b) On the dissolution of Dealer if Dealer is a Corporation, or
(c) Upon termination or expiration of any Lincoln Life broker license or
appointment.
6.4 TERMINATION FOR CAUSE.
In the event of any material breach (as defined in paragraphs 6.5 and 6.6
below) of this Agreement by any party, the other party may, at its option,
terminate this Agreement by giving notice of termination, effective upon the
date specified in such termination notice. This remedy shall be in addition
to any other remedies available under this Agreement or at law.
6.5 MATERIAL BREACH BY LNCESC AND LINCOLN LIFE.
Lincoln Life and LNCESC shall be deemed to have materially breached this
Agreement and failed to perform hereunder upon the occurrence of any of the
following events:
(a) Lincoln Life or LNCESC shall become insolvent or otherwise admit in
writing their inability to pay its debts when they become due, become
bankrupt, seek protection under any law for the protection of
insolvents, or have a receiver or conservator appointed for it under
any law pertaining to LNCESC or Lincoln Life's insolvency; or
(b) Lincoln Life or LNCESC shall breach any material provision of this
Agreement and such breach shall remain uncured for more than ninety
(90) days following LNCESC or Lincoln Life's receipt of Dealer
written notice of such breach.
6.6 MATERIAL BREACH BY DEALER.
Dealer shall be deemed to have materially breached this Agreement and failed
to perform hereunder upon the occurrence of any of the following events:
(a) Dealer shall become insolvent or otherwise admit in writing its
inability to pay its debts when they become due, become bankrupt,
seek protection under any law for the protection of insolvents, or
have a receiver or conservator appointed for it under any law
pertaining to Dealer's insolvency; or
(b) Dealer shall breach any material provision of this Agreement and such
breach shall remain uncured for more than thirty (30) days following
Dealer's receipt of LNCESC or Lincoln Life's written notice of such
breach. In the event of a breach of the provisions of paragraph 4.17
or 4.18, the thirty (30) day period for cure is reduced to seven (7)
days.
<PAGE>
SECTION 7. MISCELLANEOUS
7.1 ASSIGNMENT.
This Agreement is not assignable by Dealer except to an affiliate of Dealer
in order to comply with applicable laws or regulations and will terminate
automatically in the event of a purported assignment. If this Agreement is
assigned to an affiliate as permitted herein, Dealer shall not be relieved of
any of its obligations hereunder.
7.2 APPLICABLE LAW.
This Agreement shall be subject to the 1933 Act, the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, and the rules, regulations,
and rulings issued thereunder, including such exemptions as the Commission
may grant. This Agreement shall also be subject to the rules of the NASD.
Except as provided in this paragraph, this Agreement shall be construed in
accordance with the laws of the State of Indiana and shall be subject to its
insurance and securities laws and the applicable insurance and securities
laws of any other state or jurisdiction in which the Contracts are sold by
Dealer.
7.3 ENFORCEABILITY.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
7.4 FORFEITURE.
Any fraud in connection with these Contracts, failure to promptly remit funds
collected on behalf of Lincoln Life or LNCESC, or willful violation of any of
the terms of this Agreement shall result in the immediate termination of this
Agreement if then in force and the immediate termination of Dealer right to
any further compensation otherwise payable hereunder. This paragraph shall
survive the termination of this Agreement.
7.5 ENTIRE AGREEMENT.
The parties declare that there are no oral or other agreements or
understandings between them affecting this Agreement or relating to the
selling or servicing of the Contracts, except as disclosed herein. This
Agreement supersedes all prior agreements between the parties and constitutes
the entire Agreement between the parties.
This Agreement may be modified only if in writing and if attested to by those
persons authorized to enter into Agreements on behalf of Lincoln Life and
LNCESC and Dealer, respectively.
7.6 NO WAIVER.
If either party fails to require performance by the other party of any
provision of this Agreement, that party does not waive its right to require
such performance at a later time. If either party waives the breach of any
provision of this Agreement by the other party, the waiving party still has
the right to require performance of that provision and its conduct shall not
be construed to waive succeeding breaches of that provision or any breaches
of any other provision.
<PAGE>
7.7 With respect to the Contracts specified in the attached Schedule, this
Agreement supersedes any prior agreement, contract or understanding
between the parties. Commissions payable under any such prior agreements
shall be determined and paid as specified therein. The right of lien and
offset for the security of any indebtedness due to Lincoln Life or LNCESC
under such prior agreements are reserved and continued.
7.8 NOTICES.
Unless otherwise provided in this Agreement, all notices, requests, demands
and other communications which must be provided under this Agreement shall be
in writing and shall be deemed to have been given on the date of service if
served personally on the party to whom notice is to be given or on the date
of mailing if sent by first class mail, registered or certified, postage
prepaid.
7.9 MISCELLANEOUS.
The headings in this Agreement are for purposes of reference only and shall
not limit or define the meaning hereof.
This Agreement may be executed in several counterparts, each of which is an
original, but all of which together shall consitute one instrument.
The parties hereto have caused this Agreement to be executed in their names
and on their behalf by and through their duly authorized officers.
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By
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Date
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Title
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LNC EQUITY SALES CORPORATION
By
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Date
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Title
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--------------------------------
By
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Date
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Title
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<PAGE>
SCHEDULE A
Products Covered by This Agreement:
- Lincoln Life Group Variable Annuity I
- Lincoln Life Group Variable Annuity II
- Lincoln Life Group Variable Annuity III
<PAGE>
SCHEDULE B
For the Producer named on the Producer Contract, the following Commission
Schedule B shall apply to such Producer's Lincoln National Life Insurance
Company Group Annuity Contracts as follows:
3.00% on recurring deposits
3.00% on transfer deposits
1.18% on payout annuity purchases
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04104-5001]
GROUP VARIABLE
ANNUITY CONTRACT NO.: [000000] EFFECTIVE DATE: [10/1/96]
CONTRACTHOLDER: [ABC Company]
(Herein referred to as "You" or "Your")
THIS CONTRACT WAS DELIVERED IN THE [State/Commonwealth of ]
and is subject to the laws of that jurisdiction.
Lincoln Life by this Contract agrees to provide benefits for Participants in
accordance with the terms and conditions of the Contract. The entire Contract
consists of the provisions on the following pages, and the Application,
including any amendments, schedules, or endorsements.
IN WITNESS HEREOF, Lincoln Life has executed this Contract at Fort Wayne,
Indiana on this day of , 19 ,
and caused this Contract to be in full force as of its Effective Date as set
forth above.
Non-Participating
Form GAC 96-101 1
<PAGE>
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
2
<PAGE>
TABLE OF CONTENTS
I. CONTRACT SPECIFICATIONS
II. DEFINITIONS
III. CONTRIBUTIONS
IV. GUARANTEED INTEREST DIVISION
V. VARIABLE INVESTMENT DIVISION
VI. TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
VII. WITHDRAWALS AND DISTRIBUTIONS
VIII. DEATH BENEFITS
IX. PAYOUT ANNUITIES
X. LOANS
XI. DISCONTINUANCE AND TERMINATION OF CONTRACT
XII. GENERAL PROVISIONS
Form GAC 96-101 3
<PAGE>
ARTICLE I - CONTRACT SPECIFICATIONS
1.1 MINIMUM CONTRIBUTION AMOUNT: Your minimum annual Contribution on behalf
of all Participants under this Contract shall be [twenty thousand dollars
($20,000)]. This minimum figure is for aggregate annual Contributions,
not for each Participant.
1.2 SEPARATE ACCOUNT: Lincoln National Variable Annuity Account L
1.3 DIVISIONS AVAILABLE UNDER THIS CONTRACT:
A. Guaranteed Interest Division: [ ]
B. Variable Investment Division: [ ]
1.4 LIMITATIONS ON TRANSFERS AND WITHDRAWALS DURING THE ACCUMULATION PERIOD:
OPTION 1:
Unlimited transfer requests may be made by a Participant each calendar
year.
OPTION 2:
Unlimited transfer requests may be made between Sub-Accounts by a
Participant in one (1) calendar year.
OPTION 3
During any one (1) calendar year, a Participant may make one (1) transfer
from the Guaranteed Interest Division to the Variable Investment
Division, or one (1) withdrawal from the Guaranteed Interest Division in
an amount not to exceed twenty percent (20%) of the Participant's Account
balance in the Guaranteed Interest Division.
1.5 ANNUAL ADMINISTRATION CHARGE:
OPTION 1
Twenty-five dollars ($25) per Participant.
OPTION 2
Twenty-five dollars ($25) per Participant who allocates a contribution,
during the year ending on a Participation Anniversary, to any one (1) or
more of the Sub-Accounts established in the Variable Investment Division.
4
<PAGE>
1.6 ANNUAL MORTALITY AND EXPENSE RISK CHARGE APPLICABLE TO VARIABLE
INVESTMENT DIVISION SUB-ACCOUNTS: Annual rate of one and two-tenths
percent (1.20%).
[1.7 LOAN SET-UP CHARGE: [ Fifty dollars ($50) ] per loan ]
1.8 PLAN NAME: [ABC Company]
1.9 EMPLOYER: [ABC Company TSA Plan]
1.10 SYSTEMATIC WITHDRAWAL SET-UP CHARGE: [Thirty dollars ($30.00). If
the total Account balance is twenty-five thousand dollars ($25,000), or
greater, such amount will be waived. ]
Form GAC 96-101 5
<PAGE>
ARTICLE II - DEFINITIONS
2.1 ACCUMULATION UNIT: An accounting unit of measure used to record amounts
of increases to, decreases from and accumulations in each Sub-Account
during the Accumulation Period.
2.2 ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in
each Sub-Account on any Valuation Date.
2.3 ACCUMULATION PERIOD: The period commencing on a Participant's
Participation Date and terminating when the Participant's Account balance
is reduced to zero, either through withdrawal(s), conversion to an
annuity, imposition of charges, payment of a Death Benefit or a
combination thereof.
2.4 ANNUITANT: The person receiving annuity payments under the terms of this
Contract.
2.5 ANNUITY COMMENCEMENT DATE: The date on which Lincoln Life makes the
first annuity payment to the Annuitant as required by the Retired Life
Certificate. This date, as well as the date each subsequent annuity
payment is made, will be the first day of a calendar month.
2.6 ANNUITY CONVERSION AMOUNT: The amount of a Participant's Account applied
toward the purchase of an Annuity.
2.7 ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion
Amount in determining the dollar amount of an annuitant's annuity
payments for Guaranteed Annuities or the initial payment for Variable
Annuities.
2.8 ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the
first day of a calendar month. For Variable Annuities, this is the
Valuation Date ten (10) business days prior to the first day of a
calendar month.
2.9 ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
2.10 ANNUITY UNIT: An accounting unit of measure that is used in calculating
the amounts of annuity payments to be made from each Sub-Account during
the Annuity Period.
6
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2.11 ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in each Sub-
Account on any Valuation Date.
Form GAC 96-101 7
<PAGE>
2.12 BENEFICIARY: The person(s) designated to receive a Participant's
Account balance in the event of the Participant's death during the
Accumulation Period or the person(s) designated to receive any applicable
remainder of an annuity in the event of the Annuitant's death during the
Annuity Period.
2.13 BUSINESS DAY: A day on which Lincoln Life and the New York Stock
Exchange are customarily open for business.
2.14 CERTIFICATE: An Active Life Certificate is issued to each Participant
outlining the basic provisions of the Contract. A Retired Life
Certificate is issued to each Annuitant outlining the basic provisions of
his Annuity.
2.15 CONTRIBUTIONS: All amounts deposited by You or the Participant under
this Contract including any amount transferred from another contract.
2.16 DIVISION(S): The Guaranteed Interest Division and/or the Variable
Investment Division named in Section 1.3.
2.17 GENERAL ACCOUNT: All assets of Lincoln Life other than those in the
Separate Account specified in Section 1.2 or any other separate account.
2.18 GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is
reduced when a withdrawal occurs, including any applicable [Contingent
Deferred Sales Charge and] Annual Administration Charge.
2.19 GUARANTEED ANNUITY: An annuity for which Lincoln Life guarantees the
amount of each payment as long as the annuity is payable.
2.20 GUARANTEED INTEREST DIVISION: The Division maintained by Lincoln Life
for these and other contracts for which Lincoln Life guarantees the
principal amount and interest credited thereto, subject to any fees and
charges as set forth in this Contract. Amounts allocated to the
Guaranteed Interest Division are part of the General Account.
2.21 LINCOLN LIFE: Lincoln National Life Insurance Company, at its home
office in Fort Wayne, Indiana. All correspondence and inquiries should
be submitted to Lincoln Life's Servicing Office: [ P.O. Box 9740,
Portland ME 04101-5001]
2.22 NET CONTRIBUTIONS: The sum of all Contributions credited to a
Participant Account less any net Withdrawal Amounts, outstanding loan
(including
8
<PAGE>
principal and due and accrued interest) and amounts converted to a Payout
Annuity.
2.23 NET WITHDRAWAL AMOUNT: The amount paid to a Participant when a
withdrawal occurs.
2.24 PARTICIPANT: A person who has enrolled under this Contract and
maintains a Participant's Account.
2.25 PARTICIPANT'S ACCOUNT: An account maintained for a Participant during
the Accumulation Period, the total balance of which equals the
Participant's Account balance in the Variable Investment Division plus
the Participant's Account balance in the Guaranteed Interest Division.
2.26 PARTICIPATION ANNIVERSARY: For each Participant, a date at one year
intervals from that Participant's Participation Date. If an anniversary
occurs on a non-Business Day, it is treated as occurring on the next
Business Day.
2.27 PARTICIPATION DATE: A date assigned to each Participant corresponding to
the date on which the first Contribution on behalf of that Participant
under this Contract is received by Lincoln Life. A Participant will
receive a new Participation Date if such Participant makes a Total
Withdrawal as defined in Section 7.2 and Contributions on behalf of the
Participant are resumed under any Contract.
2.28 PARTICIPATION YEAR: A period beginning with one Participation
Anniversary and ending the day before the next Participation Anniversary,
except for the first Participation Year that begins with the
Participation Date.
2.29 PAYOUT ANNUITY: A series of payments paid under the terms of this
Contract to a person. A Payout Annuity may be either a Guaranteed Annuity
or a Variable Annuity.
2.30 PENDING ALLOCATION ACCOUNT: An account established under the Variable
Investment Division that invests unallocated contributions in shares of a
money market mutual fund. Lincoln Life does not guarantee the principal
amount or investment results.
2.31 PLAN: The Plan named in Section 1.8 that qualifies for federal tax
benefits under Section 403(b) of the Internal Revenue Code of 1986 and
under which this Contract is authorized.
Form GAC 96-101 9
<PAGE>
2.32 SEPARATE ACCOUNT: The Lincoln National Variable Annuity Account L is a
group of assets segregated from Lincoln Life's General Account whose
income, gains and losses, realized or unrealized, are credited to or
charged against the Separate Account without regard to other income,
gains or losses of Lincoln Life. Additional information is provided in
Section 12.15.
2.33 SUB-ACCOUNT(S): An account established in the Variable Investment
Division that invests in shares of a corresponding mutual fund.
2.34 VALUATION DATE: A Business Day. Accumulation and Annuity Units are
computed on each Valuation Date as of the close of trading on the New
York Stock Exchange.
2.35 VALUATION PERIOD: A period used in measuring the investment experience
of each Sub-Account. The Valuation Period begins at the close of trading
on the New York Stock Exchange on one Valuation Date and ends at the
corresponding time on the next Valuation Date.
2.36 VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Account(s).
2.37 VARIABLE INVESTMENT DIVISION: The Division specified in Section 1.3 that
is maintained by Lincoln Life for this and other Section 403(b) Lincoln
Life contracts for which Lincoln Life does not guarantee the principal
amount or investment results. Amounts allocated to the Variable
Investment Division are part of the Separate Account.
2.38 YOU OR YOUR: The Contractholder named on the face page of this Contract.
10
<PAGE>
ARTICLE III - CONTRIBUTIONS
3.1 INITIAL CONTRIBUTION: The initial Contribution for a Participant will be
credited to the Participant's Account no later than two (2) Business Days
after it is received by Lincoln Life if it is preceded or accompanied by
a completed enrollment form containing all the information necessary for
processing the Participant's Contribution.
3.2 ALLOCATION OF CONTRIBUTIONS: Participant Contributions will be allocated
to the Divisions and Sub-Accounts according to the percentages requested
by the Participant. The allocation percentage can be any whole percent
and may be changed on an unlimited basis per year. You or the
Participant shall notify Lincoln Life in writing in a form acceptable to
Lincoln Life or by telephone in accordance with procedures published by
Lincoln Life of such changes.
3.3 PAYMENT OF SUBSEQUENT CONTRIBUTIONS: You shall forward Contributions to
Lincoln Life specifying the amount being contributed on behalf of each
Participant. You shall forward such Contributions and provide such
allocation information in accordance with procedures established by
Lincoln Life. The Contributions shall be allocated among the Guaranteed
Interest Division and each Sub-Account in accordance with the percentage
information provided by the Participant subject to the terms of the Plan.
3.4 CHARACTERIZATION OF TRANSFER CONTRIBUTIONS: For all Contributions
transferred from another Contract, Lincoln Life must be provided with the
following information in a form acceptable to Lincoln Life:
(a) The source of the Contributions transferred (e.g., salary
reduction, employer match or post-tax Contributions). Lincoln Life
will record all such transferred amounts where no source information
is provided as salary reduction Contributions.
(b) Identification of Contributions transferred as Contributions
made or earnings credited:
(i) prior to January 1, 1987;
(ii) during 1987 and 1988; or
(iii) subsequent to December 31, 1988.
Amounts not so identified will be treated as attributable to period
(iii) for purposes of Sections 7.4 and 7.5.
Form GAC 96-101 11
<PAGE>
12
<PAGE>
3.5 MAXIMUM CONTRIBUTION: Total and overall limitations on
Contributions in a calendar year for a Participant are subject to the
limits imposed under Sections 402(g), 403(b) and 415 of the Internal
Revenue Code of 1986 (the Code), as it may be amended from time to time.
Lincoln Life assumes no responsibility for monitoring these limits for a
Participant.
3.6 VALUATION: A Guaranteed Interest Division Contribution will be allocated
as of the Business Day that Lincoln Life receives the Contribution and
Lincoln Life will credit interest beginning with the next calendar day
following the Business Day that Lincoln Life receives the Contribution.
For a Variable Investment Division Sub-Account Contribution, Lincoln Life
will credit a Participant's Account with the number of Accumulation Units
for each Sub-Account selected by the Participant with the number of
Accumulation Units equal to the Contribution Amount divided by the
Accumulation Unit Value which is next computed following Lincoln Life's
receipt of the Contribution.
OPTION 1
3.7 ANNUAL ADMINISTRATION CHARGE: Lincoln Life will deduct the amount stated
in Section 1.5 from each Participant's Account each year on the last
Business Day of the month in which his Participation Anniversary occurs
unless the Contractholder pays the charge in a single payment. If the
Participant's Account balance is less than this amount on that day,
Lincoln Life will deduct the entire balance from his Account.
When a Total Withdrawal of a Participant's Account, as defined in Section
7.2, occurs on a date other than the last Business Day of the month in
which his Participation Anniversary occurs, Lincoln Life will first
deduct the amount stated in Section 1.5 from his Participant's Account.
OPTION 2
ANNUAL ADMINISTRATION CHARGE: Lincoln Life will deduct the amount stated
in Section 1.5 on a pro-rata basis from the Participant's Variable
Investment Division Account balance each year on the last Business Day of
the month in which his Participation Anniversary occurs unless the
Contractholder pays the charge in a single payment. If the Participant's
Variable Investment Division Account balance is less than this amount on
that day, Lincoln Life will deduct the entire balance from his Variable
Investment Division Account.
When a Participant requests, on a date other than the last Business Day
of the month in which his Participation Anniversary occurs,
Form GAC 96-101 13
<PAGE>
(a) a withdrawal, or
(b) a transfer,
from the Variable Investment Division, which would leave a remaining
balance of less than the Annual Administration Charge defined in Section
1.5, Lincoln Life will first deduct the amount stated in Section 1.5 from
the Participant's Variable Investment Division Account balance prior to
the Withdrawal or Transfer.
3.8 UNALLOCATED CONTRIBUTION: If a properly completed enrollment form has
not been received for a Participant, Lincoln Life will deposit such
Contributions to the Pending Allocation Account as described in ARTICLE
II - DEFINITIONS, unless such Contributions are designated to another
Account in accordance with the Plan.
Lincoln Life will follow up with the Contractholder monthly for a period
of ninety (90) days for enrollment information for Participants with
deposits in the Pending Allocation Account.
Within two (2) business days of receipt of a completed enrollment form,
the Participant's Account balance in the Pending Allocation Account will
be transferred to the Divisions and/or Sub-Accounts according to the
percentages requested by the Participant. When the completed enrollment
form is received, the Participation Date will be the date on which the
first Contribution on behalf of the Participant was deposited into the
Pending Allocation Account.
If an enrollment form is not received after the ninety (90) day notice, a
Participant's Account balance in the Pending Allocation Account will be
refunded to the Contractholder within one hundred five (105) days of the
date of the initial Contribution. Contributions received after a refund
while there is still no allocation information, will be deposited to the
Pending Allocation Account.
The Pending Allocation Account will only be used for the purpose
mentioned above; Participants may not direct a portion of their
Contributions to this Account. Contributions deposited in the Pending
Allocation Account will not be afforded the same rights as Contributions
under this Contract. The following Articles and/or Sections under this
Contract will not be applicable: (i) Section 3.7 ANNUAL ADMINISTRATION
CHARGE, (ii) ARTICLE VI - TRANSFERS BETWEEN DIVISION AND SUB-ACCOUNTS,
(iii) ARTICLE VII - WITHDRAWALS AND DISTRIBUTIONS, (iv) ARTICLE IX -
PAYOUT ANNUITIES, and (v) ARTICLE X - LOANS.
14
<PAGE>
ARTICLE IV - GUARANTEED INTEREST DIVISION
4.1 PARTICIPANT'S ACCOUNT BALANCE IN GUARANTEED INTEREST DIVISION: The
dollar value of a Participant's Account balance in the Guaranteed
Interest Division as of a date will be equal to the sum of:
(a) Contributions allocated, on behalf of the Participant, to the
Guaranteed Interest Division on or prior to that date, and
(b) Amounts transferred, on behalf of the Participant, to the
Guaranteed Interest Division from the Variable Investment Division
on or prior to that date, less any;
(c) Gross Withdrawal Amounts from the Guaranteed Interest Division,
on behalf of the Participant, on or prior to that date; and
(d) Amounts transferred, on behalf of the Participant, to the
Variable Investment Division on or prior to that date; and
(e) Applicable charges to the Participant's Account on or prior to
that date; and
(f) Annuity Conversion Amounts, on behalf of the Participant, on or
prior to that date, plus any;
(g) Interest credited to the Participant's Account balance in the
Guaranteed Interest Division on or prior to that date.
4.2 INTEREST: Lincoln Life will credit interest each day to the portion of
the Participant's Account balance in the Guaranteed Interest Division,
using the previous day's ending balance. The rate of interest credited
each day, if compounded for three hundred sixty-five (365) days, yields
the annual interest rate in effect for the day.
Lincoln Life will declare in advance a guaranteed interest rate which
will be effective for all amounts in the Participant's Account balance in
the Guaranteed Interest Division during the designated year. This rate
will never be less than [three percent (3%)]. However, this minimum rate
will not be considered for purposes of Section 10.6 (EFFECT OF LOAN ON
PARTICIPANT'S ACCOUNT) under this Contract.
Form GAC 96-101 15
<PAGE>
Lincoln Life may also declare in advance separate interest rate
guarantees which are in excess of the guaranteed interest rate for some
or all of the Participant's Account balance in the Guaranteed Interest
Division for specific period(s) during the designated year.
16
<PAGE>
ARTICLE V - VARIABLE INVESTMENT DIVISION
5.1 PARTICIPANT'S ACCOUNT BALANCE IN THE VARIABLE INVESTMENT DIVISION: The
Participant's Account balance in the Variable Investment Division is
equal to the sum of the dollar value of a Participant's Account balance
in each Sub-Account as of the end of a Valuation Period which will be
equal to the product of:
(a) The Participant's number of Accumulation Units as of the end of
that Valuation Period; times
(b) The Accumulation Unit Value as of the end of that Valuation
Period.
5.2 ACCUMULATION UNITS: The number of Accumulation Units a Participant has
in a Sub-Account as of the end of any Valuation Period is the number of
Accumulation Units the Participant had in that Sub-Account as of the end
of the preceding Valuation Period; plus
(a) The number of Accumulation Units attributable to amounts
deposited to or transferred to that Sub-Account during the current
Valuation Period; minus
(b) The number of Accumulation Units attributable to amounts
transferred from, converted to an annuity, removed as a charge,
paid as a death benefit, or withdrawn from that Sub-Account during
the current Valuation Period.
5.3 ACCUMULATION UNIT VALUE: The Accumulation Unit Value for each Sub-
Account was set initially at ten dollars ($10), except for the Index Account
which was set at nine and nine hundred six one thousands ($9.9060) of a dollar.
Subsequent Accumulation Unit Values are determined by multiplying;
(a) The Net Investment Factor for the current Valuation Period by;
(b) The Accumulation Unit Value as of the end of the immediately
preceding Valuation Period.
5.4 NET INVESTMENT FACTOR: The Net Investment Factor is used to measure the
investment experience of a Sub-Account net of the Mortality and Expense
Risk Charge as defined in Section 5.5. The Net Investment Factor for a
Valuation Period is equal to (a) divided by (b) with the result
multiplied by (c) and adjusted
Form GAC 96-101 17
<PAGE>
by the amount per share of any taxes which are incurred by Lincoln Life
because of the existence of the Sub-Account;
18
<PAGE>
where (a) is;
the net asset value per share of the underlying mutual fund held by
the Sub-Account as of the end of the Valuation Period, plus;
the amount per share of any dividend or capital gain distribution
from the underlying mutual fund held by the Sub-Account during the
Valuation Period,
where (b) is;
the net asset value per share of the underlying mutual fund held by
the Sub-Account as of the end of the immediately preceding Valuation
Period,
where (c) is;
one (1.00) minus the Annual Mortality and Expense Risk Charge shown
in Section 1.6 to the n/365th power where n equals the number of
calendar days since the immediately preceding Valuation Date.
5.5 MORTALITY AND EXPENSE RISK CHARGE: This charge is imposed to compensate
Lincoln Life for its assumption of mortality and expense risks under this
Contract. This charge is shown on an annualized basis in Section 1.6 and
is deducted on a daily basis as described in Section 5.4. This charge
may not be increased without the approval of a majority of all affected
Lincoln Life contractholders.
Form GAC 96-101 19
<PAGE>
ARTICLE VI - TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
6.1 TRANSFERS DURING ACCUMULATION PERIOD: Subject to the limitations stated
in Section 1.4, Participants may transfer all or part of their Account
balance in any Division or Sub-Account to another Division or Sub-
Account.
You or the Participant may make a transfer request by notifying Lincoln
Life in writing in a form acceptable to Lincoln Life or by telephone in
accordance with procedures published by Lincoln Life.
6.2 TRANSFERS DURING ANNUITY PERIOD: An Annuitant may not transfer any part
of the Annuitant's Annuity Conversion Amount.
20
<PAGE>
ARTICLE VII - WITHDRAWALS AND DISTRIBUTIONS
7.1 WITHDRAWALS DURING THE ACCUMULATION PERIOD: During the Accumulation
Period, a Participant may withdraw from any or all Divisions, subject [to
the limitations stated in Section 7.6, and] to the restrictions stated in
Section 7.4, all or part of the Participant's Account balance in the
Division or Sub-Accounts remaining after reductions for any applicable
Annual Administration Charge (imposed on Total Withdrawals),[Contingent
Deferred Sales Charge (CDSC)], premium taxes and outstanding loan,
including the loan security thereon. Annuity Conversion Amounts are not
considered withdrawals.
All withdrawal requests must be submitted in a form acceptable to Lincoln
Life and must indicate the amount and the Division(s) from which the
withdrawal is to be made.
Lincoln Life reserves the right to delay payment of Guaranteed Interest
Division withdrawal amounts per Section 12.8.
7.2 TOTAL WITHDRAWALS: A Total Withdrawal of a Participant's Account will
occur when a Participant who has no outstanding loans
(a) requests the liquidation of his entire Account balance, or
(b) requests an amount such that the amount requested [plus any
CDSC as defined in Section 7.6] results in a remaining Participant's
Account balance being less than the applicable Annual Administration
Charge as defined in Section 1.5, in which case, the request is
treated as if it were a request for liquidation of the Participant's
entire Account balance.
The Participant's Active Life Certificate must be surrendered to Lincoln
Life when a Total Withdrawal of a Participant's Account occurs.
A Participant refund under the Free-look provisions of Section 12.17 is
not considered a Total Withdrawal under this Article.
7.3 PARTIAL WITHDRAWALS: A Partial Withdrawal of a Participant's Account
will occur when:
(a) A Participant who has an outstanding loan makes a withdrawal;
or
(b) A Participant who has no outstanding loans, requests an amount
less than a total withdrawal.
Form GAC 96-101 21
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22
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7.4 WITHDRAWAL REQUIREMENTS FOR SECTION 403(b) PLANS: Withdrawals are
subject to the requirements set forth in Section 403(b) of the Code and
regulations thereof.
(a) Withdrawal Requests for Participants under Section 403(b) Plans
Subject to Title I of ERISA: You must make withdrawal requests on
behalf of Participants. All withdrawal requests will require Your
written authorization and written documentation specifying the
portion of the Participant's Account balance which is available for
distribution to the Participant.
(b) Withdrawal Requests for Participants under Section 403(b) Plans
NOT Subject to Title I of ERISA: Any portion of the Participant's
Account balance that has been recorded by Lincoln Life as a salary
reduction contribution made and/or earnings credited prior to
January 1, 1989, (including transferred amounts recorded as such
pursuant to Section 3.4), may be withdrawn for any reason. Any
portion of the Participant's Account balance that has been recorded
by Lincoln Life as a salary reduction Contribution made and/or
earnings credited after December 31, 1988, (including transferred
amounts recorded as such pursuant to Section 3.4), are subject to
the withdrawal restrictions stated in Section 403(b) of the Code.
Participants must certify to Lincoln Life (and provide supporting
information, if requested), that an event permitting withdrawal has
occurred and that Lincoln Life may rely on such representation in
granting the withdrawal request.
7.5 MINIMUM DISTRIBUTION REQUIREMENTS FOR SECTION 403(b) PLANS: Section
403(b)(10) of the Code and regulations thereunder require that
distributions be made from this Contract in a manner which satisfies
requirements similar to the requirements of Section 401(a)(9) including
the incidental death benefit requirements of Section 401(a)(9)(G).
(1) Section 401(a)(9) requires that:
(a) the Participant's Account be distributed not later than
the required beginning date; or
(b) the Participant's Account be distributed not later
than the required beginning date, over the life of the
Participant or over the lives of the Participant and a
designated Beneficiary.
Form GAC 96-101 23
<PAGE>
(2) A Participant may choose to have the Participant's Account
distributed in one of the following manners:
(a) As a lump sum payment;
(b) As an annuity meeting the requirements of Section 401(a)(9)
of the Code;
(c) As an annual distribution where the amount distributed each
calendar year is at least an amount equal to the quotient
obtained by dividing: (a) the amount of the Participant's
Account required to be distributed as of December 31 of the
calendar year immediately preceding the calendar year for which
the distribution is being made; by (b) the life expectancy of the
Participant, or the life expectancy of the Participant and the
Beneficiary; or
(d) A combination of the above.
With respect to (c) and (d) above, the life expectancy of the Participant
and a surviving spouse Beneficiary may be recalculated, but not more
frequently than annually. A non-spouse Beneficiary's life expectancy may
not be recalculated.
OPTION 1
7.6 CONTINGENT DEFERRED SALES CHARGE (CDSC): The following schedule of CDSC
shall apply to all Withdrawal Amounts.
SUB-OPTIONS:
(a) WHEN A WITHDRAWAL IS THE CDSC WILL
REQUESTED AND ONE OR MORE OF EQUAL:
THE FOLLOWING CONDITIONS IS MET:
A1: The Participant has died 0%
A2: The Participant has incurred a 0%
disability for which he is receiving
Social Security payments
A3: The Participant has attained age 0%
fifty-nine and one-half (59 1/2)
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A4: The Participant has separated from 0%
service with the Contractholder
and is age fifty-five (55)
A5: The Participant has separated from service 0%
with the Contractholder
A6: The Participant has demonstrated a financial 0%
hardship need
A7: The Participant has requested a withdrawal 0%
which will not exceed twenty percent (20%)
of his Participant's Account Balance and no
other withdrawal has been made in that
calendar year
SUB-OPTIONS:
B1: (b) For all other amounts subject to a CDSC,
the CDSC will equal 6%
(b) For all other amounts subject to a CDSC,
the CDSC will be in accordance with
the schedule below.
During Participation Year CDSC Percent
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
Lincoln Life requires reasonable proof necessary to verify that the
withdrawal meets the conditions described above in Section 7.6(a) and such
proof must be submitted with the withdrawal request. If You or the
Participant do not furnish the proof requested by Lincoln Life, the CDSC
stated in Section 7.6(b) shall apply.
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The CDSC on any withdrawal may be reduced or eliminated but only to the
extent that Lincoln Life anticipates that it will incur lower sales
expenses or perform fewer sales services due to economies arising from (i)
the size of the particular group, (ii) an existing relationship with the
Contractholder, (iii) the utilization of mass enrollment procedures, or
(iv) the performance of sales functions by the Contractholder or an
employee organization which Lincoln Life would otherwise be required to
perform.
In no event will the CDSC, when added to any CDSC previously imposed due to
a Participant withdrawal, exceed eight and one-half percent (8.5%) of the
cumulative Contributions to a Participant's Account.
OPTION 2
7.6 LIMITATIONS ON WITHDRAWALS FROM THE GUARANTEED INTEREST DIVISION: A
Participant may make a withdrawal from the Guaranteed Interest Division for
a specified percentage of their Participants Account balance based on the
following schedule:
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SUB-OPTIONS:
(a) WHEN A WITHDRAWAL IS REQUESTED THE PERCENTAGE OF
AND ONE OR MORE OF THE FOLLOWING THE PARTICIPANT'S
CONDITIONS IS MET: ACCOUNT CONDITIONS
IS MET:
BALANCE AVAILABLE IS:
A1: The Participant has died 100%
A2: The participant has incurred a
disability for which he is 100%
receiving Social Security payments
A4: The Participant has separated from
service with the Contractholder 100%
and is age fifty-five (55)
A5: The Participant has separated from 100%
service with the Contractholder
A6: The Participant has demonstrated a 100%
financial hardship need
A7: (b) In addition, during one (1) calendar
year, a Participant may make one
(1) withdrawal or transfer from
the Guaranteed Interest Division
in an amount not to exceed twenty
percent (20%) of the Guaranteed
Interest Division Account Balance.
Any Participant stating their
intention to liquidate their
Guaranteed Interest Division Account
balance, however, may make one (1)
withdrawal or transfer for (5)
consecutive calendar years from
their Guaranteed Interest Division
Account balance in the following
percentage:
Year Request Received Percentage of Guaranteed Interest
by Lincoln Life Division Available
1 20%
2 25%
3 33 1/3%
4 50%
5 100%
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The five (5) consecutive withdrawal or transfers may not
be submitted more frequently than twelve (12) months apart.
Lincoln Life also reserves the right to require that any
Participant stating their intention to liquidate their
Guaranteed Interest Division Account balance stop
contributions to the Contract.
(c) There are no limitations on withdrawals from the Variable
Investment Division.
Lincoln Life requires reasonable proof necessary to verify that the withdrawal
meets the conditions described above in Section 7.6(a) and such proof must be
submitted with the withdrawal request.
7.7 SYSTEMATIC WITHDRAWAL OPTION: Any Participant who: (a) is at least age
fifty-nine and one-half (59 1/2), or (b) [is disabled and receiving
Social Security disability benefits,] or (c) is separated from service
with the Contractholder may elect this option. A Participant must
also have a vested Participant Account balance of at least [ten
thousand dollars $10,000)] of pre-tax Contributions under this
Contract at the date of the election.
Amounts held for a spousal payee under a Qualified Domestic Relations
Order (QDRO) shall be recognized as eligible for the Systematic
Withdrawal Option. Any spousal payee who wishes to elect this
distribution option must also meet the minimum [ten thousand dollars
($10,000)] Account balance requirement and either the age or
disability requirement as discussed above.
A Participant may elect to receive monthly, quarterly, semi-annual, or
annual payments in a flat amount or payments on a monthly basis for an
interest equivalency amount. An interest equivalency amount is an
approximation of the interest earned between each payment period based
upon the interest rate in effect at the beginning of each respective
payment period. This amount will be determined by Lincoln Life. (See
Attachment I for illustration.) A Participant may change the
frequency, payment type, or payment amount of his Systematic
Withdrawal Option by submitting a request in writing on a form
acceptable to Lincoln Life. A Participant may make such a change only
once during each calendar year.
A Participant may at any time direct Lincoln Life to cease payments
under this option provided the request is made in writing. A
Participant who chooses to stop
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receiving systematic withdrawals may not request that any systematic
withdrawal payments begin again until the next calendar year.
Systematic withdrawals shall be withdrawn from amounts allocated to
the Guaranteed Interest Division of the Participant's Account balance.
If the balance of the Guaranteed Interest Division is not sufficient
to meet the payment amount requested, the Participant, in writing, may
direct Lincoln Life on a form acceptable to Lincoln Life to transfer
the appropriate amount to the Guaranteed Interest Division; otherwise,
such payment will cease.
Lincoln Life will deduct the Systematic Withdrawal Set-Up Charge
indicated in Section 1.10 from the Participant's Account balance each
time a Systematic Withdrawal Option is established. [The applicable
CDSC, if any, will be assessed on each systematic withdrawal payment.]
Payments under this option shall stop upon the earliest of the
following events.
(a) On the date of the Participant's death. A Beneficiary who
is a spouse may elect this option by requesting it in writing on
a form acceptable to Lincoln Life, unless election of this form
of benefit would violate any other requirements of this contract.
The spousal Beneficiary must meet the [ten thousand dollar
($10,000)] minimum Account balance requirement prior to electing
the Systematic Withdrawal Option; or
(b) When there is an insufficient Participant Account balance
after deducting the [applicable CDSC and] Annual Administration
Charge, if any, to pay the amount requested; or
(c) The Participant fails to meet the requirements of the
Systematic Withdrawal Option as outlined above in the first (1st)
paragraph of this Section.
If a disabled or terminated Participant, who is currently receiving a
Systematic Withdrawal Option payment, returns to service with the
Contractholder, the Contractholder or Participant must notify Lincoln
Life in writing within thirty (30) days from the date of return to
service. Lincoln Life reserves the right to discontinue the
Systematic Withdrawal Option payment under these circumstances.
If a Participant wishes to exercise this option under another Lincoln
Life Annuity Contract, such request shall be considered separate from
this Contract and shall
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<PAGE>
follow the Systematic Withdrawal Option rules under that Annuity
Contract, if permitted.
Lincoln Life may, at its option, discontinue the Systematic Withdrawal
Option under this Contract at any time provided You are given at least
thirty (30) days advance written notice.
7.8 DIRECT ROLLOVER OPTION: Beginning January 1, 1993, a Participant or
Beneficiary may elect this option for any distribution that qualifies
as an Eligible Rollover Distribution as defined by Section 402(c) of
the Internal Revenue Code and that meets all the following
requirements:
(1) The distribution must be paid directly to either a single
Individual Retirement Account or to a single Tax Sheltered
Annuity. The check, wire, or other form of remittance shall be
made payable to the trustee, custodian, or financial institution
sponsoring the Individual Retirement Account or Tax Sheltered
Annuity. The form of remittance will not be an instrument that
can be negotiated by the Participant.
(2) The Participant must provide, in a form acceptable to
Lincoln Life, all information necessary to make the payment to an
Individual Retirement Account or Tax Sheltered Annuity.
(3) The Participant or Beneficiary may not revoke a request for
payment under this option for any payment after Lincoln Life has
received a written request for a direct rollover.
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ARTICLE VIII - DEATH BENEFITS
8.1 DEATH BENEFIT DURING THE ACCUMULATION PERIOD: If death of the
Participant occurs during the Accumulation Period, Lincoln Life will
pay the Beneficiary, if one is living, the greater of the following
amounts:
(a) The Net Contributions, or
(b) The Participant's Account balance less any outstanding loan
(including principal and due and accrued interest).
Lincoln Life will calculate the Death Benefit as of the end of the
Valuation Period during which it receives both satisfactory
notification of the Participant's death, pursuant to Section 8.2, and
the election of a form of benefit pursuant to Section 8.3. If no
election is made pursuant to Section 8.3 within sixty (60) days
following Lincoln Life's receipt of satisfactory notice of death, the
Death Benefit will be calculated as of the end of the Valuation Period
during which that sixtieth (60th) day occurs.
If Lincoln Life makes a withdrawal payment pursuant to a Participant
request prior to receiving notice that the Participant has died, but
subsequent to the Participant's death, Lincoln Life will deduct that
payment from each of (a) and (b) above in calculating the Death
Benefit.
8.2 NOTIFICATION OF DEATH: Lincoln Life must be notified of a
Participant's death no later than six (6) months from the
Participant's date of death in order for the Beneficiary to receive
the Death Benefit amount described in Section 8.1(a) above. Such
notification must be in a form satisfactory to Lincoln Life.
Beneficiaries for whom notification of a Participant's death is
received more than six (6) months after the Participant's date of
death shall receive the Death Benefit amount described in Section
8.1(b) above.
8.3 PAYMENT OF DEATH BENEFIT: Within sixty (60) calendar days after
Lincoln Life receives satisfactory notification of the Participant's
death, the Beneficiary must make an election to have the Death Benefit
applied in one of the following ways:
(a) As a lump sum payment to the Beneficiary; or
(b) Towards an annuity to be distributed in substantially equal
installments over the life expectancy of the Beneficiary or a
period certain not exceeding the life expectancy of the
Beneficiary; or
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(c) A combination of the above.
A Beneficiary who does not make an election pursuant to this section
within sixty (60) days after Lincoln Life receives notification of the
Participant's death will receive a lump sum payment calculated in
accordance with Section 8.1(b) above.
If the Beneficiary is someone other than the spouse of the deceased
Participant, the Code provides that the Beneficiary may not elect an
annuity which would commence later than December 31 of the calendar
year following the calendar year of the Participant's death. If a
non-spousal Beneficiary elects to receive payment in a single lump
sum, such payment must be received no later than December 31 of the
fourth (4th) calendar year following the calendar year of the
Participant's death.
If the Beneficiary is the surviving spouse of the deceased
Participant, under the Code, distributions are not required to begin
earlier than December 31 of the calendar year in which the Participant
would have attained age seventy and one-half (70-1/2). If the
surviving spouse dies before the date on which annuity distributions
commence, then, for purposes of the Death Benefit, the surviving
spouse shall be deemed to be the Participant.
If there is no living named Beneficiary on file with Lincoln Life at
the time of a Participant's death, Lincoln Life will pay the Death
Benefit to the Participant's estate in a single lump sum upon receipt
of satisfactory proof of the Participant's death, but not later than
December 31 of the fourth (4th) calendar year following the calendar
year of the Participant's death. Valuation of the Death Benefit shall
occur as of the end of the Valuation Period during which due proof of
the Participant's death is received by Lincoln Life.
8.4 DEATH DURING THE ANNUITY PERIOD: If the Annuitant dies during the
Annuity Period, the Beneficiary, if any, or the Annuitant's estate
will receive the amount payable, if any, according to the in-force
annuity options. Any remaining Participant's Account balance will be
paid in accordance with the provisions of this Article.
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ARTICLE IX - PAYOUT ANNUITIES
9.1 ELECTION OF PAYOUT ANNUITY OPTION: A Participant eligible to receive
a distribution under the Code or a Beneficiary of a deceased
Participant may notify Lincoln Life in writing in a form acceptable to
Lincoln Life that the Participant or the Beneficiary is electing to
convert all or part of the Participant's Account balance or Death
Benefit to a Payout Annuity option available under this Contract.
Upon being notified of such an election, Lincoln Life shall calculate
the amount to be converted to a Payout Annuity as either the
Participant's Account balance, or a portion thereof, or the Death
Benefit as of the initial Annuity Payment Calculation Date, as
appropriate, less the charge for premium taxes, if any.
If the Participant's Account balance or the Beneficiary's Death
Benefit is less than two thousand dollars ($2,000) or if the amount of
the first scheduled payment is less than twenty dollars ($20), Lincoln
Life may, at its option, cancel the Payout Annuity and pay the
Participant or Beneficiary his entire Account balance or Death Benefit
in a lump sum.
9.2 GUARANTEED ANNUITY: The payment amount is determined by dividing the
Annuitant's Annuity Conversion Amount in the Guaranteed Interest
Division as of the initial Annuity Payment Calculation Date by the
applicable Annuity Conversion Factor as defined in Section 9.4.
9.3 VARIABLE ANNUITY: The initial payment amount of the Annuitant's
Variable Annuity for each Sub-Account is determined by dividing his
Annuity Conversion Amount in each Sub-Account as of the initial
Annuity Payment Calculation Date by the applicable Annuity Conversion
Factor as defined in Section 9.4.
The amount of the Annuitant's subsequent Variable Annuity payment for
each Sub-Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment
amount by the Annuity Unit Value for that Sub-Account selected
for his interest rate option as described in Section 9.4 as of
his initial Annuity Payment Calculation Date; and
(b) Multiplying the resultant number of annuity units by the
Annuity Unit Values for the Sub-Account selected for his interest
rate option for his respective subsequent Annuity Payment
Calculation Dates.
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<PAGE>
The Annuity Unit Value for all Sub-Accounts for all interest rate options will
initially be set at ten dollars ($10). Each subsequent Annuity Unit Value for a
Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of
the subsequent Annuity Payment Calculation Date (APCD) by the
Accumulation Unit Value for the Sub-Account as of the immediately
preceding APCD,
Dividing the resultant factor by one (1.00) plus the interest
rate option to the n/365 power where n is the number of days from
the immediately preceding APCD to the subsequent APCD, and
Multiplying this factor times the Annuity Unit Value as of the
immediately preceding APCD.
9.4 BASIS OF ANNUITY CONVERSION FACTORS:
(a) Guaranteed Annuities - The maximum Annuity Conversion
Factors that may be used by Lincoln Life under this Contract are
based on the [1983 Individual Annuity Mortality Table, set back
four (4) years, and an interest rate of three percent (3.0%)].
From time to time, lower conversion factors may be used by
Lincoln Life. (Lowering the conversion factor will increase the
amount of the annuity payment.)
(b) Variable Annuities - The Annuity Conversion Factors which
are used to determine the initial payments are based on the[1983
Individual Annuity Mortality Table, set back four (4) years], and
an interest rate in an integral percentage ranging from zero to
six percent (0 to 6.00%) as selected by the Annuitant.
9.5 PAYOUT ANNUITY OPTIONS: The following Payout Annuity options are
available:
(a) Life
(b) Life with payments guaranteed for ten (10), fifteen (15) or
twenty (20) years
(c) Joint and Survivor
(d) Payments guaranteed for ten (10), fifteen (15) or twenty
(20) years
(e) Other offered by Lincoln Life.
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To the extent option (d) is elected for a Variable Annuity, the
Annuitant may request at any time during the payment period that the
present value of any remaining installments be paid in one lump sum.
[However, any lump sum so elected will be treated as a withdrawal
during the Accumulation Period subject to the applicable CDSC stated
in Section 7.6.]
9.6 RETIRED LIFE CERTIFICATE: Once an annuity option is selected by a
Participant, or the Beneficiary of a deceased Participant, Lincoln
Life will issue to the Annuitant an appropriate Certificate evidencing
Lincoln Life's obligations.
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ARTICLE X - LOANS
10.1 GENERAL: During a Participant's Accumulation Period, the Participant,
if permitted by the applicable Section 403(b) Plan, may apply for a
loan under this Contract by completing a loan application available
from Lincoln Life. Loans are secured by the Participant's Account
balance in the Guaranteed Interest Division.
10.2 RESTRICTIONS ON LOAN AMOUNT: The amount and terms of a loan are
subject to the restrictions imposed under Section 72(p) of the Code,
as it may be amended from time to time.
Additionally, the initial amount of a Participant's loan may not
exceed ninety percent (90%) of the Participant's Account balance in
the Guaranteed Interest Division.
10.3 MINIMUM LOAN AMOUNT: The initial amount of a loan must be at least
one thousand dollars ($1,000).
10.4 NUMBER OF LOANS OUTSTANDING: A Participant may have only one loan
outstanding at any time and may not establish more than one loan in
any six (6) month period. However, a Participant may renegotiate an
outstanding loan balance once during the term of the loan.
10.5 LOAN INTEREST RATE: The initial interest rate on a loan will be the
lesser of (a) the rate being credited in the Guaranteed Interest
Division as of the date of the loan and (b) the Moody's Corporate Bond
Yield Average, rounded to the nearest five basis points (0.05%) for
the first month in the calendar quarter which precedes the date of the
loan. The loan interest rate will remain fixed for the term of the
loan, unless the initial interest rate on a hypothetical new loan to
the Participant would be lower than the Participant's actual loan rate
by more than fifty basis points (0.50%). In such case, the loan
interest rate will be reduced to such lower rate as of the first day
that such lower rate would hypothetically be effective.
10.6 EFFECT OF LOAN ON PARTICIPANT'S ACCOUNT: When a Participant takes a
loan, Lincoln Life will subdivide his Participant's Account balance in
the Guaranteed Interest Division by establishing a loan reserve
account in an amount initially equal to the initial loan amount.
Funds held in the loan reserve account are held as security for the
loan and will accrue interest at a rate which is three percent (3.0%)
below the loan interest rate. To the extent that the loan interest
rate is subsequently reduced, the rate credited to funds in the loan
reserve account will also be reduced in order to maintain the three
percent (3.0%) differential.
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As the Participant makes repayments to Lincoln Life on the loan, an
amount equal to the principal component of the repayment, plus the
interest accrued in the loan reserve account, will be transferred from
his loan reserve account back to his Participant's Account balance in
the Guaranteed Interest Division.
In addition, an amount equal to ten percent (10%) of the principal of
the loan will be held as security to cover the interest [and the
CDSC,] should the Participant fail to make the required quarterly
payments of principal and interest. This amount will earn interest at
the interest rate in effect in the Guaranteed Interest Division but
will not be available for withdrawals. As the principal is reduced,
the amount held as security will also be reduced.
10.7 DEFAULT IN LOAN REPAYMENT: If a Participant fails to make any
quarterly principal and interest payment within thirty (30) days of
the payment due date, his loan will be in default and Lincoln Life
will deduct from his loan reserve account and from his Participant's
Account balance in the Guaranteed Interest Division the principal, due
and accrued interest, [and a loan default charge of 5%] [and any CDSC
thereon], as of the default date. Lincoln Life will also
recharacterize the principal and due and accrued interest as a
withdrawal.
10.8 RESERVATION OF RIGHTS BY LINCOLN LIFE: Lincoln Life reserves the
right to:
(a) Delay making a loan for up to six (6) months from the date
the loan application is received; or
(b) With ninety (90) days written notice to You, amend any
portion of the loan specifications with regard to applications
for new loans; or
(c) With ninety (90) days written notice to You, discontinue
making new loans under this Contract.
10.9 LOAN SET-UP CHARGE: Lincoln Life will charge a Participant the amount
specified in Section 1.7 each time a loan is established. The amount
will be withdrawn from the Participant's Account balance.
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ARTICLE XI - DISCONTINUANCE AND TERMINATION OF CONTRACT
11.1 CONTRACT DISCONTINUANCE BY CONTRACTHOLDER: You may discontinue this
Contract by written notice to Lincoln Life. This contract will be
deemed discontinued on the later of the date You specify or the date
the written notice is received by Lincoln Life.
11.2 CONTRACT DISCONTINUANCE BY LINCOLN LIFE: Lincoln Life may, at its
option, discontinue this Contract in whole or in part if (a) You fail
to meet the Minimum Contribution Amount specified in Section 1.1 or
(b) a modification in this Contract is necessary in order to comply
with Federal or State requirements, including the Employee Retirement
Income Security Act of 1974, and You refuse to accept a substantially
similar contract offered by Lincoln Life that incorporates such
modification. Discontinuance pursuant to this Section shall be
effective as of a date specified by Lincoln Life, provided You are
given at least fifteen (15) days advance written notice in which to
cure any remediable defaults. Discontinuance by Lincoln Life
supersedes any date established under Section 11.1.
11.3 EFFECT OF DISCONTINUANCE: As of the date this Contract is
discontinued under either 11.1 or 11.2 above:
(a) No further Contributions will be accepted by Lincoln Life.
(b) Participants will be allowed to request withdrawals subject
to the restrictions set forth in Section 403(b) of the Code and
regulations thereof.
(c) Participants will be allowed to request transfers from each
Sub-Account of the Variable Investment Division to the
GuaranteedInterest Division. Transfers from the Guaranteed
Interest Division to the Variable Investment Division are not
allowed. Transfers among the Sub-Accounts of the Variable
Investment Division are not allowed.
(d) Participants will not be allowed to request loans.
OPTION 1
(e) Lincoln Life will send written notice to each Participant's
last known address stating that the Contract is discontinued and
that the Participant's remaining Account balance may be
distributed in either (i) a lump sum payment, (ii) a Payout
Annuity conversion amount, or (iii) some combination of (i) and
(ii).
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Such form of payment will be distributed at the earlier of:
(1) the Participant's attainment of age fifty-nine and one-half
(59 1/2), or
(2) the Participant's separation from service [and age fifty-
five (55)], or
(3) the Participant has died, or
(4) the Participant has incurred a disability for which he is
receiving Social Security payments, or
(5) the date the Participant directs Lincoln Life to transfer
the entire value of the Participant's Account to another 403(b)
funding vehicle.
The Participant's remaining Account balance shall be the balance
remaining after (i) the repayment of any, if applicable, outstanding
loans including principal, due and accrued interest, and (ii) any
applicable CDSC or Annual Administration Charge that applies to the
Participant's Account.
OPTION 2
(e) Lincoln Life will send written notice to each Participant's last
known address stating that the Contract is discontinued and that the
Participant's remaining Account balance may be distributed in either a
payout annuity conversion amount or subject to the five (5)
consecutive year payout schedule in accordance with Section 7.6(b)
with any remaining Account balance being distributed at the earlier
of:
(1) the Participant's attainment of age fifty-nine and one-half
(59 1/2), or
(2) the Participant's separation from service, or
(3) the Participant has died, or
(4) the Participant has incurred a disability for which he is
receiving Social Security Payments.
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11.4 CONTRACT TERMINATION: This Contract will terminate when there are no
participant Account balances under this Contract. The Participant's remaining
Account balance shall be the balance remaining after (i) the repayment of any,
if applicable, outstanding loans including principal, due and accrued interest,
and (ii) any applicable Annual Administration Charge that applies to the
Participant's Account.
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ARTICLE XII - GENERAL PROVISIONS
12.1 CONTRACT: This Contract, together with Your attached Application and any
riders, constitutes the entire Contract between You and Lincoln Life.
Lincoln Life is not a party to any Plan document, and is not responsible
for the validity of any Plan or actions taken by You under that Plan.
The terms of this Contract shall govern with respect to the rights and
obligations of Lincoln Life, notwithstanding any contrary provisions or
conditions of any trust or plan.
Lincoln Life may rely on any action or information provided by You under
the terms of this Contract and shall be relieved and discharged from any
further liability to any party in acting at the direction and upon the
authority of You. All statements made by You shall be deemed
representations and not warranties.
Lincoln Life may deactivate this Contract by prohibiting new
Contributions and/or new Participants after the date of deactivation.
Lincoln Life will give You not less than ninety (90) days notice of the
date of deactivation.
12.2 CONTRACT AMENDMENTS: Lincoln Life may amend this Contract at any time by
amendment or replacement. Such amendments will not, without Your
consent, adversely alter (a) the minimum interest rate set forth in
Section 4.2, (b) the maximum annuity conversion factors under Section
9.4, or (c) the amount or terms of any annuity benefit already selected
under Section 9.1 prior to the effective date of the change. No change
in this Contract will adversely affect the rights of a Participant with
respect to Contributions received or annuities purchased before the
effective date of the change unless:
(a) Such amendments are made in order to comply with rulings,
regulations and laws applicable to the program provided by this
Contract; or
(b) Your consent to the Amendment is obtained.
41
<PAGE>
Lincoln Life will give You not less than ninety (90) days notice prior to
the effective date of any change made in accordance with this Section.
12.3 CONTRACT INTERPRETATION: Whenever the context so requires, the plural
includes the singular, the singular the plural and the masculine the
feminine.
12.4 INFORMATION, REPORTS AND DETERMINATIONS: You shall furnish Lincoln Life
with such facts and information as Lincoln Life may require for the
administration of this Contract, including, upon request, the original or
photocopy of any pertinent records You keep. All information that You
furnish to Lincoln Life pursuant to this Contract, including the
information pertaining to Contributions described in Article III, shall
be legible, accurate and satisfactory in form to Lincoln Life. Such
information shall be sent to a location designated by Lincoln Life.
You shall make any determination required under this Contract pursuant to
the terms of the Contract or required under ERISA and shall report that
determination in writing to Lincoln Life. Such determination shall be
conclusive for the purpose of this Contract. Lincoln Life shall be fully
protected in relying on the reports and other information furnished by
You and need not inquire as to the accuracy or completeness of such
reports and information.
12.5 MISSTATEMENTS: If Lincoln Life provides a benefit under this Contract
based upon misstated or omitted information, including but not limited to
misstatement of age, Lincoln Life will make adjustments to the benefit to
reflect the correct information. Lincoln Life is relieved and discharged
from any liability and responsibility with respect to benefits provided
in reliance upon information You furnish.
12.6 ASSIGNMENT: You may not assign this Contract without Lincoln Life's
prior written consent. A Participant or Beneficiary under this Contract
may not, unless permitted by law, assign or encumber any payment due
under this Contract.
12.7 MARKET EMERGENCIES: If transactions are to be made to or from the
Variable Investment Division, Lincoln Life may not suspend the right of
redemption or delay payment for more than seven (7) calendar days after
tender for redemption, except for (1) any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings);
(2) any period when trading in the markets normally utilized is
restricted, or an emergency exists as determined by the Securities and
Exchange Commission, so that disposal of investments or determination of
the Accumulation Unit Value is not reasonably
42
<PAGE>
practicable; or (3) for such other periods as the Securities and Exchange
Commission by order may permit for the protection of the Participants.
12.8 DEFERRAL PERIODS: If a withdrawal is to be made from the Guaranteed
Interest Division, Lincoln Life may defer the payment for the period
permitted by the law of the state in which this Contract was delivered
but not more than six (6) months after a written election is received by
Lincoln Life. During the period of deferral, interest at the then
current interest rate(s) will continue to be credited to a Participant's
Account in the Guaranteed Interest Division.
12.9 DEDUCTIONS FOR PREMIUM TAXES: Lincoln Life will deduct from Participant
Account balances any premium tax levied as a result of the existence of
Participant Accounts by any state or other governmental entity.
12.10 FACILITY OF PAYMENT: If any person is, in the judgment of Lincoln Life,
physically or mentally incapable of personally receiving and giving a
valid receipt for any payment due him under this Contract, Lincoln Life
may, unless and until claim shall have been made by a duly appointed
legal guardian or conservator of the person and property of such person,
make such payment or any part thereof to such other person or institution
which, in the judgment of Lincoln Life, is then contributing toward or
providing for the care and maintenance of such person. In no event will
any such payment exceed the maximum allowed under the applicable law of
the state in which this Contract is delivered. Such payment shall fully
discharge Lincoln Life of its obligations to the extent of the payment.
Lincoln Life will make any payment which has become due to a Participant
or an Annuitant and has not been paid prior to his death, to the
Participant's Beneficiary or Beneficiaries, his executors or
administrators. If no Beneficiary or personal representative has been
named, Lincoln Life may make payment to any one or more of the surviving
members of the following classes of relatives; spouse, children,
grandchildren, brothers, sisters, and parents. Such payment shall fully
discharge Lincoln Life for all liability to the extent of the payment.
12.11 EVIDENCE OF SURVIVAL: When a benefit payment is contingent upon the
survival of any person, evidence of such person's survival must be
furnished to Lincoln Life, either by such person's endorsement of the
check drawn for such payment, or by other satisfactory means.
12.12 NON-WAIVER: The failure on Lincoln Life's part to perform or insist upon
the strict performance of any provision or condition of this Contract
shall neither constitute a waiver of Lincoln Life's rights to perform or
require performance of
43
<PAGE>
such provision or condition, nor stop Lincoln Life from exercising any
other rights it may have in such provision, condition, or otherwise in
this Contract or any Plan.
12.13 RECEIPT OF NOTICE: Whenever Lincoln Life receives information
establishing any right or conferring any benefit upon any Participant or
Beneficiary, such receipt shall be deemed to take place on any Business
Day that such information is received.
12.14 SEPARABILITY OF PROVISIONS: If any provision of this Contract is
determined to be invalid, the remainder of the provisions shall remain in
full force and effect.
12.15 THE SEPARATE ACCOUNT: The Separate Account is registered and operated
as a Unit Investment Trust under the Investment Company Act of 1940. As
such, the assets of each Sub-Account are invested in a registered
management investment company (mutual fund).
The Separate Account will be legally separated from Lincoln Life's other
accounts. The Separate Account's assets will, at the time during the
year that adjustments in the reserves are made, have a value of at least
equal to the reserves and other contract liabilities with respect to the
Separate Account, and at all other times, will have a value approximately
equal to, or in excess of, such reserves and liabilities. The portion
of the assets having a value equal to, or approximately equal to, the
reserves and contract liabilities will not be chargeable with liabilities
arising out of any other business which Lincoln Life may conduct.
Lincoln Life reserves the right, subject to compliance with applicable
law, including approval by You or the Participants if required by law,
(1) to create additional Sub-Accounts, (2) to combine or eliminate Sub-
Accounts, (3) to transfer assets from one Sub-Account to another, (4) to
transfer assets to the General Account and other separate accounts, (5)
to cause the deregistration and subsequent re-registration of the
Separate Account under the Investment Company Act of 1940, (6) to operate
the Separate Account under a committee and to discharge such committee at
any time, and (7) to eliminate any voting rights which You or
Participants may have with respect to the Separate Account, (8) to amend
the Contract to meet the requirements of the Investment Company Act of
1940 or other federal securities laws and regulations, (9) to operate the
Separate Account in any form permitted by law, (10) to substitute shares
of another fund for the shares held by a Sub-Account, and (11) to make
any change required by the Internal Revenue Code, the Employee Retirement
Income Security Act of 1974, or the Securities Act of 1933, to the extent
not provided in Section 12.2.
44
<PAGE>
12.16 PAYMENT OF BENEFITS: Lincoln Life shall make payment of benefits under
this Contract directly to a Participant or Beneficiary at the last known
address on file with Lincoln Life.
12.17 FREE-LOOK PERIOD: A Participant will receive an Active Life Certificate
upon Lincoln Life's receipt of a duly completed participation enrollment
form. If the Participant chooses not to participate under this Contract,
he may exercise his Free-look right by sending a written notice to
Lincoln Life that he does not wish to participate under this Contract
within ten (10) days after the date the Certificate is received by the
Participant. For purposes of determining the date on which the
Participant has sent written notice, the postmark date will be used.
If a Participant exercises his Free-look right in accordance with the
foregoing procedure, Lincoln Life will refund in full the Participant's
aggregate Contributions less aggregate withdrawals, or if greater, with
respect to Contributions to the Variable Investment Division, the
Participant's Account balance in the Variable Investment Division on the
date the canceled Certificate is received by Lincoln Life.
45
<PAGE>
ATTACHMENT I
SYSTEMATIC WITHDRAWAL OPTION
The formula for the interest equivalency amount (IEA) is:
29.5/366
IEA = ACCT.BAL x ( (1 + I ) - 1)
WHERE:
IEA is the Interest Equivalency Amount.
ACCT. BAL. is the Participant's Account balance at
the later of: the beginning of the contractyear and the
most recent date on which the credited interest rate
changed.
I is the interest rate currently being credited to the
contract
EXAMPLE: The Account balance at the beginning of the year is
one hundred thousand dollars ($100,000) and the interest rate
credited to the contract is six percent (6.00%). The Interest
Equivalency Amount for each month of the current year is:
29.5/366
IEA = $100,000 x (1.06 - 1)
= $470.76
46
<PAGE>
Servicing Office: [P.O. Box 9740, Portland, ME 04104-5001]
ACTIVE LIFE CERTIFICATE
PAYMENT AND VALUES PROVIDED UNDER THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO THE
DOLLAR AMOUNT.
CONTRACTHOLDER: [ABC Company]
GROUP ANNUITY CONTRACT NUMBER: [0000]
EFFECTIVE DATE OF CONTRACT: [10/1/96]
EMPLOYER: [ABC Company]
PLAN: [ABC Company TSA Plan]
CERTIFICATION: Lincoln National Life Insurance Company (herein called Lincoln
Life) will provide Participants with the benefits described in this Certificate,
under the terms of the Group Annuity Contract. A Participant's benefits
described in this Certificate may be subject to Contractholder approval under
the terms of the Plan named above. This Certificate summarizes but does not
alter or void the terms of the Contract between the Contractholder and Lincoln
Life. This Certificate replaces any certificates previously issued to you as a
Participant regarding this Contract.
TEN DAY RIGHT TO EXAMINE THIS CERTIFICATE (FREE-LOOK PERIOD): A Participant may
choose not to participate in this Contract within ten (10) days of receiving
this Certificate. The Participant must return this Certificate to Lincoln Life
and state in writing that he or she does not wish to participate in this
Contract. However, if this is not the first certificate you have received under
this Contract, the Free-Look period does not apply. Lincoln Life will refund
all contributions, less any withdrawals, or if greater, with respect to
contributions to the Variable Investment Division, the Participant's Account
balance in the Variable Investment Division.
CONTRACT SPECIFICATIONS: The above referenced Contract is being used to fund a
Tax Sheltered Annuity plan, also known as a Section 403(b) plan. Federal law may
restrict contributions, withdrawals, loans or other benefits under the Contract.
Divisions Available Under The Contract:
A. Guaranteed Interest Division
B. Variable Investment Division:
Index Account (Dreyfuss Stock Index Fund)
1
Form 96-101 C1 Active Life Cert.
<PAGE>
Asset Manager Account (Fidelity's Variable Insurance Products Fund II: Asset
Manager
Portfolio
Growth II Account (Twentieth Century's TCI Portfolios, Inc.: TCI Growth
Balanced Account (Twentieth Century's TCI Portfolios.: TCI Balanced)
International Stock Account (T. Rowe Price International Series, Inc.
Socially Responsible Account (Calvert Responsibly Invested Balanced
Portfolio)
Equity Income (Fidelity's Variable Insurance Products Fund: Equity Income
Portfolio)
Small Cap Account )\(Dreyfuss Variable Investment Fund: Small Cap Portfolio)
Annual Administration Charge:
OPTION 1
Twenty-five dollars ($25) per Participant
OPTION 2
Twenty-five dollars ($25) per Participant who allocates a contribution,
during the year ending on a Participation Anniversary, to any one (1) or
more of the Sub-Accounts established in the Variable Investment Division
Annual Mortality and Expense Risk Charge Applicable to Variable Investment
Division Sub-Accounts: [Annual rate of one and two-tenths percent (1.20%)]
OPTION 1
CONTINGENT DEFERRED SALES CHARGE (CDSC): The following schedule of CDSC shall
apply to all withdrawal Amounts.
SUB-OPTIONS:
(a) WHEN A WITHDRAWAL IS THE CDSC WILL
REQUESTED AND ONE OR MORE OF EQUAL:
THE FOLLOWING CONDITIONS IS MET:
A1: The Participant has died 0%
A2: The Participant has incurred a disability for 0%
which he is receiving Social Security
payments
2
<PAGE>
A3: The Participant has attained age fifty-nine 0%
and one-half (59 1/2)
A4: The Participant has separated from service 0%
with the Contractholder and is age fifty-five
(55)
A5: The Participant has separated from service 0%
with the Contractholder
A6: The Participant has demonstrated a financial 0%
hardship need
A7: A Participant has requested a withdrawal 0%
which will not exceed twenty percent (20%)
of his Participant's Account Balance and no
other withdrawal has been made in that
calendar year
SUB-OPTIONS
B1: (b) For all other amounts subject to a CDSC,
the CDSC will equal 6%
B2: (b) For all other amounts subject to a CDSC, the
CDSC will be in accordance with
the schedule below
During Participation Year CDSC Percent
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
3
Form 96-101 C1 Active Life Cert.
<PAGE>
At the time of the withdrawal request, Lincoln Life requires reasonable
proof necessary to verify that the withdrawal meets the conditions
described above in subsection (a). If You or the Participant do not
furnish the proof requested by Lincoln Life, the CDSC stated in
subsection (b) shall apply.
In no event will the CDSC, when added to any CDSC previously imposed due
to a Participant withdrawal, exceed eight and one-half percent (8.5%) of
the cumulative Contributions to a Participant's Account.
OPTION 2:
LIMITATIONS ON WITHDRAWALS FROM THE GUARANTEED INTEREST DIVISION: A Participant
may make a withdrawal from the Guaranteed Interest Division for a specified
percentage of their Participant's Account balance based on the following
schedule:
4
<PAGE>
SUB-OPTIONS:
(a) WHEN A WITHDRAWAL IS THE PERCENTAGE OF
REQUESTED AND ONE OR MORE THE PARTICIPANT'S
OF THE FOLLOWING CONDITIONS ACCOUNT BALANCE
IS MET: AVAILABLE IS
A1: The Participant has died 100%
A2: The Participant has incurred a disability for 100%
which he is receiving Social Security
payments
A3: The Participant has attained age fifty-nine 100%
and one-half (59 1/2)
A4: The Participant has separated from service 100%
with the Contractholder and is age fifty-five
(55)
A5: The Participant has separated from service 100%
with the Contractholder
A6: The Participant has demonstrated a financial 100%
hardship need
(b) In addition, during any one (1) calendar year, a Participant may
A7: make one (1) withdrawal or transfer from the Guaranteed Interest
Division in an amount not to exceed twenty percent (20%) of the
Guaranteed Interest Division Account balance. Any Participant
stating their intention to liquidate their Guaranteed Interest
Division Account balance, however, may make one (1) withdrawal or
transfer for five (5) consecutive calendar years from their
Guaranteed Interest Division Account balance in the following
percentage:
Year Request Received Percentage of Guaranteed
by Lincoln Life Interest Division Available
5
Form 96-101 C1 Active Life Cert.
<PAGE>
1 20%
2 25%
3 33 1/3%
4 50%
5 100%
The five (5) consecutive withdrawals or transfers may not be
submitted more frequently than twelve (12) months apart. Lincoln
Life also reserves the right to require that any Participant stating
their intention to liquidate their Guaranteed Interest Division
Account balance stop contributions to the Contract.
(c) There are no limitations on withdrawals from the variable investment
division.
At the time of the withdrawal request, Lincoln Life requires reasonable
proof necessary to verify that the withdrawal meets the conditions
described above in Section (a).
[LOAN SETUP CHARGE: [Fifty dollars ($50) per loan]]
SYSTEMATIC WITHDRAWAL SET-UP CHARGE: [Thirty dollars ($30). If the total
Account balance is twenty-five thousand dollars ($25,000) or greater, such
amount will be waived.]
CONTRIBUTIONS: Contributions shall be split among the Guaranteed Interest
Division and each Sub-Account as directed by the Participant. A Participant may
change, on an unlimited basis, the split between the Guaranteed Interest
Division and each Sub-Account.
ACCOUNT BALANCE IN GUARANTEED INTEREST DIVISION: The dollar value of the
Participant's Account balance in the Guaranteed Interest Division as of any date
is:
(1) Contributions and interest credited to the Guaranteed Interest
Division and amounts transferred from the Variable Investment
Division; less
(2) Any amounts: deducted for withdrawals from the Guaranteed
Interest Division, transferred to the Variable Investment Division,
6
<PAGE>
converted to retirement annuities, Loan Setup Charges, Annual
Administrative Charges.
INTEREST: Lincoln Life will declare in advance a guaranteed interest rate which
will be effective for all amounts in the Participant's Account balance in the
Guaranteed Interest Division during the designated year. This rate will never
be less than [three percent (3%)]. However, this minimum rate will not be
considered for purposes of the section entitled LOANS under this Certificate.
Lincoln Life may also declare in advance separate interest rate guarantees which
are in excess of the guaranteed interest rate for some or all of the
Participant's Account balance in the Guaranteed Interest Division for specific
period(s) during the designated year.
ACCOUNT BALANCE IN THE VARIABLE INVESTMENT DIVISION: The dollar value of the
Participant's Account balance in each Sub-Account as of the end of a Valuation
Period will be equal to:
(1) The Participant's number of Accumulation Units as of the end of
that Valuation Period; times
(2) The Accumulation Unit Value as of the end of that Valuation
Period.
OPTION 1
ANNUAL ADMINISTRATION CHARGE: The Annual Administration Charge in the Contract
Specifications will be deducted on the last business day of the month in which
the Participant's Participation Anniversary occurs unless the Contractholder
pays the charge in a single payment. In no event will the deduction be greater
than the value of the Participant's Account. A Participation Anniversary is the
yearly anniversary of the day Lincoln Life credited the first contribution to
the Participant's Account. The Annual Administration Charge is also deducted
when a Participant requests any withdrawal which would reduce his or her Account
balance below the Annual Administration Charge.
OPTION 2
ANNUAL ADMINISTRATION CHARGE: The Annual Administration Charge in the Contract
Specifications will be deducted on a pro-rata basis on the last business day of
the month in which the Participant's Participation Anniversary occurs unless the
Contractholder pays the charge in a single payment. In no event will the
deduction be greater than the value of the Participant's Variable Investment
Division Account balance. A Participation Anniversary is the yearly anniversary
of the day Lincoln Life credited the first contribution to the Participant's
Variable Investment Division Account. The Annual
7
Form 96-101 C1 Active Life Cert.
<PAGE>
Administration Charge is also deducted when a Participant requests any
withdrawal or transfer which would reduce his or her Variable Investment
Division Account balance below the Annual Administration Charge.
TRANSFERS BETWEEN INVESTMENT DIVISIONS: A Participant may transfer his or her
Account balance from one Division to another Division, subject to the following
conditions:
OPTION 1:
Unlimited transfer requests may be made by a Participant each calendar
year.
OPTION 2:
Unlimited transfer requests may be made between Sub-Accounts by a
participant in one (1) calendar year.
OPTION 3:
During any one (1) calendar year, a Participant may make one (1)
transfer from the Guaranteed Interest Division to the Variable Investment
Division, or one (1) withdrawal from the Guaranteed Interest Division in
an amount not to exceed twenty percent (20%) of the Participant's Account
balance in the Guaranteed Interest Division.
WITHDRAWALS: Participants may make withdrawals by filling out a Withdrawal
Request Form available from Lincoln Life. All withdrawals shall be subject to
the CDSC described above in Contract Specifications. Annuity Conversions are
not considered withdrawals. When the Plan is subject to Title I of ERISA any
Withdrawal Request Form must be authorized by the Contractholder.
Lincoln Life may not defer the right of withdrawal and transfer with respect to
the Variable Investment Division more than seven (7) days after receiving such
transaction request, unless the New York Stock Exchange is closed or the
Securities and Exchange Commission declares a Market Emergency to protect the
Participants. If, in Lincoln Life's opinion, the payment of a withdrawal under
this section will adversely affect the other Participants under this and other
contracts of this class, Lincoln Life reserves the right to delay payments from
the Guaranteed Interest Division for up to one hundred eighty (180) days. The
then current interest rate will be credited during the one hundred eighty (180)
days.
LOANS: A Participant may request a loan by completing a loan application. When
the Plan is subject to Title I of ERISA, the payment of any loan must be
authorized by the Contractholder. A Participant may only have one loan
outstanding at any time and may
8
<PAGE>
not have more than one (1) loan in any six (6) month period. [The Loan Setup
Charge applies when any loan is made to a Participant. ]
The amount of a loan must be at least one thousand dollars ($1,000). No loan
may exceed ninety percent (90%) of the Participant's Account balance in the
Guaranteed Interest Division; or, if less, the amount permitted by the Internal
Revenue Code Section 72(p).
Quarterly, Lincoln Life will establish the loan interest rate under the
Contract. When a Participant requests a loan, Lincoln Life will notify him or
her of the applicable loan interest rate. This rate will not increase during
the term of the loan. If on any quarterly determination date, the new loan
interest rate under the Contract decreases by more than one-half of one percent
(0.5%) below the Participant's current loan rate, the Participant's current loan
interest rate will be reduced to the new loan rate.
Loans are secured by the Participant's Account balance in the Guaranteed
Interest Division. The secured amount is composed of a loan reserve account,
plus an amount equal to ten percent (10%) of the borrowed amount. The amount of
the loan reserve account is equal to the amount borrowed. The loan reserve
account will accrue interest at a rate which is three percent (3%) less than the
loan interest rate. The secured amount in excess of the loan reserve account
will accrue interest at the rate in effect for the Guaranteed Interest Division.
This excess amount will cover interest and [CDSC] if the Participant defaults on
the loan.
DEATH BENEFITS: Upon proof of death, Lincoln Life will pay a death benefit to
the Beneficiary named on the Enrollment Form or its most recent amendment. The
amount of the Death Benefit will be determined as follows:
(1) If the Participant dies during the Accumulation Period the
Death Benefit will equal the greater of:
(a) All contributions made to the Participant's Account less
any net withdrawal amounts including charges, any outstanding
loans (principal and due and accrued interest) and annuity
conversion amounts; or
(b) The Participant's Account balance less any outstanding
loans (principal and due and accrued interest).
(2) If Lincoln Life is notified of the Participant's death more
than six (6) months after the Participant's death, the Death Benefit
will be that described in 1(b).
9
Form 96-101 C1 Active Life Cert.
<PAGE>
Lincoln Life will calculate the Death Benefit as of the end of the Valuation
Period during which it receives both satisfactory proof of the Participant's
death and the election of a form of benefit as described below.
The Beneficiary may choose to receive the Death Benefit in the form of a lump
sum, an annuity, or a combination of the two. The Beneficiary will have sixty
(60) days to make this choice. If the Beneficiary does not make a choice within
sixty (60) days, Lincoln Life will pay the Death Benefit in the form of a lump
sum.
The Participant may change his or her Beneficiary at any time by written notice
to Lincoln Life. Written notice must be in a form satisfactory to Lincoln Life,
and must be signed and dated by the Participant. Such change of Beneficiary
takes effect on the date it is signed by the Participant whether or not the
Participant is living on the date notice is received by Lincoln Life. Lincoln
Life will not be liable to the Beneficiary for any payments made before receipt
of such notice. If there is no living Beneficiary at the Participant's death,
Lincoln Life will pay the Death Benefit to the Participant's estate.
PAYOUT ANNUITIES: Upon request, Lincoln Life will quote for the Participant the
amounts of Payout Annuity available under the various Payout Annuity options. A
Participant or Beneficiary may select either a Guaranteed Annuity or a Variable
Annuity. A Guaranteed Annuity is an annuity for which Lincoln Life guarantees
the amount of each payment as long as the annuity is payable. A Variable
Annuity is an annuity with payments that increase or decrease in accordance with
the investment results of the applicable Sub-Account. Lincoln Life will provide
the Participant with a Retirement Certificate when Annuity Payments begin.
SYSTEMATIC WITHDRAWAL OPTION: Any Participant who: (a) is at least age
fifty-nine and one-half (59 1/2), or [(b) is disabled and receiving Social
Security disability benefits,] or (c) is separated from service and (d) has a
vested pre-tax Participant Account balance of at least [ten thousand dollars
($10,000) may elect this option].
Amounts held for a spousal payee under a Qualified Domestic Relations Order
(QDRO) shall be recognized as eligible for the Systematic Withdrawal Option.
Any spousal payee must also meet the minimum [ten thousand dollar ($10,000)].
Account balance requirement and either the age or disability requirements as
discussed above.
A Participant may elect to receive monthly, quarterly, semi-annual, or annual
payments in a flat amount or payments on a monthly basis for an interest
equivalency amount. An interest equivalency amount is an approximation of the
interest earned between each payment period based upon the interest rate in
effect at the beginning of each respective payment period. This amount will be
determined by Lincoln Life. A Participant may
10
<PAGE>
change the frequency, payment type, or payment amount by submitting a request in
writing to Lincoln Life. This change may only occur once during each calendar
year.
A Participant may direct Lincoln Life in writing to cease payments and may not
request that any systematic withdrawal payments begin again until the next
calendar year.
Systematic withdrawals shall be withdrawn from amounts allocated to the
Guaranteed Interest Division of the Participant's Account balance.
Lincoln Life will deduct the Systematic Withdrawal Set-Up Charge each time a
Systematic Withdrawal Option is established. [The applicable CDSC, if any, will
be assessed on each systematic withdrawal payment.]
Payments under this option shall stop upon the earliest of the following events.
(1) On the date of the Participant's death. A Beneficiary who is a
spouse may elect this option by requesting it in writing on a form
acceptable to Lincoln Life, unless election of this form of benefit
would violate any other requirements of this contract. Then the
spousal Beneficiary must meet the [ten thousand dollar ($10,000)]
minimum Account balance requirement prior to electing the Systematic
Withdrawal Option; or
(2) When there is an insufficient Participant Account balance after
deducting the applicable [CDSC and] Annual Administration Charge, if
any, to pay the amount requested; or
(3) The Participant fails to meet the requirements of the
Systematic Withdrawal Option as outlined above in the first (1st)
paragraph of this Section.
If a disabled or terminated participant, who is currently receiving a Systematic
Withdrawal Option payment, returns to service with the Contractholder, the
Contractholder or Participant must notify Lincoln Life in writing within thirty
(30) days from the date of return to service. Lincoln Life reserves the right
to discontinue the Systematic Withdrawal Option payment under these
circumstances.
If a Participant wishes to exercise this option under another Lincoln Life
Annuity Contract, such request shall be considered separate from this Contract
and shall follow the Systematic Withdrawal Option rules under that Annuity
Contract, if permitted.
11
7
Form 96-101 C1 Active Life Cert.
<PAGE>
Lincoln Life may, at its option, discontinue the Systematic Withdrawal Option
under this Contract at any time provided You are given at least thirty (30) days
advance written notice.
DIRECT ROLLOVER OPTION: Beginning January 1, 1993, a Participant or Beneficiary
may elect this option for any distribution that qualifies as an Eligible
Rollover Distribution as defined by Section 402(c) of the Internal Revenue Code
and that meets all the following requirements:
(1) The distribution must be paid directly to either a single
Individual Retirement Account or to a single Tax Sheltered Annuity.
The check, wire, or other form of remittance shall be made payable
to the trustee, custodian, or financial institution sponsoring the
Individual Retirement Account or Tax Sheltered Annuity. The form of
remittance will not be an instrument that can be negotiated by the
Participant.
(2) The Participant must provide, in a form acceptable to Lincoln
Life, all information necessary to make the payment to an Individual
Retirement Account or Tax Sheltered Annuity.
(3) The Participant or Beneficiary may not revoke a request for
payment under this option for any payment after Lincoln Life has
received a written request for a direct rollover.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as a security for the
performance of any obligation to anyone other than Lincoln Life. To the fullest
extent allowed by law, no such sum shall be subject to any legal process for
payment of any claim against the payee.
EFFECT OF MISSTATEMENTS: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. If age, or any other fact affecting the amount or date of any payment
under the Group Annuity Contract is misstated, the payment will be adjusted to
what would have been paid based on the correct information.
CHANGES IN THE GROUP ANNUITY CONTRACT: The Group Annuity Contract between
Lincoln Life and the Contractholder may be changed or amended in accordance with
its terms. Such changes do not require the consent of any Participant under the
Group Annuity Contract. Any change in minimum interest guarantees, expense
charges, or minimum contribution requirements will not adversely affect
contributions received or
12
<PAGE>
annuities purchased before the effective date of the change unless such change
was required by law.
Lincoln Life may prohibit the addition of new contributions and/or new
Participants to the Contract. Lincoln Life will notify the Contractholder of
this action at least ninety (90) days before it is effective.
Nothing in the Group Annuity Contract impairs any right granted to the
Participant by this Certificate or the applicable state insurance code.
Participants may review the Contract by contacting the Contractholder's
personnel office.
A failure by Lincoln Life to insist upon the strict performance of any provision
of the Contract shall not be construed a waiver of any of Lincoln Life's rights
for future actions.
13
Form 96-101 C1 Active Life Cert.
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY CONTRACT NO.: [90000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY
PAYMENT: [ $50.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-ACCOUNT:
[ Index ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS: [Monthly]
DATE: [10/1/16]
BENEFICIARY: [Jane Doe] GUARANTEED NUMBER OF PAYMENTS: [120]
CERTIFICATION: Lincoln National Life Insurance Company (called"Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments to the Annuitant
will end on his/her date of death.
If the Annuitant dies before the Guaranteed Number of Payments have been made,
Lincoln Life will pay each remaining Payment to the named Beneficiary. If there
is no living Beneficiary on file with Lincoln Life at the death of the
Annuitant, Lincoln Life will pay any death benefit to the Annuitant's estate.
14
Form 96-101.C2a Variable Annuity Cert: C&C
<PAGE>
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date is a
Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation Period is the period between two Valuation Dates.
Each Variable Annuity Payment for each Sub-Account except the Initial Variable
Annuity Payment is determined by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity Unit Value
for the Interest Rate Option as of the Initial Annuity Payment
Calculation Date, and
(2) Multiplying the resultant number of Annuity Units by the value of the
Annuity Unit Value for the Interest Rate Option on the Annuity Payment
Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity
Contract at the Contractholder's place of business or at Lincoln Life's
Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
BENEFICIARY: The Annuitant may change his/her Beneficiary by written notice to
Lincoln Life at its Administrative Office. Written notice must be in a form
satisfactory to Lincoln Life and must be signed and dated by the Annuitant.
Such change of Beneficiary takes effect on the date the notice is signed by the
Annuitant, whether or not the Annuitant is living on the date the notice is
received by Lincoln Life. Lincoln Life will not be liable to the Beneficiary on
account of any payments made before receipt of such notice.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
Form 96-101.C2a Variable Annuity Cert: C&C
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY CONTRACT NO.: [90000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY PAYMENT:
[ $100.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-
ACCOUNT: [ Index ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS:
DATE : [6/1/91] [Monthly]
INITIAL DEATH BENEFIT: [$50,000] BENEFICIARY: [Jane Doe]
CERTIFICATION: Lincoln National Life Insurance Company (called "Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments to the Annuitant
will end on his/her date of death.
If, at the Annuitant's death, the Initial Death Benefit exceeds the total
Variable Annuity Payments received by the Annuitant, Lincoln Life will pay a
lump sum Death Benefit to the named Beneficiary. The amount of the Death
Benefit will be the Initial Death Benefit minus the sum total Variable Annuity
Payments paid to the Annuitant.
If the Beneficiary dies after the date of the Annuitant's death but before the
lump sum Death Benefit is paid, the Death Benefit shall be paid to the
Beneficiary's estate. If there is no living Beneficiary at the Annuitant's
Death, Lincoln Life will pay the lump sum Death Benefit to the Annuitant's
estate.
16
Form 96-101.C2b Variable Annuity Cert: CR
<PAGE>
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date
is a Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation Period is the period between two Valuation Dates.
Each Variable Annuity Payment for each Sub-Account except the Initial Variable
Annuity Payment is determined by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity Unit Value
for the Interest Rate Option as of the Initial Annuity Payment
Calculation Date, and
(2) Multiplying the resultant number of Annuity Units by the value of the
Annuity Unit Value for the Interest Rate Option on the Annuity Payment
Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity
Contract at the Contractholder's place of business or at Lincoln Life's
Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
BENEFICIARY: The Annuitant may change his/her Beneficiary by written notice to
Lincoln Life at its Administrative Office. Written notice must be in a form
satisfactory to Lincoln Life and must be signed and dated by the Annuitant.
Such change of Beneficiary takes effect on the date the notice is signed by the
Annuitant, whether or not the Annuitant is living on the date the notice is
received by Lincoln Life. Lincoln Life will not be liable to the Beneficiary on
account of any payments made before receipt of such notice.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will
Form 96-101.C2b Variable Annuity Cert: CR
<PAGE>
pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
18
Form 96-101.C2b Variable Annuity Cert: CR
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY
CONTRACT NO.: [00000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY
PAYMENT: [ $50.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-ACCOUNT:
[ Index ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS: [Monthly]
DATE: [ 10/1/96 ]
CERTIFICATION: Lincoln National Life Insurance Company (called Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments to the Annuitant
will end on his/her date of death. No further benefits will be paid under this
Certificate or the Group Annuity Contract.
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date is a
Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation Period is the period between two Valuation Dates.
Each Variable Annuity Payment for each Sub-Account except the Initial Variable
Annuity Payment is determined by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity
Unit Value for the Interest Rate Option as of the Initial Annuity
Payment Calculation Date, and
Form 96-101.C2c Variable Annuity Cert: Life
<PAGE>
(2) Multiplying the resultant number of Annuity Units by the value
of the Annuity Unit Value for the Interest Rate Option on the
Annuity Payment Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity Contract
at the Contractholder's place of business or at Lincoln Life's Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
20
Form 96-101.C2c Variable Annuity Cert: Life
<PAGE>
Servicing Office: [P.O. Box 9740, Portland, ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY
CONTRACT NO.: [90000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY PAYMENT:
[ $50.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-ACCOUNT:
[ Index ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS: [monthly]
DATE: [10/1/16]
BENEFICIARY: [Jane Doe] GUARANTEED NUMBER OF
PAYMENTS: [120]
CERTIFICATION: Lincoln National Life Insurance Company (called "Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments to the Annuitant
will end when the Guaranteed Number of Payments have been made.
If the Annuitant dies before the Guaranteed Number of Payments have been made,
Lincoln Life will pay each remaining Payment to the named Beneficiary. If there
is no living Beneficiary on file with Lincoln Life at the death of the
Annuitant, Lincoln Life will pay any death benefit to the Annuitant's estate.
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date is a
Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation
Form 96-101.C2d Variable Annuity Cert: Ctn
<PAGE>
Period is the period between two Valuation Dates. Each Variable Annuity Payment
for each Sub-Account except the Initial Variable Annuity Payment is determined
by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity Unit Value
for the Interest Rate Option as of the Initial Annuity Payment Calculation
Date, and
(2) Multiplying the resultant number of Annuity Units by the value of the
Annuity Unit Value for the Interest Rate Option on the Annuity Payment
Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity
Contract at the Contractholder's place of business or at Lincoln Life's
Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
BENEFICIARY: The Annuitant may change his/her Beneficiary by written notice to
Lincoln Life. Written notice must be in a form satisfactory to Lincoln Life and
must be signed and dated by the Annuitant.
Such change of Beneficiary takes effect on the date the notice is signed by the
Annuitant, whether or not the Annuitant is living on the date the notice is
received by Lincoln Life. Lincoln Life will not be liable to the Beneficiary on
account of any payments made before receipt of such notice.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
22
Form 96-101.C2d Variable Annuity Cert: Ctn
<PAGE>
Servicing Office: [P.O. Box 9740, Portland ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY
CONTRACT NO.: [90000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY
PAYMENT: [ $50.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-
ACCOUNT: [ Index ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS: [monthly]
DATE: [ 10/116 ]
JOINT ANNUITANT: [Jane Doe] SURVIVORSHIP ANNUITY
PERCENTAGE: [75%]
CERTIFICATION: Lincoln National Life Insurance Company (called "Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments will continue until
the death of the Annuitant or the Joint Annuitant. At the death of the
Annuitant or Joint Annuitant, the Annuity Payment, which otherwise would have
been paid had both the Annuitant and Joint Annuitant lived, will be multiplied
by the Survivorship Annuity Percentage and paid to the survivor as long as
he/she lives. All Payments will end when both the Annuitant and the Joint
Annuitant are dead.
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date is a
Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation
Form 96-101.C2e Variable Annuity Cert: J&S
<PAGE>
Period is the period between two Valuation Dates. Each Variable Annuity Payment
for each Sub-Account except the Initial Variable Annuity Payment is determined
by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity Unit Value
for the Interest Rate Option as of the Initial Annuity Payment
Calculation Date, and
(2) Multiplying the resultant number of Annuity Units by the value of the
Annuity Unit Value for the Interest Rate Option on the Annuity Payment
Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity
Contract at the Contractholder's place of business or at Lincoln Life's
Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
24
Form 96-101.C2e Variable Annuity Cert: J&S
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04104-5001]
VARIABLE ANNUITY PAYMENTS INCREASE OR DECREASE IN AMOUNT BASED ON THE NET
INVESTMENT RESULTS OF THE VARIABLE INVESTMENT DIVISION.
ANNUITANT: [John Doe] CERTIFICATE NO.: [000-00-0000]
CONTRACTHOLDER: [ABC Hospital] GROUP ANNUITY
CONTRACT NO.: [90000]
CERTIFICATE ISSUE DATE: [10/1/96] INITIAL VARIABLE ANNUITY PAYMENT:
[ $50.00 ]
ASSUMED INTEREST RATE: [0-6%] VARIABLE INVESTMENT SUB-
ACCOUNT: [ ]
ANNUITY COMMENCEMENT FREQUENCY OF PAYMENTS: [monthly]
DATE: [10/1/16]
JOINT ANNUITANT: [Jane Doe] SURVIVORSHIP ANNUITY PERCENTAGE:
[75%]
CERTIFICATION: Lincoln National Life Insurance Company (called "Lincoln Life")
agrees to pay the benefits described in this Certificate to the named Annuitant
under the terms of the Group Annuity Contract between Lincoln Life and the
Contractholder. The amount and terms of the benefits are subject to the
provisions of the Group Annuity Contract. This Certificate describes, but in no
way alters or voids the benefits provided under the Group Annuity Contract.
TERMS OF PAYMENT: Lincoln Life will begin Variable Annuity Payments to the
Annuitant as of his/her Annuity Commencement Date. Payments will continue until
the death of the Annuitant. At the death of the Annuitant, the Annuity Payment,
which otherwise would have been paid had both the Annuitant and Joint Annuitant
lived, will be multiplied by the Survivorship Annuity Percentage and paid to the
Joint Annuitant as long as he/she lives.
DETERMINING VARIABLE ANNUITY PAYMENT: An Annuity Payment Calculation Date is a
Valuation Date which is ten (10) Business Days prior to the first day of a
calendar month. A Valuation
26
Form 96-101.C2f Variable Annuity Cert: ERISA
J&S/CAO
<PAGE>
Period is the period between two Valuation Dates. Each Variable Annuity Payment
for each Sub-Account except the Initial Variable Annuity Payment is determined
by:
(1) Dividing the Initial Variable Annuity Payment by an Annuity Unit Value
for the Interest Rate Option as of the Initial Annuity Payment
Calculation Date, and
(2) Multiplying the resultant number of Annuity Units by the value of the
Annuity Unit Value for the Interest Rate Option on the Annuity Payment
Calculation Date just prior to subsequent payment.
INFORMATION AND PROOF: Lincoln Life has the right to require information and
proof as to any matter relating to its obligations under the Group Annuity
Contract. Annuitants may make arrangements to examine the Group Annuity
Contract at the Contractholder's place of business or at Lincoln Life's
Servicing Office.
The Annuitant must notify Lincoln Life of any change in address. All
correspondence should include the Annuitant's name, social security number, and
the Group Annuity Contract Number.
NONASSIGNABILITY: No sum payable under the Group Annuity Contract may be sold,
discounted, or pledged as collateral for a loan or as security for the
performance of any obligation by the payee. To the fullest extent allowed by
law, no such sum shall be subject to any legal process for payment of any claim
against the payee.
EFFECT OF MISSTATEMENT: If age or any other fact affecting the amount or date
of any payment under the Group Annuity Contract has been misstated or omitted,
the Variable Annuity Payments will be adjusted. The adjustment in Variable
Annuity Payments will be based on the amounts that would have been paid using
the correct information.
FACILITY OF PAYMENT: Upon notice from a duly appointed guardian or other legal
representative that a Payee is legally incapable of receiving payment, Lincoln
Life will pay the legal representative on behalf of the Payee. If, in the
judgment of Lincoln Life, any payee is physically, mentally, or legally
incapable of acknowledging receipt of a payment due to him/her, Lincoln Life
will pay the person or institution who, in the opinion of Lincoln Life, is then
maintaining or has custody of the payee. Such payments will constitute a full
discharge of Lincoln Life's liability, to the extent paid.
26
Form 96-101.C2f Variable Annuity Cert: ERISA
J&S/CAO
<PAGE>
Servicing Office: [ P.O. Box 9740, Portland, ME 04101-5001]
LINCOLN NATIONAL LIFE INSURANCE COMPANY
APPLICATION FOR GROUP ANNUITY CONTRACT
WITH
LINCOLN NATIONAL LIFE INSURANCE COMPANY
FORT WAYNE, INDIANA
____________________________________ of ________________________________
(herein termed the "Contractholder") (address)
hereby authorizes Lincoln National Life Insurance Company (Lincoln Life) to
issue a Group Annuity Contract providing retirement benefits for the
Contractholder's Employees, members of an Association, or the Employees of the
Company on whose behalf the above designated Contractholder serves as Trustee.
Plan Type: ___ 403(b) ____ 401(a) ____ other _______________
It is understood that Participants under the Contract may be subject to the
restrictions on withdrawals imposed by the Internal Revenue Code of 1986, as
amended.
Contributions to the Contract and transfers of value within the Contract shall
be subject to the limitations imposed by the Plan, if any, named in the
Contract.
If a deposit is not made to the Contract within ninety (90) days after the later
of: (1) the date the Application is signed, or (2) the Effective Date of the
Contract, Lincoln Life may, at its option, declare the Contract invalid and deem
it null and void for all purposes, notwithstanding any provision to the contrary
in the Contract. Lincoln Life will provide the Contractholder thirty (30) days
notice prior to declaring this Contract invalid.
It is agreed that this Application together with the Contract comprise the
entire agreement between the Applicant and Lincoln Life.
<PAGE>
By signing this Application the Contractholder designates
_____________________________ of __________________________________
(name) (address)
as Broker for said Contract, and as such to receive any commissions payable with
respect to deposits made to the Company in accordance with the terms and
provisions of the Contract.
Dated at ____________________ this ________ day of _______________
By __________________________________
Contractholder)
__________________________________
(Official Title)
By __________________________________
(Broker)
Applicable to Variable Annuity Contracts only:
It is acknowledged that the Contractholder has received a Prospectus relating to
this Group Variable Annuity Contract prior to the date of this Application.
_____ Check here to request a Statement of Additional Information.
<PAGE>
VARIABLE ANNUITY PRODUCT
Current Crediting Rate: _____________%
100% of Account Balance available at:
____ Death
____ Disability
____ Age 59 1/2
____ Separation from Service
____ Separation from Service and age 55
____ Hardship
Other Withdrawals subject to:
____ 6% charge
____ Reducing charge based on years of participation
____ 20% annual maximum withdrawal or transfer from the Guaranteed Interest
Division
Annual Administration Fee paid by: ________Participant _________Contractholder
____ $25 per participant
____ $25 per participant contributing to one or more Sub-Accounts
____ Not applicable
Loan Set-up Fee:
____ $50 per loan
____ Not applicable
Variable Investment Division Sub-Accounts (Underlying Institutional Funds):
____ Asset Manager Account (Fidelity's VIPF II: Asset Manager Portfolio)
____ Balanced Account (TCI Portfolios, Inc.: TCI Balanced Portfolio)
____ Growth I Account (Fidelity's VIPF: Growth Portfolio)
____ Growth II Account (TCI Portfolios, Inc.: TCI Growth Portfolio)
____ Index Account (Dreyfus Stock Index Fund)
____ International Stock Account (T. Rowe Price International Series, Inc.)
____ Socially Responsible Account (Calvert Responsibly Invested Balanced
Portfolio)
____ Equity-Income Account (Fidelity's VIPF: Equity-Income Portfolio)
____ Small Cap Account (Dreyfus Variable Investment Fund: Small Cap Portfolio)
____ All nine Sub-Accounts
<PAGE>
EXHIBIT 99.5(b)
<TABLE>
<CAPTION>
<S><C>
LINCOLN LIFE-TM- ENROLLMENT/CHANGE REQUEST &
LINCOLN NATIONAL LIFE INSURANCE COMPANY SALARY REDUCTION AGREEMENT--VARIABLE ANNUITY
TDA CLIENT SERVICES
P.O. BOX 9740
PORTLAND, MAINE 04104-5001 FOR INTERNAL USE ONLY
1-800-341-0441 / /UNUM / /LINCOLN LIFE
/ /New Enrollment
/ /Check here to receive a Statement of Additional / /Change (Please indicate what type of change with a check)
Information which provides financial information not Address/Telephone_____ Beneficiary_____ Name_____ Allocation Mix____
included in the prospectus.
ON THIS FORM THE WORDS "THE COMPANY" REFER TO YOUR INSURER (LINCOLN NATIONAL LIFE INSURANCE COMPANY OR UNUM LIFE INSURANCE COMPANY
OF AMERICA).
YOUR COMPANY IS IDENTIFIED ON YOUR ACTIVE LIFE CERTIFICATE.
____________________________________________________________________________________________________________________________________
I. PARTICIPANT INFORMATION (PLEASE PRINT)
____________________________________________________________________________________________________________________________________
Name of Employer GP/ER ID Number Group Annuity Contract Numbers
____________________________________________________________________________________________________________________________________
Name of Employee: Last, First, MI Marital Status Social Security Number
____________________________________________________________________________________________________________________________________
Home Address (Street, City, State, Zip Code)
____________________________________________________________________________________________________________________________________
Telephone Number Date of Birth Sex Date of Hire
Daytime ( ) Evening ( )
____________________________________________________________________________________________________________________________________
II. SALARY REDUCTION AGREEMENT(ANNUAL)
____________________________________________________________________________________________________________________________________
Effective Date of Reduction_________________________. Please check with your payroll department to determine which option they are
equipped to handle per pay period: Percentage of pay_______________________ or Specific dollar amount $_____________________.
My employer and I hereby agree as follows: My employer shall reduce my salary by the indicated amount/percentage per pay period. My
employer shall forward such amounts to an account with the Company in order to fund contributions toward a 403(b) annuity.
Reductions shall commence on the date indicated above. Reductions shall only be made against sums earned by me subsequent to the
date of this agreement. Once made, this agreement cannot be changed for the rest of the current tax year, although it may be
canceled at any time. By signing below, both my employer and I agree to be bound by the terms of this Salary Reduction Agreement.
__________________________________________________ __________________________________________________
Participant's Signature Employer's Authorized Representative Signature
COMPLETE THE FOLLOWING IN 1% INCREMENTS:
FUND GUAR. INT
VA PRODUCT ASSET MGR. SOCIAL RES. BALANCED EQUITY INC. INDIV ACT GROWTH I GROWTH II INT'NL SMALL CAP
---------- ---------- ----------- -------- ----------- --------- -------- --------- ------ --------- TOTAL
GA AM SR BL EQ 1X GR GT IN SC MUST
ALLOCATION EQUAL
MIX ______ + ______ + ______ + ______ + ______ + ______ + ______ + ______ + _____ + ______ =
100%
Any change in allocation mix will be effective with the next deposit after receipt of this form in the Portland, Maine office.
I am aware that the returns on the Variable Accounts will be based upon the investment experience of the Company's Separate
Account. These amounts will fluctuate and are not guaranteed as to the dollar amount.
____________________________________________________________________________________________________________________________________
III. BENEFICIARY DESIGNATION
____________________________________________________________________________________________________________________________________
If I am married or am subsequently married in the future and if my TDA Plan provides, my spouse shall be my beneficiary unless I
complete a waiver with my spouse's written consent. I also understand that if I do not select a beneficiary or if I am not survived
by any beneficiary that all death benefits will be paid in accordance with the Plan or contract provisions governing such
situations. Subject to the provisions of the above contract and any applicable TDA Plan, I designate the following
beneficiary(ies), such designation to supersede any prior designation(s) which I may have made with respect to my coverage under the
above contract. (Prim.=Primary Cont.=Contingent)
Beneficiary Name Address Relationship Percent
Prim. Cont.
/ / / / _______________________________ ________________________________________ _____________________ _______
/ / / / _______________________________ ________________________________________ _____________________ _______
/ / / / _______________________________ ________________________________________ _____________________ _______
/ / / / _______________________________ ________________________________________ _____________________ _______
IF I AM A PARTICIPANT IN A UNUM CONTRACT, LINCOLN LIFE IS ACTING AS THE ADMINISTRATIVE AGENT FOR UNUM. UNUM REMAINS AS THE INSURER
AND IS RESPONSIBLE FOR PAYMENT OF ALL BENEFITS.
I ACKNOWLEDGE RECEIPT OF THE COMPANY'S SEPARATE ACCOUNT PROSPECTUS AND PROSPECTUSES FOR THE UNDERLYING FUNDS AND AN ACTIVE LIFE
CERTIFICATE. BY COMPLETING AND SIGNING THIS FORM, I ALSO ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THE INFORMATION ON THE FRONT
AND BACK OF THIS FORM.
Participant's Signature __________________________________________________________________ Date_____________________
I HEREBY CERTIFY THAT THE ABOVE REFERENCED PARTICIPANT'S BENEFICIARY DESIGNATION IS IN COMPLIANCE WITH ALL PROVISIONS OF THE
RETIREMENT EQUITY ACT OF 1984 AND THE TAX DEFERRED ANNUITY PLAN REFERENCED ABOVE.
Plan Administrator's Signature (if ERISA)___________________________________________________ Date____________________
</TABLE>
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
COMPOSITE ARTICLES OF INCORPORATION
Organized June 12, 1905
Under
Act of Indiana Legislature entitled
"An act for the incorporation of life
insurance companies on either the
stock or mutual plan, defining their
powers and prescribing their duties
and the duties of certain officers in
connection therewith, providing
penalties for the violation of this
act and declaring an emergency"
approved February 10, 1899
[Compiled by Paul J. Sauerteig, 30 March 1973
as approved by
Samuel P. Adams, Vice President and Secretary
Thomas G. Thornbury, Vice President and General Counsel]
<PAGE>
ARTICLES OF INCORPORATION
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
The undersigned, citizens of the State of Indiana, hereby associate
themselves together in accordance with t he provisions of an Act of the General
Assembly of the State of Indiana, entitled, "An Act for the incorporation of
life insurance companies on either the stock or the mutual plan, defining their
powers and prescribing their duties and the duties of certain officers in
connection therewith, providing penalties of certain officers in connection
therewith, providing penalties for the violation of this Act, and declaring an
emergency." Approved February 10th, 1899, for the purpose of forming an
incorporated Life Insurance Company under the following Articles of
Incorporation:
ARTICLE I.
The name of this corporation shall be The Lincoln National Life
Insurance Company.
ARTICLE II.
Said Company shall be a stock Company, and shall be established and
located in the City of Fort Wayne, Allen County, Indiana, but may extend its
business to all parts of said State of Indiana, and into the other States and
Territories of the United States and into foreign countries.
ARTICLE III.
The common capital stock of said corporation shall be $25,000,000,
divided into shares of $2.50 each.
<PAGE>
ARTICLE IV.
The general objects of said Corporation shall be and are (a) to insure
the lives of persons and to make every insurance appertaining thereto or
connected therewith, including insurance against permanent mental or physical
disability resulting from accident or disease, or against accidental death,
combined with a policy for life insurance, and to grant, purchase or dispose of
annuities; and (b) to insure against bodily injury, disease or death by accident
and against disablement resulting from sickness and every insurance appertaining
thereto; and for such purposes said Corporation shall have the right to exercise
and enjoy all singular the powers and privileges granted or prescribed by said
Act of the General Assembly of the State of Indiana and by the laws of said
State.
The said Corporation shall have the power to issued participating and
nonparticipating policies covering life insurance and annuities. All policies
issued directly by said Corporation on a participating basis shall be subjected
to the following:
(a) In determining the gross profits from said participating business
the lossess* and expenses chargeable thereto shall be only the
losses and expenses chargeable thereto shall be only the losses
and expenses incurred in conducting such business.
(b) The amount that may be taken in any year from said participating
business for the benefit of stockholders or for credit to their
account shall be limited to ten per cent (10%) of the gross
profits for such year on said participating business.
*Sic
The foregoing limitation shall not apply to reinsurance in any form or
to the participating life insurance and annuities issued by any other company or
association which may be reinsured by this Corporation or acquired by it through
purchase, merger or consolidation.
ARTICLE V.
The duration of said corporation hereby incorporated shall be
perpetual.
IN WITNESS WHEREOF, we have hereunto subscribed our names this 29th
day of May, 1905.
Sam'l. M. Foster W. J. Vesey
Simon J. Straus Gustave A. Rabus
E. W. Cook Ben Lehman
Robert S. Taylor Henry Beadell
H. C. Rockhill Frank K. Safford
F. L. Smock M. J. Blitz
R. B. Hanna Perry A. Randall
Hubert Berghoff Wm. B. Paul
Paul Mossman W. E. Doud
Jacob Funk F. L. Jones
Robt. Millard E. W. Dodez
M. F. Moellering Aaron Rothchild
Geo. W. Beers J. W. White
J. M. McKay B. D. Angell
Charles K. Pfeiffer Arther F. Hall
Newton W. Gilbert Daniel B. Ninde
State of Indiana )
) SS:
Allen County )
Personally appeared before me, H. W. Ninde, a Notary Public in and
for said County and State, Sam'l M. Foster, Simon J. Straus, E. W. Cook,
Robert S. Taylor, H. C. Rockhill, F. L. Smock, R. B. Hanna, Hubert
Berghoff, Paul Mossman, Jacob Funk, Rob't.
<PAGE>
Millard, M. F. Moellering, Geo W. Beers, J. M. McKay, Charles F. Pfeiffer,
Newton W. Gilbert, W. J. Vesey, Gustave A. Rabus, Ben Lehman, Henry Beadell,
Frank K. Safford, M. J. Blitz, Perry A. Randall, Wm. B. Paul, W. E. Doud,
F. L. Jones, E. W. Dodez, Aaron Rothchild, J. W. White, Calvin H.
English, B. D. Angell, and acknowledged the execution of the foregoing to be
their voluntary act and deed.
WITNESS my hand and notarial seal this 29th day of May, 1905.
H.W. Ninde, Notary Public.
My commission expires Jan. 12, 1909.
(SEAL)
State of Indiana )
) SS:
Marion County )
Personally appeared before me, Minnie C. Morgan, a Notary Public in
and for said County and State, Arthur F. Hall and Daniel B. Ninde, and
acknowledged the execution of the foregoing to be their voluntary act and deed.
Witness my hand and notarial seal, this 1st day of June, 1905.
Minnie C. Morgan,
Notary Public.
(SEAL)
My commission expires
January 14, 1907.
FILED
June 12, 1905
Daniel E. Storms, Sec'y of State
<PAGE>
BYLAWS
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
AS LAST AMENDED FEBRUARY 9, 1996
ARTICLE I
STOCKHOLDERS
SECTION 1. -- ANNUAL MEETINGS.
An annual meeting of the stockholders shall be held on the fourth
Wednesday of May, or such earlier date as the board of directors may
select, in each year for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If
the day fixed for an annual meeting shall be a legal holiday in the
State of Indiana, such meeting shall be held on the next succeeding
full business day.
SECTION 2. -- SPECIAL MEETINGS.
Special meetings of the stockholders may be called by the chairman of
the board, by the president, by the board of directors, or by
stockholders holding not less than one-fourth of all of the
outstanding shares.
SECTION 3. -- PLACE OF MEETINGS.
All meetings of stockholders shall be held at the principal office of
the company in Fort Wayne, Indiana or at such other place as may be
designated by the board of directors in accordance with the Articles
of Incorporation.
SECTION 4. -- NOTICE OF MEETINGS.
A written or printed notice, stating the place, day and hour of the
meeting, and in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered or mailed by the
secretary, or by the officer calling the meeting, at least thirty days
before the date of the meeting, to each stockholder of record at such
address as appears upon the stock records of the company.
SECTION 5. -- QUORUM.
Except as hereinafter provided and as otherwise provided by law, at
any meeting of the stockholders a majority of all the capital stock
issued and outstanding represented by stockholders of record in person
or by proxy, shall constitute a quorum; but a lesser interest may
adjourn any meeting, and the meeting may be
1
<PAGE>
held as adjourned without further notice. When a quorum is present at any
meeting, a majority of the stock represented thereat shall decide any
question brought before such meeting, unless the question is one upon which
by express provision of law or of the Articles of Incorporation or of these
bylaws a larger or different vote is required, in which case such express
provision shall govern and control the decision of such question.
SECTION 6. -- PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or a duly authorized attorney
in fact. No proxy shall be valid which shall have been granted more
than forty days before the meeting named therein, and such proxy shall
not be valid after the final adjournment of such meeting.
SECTION 7. -- VOTING OF SHARES.
Every stockholder shall have the right, at every stockholders'
meeting, to one vote for each share of stock standing in his name on
the books of the company on the date established by the board of
directors as the record date for determination of stockholders
entitled to vote at such meeting. No share shall be voted at any
meeting which shall have been transferred on the books of the company
subsequent to such record date, and no share which belongs to the
company shall be voted at any meeting.
SECTION 8. -- ORDER OF BUSINESS.
The order of business at each annual stockholders' meeting and, as far
as possible, at all other meetings of stockholders, shall be as
follows:
1. Reading minutes of preceding meeting.
2. Reports of officers and committees.
3. Report of attendance at directors' meetings.
4. Election of directors.
5. Unfinished business.
6. New business.
7. Adjournment.
The order of business may be changed by vote of a majority of stockholders
present.
2
<PAGE>
SECTION 9. -- SECRETARY OF MEETING.
The secretary of the company shall act as secretary of meetings of
stockholders and in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. -- GENERAL POWERS, NUMBER, TENURE AND QUALIFICATIONS.
The property and business of the company shall be managed by a board
of directors, not less than seven nor more than sixteen in number,
which board shall be constituted in conformity with the laws of the
State of Indiana. The number of directors to serve for each year shall
be determined by a resolution at the annual stockholders' meeting; but
if such number be less than sixteen, the board of directors may, in
its discretion, at any regular or special meeting, increase the number
of directors to a number not exceeding sixteen to serve until the next
annual meeting of stockholders. Except in the case of vacancies, each
director shall be elected for a term of one year and shall hold office
until a successor is elected and has qualified.
SECTION 2. -- REGULAR MEETINGS.
The annual meeting of the board of directors shall be the first
meeting following its election and shall be held, without notice,
immediately after the adjournment of the annual stockholders' meeting,
or within ten days thereafter upon notice in the manner provided by
these bylaws for calling special meetings of the board. Additional
regular meetings may be held at such times as the board may designate.
SECTION 3. -- SPECIAL MEETINGS.
Special meetings of the board of directors may be called by the
chairman of the board, or in his absence or incapacity, or if such
office be vacant, by the president. The secretary shall call special
meetings of the board of directors when requested in writing to do so
by any five members thereof.
SECTION 4. -- NOTICE OF MEETINGS.
Notice of any meeting of the board of directors other than the annual
meeting held immediately after the adjournment of the annual
stockholders' meeting, shall be
3
<PAGE>
served not less than three days before the date fixed for such meeting, by
oral, telegraphic, telephonic, electronic or written communication stating
the time and place thereof and, if by mail or telegraph, addressed to each
member of the board of directors at his or her address as it appears on the
books of the company. Any director may waive notice of any meeting. The
attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, except when a director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 5. -- QUORUM.
A majority of the whole board of directors shall be necessary to
constitute a quorum for the transaction of any business, but if less
than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without
further notice.
SECTION 6. -- MANNER OF ACTING.
The act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the board of directors, unless
a greater number is required by law, or by the Articles of
Incorporation or these bylaws. Unless otherwise provided in the
Articles of Incorporation, an action required or permitted to be taken
at a meeting of the board of directors may be taken without a meeting,
if before the action is taken, a written consent to the action is
signed by all members of the board of directors and the written
consent is filed with the minutes of proceedings of the board of
directors. Unless otherwise provided by the Articles of Incorporation,
a member of the board of directors may participate in a meeting of the
board of directors by means of a conference telephone or similar
communications equipment by which all persons participating in the
meeting can communicate with each other, and participation by these
means constitutes presence in person at the meeting.
SECTION 7. -- VACANCIES.
Vacancies in the board may be filled by the remaining directors in the
manner provided by law.
SECTION 8. -- OATH.
Every director, when elected, shall take and subscribe an oath that he
will, insofar as the duty devolves upon him, faithfully, honestly and
diligently administer the affairs of the company, and that he will not
knowingly violate or willingly permit to be violated any law
applicable to the company.
4
<PAGE>
ARTICLE III
OFFICERS
SECTION 1. -- ELECTED OFFICERS.
The elected officers of the company shall be a president, a secretary,
and a treasurer, and may also include a chairman of the board, a chief
operating officer, a chief financial officer, one or more vice
presidents of a class or classes as the board of directors may
determine, and such other officers as the board of directors may
determine. The chairman of the board and the president shall be chosen
from among the directors. Any two or more offices may be held by the
same person. (AMENDED 2-9-96.)
SECTION 2. -- APPOINTED OFFICERS.
The appointed officers of the company shall be one or more second vice
presidents, assistant vice presidents, assistant treasurers, and
assistant secretaries.
SECTION 3. -- ELECTION OR APPOINTMENT AND TERM OF OFFICE.
The elected officers of the company shall be elected annually by the
board of directors at the first meeting of the board of directors held
after each annual meeting of the shareholders. The appointed officers
of the company shall be appointed annually by the chief executive
officer immediately following the first meeting of the board of
directors held after each annual meeting of the shareholders.
Additional elected officers may be elected at any regular or special
meeting of the board of directors, to serve until the regular meeting
of the board held after the next annual meeting of shareholders, and
additional appointed officers may be appointed by the chief executive
officer at any time to serve until the next annual appointment of
officers. Each officer shall hold office until he shall resign or
retire or shall have been removed.
SECTION 4. -- REMOVAL.
Any officer may be removed by the board of directors and any appointed
officer may be removed by the chief executive officer, whenever in
their judgment the best interests of the company will be served
thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
5
<PAGE>
SECTION 5. -- VACANCIES.
A vacancy in the office of president or treasurer or secretary because
of death, resignation, removal or otherwise, shall be filled by the
board of directors, and a vacancy in any other elected office may be
filled by the board of directors.
SECTION 6. -- CHIEF EXECUTIVE OFFICER.
If the elected officers of the company include both a chairman of the
board and a president, the board of directors shall designate one of
such officers to be the chief executive officer of the company. If the
office of chairman of the board be vacant, the president shall be the
chief executive officer of the company. The chief executive officer of
the company shall be, subject to the board of directors, in general
charge of the affairs of the company.
SECTION 7. -- CHAIRMAN OF THE BOARD.
The chairman of the board shall preside at all meetings of the
stockholders and of the board of directors at which he may be present
and shall have such other powers and duties as may be determined by
the board of directors.
SECTION 8. -- PRESIDENT.
The president shall have such powers and duties as may be determined
by the board of directors. In the absence of the chairman of the
board, or if such office be vacant, the president shall have all the
powers of the chairman of the board and shall perform all his duties.
SECTION 9. -- CHIEF OPERATING OFFICER.
The chief operating officer shall be, subject to the chief executive
officer, in general charge of the business operations of the company
and shall have those powers and duties as are incident to the office
and as may be determined by the board of directors or the president.
(ADDED 2-9-96)
SECTION 10. -- CHIEF FINANCIAL OFFICER.
The chief financial officer shall be in general charge of the
financial affairs of the company and shall have those powers and
duties as are incident to the office and as may be determined by the
board of directors or the president. (ADDED 2-9-96)
6
<PAGE>
SECTION 11. -- VICE PRESIDENTS.
A vice president shall perform such duties as may be assigned by the
chairman of the board, the president or the board of directors, and,
in the absence of the president, he may perform the duties and
exercise the authority of the president.
SECTION 12. -- SECRETARY.
The secretary shall: (a) keep the minutes of the stockholders' and
board of directors' meetings in one or more books provided for the
purpose; (b) see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law; (c) be custodian
of the seal of the company and see that the seal of the company is
affixed to all documents the execution of which on behalf of the
company under its seal is duly authorized; and (d) in general perform
all duties incident to the office of secretary and such other duties
as from time to time may be assigned to him by the chairman of the
board, the president or the board of directors.
SECTION 13. -- TREASURER.
The treasurer shall: (a) have the custody of the corporate funds and
securities; (b) deposit all moneys that may come into his hands to the
credit of the company in such depositories as are authorized or
approved by the board of directors; (c) see that all expenditures are
duly authorized and evidenced by proper receipts and vouchers; (d)
give such bonds as may be required by the board of directors, subject
to the approval of the board; and (e) in general perform all duties
incident to the office of treasurer and such other duties as from time
to time may be assigned to him by the chairman of the board, the
president or the board of directors.
SECTION 14. -- ASSISTANT SECRETARIES.
One or more assistant secretaries may be elected by the board of
directors or appointed by the chief executive officer. In the absence
of the secretary, an assistant secretary shall have the power to
perform his duties including the certification, execution and
attestation of corporation records and corporate instruments.
Assistant secretaries shall perform such other duties as may be
assigned to them by the chief executive officer or the board of
directors.
SECTION 15. -- ASSISTANT TREASURERS.
One or more assistant treasurers may be elected by the board of
directors or appointed by the chief executive officer. In the absence
of the treasurer, an
7
<PAGE>
assistant treasurer shall have the power to perform his duties. Assistant
treasurers shall perform such other duties as may be assigned to them by
the chief executive officer or the board of directors.
SECTION 16. -- POSITIONS AND TITLES.
The chief executive officer may establish such positions and appoint
persons to them with such titles as he may deem necessary. He may also
fix the duties of such positions and may discharge persons from them.
ARTICLE IV
COMMITTEES
SECTION 1. -- BOARD COMMITTEES.
In addition to committees specifically authorized by this Article, the
board of directors may, by resolution adopted by a majority of the
whole board of directors, from time to time designate (i) from among
its members one or more other committees each of which, to the extent
provided in such resolution and except as otherwise provided by law,
shall have and exercise all the authority of the board of directors,
and (ii) one or more advisory committees, a majority of whose members
shall be directors. Each such committee shall have one or more members
who serve at the pleasure of the board of directors. The designation
of any such committee and the delegation thereto of authority shall
not operate to relieve the board of directors, or any member thereof,
of any responsibility imposed by law. Each such committee shall keep a
record of its proceedings and shall adopt its own rules of procedure.
It shall make such reports to the board of directors of its actions as
may be required by the board.
SECTION 2. -- EXECUTIVE COMMITTEE.
The board of directors, by resolution adopted by a majority of the
whole board, may elect from among its members an executive committee
which shall consist of the chief executive officer and such other
member or members of the board, not less than one, as may be
designated in such resolution. The term of office of the members of
the executive committee shall be established in such resolution.
SUBSECTION 1. -- GENERAL POWERS. The executive committee shall have and may
exercise all of the authority of the board of directors in the management
of the property and business of the company during the interval between the
meetings of the board, except that the executive committee shall not have
authority to:
(1) Declare dividends or distributions.
8
<PAGE>
(2) Approve on behalf of this company an agreement of merger or
consolidation, or a plan of exchange of the stock of this company.
(3) Recommend to shareholders the amendment of the articles of
incorporation, the voluntary dissolution of the company, or the sale,
lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the property and assets of the company.
(4) Fill vacancies in the board of directors or the executive committee, or
remove members of the board or executive committee.
(5) Fix compensation for members of the executive committee.
(6) Exercise any of the power delegated to the investment committee
pursuant to Section 3 of this Article.
(7) Amend, alter or repeal these bylaws.
(8) Amend, alter or repeal any resolution of the whole board of directors
which by its terms provides that it shall not be amended, altered or
repealed by the executive committee.
No member of the board of directors shall be liable for any action
taken by the executive committee if he or she is not a member of the
committee and has acted in good faith and in a manner he or she
reasonably believes to be in or not opposed to the best interests of
the company; provided, that the establishment of the executive
committee and the delegation thereto of the authority described in
this subsection shall not operate to relieve the board of directors or
any member thereof of any responsibility imposed on it, him or her by
law.
SUBSECTION 2. -- MEETINGS. Meetings of the executive committee may be
called at any time by the chief executive officer or by any two
members of the executive committee. Meetings may be held at such time
and at such place, either within or without the state of Indiana, as
may be designated in the notice of the meeting.
SUBSECTION 3. -- NOTICE OF MEETINGS. Notice of any meeting of the
executive committee shall be served, not less than one hour prior to
the time fixed for the meeting, by oral, telegraphic, telephonic,
electronic or written communication stating the time and place thereof
and, if by mail or telegraph, addressed to each member of the
executive committee at his or her address as it appears on the books
of the company. Any member of the executive committee may waive notice
of any meeting. Attendance at a meeting of the executive committee
shall constitute a waiver of notice of such meeting.
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SUBSECTION 4. -- QUORUM. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business,
and the vote of a majority of the members present at any meeting at
which a quorum is present shall be the act of the executive committee.
SUBSECTION 5. -- MANNER OF ACTING. The executive committee may adopt
rules for the regulation of its proceedings. Minutes shall be kept of
the proceedings of the executive committee and shall be read and
approved at the next succeeding regular or special meeting of the
whole board of directors. Unless otherwise provided in the Articles of
Incorporation, an action required or permitted to be taken at a
meeting of the executive committee may be taken without a meeting, if
before the action is taken, a written consent to the action is signed
by all members of the executive committee and the written consent is
filed with the minutes of proceedings of the executive committee.
Unless otherwise provided by the Articles of Incorporation, a member
of the executive committee may participate in a meeting of the
executive committee by means of a conference telephone or similar
communications equipment by which all persons participating in the
meeting can communicate with each other, and participation by these
means constitutes presence in person at the meeting.
SUBSECTION 6. -- VACANCIES. If any member of the executive committee
shall cease to be a director of the company prior to the expiration of
his or her term of service on the executive committee, then his or her
membership on the executive committee shall be deemed to have
terminated and a vacancy deemed to have existed as of the date of
termination of membership on the board of directors. Any vacancy
occurring in the executive committee may be filled by the board of
directors at any regular or special meeting by resolution adopted by a
majority of the whole board.
SUBSECTION 7. -- REMOVAL OF EXECUTIVE COMMITTEE MEMBERS. Any member of
the executive committee may be removed, with or without cause, by the
board of directors at any regular or special meeting by resolution
adopted by a majority of the whole board.
SECTION 3. -- INVESTMENT COMMITTEE.
The board of directors, by resolution adopted by a majority of the
whole board, may elect from among its members an investment committee.
In addition to the chairman of the board and the president, who, by
virtue of their offices, shall each be a member, the investment
committee shall consist of such other members as shall be designated
in the resolution, to serve until the next meeting of the board of
directors held after each annual meeting of the shareholders.
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The investment committee shall have and possess all the rights and
powers of the board of directors to make, supervise and direct the
investments of the company, to sell, assign, exchange, lease, or
otherwise dispose of such investments, and to do and perform all
things deemed necessary and proper in relation to such investments.
The investment committee shall have the further right and power to
delegate its powers and duties to such officers, employees and agents,
including investment advisers, of the company as it may select and
appoint in its discretion, subject to such policies, plans, standards,
limitations and objectives as the investment committee may prescribe
from time to time.
The investment committee shall keep a record of its proceedings, shall
make reports to the board of directors of its actions as may be
required by law or by the board, shall adopt its own rules of
procedure, and shall take such other actions as may be required from
time to time by Indiana Code Section 27-1-12-2 or any other law of the
State of Indiana relating to investments by life insurance companies.
(AMENDED 3-11-93)
ARTICLE V
STOCK CERTIFICATES, TRANSFER OF
SHARES, STOCK RECORDS
SECTION 1. -- CERTIFICATES FOR SHARES.
Certificates representing shares of the company shall be in such form,
not inconsistent with the laws of the State of Indiana, as shall be
determined by the board of directors. Such certificates shall be
signed by the president or a vice president and by the secretary or an
assistant secretary. Where such certificate is also signed by a
transfer agent or registrar, or both, the signatures of the president,
vice president and the secretary or assistant secretary may be in
facsimile form. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person
to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer
records of the company. All certificates surrendered to the company
for transfer shall be cancelled and no new certificate shall be issued
until the former certificate for a like number of shares shall have
been surrendered and cancelled.
SECTION 2. -- TRANSFER OF SHARES.
Transfer of shares of the company shall be made only on the stock
transfer records of the company by the holder of record thereof or by
his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the company, and on
surrender for cancellation of the certificate for such shares.
11
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SECTION 3. -- LOST CERTIFICATES.
Any person claiming a certificate of stock to have been lost, stolen
or destroyed and desiring a new certificate in lieu thereof shall make
an affidavit of such fact, reciting the circumstances attending such
loss or destruction and shall give the company an open penalty bond of
indemnity, with a surety company as surety thereon, satisfactory to
the president or treasurer of the company (excepting that the board of
directors may, by resolution, authorize the acceptance of a bond of
different amount, or a bond with personal surety thereon) whereupon in
the discretion of the president or the treasurer a new certificate may
be issued of the same tenor and for the same number of shares as the
one alleged to have been lost, stolen or destroyed.
SECTION 4. -- TRANSFER AGENTS AND REGISTRAR.
The board of directors may appoint a transfer agent or agents and/or a
registrar of transfer, and may require all certificates to bear the
signatures of such transfer agent or agents, or any one of such
agents, and/or of such registrar. The board of directors may select
the treasurer of the company and one or more assistant treasurers to
serve as transfer agent or agents.
SECTION 5. -- REGULATIONS.
The board of directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning issues,
transfer and registration of certificates for shares of the capital
stock of the company.
SECTION 6. -- RECORD DATE.
The board of directors shall fix in advance a date, not exceeding
thirty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of stock
shall go into effect, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting,
or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of stock, and in such case only such
stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of and to vote at such meeting, or to
receive payment of such dividend, or to receive such allotment or
rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of the company
after any such record date fixed as aforesaid.
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ARTICLE VI
LIABILITY
SECTION 1. -- LIABILITY.
No person or his personal representatives shall be liable to the
company for any loss or damage suffered by it on account of any action
taken or omitted to be taken by such person in good faith as an
officer or employee of the company, or as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
company, partnership, joint venture, trust, employee benefit plan, or
other enterprise, whether for profit or not, which he serves or served
at the request of the company, if such person (a) exercised and used
the same degree of care and skill as a prudent man would have
exercised and used under like circumstances, charged with a like duty,
or (b) took or omitted to take such action in reliance upon advice of
counsel for the company or such enterprise or upon statements made or
information furnished by persons employed or retained by the company
or such enterprise upon which he had reasonable grounds to rely. The
foregoing shall not be exclusive of other rights and defenses to which
such person or his personal representatives may be entitled under law.
ARTICLE VII
INDEMNIFICATION
SECTION 1. -- ACTIONS BY A THIRD PARTY.
The company shall indemnify any person who is or was a party, or is
threatened to be made a defendant or respondent, to a proceeding,
including any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than actions by or in the right of the company), and whether
formal or informal, who is or was a director, officer, or employee of
the company or who, while a director, officer, or employee of the
company, is or was serving at the company's request as a director,
officer, partner, trustee, employee, or agent of another foreign or
domestic company, partnership, joint venture, trust, employee benefit
plan, or other enterprise, whether for profit or not, against:
(a) any reasonable expenses (including attorneys' fees) incurred with
respect to a proceeding, if such person is wholly successful on the
merits or otherwise in the defense of such proceeding, or
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(b) judgments, settlements, penalties, fines (including excise taxes
assessed with respect to employee benefit plans) and reasonable expenses
(including attorneys' fees) incurred with respect to a proceeding where
such person is not wholly successful on the merits or otherwise in the
defense of the proceeding if:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's capacity as a
director, officer or employee of the company, that the
individual's conduct was inthe company's best interests; and
(B) in all other cases, that the individual's conduct was at
least not opposed to the company's best interests; and
(iii) in the case of any criminal proceeding, the individual either:
(A) had reasonable cause to believe the individual's conduct was
lawful; or
(B) had no reasonable cause to believe the individual's conduct
was unlawful.
The termination of a proceeding by a judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director, officer, or employee
did not meet the standard of conduct described in this section.
SECTION 2. -- ACTIONS BY OR IN THE RIGHT OF THE COMPANY.
The company shall indemnify any person who is or was a party or is
threatened to be made a defendant or respondent, to a proceeding,
including any threatened, pending or completed action, suit or
proceeding, by or in the right of the company to procure a judgment in
its favor, by reason of the fact that such person is or was a
director, officer, or employee of the company or is or was serving at
the request of the company as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic company,
partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, against any reasonable expenses
(including attorneys' fees):
(a) if such person is wholly successful on the merits or otherwise in the
defense of such proceeding, or
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(b) if not wholly successful:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's capacity as a
director, officer or employee of the company, that the
individual's conduct was in the company's best interests; and
(B) in all other cases, that the individual's conduct was at
least not opposed to the company's best interests,
except that no indemnification shall be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to
be liable to the company unless and only to the extent that the court
in which such action or suit was brought shall determine upon
application, that despite the adjudication of liability but in view of
all circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses which such court shall
deem proper.
SECTION 3. -- METHODS OF DETERMINING WHETHER STANDARDS FOR INDEMNIFICATION HAVE
BEEN MET.
Any indemnification under Sections 1 or 2 of this Article (unless
ordered by a court) shall be made by the company only as authorized in
the specific case upon a determination that indemnification of the
director, officer, or employee is proper in the circumstances because
he has met the applicable standards of conduct set forth in Section 1
or 2. In the case of directors of the company, such determination
shall be made by any one of the following procedures:
(a) by the board of directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under (a), by majority vote of a
committee duly designated by the board of directors (in which designation
directors who are parties may participate), consisting solely of two or
more directors not at the time parties to the proceeding;
(c) by special legal counsel:
(i) selected by the board of directors or a committee thereof in the
manner prescribed in (a) or (b); or
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(ii) if a quorum of the board of directors cannot be obtained under
(a) and a committee cannot be designated under (b), selected by a
majority vote of the full board of directors (in which selection
directors who are parties may participate).
In the case of persons who are not directors of the company, such
determination shall be made (a) by the chief executive officer of the
company or (b) if the chief executive officer so directs or in his
absence, in the manner such determination would be made if the person
were a director of the company.
SECTION 4. -- ADVANCEMENT OF DEFENSE EXPENSES.
The company may pay for or reimburse the reasonable expenses incurred
by a director, officer, or employee who is a party to a proceeding
described in Section 1 or 2 of this Article in advance of the final
disposition of said proceeding if:
(a) the director, officer, or employee furnishes the company a written
affirmation of his good faith belief that he has met the standard of
conduct described in Section 1 or 2; and
(b) the director, officer, or employee furnishes the company a written
undertaking, executed personally or on his behalf, to repay the advance if
it is ultimately determined that the director, officer, or employee did not
meet the standard of conduct; and
(c) a determination is made that the facts then known to those making the
determination would not preclude indemnification under Section 1 or 2.
The undertaking required by this Section must be an unlimited general
obligation of the director, officer, or employee but need not be
secured and may be accepted by the company without reference to the
financial ability of such person to make repayment.
SECTION 5. -- NON-EXCLUSIVENESS OF INDEMNIFICATION.
The indemnification and advancement of expenses provided for or
authorized by this Article does not exclude any other rights to
indemnification or advancement of expenses that a person may have
under:
(a) the company's articles of incorporation or bylaws;
(b) any resolution of the board of directors or the shareholders of the
company;
(c) any other authorization adopted by the shareholders; or
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(d) otherwise as provided by law, both as to such person's actions in his
capacity as a director, officer, or employee of the company and as to
actions in another capacity while holding such office.
Such indemnification shall continue as to a person who has ceased to
be a director, officer, or employee, and shall inure to the benefit of
the heirs and personal representatives of such person.
ARTICLE VIII
AMENDMENTS
SECTION 1. -- These bylaws may be amended at any annual stockholders' meeting,
or at any special stockholders' meeting, provided that if amended at a special
stockholders' meeting, notice specifying the amendments proposed to be made
shall be mailed each stockholder at least thirty days before such special
meeting. Also, these bylaws may be amended at any regular or special meeting of
the board of directors by the vote of the majority of the total number of
directors.
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FORM OF
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 17th day of September, 1996, between
LINCOLN NATIONAL LIFE INSURANCE COMPANY, a life insurance company organized
under the laws of the State of Indiana ("Insurance Company"), and each of
DREYFUS VARIABLE INVESTMENT FUND, THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC. and DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS
STOCK INDEX FUND) (each a "Fund").
ARTICLE I 1.
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control
of the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract
that uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of
a Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
<PAGE>
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable,
any series thereof, specified in Exhibit A, as such Exhibit may be
amended from time to time by agreement of the parties hereto, the
shares of which are available to serve as the underlying investment
medium for the aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean Lincoln National Variable Annuity
Separate Account L, a separate account established by Insurance
Company in accordance with the laws of the State of Indiana.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset
value per share. Such Program may include the Lion System. In situations
where the Lion System or any other Software Program used by a Fund is
not available, such information will be provided in writing. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II 2.
REPRESENTATIONS
2.19 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and validly existing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
the Indiana Insurance Code for the purpose of offering to the public
certain individual and group variable annuity and life insurance
contracts; (c) it has registered the Separate Account as a unit
investment trust
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under the Act to serve as the segregated investment account for the
Contracts; and (d) the Separate Account is eligible to invest in shares
of each Participating Fund without such investment disqualifying any
Participating Fund Participating Fund as an investment medium for
insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registrations statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions imposed by state insurance law and applicable to
the Participating Fund.
2.3 Insurance Company represents and warrants hat the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities
from any business that Insurance Company may conduct or the liabilities
of any companies affiliated with Insurance Company.
2.4 Each Participating Fund represents and warrants that it is registered
with the Commission under the Act as an open-end, management investment
company and possesses, and shall maintain, all legal and regulatory
licenses, approvals, consents and/or exemptions required for the
Participating Fund to operate and offer its shares as an underlying
investment medium for Participating Companies. Each Participating Fund
represents and warrants that shares sold pursuant to this Agreement
shall be registered under the 1933 Act ad duly authorized for issuance
in accordance with applicable law.
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<PAGE>
2.5 Each Participating Fund represents and warrants that it is currently
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and that it
will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will
notify Insurance 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.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life insurance
policies or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify each Participating Fund and
Dreyfus 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. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such Contract
as a modified endowment contract (or policy).
2.7 Each Participating Fund represents and warrants that its assets shall
be managed and invested in a manner that complies with the requirements
of Section 817(h) of the Code and the regulations thereunder.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Insurance Company and each Participating Fund agree that Insurance
Company shall be permitted (subject to the other terms of this Agreement)
to utilize and employ other management investment companies as underlying
investment media for the Separate Account.
2.10 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and
other individuals/entities who deal with the money and/or
securities of the Participating Fund are and shall continue to be
at all times covered by a blanket
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fidelity bond or similar coverage for the benefit of the
Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
coverage required to be maintained by the Participating Fund. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.12 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
option to invest in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for
purchase at the then applicable net asset value per share by Insurance
Company and the Separate Account on each Business Day pursuant to rules
of the Commission. Notwithstanding the foregoing, each Participating
Fund may refused to sell its shares to any person, or suspend or
terminate the offering of its shares, if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of its Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund
will be sold only to (a) Participating Companies and their separate
accounts or (b) "qualified pension or retirement plans" as determined
under Section 817(h)(4) of the Code. Except as otherwise set forth in
this Section 3.3, no shares of any Participating Fund will be sold to
the general public.
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<PAGE>
3.4 Each Participating Fund shall use its best efforts to provide closing
net asset value, dividend and capital gain information on a per-share
basis to Insurance Company by 6:00 p.m. Eastern time on each Business
Day. Any material errors in the calculation of net asset value,
dividend and capital gain information shall be reported to Insurance
Company immediately upon discovery. Non-material errors will be
corrected in the next Business Day's net asset value per share.
Promptly upon execution of the Agreement, the parties will establish a
protocol for determining what constitutes a material error.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit
values of the Separate Account for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of each Participating Fund's shares that will be
purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders will be transmitted to each
Participating Fund by Insurance Company by 11:00 a.m. Eastern time on
the Business Day next following Insurance Company's receipt of that
information. Subject to Sections 3.6 and 3.8, all purchase and
redemption orders for Insurance Company's General Accounts shall be
effected at the net asset value per share of each Participating Fund
next calculated after receipt of the order by the Participating Fund or
its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the
conditions specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request that does not satisfy the conditions
specified above and in Section 3.8, as applicable, will be effected at
the net asset value per share computed on the
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Business Day immediately preceding the next following Business Day upon
which such conditions have been satisfied in accordance with the
requirements of this Section and Section 3.8.
3.7 Insurance Company will, when possible, notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the
Business Day the Participating Fund receives the notice of the order
pursuant to Section 3.5. Each applicable Participating Fund will
execute such orders at the applicable net asset value per share
determined as of the close of trading on the effective trade date if
the Participating Fund receives payment in Federal Funds by 12:00
midnight Eastern time on the Business Day the Participating Fund
receives the notice of the order pursuant to Section 3.5. If payment in
Federal Funds for any purchase is not received or is received by a
Participating Fund after 12:00 noon Eastern time on such Business Day,
Insurance Company shall promptly, upon each applicable Participating
Fund's request, reimburse the respective Participating Fund for any
charges, costs, fees, interest or other expenses incurred by the
Participating Fund in connection with any advances to, or borrowings or
overdrafts by, the Participating Fund, or any similar expenses incurred
by the Participating Fund, as a result of portfolio transactions
effected by the Participating Fund based upon such purchase request. If
Insurance Company's order requests the redemption of any Participating
Fund's shares valued at or greater than $1 million dollars, the
Participating Fund will wire such amount to Insurance Company within
seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares
are registered with applicable federal agencies at all times.
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<PAGE>
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will
be by book entry only. No share certificates will be issued to
Insurance Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding
account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund
shall communicate to Insurance Company the amount of dividend and
capital gain, if any, per share. All dividends and capital gains shall
be automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not a Business Day, on the first Business Day thereafter,
notify Insurance company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as
of the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices,
periodic reports and other printed materials (which the Participating
Fund customarily provides to its shareholders) in quantities as
Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, annual and
semi-annual reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
to the
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Participating Fund or its shares, as soon as possible after the filing
of such document with the Commission or other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, annual and
semi-annual reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
BOTH to the Contracts or the Separate Account and a Participating Fund,
as soon as possible after the filing of such document with the
Commission or other regulatory authorities.
ARTICLE V 5.
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share so as to accumulate to an annual charge at the rate set forth in
the Participating Fund's Prospectus. Excluded from the expense
limitation described herein shall be brokerage commissions and
transaction fees and extraordinary expenses.
5.2 Each Participating Fund, at its expense, shall provide to Insurance
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. The Fund shall be responsible for the
reasonable costs of printing and distributing these materials to
Contractholders.
All expenses incident to performance by each Participating Fund under
this Agreement (including expenses expressly assumed by the
Participating Fund pursuant to this Agreement) shall be paid by such
Participating Fund to the extent permitted by law. Insurance Company
shall not bear any of the expenses for the cost of registration and
qualification of Participating Fund Shares under Federal and any state
securities law, preparation and filing of each Participating Fund's
Registration Statement, the preparation of all statements and notices
required by any Federal or state
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securities law, all taxes on the issuance or transfer of Participating
Fund shares, and any expenses permitted to be paid or assumed by the
Participating Fund pursuant to a plan, if any, under Rule 12b-1 under the
1940 Act.
Each Participating Fund is responsible for the reasonable cost of
printing and distributing its Prospectuses and Statements of Additional
Information to existing Contractholders. (If for this purpose Insurance
Company prints Participating Fund Prospectuses and Statements of
Additional Information in a booklet containing disclosure for the
Contracts and for underlying funds other than those of the
Participating Fund, then the Participating Fund shall pay only its
proportionate share of the total cost to distribute the booklet to
existing Contractholders.)
Insurance Company is responsible for the cost of printing and
distributing Participating Fund and Separate Account Prospectuses and
Statements of Additional Information for new sales; and Separate
Account Prospectuses and Statements of Additional Information for
existing Contractholders. Insurance Company shall have the final
decision on choice of printer for all Prospectuses and Statements of
Additional Information relating to the Contracts.
ARTICLE VI
6. EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 23,
1987 of the Securities and Exchange Commission under Section 6(c) of
the Act with respect to Dreyfus Variable Investment Fund and a copy of
the order dated August 23, 1989 of the Securities and Exchange
Commission under Section 6(c) of the Act with respect to Dreyfus Life
and Annuity Index Fund, Inc. and, in particular, has reviewed the
conditions to the relief set forth in each related Notice. As set forth
therein, if Dreyfus Variable Investment Fund or Dreyfus Life and
Annuity Index Fund, Inc. is a Participating Fund, Insurance Company
agrees, as applicable, to report any potential or existing conflicts
promptly to the respective Board of Dreyfus Variable Investment Fund
and/or Dreyfus Life and Annuity Index Fund, Inc. and, in particular,
whenever contract voting instructions are disregarded, and recognizes
that it will be responsible for assisting each applicable
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Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.
The Dreyfus Socially Responsible Growth Fund, Inc., if it is a
Participating Fund, shall furnish Insurance Company with a copy of its
application for an order of the Securities and Exchange Commission
under Section 6(c) of the Act for mixed and shared funding relief, and
the notice of such application and order when issued by the SEC.
Insurance Company agrees to comply with the conditions on which such
order is issued, including reporting any potential or existing
conflicts promptly to the Board of The Dreyfus Socially Responsible
Growth Fund, Inc., and in particular whenever Contractholder voting
instructions are disregarded, to the extent such conditions are not
materially different from the conditions of the mixed and shared
funding relief obtained by Dreyfus Variable Investment Fund and Dreyfus
Life and Annuity Index Fund, Inc., respectively; and recognizes that it
shall be responsible for assisting the Board of The Dreyfus Socially
Responsible Growth Fund, Inc. in carrying out its responsibilities in
connection with such order. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include,
but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question
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of whether such segregation should be implemented to a vote of all
affected Contractholders; and/or
b. Establishing, with the concurrence of Insurance Company, a new
registered management investment company.
If any such action should be taken pursuant to this Section 6.2,
Insurance Company and each applicable Participating Fund shall fully
cooperate so as to minimize any disruptions to Contractholders.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a
new funding medium for any Contract. Insurance Company shall not be
required by this Article to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority
of the Contractholders materially adversely affected by the
irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company and each Participating Fund
of its respective obligations under, or otherwise affect the operation
of, Article V.
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<PAGE>
ARTICLE VII 7.
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as the Participating Fund shares for
which instructions have been received from Contractholders or
Participants. Insurance Company further agrees to be responsible for
assuring that voting the Participating Fund shares for the Separate
Account is conducted in a manner consistent with other Participating
Companies. Each Participating Fund shall reimburse Insurance Company
for the reasonable costs of soliciting voting instructions from
Contractholders in accordance with this Section.
7.2 Insurance Company agrees that it shall not, without notice to each
applicable Participating Fund and Dreyfus, solicit, induce or encourage
Contractholders to (a) change or supplement the Participating Fund's
current investment adviser.
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<PAGE>
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne in
accordance with Article V of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to
each applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating
Fund, its investment adviser or the administrator is named, at least
ten Business Days prior to its use. No such material shall be used
unless the Participating Fund or its designee approves such material.
Such approval (if given) must be in writing and shall be presumed given
if not received within ten Business Days after receipt of such
material. Each applicable Participating Fund or its designee, as the
case may be, shall use all reasonable efforts to respond within ten
days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in
the registration statement or Prospectus of the applicable
Participating Fund, as may be amended or supplemented from time to
time, or in reports or
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<PAGE>
proxy statements for, the applicable Participating Fund, or in the
public domain, or in sales literature or other promotional material
approved by the applicable Participating Fund except with the prior
written permission of the Fund. Such approval (if given) must be in
writing and shall be presumed given if not received within ten Business
Days after receipt of such material. Each Participating Fund agrees to
respond to any request for permission on a prompt and timely basis.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished,
to Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least ten Business Days prior to its
use. No such material shall be used unless Insurance Company approves
such material. Such approval (if given) must be in writing and shall be
presumed given if not received within ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts to
respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, given any information or make any
representations on behalf of Insurance Company or concerning Insurance
Company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from
time to time, or in published reports for the Separate Account that are
in the public domain or approved by Insurance Company for distribution
to Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company except with the
prior written permission of Insurance Company. Such approval (if given)
must be in writing and shall be presumed given if not received within
ten Business Days after receipt of such material. Insurance Company
agrees to respond to any request for permission on a prompt and timely
basis.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape
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<PAGE>
recording, videotape display, signs or billboards, motion pictures or
other public media), sales literature (such as any written
communication distributed or made generally available to customers or
the public, include 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 National
Association of Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
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 in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the respective Participating Fund or with respect
to the Separate Account or Contracts, 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
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<PAGE>
therein not misleading; (ii) arise out of or as a result of wrongful
conduct, statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the respective Participating Fund) of Insurance
Company or its agents, with respect to the sale and distribution of
Contracts for which the respective Participating Fund's shares are an
underlying investment; (iii) arise out of the wrongful conduct of
Insurance Company or persons under its control with respect to the sale
or distribution of the Contracts or the respective Participating Fund's
shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that with
respect to clauses (i) and (ii) above Insurance Company will not be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or
omission or alleged omission made in such registration statement,
prospectus, sales literature, or advertisement in conformity with
written information furnished to Insurance Company by the respective
Participating Fund specifically for use therein. This indemnity
agreement will be in addition to any liability which Insurance Company
may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees,
agents and each person, if any, who controls Insurance Company within
the meaning of the 1933 Act against any losses, claims, damages or
liabilities to which Insurance Company or any such director, officer,
employee, agent or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (1) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or Prospectus or
sales literature or advertisements
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<PAGE>
of the respective Participating Fund; (2) arise out of or are based
upon the omission to state in the registration statement or Prospectus
or sales literature or advertisements of the respective Participating
Fund any material fact required to be stated therein or necessary to
make the statement's therein not misleading; or (3) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or Prospectus or
sales literature or advertisements with respect to the Separate Account
or the Contracts and such statements were based on information provided
to Insurance Company by the respective Participating Fund; and the
respective Participating Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the respective Participating Fund will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such registration statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to the respective Participating Fund by
Insurance Company specifically for use therein. This indemnity
agreement will be in addition to any liability which the respective
Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, and
reasonable costs or expenses which Insurance Company may incur, suffer
or be required to pay due to the respective Participating Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate; (2) incorrect reporting of the daily
net asset value, dividend rate or capital gain distribution rate; and
(3) untimely reporting of the net asset value, dividend rate or capital
gain distribution rate; provided that the respective Participating Fund
shall have no obligation to indemnify and hold harmless Insurance
Company if the incorrect calculation or incorrect or untimely
reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company
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or otherwise as a result of or relating to a breach of this Agreement
by Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, 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. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice that it will assume the defense of
the action to the indemnified party and is performing its obligations
under this Article, the indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, 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.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in
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this Article IX. The provisions of this Article IX shall survive
termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective
Participating Fund, Dreyfus and sub-investment adviser of the
Participating Fund harmless against any tax liability incurred by the
Participating Fund under Section 851 of the Code arising from purchases
or redemptions by Insurance Company's General Account or the account of
its affiliates.
9.6 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, and
reasonable costs or expenses which Insurance Company may incur, suffer
or be required to pay due to the respective Participating Fund's
failure to comply with Section 817(h) of the Code and the regulations
thereunder.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180
days' advance notice, unless a shorter time is agreed to by the
respective Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company,
if shares of that Participating Fund are not reasonably available
to meet the requirements of the Contracts as determined by
Insurance Company. Prompt notice of election to terminate shall be
furnished by Insurance Company, said termination to be effective
ten days after receipt of notice unless the Participating Fund
makes available a sufficient number of shares to meet the
requirements of the Contracts within said ten-day period;
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c. As to a Participating Fund, at the option of Insurance Company,
upon the institution of formal proceedings against that
Participating Fund, or the investment adviser or sub-investment
adviser thereof, by the Commission, National Association of
Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in
Insurance Company's reasonable judgment, materially impair that
Participating Fund's ability to meet and perform the Participating
Fund's obligations and duties hereunder. Prompt notice of election
to terminate shall be furnished by Insurance Company with said
termination to be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating
Fund, upon the institution of formal proceedings against Insurance
Company by the Commission, National Association of Securities
Dealers or any other regulatory body, the expected or anticipated
ruling, judgment or outcome of which would, in the Participating
Fund's reasonable judgment, materially impair Insurance Company's
ability to meet and perform Insurance Company's obligations and
duties hereunder. Prompt notice of election to terminate shall be
furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating
Fund, if the Participating Fund shall determine, in its sole
judgment reasonably exercised in good faith, that Insurance Company
has suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to
have a material adverse impact upon the business and operation of
that Participating Fund or Dreyfus, such Participating Fund shall
notify Insurance Company in writing of such determination and its
intent to terminate this Agreement, and after considering the
actions taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such determination
of the Participating Fund
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shall continue to apply on the sixtieth (60th) day following the
giving of such notice, which sixtieth day shall be the effective
date of termination;
f. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or
its successors unless Insurance Company specifically approves the
selection of a new Participating Fund investment adviser. Such
Participating Fund shall promptly, and in no case later than the
effective date of the termination, furnish notice of such
termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with
applicable federal law, or such law precludes the use of such
shares as the underlying investment medium of Contracts issued or
to be issued by Insurance Company. Termination shall be effective
immediately without notice as to that Participating Fund but only
upon such occurrence;
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating
Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
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k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law;
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party;
m. Upon requisite vote of the Contractholders having an interest in
the Participating Fund (unless otherwise required by applicable
law) and written approval of Insurance Company to substitute shares
of another investment company for corresponding shares of such
Participating Fund in accordance with the terms of the Contracts
and the requirements of applicable law;
n. At the option of Insurance Company if the respective Participating
Fund ceases to qualify as a regulated investment company under
Subchapter M of the Code, or any successor or similar provision, or
if Insurance Company reasonably believes, based on an opinion of
its counsel, the Participating Fund may fail to so qualify;
o. At the option of Insurance Company if the Participating Fund fails
to qualify under Section 817(h) of the Code or the regulations
thereunder; or
p. At the option of Insurance Company if Insurance Company shall
determine in good faith that either (i) the Participating Fund has
suffered a material adverse change in its respective business or
financial condition; or (ii) the Participating Fund has been the
subject of material adverse publicity that Insurance Company
determines in good faith is reasonably likely to have a material
adverse impact upon the business and operations of Insurance
Company.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
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10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided
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 that Participating Fund and
Dreyfus so elect to make additional Participating Fund shares
available, the owners of the Existing Contracts or Insurance Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in that Participating Fund, redeem investments
in that Participating Fund and/or invest in that Participating Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, such Participating Fund and Dreyfus, as promptly
as is practicable under the circumstances, shall notify Insurance
Company whether Dreyfus and that Participating Fund will continue to
make that Participating Fund's shares available after such termination.
If such Participating Fund shares continue to be made available after
such termination, the provisions of this Agreement shall remain in
effect and thereafter either of that Participating Fund or Insurance
Company may terminate the Agreement as to that Participating Fund, 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 Participating Fund, need
not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall
not be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
<PAGE>
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the
addition or deletion of any Participating Fund as specified in
Exhibit A, shall be made by agreement in writing between Insurance
Company and each respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company: Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue, 6th Floor West
New York, New York 10166
Attn: Elizabeth A. Bachman, Esq.
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
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ARTICLE XIII 12.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
13.2 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including the SEC, 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.
ARTICLE XIV 13.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed and attested as of the date first above written.
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: _________________________________
Its: _________________________________
Attest: _____________________________
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: _________________________________
Its: _________________________________
Attest: _____________________________
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
By: _________________________________
Its: _________________________________
Attest: _____________________________
DREYFUS VARIABLE INVESTMENT FUND
By: _________________________________
Its: _________________________________
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Attest: _____________________________
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<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund -- Small Cap Portfolio
Dreyfus Stock Index Fund
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<PAGE>
FORM OF
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
LINCOLN NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of September,
1996, by and among LINCOLN NATIONAL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), and Indiana corporation, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto as
may be amended from time to time (each such account hereinafter referred to
as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND,an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter
the "Underwriters"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products")
to be offered by insurance companies which have entered into participation
agreements with the Fund and the Underwriter (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be
made available under this Agreement, as may be amended from time to time by
mutual agreement of the parties hereto (each such series hereinafter referred
to as a "Portfolio"); and
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WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") a registration statement on Form N-1A and the SEC has declared
effective said registration statement; and
WHEREAS, the Fund has obtained as order from the SEC, dated October 15,
1985 (File No. 812-6102), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers,Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund
2
<PAGE>
certain of the aforesaid variable life and variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts
such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such order from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time
on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rulers of the Securities and
Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Fund
shall use reasonable efforts to calculate such net asset value on each day
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offerings of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the the sole
discretion of the Board acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interest of the shareholders of such Portfolio.
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5
of Article II of this Agreement is in effect to govern such sales.
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<PAGE>
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. For purposes of
this Section 1.5, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice
of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that
all net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated
herein by this reference, (as such Schedule A may be amended from time to
time hereafter by mutual written agreement of all the parties hereto), (the
"Contracts") shall be invested in the Fund, in such other Funds advised by
the Adviser as may be mutually agreed to in writing by the parties hereto,
or in the Company's general account, provided that such amounts may also be
invested in investment companies other than the Fund. The Company shall
notify the Fund as to which other investment companies are available as
investment options under the Contract not later than the time such investment
companies are made available to owners of the Contracts. The investment
companies available to Contract owners as of the date of this Agreement are
as shown on Schedule C.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire. For purposes of Section 2.10 and 2.11, upon receipt by
the Fund of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Accounts.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distribution payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
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<PAGE>
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated
(normally by 6:30 p.m Boston time) and shall use its best efforts to make
such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
state laws and 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 established each Account, prior to any issuance or sale thereof,
as a segregated asset account under Section 27-1-5-1 of the Indiana Insurance
Code and has registered or, prior to any issuance or sale of the Contracts,
will register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1993 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its shares.
The Fund shall register and qualify the shares for sale in accordance with
the laws of the various states only if and to the extent deemed advisable by
the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended, (the "Code") and that it will make every effort 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 Company represents that the Contracts are currently treated
as life insurance policies or annuity insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the
5
<PAGE>
Underwriter 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.
2.5. The Fund currently does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the
laws of the State of Indiana and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the State of Indiana to the extent required to
perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Indiana and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws
of the State of Indiana and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals/
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimal
coverage as required currently by Rule 17g-(1) of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and
6
<PAGE>
embezzlement and shall be issued by a reputable bonding company. The Fund and
the Underwriter agree to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agree to
notify the Company immediately in the event that such coverage no longer
applies.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, and that said
bond is issued by a reputable bonding company, includes coverage for larceny
and embezzlement, and is in an amount not less than $5 million. The Company
agrees to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund shall provide camera-ready film containing
the Fund's prospectus and Statement of Additional Information, and such other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus
for the Contracts and the Fund's prospectus printed together in one document,
and to have the Statement of Additional Information for the Fund and the
Statement of Additional Information for the Contracts printed together in one
document. Alternatively, the Company may print the Fund's prospectus and/or
its Statement of Additional Information in combination with other fund
companies' prospectuses and statements of additional information. Except as
provided in the following three sentences, all expenses of printing and
distributing Fund prospectuses and Statements of Additional Information shall
be the expense of the Company. For prospectuses and Statements of Additional
Information provided by the Company to its existing owners of Contracts in
order to update disclosure as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectus distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
7
<PAGE>
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law, Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set
forth on Schedule B attached hereto and incorporated herein by this
reference, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by the shareholders, and in particular the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect
to periodic elections of trustees and with whatever rules the Commission may
promulgate with respect thereto.
8
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, 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 or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects
to such use within ten Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from
time to time, or in published reports for each Account which are in the
public domain or approved by the Company for distribution to Contract owners,
or in sales literature or other promotional material approved by the Company
or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, within 30 days of the filing of such document with the Securities
and Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations
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<PAGE>
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all
amendments to any of the above, that relate to the Contracts or each Account
and their investment in the Fund, within 30 days of the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, 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, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
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,
and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy material and any other material
constituting sales literature or advertising under NASD rules, the 1940 Act
or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter
in writing and such payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made
directly by the Fund. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by
any federal or state law, and all taxes on the issuance or transfer of the
Fund's shares.
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5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within
the grace period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded.
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<PAGE>
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested trustees), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (I.E., annuity contract
owners, life insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Underwriter and
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately
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<PAGE>
remedies any irreconcilable material conflict, but in no event will the Fund
be required to establish a new funding medium for the Contracts. The Company
shall not be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Shares Funding Exemptive Order, then (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or
13
<PAGE>
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for
use in the Registration Statement or prospectus for the Contracts 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
(ii) arise out of or as a result of any untrue
statements or representations (other than statements or representations
contained in the Registration Statement, prospectus or sales literature
of the Fund not supplied by the Company, or persons under its control)
or willful misfeasance, bad faith, or gross negligence of the Company
or persons under its control, with respect to the sale or distribution
of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a Registration
Statement, prospectus, or sales literature 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 if such a
statement or omission was made in reliance upon information furnished
to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Company, as limited by and in accordance with the
provisions of sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the
14
<PAGE>
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1993 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts and:
15
<PAGE>
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of any untrue statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its control)
or willful misfeasance, bad faith, or gross negligence of the Fund,
Adviser or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, 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 statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; or
(iv) 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 a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement
16
<PAGE>
by the Underwriter, as limited by and in accordance with the provisions
of Section 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is
applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from the Underwriter to such party of the Underwriter's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will
not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
17
<PAGE>
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) 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 a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or each
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of
any such claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Fund to such party of the
Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or
18
<PAGE>
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
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 Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to,
the Shared Funding Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six months
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of
such shares as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of
19
<PAGE>
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is
the subject of material adverse publicity;
(h) the requisite vote of the Contract owners having an interest
in a Portfolio (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 a Portfolio in
accordance with the terms of the Contracts; or
(i) 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, or an expected or anticipated
ruling, judgment or outcome which would, in the Fund's reasonable
judgment, materially impair the Company's ability to perform the
Company's obligations and duties hereunder; or
(j) at the option of the Company, upon institution of formal
proceedings against the Fund, the Underwriter, the Fund's investment
adviser or any sub-adviser, by the NASD, the SEC, or any state
securities or insurance
20
<PAGE>
commission or any other regulatory body regarding the duties of the
Fund or the Underwriter under this Agreement, or an expected or
anticipated ruling, judgment or outcome which would, in the Company's
reasonable judgment, materially impair the Fund's or the Underwriter's
ability to perform the Fund's or the Underwriter's obligations and
duties hereunder; or
(k) at the option of the Company, upon institution of formal
proceedings against the Fund's investment adviser of any sub-adviser by
the NASD, the SEC, or any state securities or insurance commission or
any other regulatory body which would, in the good faith opinion of the
Company, result in material harm to the Accounts, the Company or
Contract owners.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts 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. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII
and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption") or
(iii) as permitted by an order of the SEC pursuant to Section 26(b) of the
1940 Act. Upon request, the Company will promptly furnish to the Fund and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of
the Contracts, the Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the Contracts
without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
10.4 Notwithstanding any other provision of this Agreement, each
party's obligation under Article VII to indemnify the other parties shall
survive termination of this Agreement, to the extent that the events giving
rise to the obligation to indemnify the other party occurred prior to the
date of termination.
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<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, Indiana 46802
Attention: Kelly D. Clevenger
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information until such time
as it may come into the public domain without the express written consent of
the affected party.
12.3 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.
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<PAGE>
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 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. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Indiana Insurance Commissioner
with any non-privileged information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the insurance operations of the Company are being conducted
in a manner consistent with the Indiana Insurance Regulations and any other
applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
23
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
By:
------------------------------------
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
------------------------------------
Neal Litvack
President
24
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
- -------------------------------------- --------------------------------
Lincoln National Variable Annuity GAC96-111
Separate Account L GAC91-101
25
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Fund by the Underwriter, the Fund and
the Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Company" shall also include
the department or third party assigned by the Insurance Company to perform
the steps delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of the
Record, Mailing and Meeting dates. This will be done in writing
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer
by the Company either before or together with the Customers' receipt
of a proxy statement. Underwriter will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
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d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately
3-5 business days before mail date. Individual in charge at Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to Fidelity
Legal.
7. Package mailed by the Company.
- The Fund MUST allow at least a 15-day solicitation time to
the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar
days from (but NOT including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by
proposal into vote categories of all yes, no, or mixed replies,
and to begin data entry.
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<PAGE>
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed
on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are considered to be NOT RECEIVED for purposes
of vote tabulation. Any Cards that have "kicked out" (e.g.
mutilated, illegible) of the procedure are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions
on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper
tabulation of votes and accuracy of that tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the vote
is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of that
vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives
the tabulations stated in terms of a percentage and the number of
SHARES.) Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00 a.m.
Boston time. Fidelity Legal may reasonably request an earlier deadline
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for
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legal, regulatory, or accounting purposes, Fidelity Legal will be
permitted reasonable access to such Cards.
16. All arrangements, approvals and "signing-off" may be done orally, but
must always be followed up in writing.
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SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund: Small Cap Portfolio
Twentieth Century's TCI Portfolios, Inc.
TCI Growth
TCI Balanced
T. Rowe Price International Series, Inc.
Calvert Responsibly Invested Balanced Portfolio
30
<PAGE>
EXHIBIT 99.8(c)
FORM OF
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
LINCOLN NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of September,
1996, by and among LINCOLN NATIONAL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), an Indiana corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may
be amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter
the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products")
to be offered by insurance companies which have entered into participation
agreements with the Fund and the Underwriter (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be
made available under this Agreement, as may be amended from time to time by
mutual agreement of the parties hereto (each such series hereinafter referred
to as a "Portfolio"); and
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WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") a registration statement on Form N-1A and the SEC has declared
effective said registration statement; and
WHEREAS, the Fund has obtained an order from the SEC, dated September 17,
1986 (File No. 812-6422), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund
2
<PAGE>
certain of the aforesaid variable life and variable annuity contracts and the
Underwriter is authorized to sell such shares to unit investment trusts such
as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives notice of such order by 9:30 a.m.
Boston time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the Securities
and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Fund
shall use reasonable efforts to calculate such net asset value on each day
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole discretion
of the Board acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in the best interests
of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5
of Article II of this Agreement is in effect to govern such sales.
3
<PAGE>
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. For purposes of
this Section 1.5, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice
of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that
all net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated
herein by this reference, (as such Schedule A may be amended from time to
time hereafter by mutual written agreement of all the parties hereto), (the
"Contracts") shall be invested in the Fund, in such other Funds advised by
the Adviser as may be mutually agreed to in writing by the parties hereto, or
in the Company's general account, provided that such amounts may also be
invested in investment companies other than the Fund. The Company shall
notify the Fund as to which other investment companies are available as
investment options under the Contract not later than the time such investment
companies are made available to owners of the Contracts. The investment
companies available to Contract owners as of the date of this Agreement are
as shown on Schedule C.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
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<PAGE>
1.10 The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by
6:30 p.m. Boston time) and shall use its best efforts to make such net asset
value per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold
in compliance in all material respects with all applicable Federal and state
laws and 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
established each Account, prior to any issuance or sale thereof, as a
segregated asset account under Section 27-1-5-1 of the Indiana Insurance Code
and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its shares. The
Fund shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort 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 Company represents that the Contracts are currently treated as
life insurance policies or annuity insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the
5
<PAGE>
Underwriter 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.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the
laws of the State of Indiana and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the State of Indiana to the extent required to
perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Indiana and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the
laws of the State of Indiana and any applicable state and federal securities
laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond
or similar coverage of the benefit of the Fund in an amount not less than
the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions may be promulgated from time to time. The aforesaid
Bond shall include coverage for larceny and
6
<PAGE>
embezzlement and shall be issued by a reputable bonding company. The Fund and
the Underwriter agree to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agree to
notify the Company immediately in the event that such coverage no longer
applies.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, and that
said bond is issued by a reputable bonding company, includes coverage
for larceny and embezzlement, and is in an amount not less than $5 million.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund shall provide camera-ready film containing
the Fund's prospectus and Statement of Additional Information, and such other
assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus
for the Contracts and the Fund's prospectus printed together in one document,
and to have the Statement of Additional Information for the Fund and the
Statement of Additional Information for the Contracts printed together in one
document. Alternatively, the Company may print the Fund's prospectus and/or
its Statement of Additional Information in combination with other fund
companies' prospectuses and statements of additional information. Except as
provided in the following three sentences, all expenses of printing and
distributing Fund prospectuses and Statements of Additional Information
shall be the expense of the Company. For prospectuses and Statements of
Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse the Company in an amount
equal to the product of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Fund's per unit cost
of typesetting and printing the Fund's prospectus. The same procedures shall be
followed with respect to the Fund's Statement of Additional Information.
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<PAGE>
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or
in the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in a particular separate account in the same proportion as Fund shares of such
portfolio for which instructions have been received in that separate
account, so long as and to the extent that the Securities and Exchange
Commission continues to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts participating
in the Fund calculates voting privileges in a manner consistent with the
standards set forth on Schedule B attached hereto and incorporated herein
by this reference, which standards will also be provided to the other
Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect
to periodic elections of trustees and with whatever rules the Commission may
promulgate with respect thereto.
8
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, 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 or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects
to such use within ten Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as
such registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for each Account which are in the
public domain or approved by the Company for distribution to Contract owners,
or in sales literature or other promotional material approved by the Company
or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, within 30 days of the filing of such document with the Securities
and Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations
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<PAGE>
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all
amendments to any of the above, that relate to the Contracts or each Account
and their investment in the Fund, within 30 days of the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, 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, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
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,
and 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 V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter
in writing and such payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made
directly by the Fund. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by
any federal or state law, and all taxes on the issuance or transfer of the
Fund's shares.
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<PAGE>
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section
or Regulations. In the event of a breach of this Article VI by the Fund, it
will take all reasonable steps (a) to notify Company of such breach and (b)
to adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded.
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7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested trustees), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (I.E., annuity contract
owners, life insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Underwriter and
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company
in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately
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<PAGE>
remedies any irreconcilable material conflict, but in no event will the Fund
be required to establish a new funding medium for the Contracts. The Company
shall not be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION.
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including reasonable
legal and other expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or
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<PAGE>
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for use
in the Registration Statement or prospectus for the Contracts 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
(ii) arise out of or as a result of any untrue statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or willful
misfeasance, bad faith, or gross negligence of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or
sales literature 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 if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such indemnified Party's willfull misfeasance, bad faith, or gross
negligence in the
14
<PAGE>
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company
to such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of
the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares of the Contracts and:
15
<PAGE>
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of any untrue statements
or representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter or
persons under its control) or willful misfeasance, bad faith, or
gross negligence of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the Contracts,
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 statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf
of the Fund; or
(iv) 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 a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach
of this Agreement
16
<PAGE>
by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter from any
liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Underwriter will be entitled to participate, at its own expense,
in the defense thereof. The Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Underwriter to such party of the Underwriter's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will
not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
17
<PAGE>
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to
the operations of the Fund and:
(i) 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 a failure to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or each
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of
any such claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Fund to such party of the
Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or
18
<PAGE>
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
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 Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to,
the Shared Funding Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six months
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements
of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered, issued
or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by the
Company; or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of
19
<PAGE>
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgement
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its sole
judgement exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) the requisite vote of the Contract owners having an
interest in a Portfolio (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 a Portfolio in
accordance with the terms of the Contracts; or
(i) 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, or an expected or anticipated
ruling, judgement or outcome which would, in the Fund's reasonable
judgment, materially impair the Company's ability to perform the
Company's obligations and duties hereunder; or
(j) at the option of the Company, upon institution of formal
proceedings against the Fund, the Underwriter, the Fund's investment
adviser or any sub-adviser, by the NASD, the SEC, or any state
securities or insurance
20
<PAGE>
commission or any other regulatory body regarding the duties of the Fund
or the Underwriter under this Agreement, or an expected or anticipated
ruling, judgment or outcome which would, in the Company's reasonable
judgment, materially impair the Fund's or the Underwriter's ability to
perform the Fund's or the Underwriter's obligations and duties
hereunder; or
(k) at the option of the Company, upon institution of formal
proceedings against the Fund's investment adviser of any sub-adviser by
the NASD, the SEC, or any state securities or insurance commission or
any other regulatory body which would, in the good faith opinion of the
Company, result in material harm to the Accounts, the Company or
Contract owners.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the
Company, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts
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. The parties
agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be
governed by Article VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement
Contract Owner initiated or approved transactions, or (ii) as required
by state and/or federal laws or regulations or judicial or other legal
precedent of general application (hereinafter referred to as a "Legally
Required Redemption") or (iii) as permitted by and order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company
will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory
to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the Contracts
without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
10.4 Notwithstanding any other provision of this Agreement, each
party's obligation under Article VII to indemnify the other parties
shall survive termination of this Agreement, to the extent that the
events giving rise to the obligation to indemnify the other party
occurred prior to the date of termination.
21
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time
specify in writing to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, Indiana 46802
Attention: Kelly D. Clevenger
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund
as neither the Board, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate
or utilize such names and addresses and other confidential information
until such time as it may come into the public domain without the
express written consent of the affected party.
12.3 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.
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<PAGE>
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 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.
12.6 Each party hereto shall cooperate with each other 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. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the Indiana
Insurance Commissioner with any non-privileged information or reports in
connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance
operations of the Company are being conducted in a manner consistent
with the Indiana Insurance Regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written
consent of all parties hereto; provided, however, that the Underwriter
may assign this Agreement or any rights or obligations hereunder to any
affiliate of or company under common control with the Underwriter, if
such assignee is duly licensed and registered to perform the obligations
of the Underwriter under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as
of the date specified below.
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
23
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II
By:
----------------------------
J. Gary Burkhead
Senior Vice President
By:
---------------------------
Neal Litvack
President
24
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
- -------------------------------------- --------------------------------
Lincoln National Variable Annuity GAC96-111
Separate Account L GAC91-101
25
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Fund by the Underwriter, the Fund and
the Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include
the department or third party assigned by the Insurance Company to perform
the steps delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for
the shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of
the Record, Mailing and Meeting dates. This will be done in writing
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status
of the Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer
by the Company either before or together with the Customers' receipt
of a proxy statement. Underwriter will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
26
<PAGE>
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately
3-5 business days before mail date. Individual in charge at Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to Fidelity
Legal.
7. Package mailed by the Company.
- The Fund MUST allow at least a 15-day solicitation time to
the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar
days from (but NOT including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by
proposal into vote categories of all yes, no, or mixed replies,
and to begin data entry.
27
<PAGE>
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed
on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are considered to be NOT RECEIVED for purposes
of vote tabulation. Any Cards that have "kicked out" (e.g.
mutilated, illegible) of the procedure are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions
on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper
tabulation of votes and accuracy of that tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the vote
is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of that
vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives
the tabulations stated in terms of a percentage and the number of
SHARES.) Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00 a.m.
Boston time. Fidelity Legal may reasonably request an earlier deadline
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for
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legal, regulatory, or accounting purposes, Fidelity Legal will be
permitted reasonable access to such Cards.
16. All arrangements, approvals and "signing-off" may be done orally, but
must always be followed up in writing.
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SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund: Small Cap Portfolio
Twentieth Century's TCI Portfolios, Inc.
TCI Growth
TCI Balanced
T. Rowe Price International Series, Inc.
Calvert Responsibly Invested Balanced Portfolio
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EXHIBIT 99.8(d)
FORM OF
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is made and entered into as of
September , 1996 by and between LINCOLN NATIONAL LIFE INSURANCE COMPANY
(the "Company") and TWENTIETH CENTURY SECURITIES, INC. (the "Distributor").
WHEREAS, the Company offers to the public certain group variable
annuity contracts and group variable life insurance contracts (the
"Contracts"); and
WHEREAS, the Company wishes to offer as investment options under
the Contracts, TCI Balanced and TCI Growth (the "Funds"), both of which
are a series of mutual fund shares registered under the Investment Company
Act of 1940, as amended, and issued by TCI Portfolios, Inc. (the "Issuer");
and
WHEREAS, on the terms and conditions hereinafter set forth, Distributor
and the Issuer desire to make shares of the Funds available as investment
options under the Contracts and to retain the Company to perform certain
administrative services on behalf of the Funds;
WHEREAS, the Funds are open-end management investment companies that
were established for the purpose of serving as the investment vehicles 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 Issuer 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-1A to register itself
as an open-end management investment company (File No. 40-811-5188) under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the
Fund shares (File No. 33-14567) 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 certain variable annuity contracts described in
Schedule A 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 A from time to time (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 A 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
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WHEREAS, each Account (defined in SECTION 7(a) below), a validly
existing separate account, duly authorized by resolution of the Board of
Directors of the Company, set forth on Schedule B 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, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Distributor and the Issuer have entered into an agreement
(the "Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Investors Research Corporation (the "Investment Advisor") is
registered as an investment adviser under the 1940 Act and any applicable
state securities laws and serves as an investment manager to the Issuer and
the Funds pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Fund shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Fund shares to purchasers such as the Accounts at net asset value;
NOW, THEREFORE, the Company and Distributor agree as follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of
this Agreement, the Distributor will cause the Issuer to make shares of the
Funds available to be purchased, exchanged, or redeemed, by the Company on
behalf of the Accounts through a single account per Fund at the net asset
value applicable to each order. The Funds' shares shall be purchased and
redeemed on a net basis in such quantity and at such time as determined by
the Company to satisfy the requirements of the Contracts for which the Funds
serve as underlying investment media. Dividends and capital gains
distributions will be automatically reinvested in full and fractional shares
of the Funds.
2. ADMINISTRATIVE SERVICES. The Company shall be solely responsible
for providing all administrative services for the Contract owners. The
Company agrees that it will maintain and preserve all records as required by
law to be maintained and preserved, and will otherwise comply with all laws,
rules and regulations applicable to the marketing of the Contracts and the
provision of administrative services to the Contract owners.
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<PAGE>
3. TIMING OF TRANSACTIONS.
Distributor hereby appoints the Company as its agent and/or agent for
the Funds for the limited purpose of accepting purchase and redemption orders
for Fund shares from the Accounts and/or Contract Owners, as applicable. On
each day the New York Stock Exchange (the "Exchange") is open for trading
(each, a "Business Day"), the Company may receive instructions from the
Accounts and/or Contract Owners for the purchase or redemption of shares of
the Funds ("Orders"). Orders received and accepted by the Company prior to
the close of regular trading on the Exchange (the "Close of Trading") on any
given Business Day (currently, 4:00 p.m. Eastern time) and transmitted to the
Issuers by 10:00 a.m. Eastern time on the next following Business Day will be
executed at the net asset value determined as of the Close of Trading on the
previous Business Day. Any Orders received by the Company after the Close of
Trading, and all Orders that are transmitted to the Issuers after 10:00 a.m.
Eastern time on the next following Business Day, will be executed by the
Issuers at the net asset value next determined following receipt of such
Order. The day as of which an Order is executed by the Issuers pursuant to
the provisions set forth above is referred to herein as the "Trade Date".
4. PROCESSING OF TRANSACTIONS.
(a) By 7:00 p.m. Eastern time on each Business Day, Distributor will
provide to the Company, via facsimile or other electronic transmission
acceptable to the Company, the Funds' net asset value, dividend and capital
gain information and, in the case of income funds, the daily accrual for
interest rate factor (mil rate), determined at the Close of Trading.
(b) By 10:00 a.m. Eastern time on each Business Day, the Company will
provide to Distributor via facsimile or other electronic transmission
acceptable to Distributor a report stating whether the Orders received by the
Company from Contract Owners by the Close of Trading on the preceding
Business Day resulted in the Accounts being a net purchaser or net seller of
shares of the Funds. As used in this Agreement, the phrase "other electronic
transmission acceptable to Distributor" includes the use of remote computer
terminals located at the premises of the Company, its agents or affiliates,
which terminals may be linked electronically to the computer system of
Distributor, its agents or affiliates (hereinafter, "Remote Computer
Terminals").
(c) Upon the timely receipt from the Company of the report described in
(b) above, the Funds' transfer agent will execute the purchase or redemption
transactions (as the case may be) at the net asset value computed as of the
Close of Trading on the Trade Date. Payment for net purchase transactions
shall be made by wire transfer to the applicable Fund custodial account
designated by the Distributor on the Business Day next following the Trade
Date. Such wire transfers shall be initiated by the Company's bank prior to
4:00 p.m. Eastern time and received by the Funds prior to 6:00 p.m. Eastern
time on the Business Day next following the Trade Date ("T + 1"). If payments
for a purchase Order is not timely received, such Order will be executed at
the net asset value next computed following receipt of payment. Payments for
net redemption transactions shall be made by wire transfer by the Issuers to
the account designated by the Company on T + 1;
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<PAGE>
PROVIDED, HOWEVER, the Issuer reserves the right to settle redemptions
transactions within the time period set forth in the applicable Fund's
then-current prospectus. On any Business Day when the Federal Reserve Wire
Transfer System is closed, all communication and processing rules will be
suspended for the settlement of Orders. Orders will be settled on the next
Business Day on which the Federal Reserve Wire Transfer System is open and
the original Trade Date will apply.
5. PROSPECTUS, PROXY MATERIALS AND OTHER INFORMATION
(a) Distributor shall provide the Company with copies of the Issuer's
proxy materials, periodic fund reports to shareholders and other materials
that are required by law to be sent to the Issuer's shareholders. In
addition, Distributor shall provide the Company with a sufficient quantity of
prospectuses and Statements of Additional Information of the Funds to be used
in conjunction with the transactions contemplated by this Agreement, together
with such additional copies of the Issuer's prospectuses and Statements of
Additional Information as may be reasonably requested by Company. If the
Company provides for pass-through voting by the Contract owners, Distributor
will provide the Company with a sufficient quantity of proxy materials for
each Contract owner.
(b) The cost of preparing, printing and shipping of the prospectuses,
proxy materials, periodic fund reports and other materials of the Issuer to
the Company shall be paid by Distributor or its agents or affiliates;
PROVIDED, HOWEVER, that if at any time Distributor or its agent reasonably
deems the usage by the Company of such items to be excessive, it may, prior
to the delivery of any quantity of materials in excess of what is deemed
reasonable, request that the Company demonstrate the reasonableness of such
usage. If the Distributor believes the reasonableness of such usage has not
been adequately demonstrated, it may request that the Company pay the cost of
printing (including press time) and delivery of any excess copies of such
materials. Unless the Company agrees to make such payments, Distributor may
refuse to supply such additional materials and Distributor shall be deemed in
compliance with this SECTION 5 if it delivers to the Company at least the
number of prospectuses and other materials as may be required by the Issuers
under applicable law.
(c) The cost of distribution, if any, of any prospectuses, proxy
materials, periodic fund reports and other materials of the Issuer to the
Contract owners shall be paid by the Company and shall not be the
responsibility of Distributor or the Issuer.
(d) 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, 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
4
<PAGE>
respond within 10 days of a request by the Fund or the Distributor, then the
Fund is relieved of the obligation to obtain the prior written permission of
the Company.
(e) For purposes of this SECTION 5, 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, circular, 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.
6. COMPENSATION AND EXPENSES.
(a) The Accounts shall be the sole shareholder of Fund shares purchased
for the Contract owners pursuant to this Agreement (the "Record Owners"). The
Company and the Record Owners shall properly complete any applications or
other forms required by Distributor or the Issuer from time to time.
(b) Distributor acknowledges that it will derive a substantial savings
in administrative expenses, such as a reduction in expenses related to
postage, shareholder communications and recordkeeping, by virtue of having a
single shareholder account per Fund for the Accounts rather than having each
Contract owner as a shareholder. In consideration of the Administrative
Services and performance of all other obligations under this Agreement by the
Company, Distributor will pay the Company a fee (the "Administrative Services
fee") equal to 20 basis points (0.20%) per annum of the average aggregate
amount invested by the Company under this Agreement. Distributor's obligation
shall be suspended with respect to any month during which the Company's
average aggregate investment in the Funds drops below $10 million.
Notwithstanding the above, if the Company's average investment in a single
Fund during a month exceeds $5 million, Distributor will pay the Company the
Administrative Services Fee with respect to all amounts invested in such
Fund. If the Company's investment in such Fund drops below $5 million, the
Distributor's obligation to pay the Administrative Services Fee shall be
suspended until the Company's average investment in the Fund exceeds $5
million or average aggregate investment in the Funds exceeds $10 million. For
purposes of Section 6(b), First UNUM/UNUM assets in the Fund will be included
in determining the threshold.
(c) The payments received by the Company under this Agreement are for
administrative and shareholder services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
5
<PAGE>
(d) For the purposes of computing the payment to the Company
contemplated by this SECTION 6, the average aggregate amount invested by the
Accounts in the Funds over a one month period shall be computed by totaling
the Company's aggregate investment (share net asset value multiplied by total
number of shares of the Funds held by the Company) on each Business Day
during the month and dividing by the total number of Business Days during
such month.
(e) Distributor will calculate the amount of the payment to be made
pursuant to this SECTION 6 at the end of each calendar quarter and will make
such payment to the Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the calculation of the
amounts being paid by Distributor for the relevant months and such other
supporting data as may be requested by the Company and shall be mailed to:
Lincoln National Life Insurance Company
1300 South Clinton Street
Ft. Wayne, Indiana 46802
Attention: Kelly D. Clevenger
(f) In the event Distributor reduces its management fee with respect to
any Fund after the date hereof, Distributor may amend the Administrative
Services fee payable with regard to such Fund by providing the Company 30
days' advance written notice of any such adjustment. The revised
Administrative Services fee shall become effective as of the latter of 30
days from the date of delivery of the notice or the date prescribed in the
notice.
7. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants that: (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established
the Separate Accounts listed on Schedule B (the "Accounts"), each of which is
a separate account under the Indiana Insurance law, and has registered each
Account as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act") to serve as an investment vehicle for the Contracts;
(iii) each Contract provides for the allocation of net amounts received by
the Company to an Account for investment in the shares of one of more
specified investment companies selected among those companies available
through the Account to act as underlying investment media; (iv) selection of
a particular investment company is made by the Contract owner under a
particular Contract, who may change such selection from time to time in
accordance with the terms of the applicable Contract; and (v) the activities
of the Company contemplated by this Agreement comply with all provisions of
federal and state insurance, securities, and tax laws applicable to such
activities.
6
<PAGE>
(b) Distributor represents and warrants that: (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of
Distributor, enforceable in accordance with its terms; and (ii) the
investments of the Funds will at all times be adequately diversified within
the meaning of Section 817(h) of the Internal Revenue Service Code of 1986,
as amended (the "Code"), and the regulations thereunder, and that at all
times while this Agreement is in effect, all beneficial interests in each of
the Funds will be owned by one or more insurance companies or by any other
party permitted under Section 1.817-5(f)(3) of the Regulations promulgated
under the Code; and (iii) each Fund currently qualifies as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). The Distributor further represents and warrants that
it will cause the Funds 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 and (iv) that Distributor is registered as a
Broker/Dealer under the Securities and Exchange Act of 1934.
(c) [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.]
(d) [The Fund represents and warrants 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.]
(e) [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.]
8. ADDITIONAL COVENANTS AND AGREEMENTS
(a) Each party shall comply with all provisions of federal and state
laws applicable to its respective activities under this Agreement. All
obligations of each party under this Agreement are subject to compliance with
applicable federal and state laws.
(b) Each party shall promptly notify the other parties in the event that
it is, for any reason, unable to perform any of its obligations under this
Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners in
proper form prior to the Close of Trading of the Exchange
7
<PAGE>
on that Business Day. The Company shall time stamp all Orders or otherwise
maintain records that will enable the Company to demonstrate compliance with
SECTION 8(c) hereof.
(d) The Company covenants and agrees that all Orders transmitted to the
Issuers, whether by telephone, telecopy, or other electronic transmission
acceptable to Distributor, shall be sent by or under the authority and
direction of a person designated by the Company as being duly authorized to
act on behalf of the owner of the Accounts. Absent actual knowledge to the
contrary, Distributor shall be entitled to rely on the existence of such
authority and to assume that any person transmitting Orders for the purchase,
redemption or transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-308 and 8-404 of the Uniform
Commercial Code with respect to the transmission of instructions regarding
Fund shares on behalf of the owner of such Fund shares. The Company shall
maintain the confidentiality of all passwords and security procedures issued,
installed or otherwise put in place with respect to the use of Remote
Computer Terminals and assumes full responsibility for the security therefor.
The Company further agrees to be responsible for the accuracy, propriety and
consequences of all data transmitted to Distributor by the Company by
telephone, telecopy or other electronic transmission acceptable to
Distributor.
(e) The Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and promotion
to shares of the Funds as is given to other underlying investments of the
Accounts.
(f) The Company shall not, without the written consent of Distributor,
make representations concerning the Issuer or the shares of the Funds except
those contained in the then-current prospectus and in current printed sales
literature approved by Distributor or the Issuer.
(g) Advertising and sales literature with respect to the Issuer or the
Funds prepared by the Company or its agents, if any, for use in marketing
shares of the Funds as underlying investment media to Contract owners shall
be submitted to Distributor for review and approval before such material is
used. Failure by Distributor to respond within 10 Business Days of the
request by the Company shall relieve the Company of the obligation to obtain
prior approval of Distributor.
(h) The Company will provide to Distributor at least one complete copy of
all registration statements, prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements, and all
amendments or supplements to any of the above that include a description of
or information regarding the Funds promptly after the filing of such document
with the SEC or other regulatory authority.
(i) Each party will comply with reasonable requests for information and
documents regarding the Funds or the other party's compliance with its
obligations under this Agreement made by the other party, by the Fund's Board
of Directors or by any appropriate governmental entity or self regulatory
organization.
8
<PAGE>
9. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither Distributor nor the Funds shall use any trademark, trade
name, service mark or logo of the Company, or any variation of any such
trademark, trade name, service mark or logo, without the Company's prior
written consent, the granting of which shall be at the Company's sole option.
Except as otherwise expressly provided for in this Agreement, the Company
shall not use any trademark, trade name, service mark or logo of the Issuer
or Distributor, or any variation of any such trademarks, trade names, service
marks, or logos, without the prior written consent of either the Issuer or
Distributor, as appropriate, the granting of which shall be at the sole
option of Distributor and/or the Issuer.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating Companies
(as defined in SECTION 12(a) below) participating in any Fund calculate
voting privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by Distributor and will vote shares in accordance with instructions
received from such Contract owners. The Company shall vote Fund shares for
which no instructions have been received in the same proportion as shares for
which such instructions have been received. The Company shall not oppose or
interfere with the solicitation of proxies for Fund shares held for such
Contract owners.
11. INDEMNITY.
11.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund, the Distributor and each person who controls or
is associated with the Fund (other than another Participating Insurance
Company) or the Distributor 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, expenses, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid 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, expenses, damages
or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made; provided that this obligation to indemnify shall
not apply if such statement or
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<PAGE>
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 Distributor (or a person authorized
in writing to do so on behalf of the Fund or the Distributor) 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 SECTION 3; 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.
11.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor 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, expenses, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid 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
10
<PAGE>
regulation, at common law or otherwise, insofar as such losses, claims,
expenses, 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
Distributor or its affiliates 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 Distributor (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 Fund or persons under their
control) or gross negligence, willful misfeasance or bad faith of the
Distributor 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,
Contract's 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 Distributor to the Company (or a person authorized in
writing to do so on behalf of the Fund or the Distributor); or
(d) arise as a result of any failure by the Distributor 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 SECTION 7(b) of this Agreement;
and (ii) to provide the Company with accurate information sufficient
for it to calculate its accumulation and/or annuity unit values in timely
fashion as required by law and by the this Agreement); or
(e) arise out of any material breach by the Distributor 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
11
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or liability is due to the wilful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the party seeking indemnification.
11.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this SECTION 11 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 SECTION 11 ("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 SECTION
11, 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 SECTION 11. The
indemnification provisions contained in this SECTION 11 shall survive any
termination of this Agreement.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Investors Research on December 12, 1987, with
the SEC and the order issued by the SEC in response thereto (the "Shared
Funding Exemptive Order"). The Company has reviewed the conditions to the
requested relief set forth in such application for exemptive relief. As
set forth in such application, the Board of Directors of the Issuer (the
"Board") will monitor the Issuer for the existence of any material
irreconcilable conflict between the interests of the contract owners of
all separate accounts ("Participating Companies") investing in funds of
the Issuer. An irreconcilable material conflict may arise for a variety
of reasons, including: (i) an action by any state insurance regulatory
authority; (ii) a change in applicable federal or state insurance, tax,
or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative
12
<PAGE>
letter, or any similar actions by insurance, tax or securities regulatory
authorities; (iii) an administrative or judicial decision in any relevant
proceeding; (iv) the manner in which the investments of any portfolio are
being managed; (v) a difference in voting instructions given by variable
annuity contract owners and variable life insurance contract owners; or (vi)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out
its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with
regard to contract owner investments in a Fund, the Board shall give prompt
notice to all Participating Companies. If the Board determines that the
Company is responsible for causing or creating said conflict, the Company
shall at its sole cost and expense, and to the extent reasonably practicable
(as determined by a majority of the disinterested Board members), take such
action as is necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include but shall not be limited to (i)
withdrawing the assets allocable to the Accounts from the fund and
reinvesting such assets in a different investment medium or submitting the
question of whether such segregation should be implemented to a vote of all
affected contract owners and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Companies)
that votes in favor of such segregation, or offering to the affected contract
owners the option of making such a change [and (ii) establishing a new
registered management investment company or managed separate account.]
Nothing in this paragraph (c) shall be construed to waive any cause of
action which may be available to Company against any other Participating
Insurance Company or Companies, or against any other person or entity, in the
event Company determines in good faith that it (Company) is not responsible
(or is not solely responsible) for the material irreconcilable conflict.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contract owner voting instructions
and said decision represents a minority position or would preclude a majority
vote by all of its contract owners having an interest in the Issuer, the
Company at its sole cost, may be required, at the Board's election, to
withdraw an Account's investment in the Issuer and terminate this Agreement;
provided, however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
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(e) For the purpose of this SECTION 12, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Issuer be required to establish a new funding medium for any Contract. The
Company shall not be required by this SECTION 12 to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners materially adversely affected by the
irreconcilable material conflict.
13. APPLICABLE LAW. This Agreement shall be subject to the provisions
of all applicable securities law, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant, and the terms hereof shall be limited,
interpreted and construed in accordance therewith.
14. TERMINATION. This agreement shall terminate as to the sale and
issuance of new Contracts:
(a) at the option of either the Company, Distributor or the Issuer
upon six months' advance written notice to the other;
(b) at the option of the Company if the Fund's shares are not
available for any reason to meet the requirement of Contracts as
determined by the Company. Reasonable advance notice of election to
terminate shall be furnished by Company;
(c) at the option of either party upon institution of formal
proceedings against the other party or the Investment Advisor or and
Sub-Investment Advisor by the National Association of Securities
Dealers, Inc. (the "NASD"), the SEC or any other regulatory body
which the terminating party reasonably believes will result in a
material harm to the terminating party or the Funds, the Accounts
or the Contract owners;
(d) upon termination of the Management Agreement between the
Issuer and Investment Advisor or the Distribution Agreement between
the Issuer and the Distributor. Notice of such termination shall be
promptly furnished to the Company. This subsection (e) shall not
be deemed to apply if contemporaneously with such termination a
new contract of substantially similar terms is entered into between
the Issuer and the Investment Advisor or between the Issuer and
Distributor;
(e) upon the requisite vote of Contract owners having an
interest in the Issuer to substitute for the Issuer's shares the
shares of another investment company in accordance with the terms of
Contracts for which the Issuer's shares had been selected to serve
as the underlying investment medium. The Company will give 60 days'
written notice to the Issuer and Distributor of any proposed vote
to replace the Funds' shares;
(f) upon assignment of this Agreement unless made with the
written consent of all other parties hereto;
(g) if the Issuer's shares are not registered, issued or sold
in conformance with Federal law or such law precludes the use of
Fund shares as an underlying investment medium of Contracts issued
or
14
<PAGE>
to be issued by the Company. Prompt notice shall be given by either
party should such situation occur;
(h) at the option of the Issuer, if the Issuer reasonably determines
in good faith that the Company is not offering shares of the Fund in
conformity with the terms of this Agreement or applicable law;
(i) at the option of any party hereto upon a determination that
continuing to perform under this Agreement would, in the reasonable
opinion of the terminating party's counsel, violate any applicable
federal or state law, rule, regulation or judicial order;
(j) 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;
(k) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code, or under
any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail to
so qualify;
(l) 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;
(m) at the option of either the Fund or the Distributor if the Fund
or the Distributor, respectively, shall determine, in their 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 either the Fund or the Distributor;
or
(n) at the option of the Company, if the Company shall determine, in
its sole judgment exercised in good faith, that either; (1) the
Investment Advisor or Distributor shall have suffered a material adverse
change in their respective businesses or financial condition; or (2) the
Investment Advisor or Distributor 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.
15. CONTINUATION OF AGREEMENT.
(a) Termination as the result of any cause listed in SECTION 14 shall not
affect the Issuer's obligation to furnish its shares to Contracts then in
force for which its shares serve or may serve as the underlying medium (unless
such further sale of Fund shares is proscribed by law or the SEC or other
regulatory body). Following termination, Distributor shall not have any
15
<PAGE>
Administrative Services payment obligation to the Company (except for payment
obligations accrued but not yet paid as of the termination date).
(b) Notwithstanding any termination of this Agreement pursuant to
SECTION 14 of this Agreement, the Fund will, at the option of the Company,
continued 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 redeem investments
in the Fund and/or invest in the Fund.
(c) If Fund shares continue to be made available after such termination,
the provisions of this Agreement shall remain in effect except as set forth
in SECTION 14(a) and thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this SECTION 15, 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.
(d) The parties agree that this SECTION 15 shall not apply to any
termination made pursuant to SECTION 12 or any conditions or undertakings
incorporated by reference in SECTION 12, and the effect of such SECTION 12
termination shall be governed by the provisions set forth or incorporated by
reference therein.
16. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
this Agreement and the arrangement described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
17. SURVIVAL. The provisions of SECTION 9 (use of names) and SECTION 11
(indemnity) of this Agreement shall survive termination of this Agreement.
18. AMENDMENT. Neither this Agreement, nor any provision hereof, may
be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all of the parties hereto.
19. NOTICES. All notices and other communications hereunder shall be
given or made in writing, and shall be delivered personally, or sent by
telex, telecopier, express delivery or registered or certified mail,
postage prepaid, return receipt requested, to the party or parties to whom
they are directed at the following addresses, or at such other addresses
as may be designated by notice from such party to all other parties.
16
<PAGE>
To the Company:
Lincoln National Life Insurance Company
1300 South Clinton Street
Ft. Wayne, Indiana 46802
Attention: Kelly D. Clevenger
(219) 455-5119 (office number)
(219) 455-1773 (telecopy number)
To the Issuer or Distributor:
Twentieth Century Mutual Funds
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed
in this SECTION 19 shall be deemed to have been delivered on receipt.
20. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without
the written consent of all parties to the Agreement at the time of such
assignment. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement,
and any party hereto may execute this Agreement by signing any such
counterpart.
22. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
23. ENTIRE AGREEMENT. This Agreement, including the Attachments
hereto, constitutes the entire agreement between the parties with respect
to the matters dealt with herein, and supersedes all previous agreements,
written or oral, with respect to such matter.
17
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date set forth above.
TWENTIETH CENTURY SECURITIES, INC. LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: By:
-------------------------------- ------------------------------------
William M. Lyons Kelly D. Clevenger
Executive Vice President Vice President
18
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS OF LINCOLN NATIONAL LIFE INSURANCE COMPANY
INVESTING IN THE FUND
Lincoln National Variable Annuity Account L
19
<PAGE>
SCHEDULE B
VARIABLE ANNUITY CONTRACTS
AND VARIABLE LIFE INSURANCE POLICIES
SUPPORTED BY SEPARATE ACCOUNTS
LISTED ON SCHEDULE A
Group Variable Annuity I Contracts
Group Variable Annuity II Contracts
Group Variable Annuity III Contracts
20
<PAGE>
FORM OF
PARTICIPATION AGREEMENT
AMONG
ACACIA CAPITAL CORPORATION
AND
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
CALVERT DISTRIBUTORS, INC.
THIS AGREEMENT, made and entered into this 6th day of September, 1996, by and
between ACACIA CAPITAL CORPORATION ("ACC"), a corporation organized under the
laws of Maryland (the "Fund"), and 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"), ACC, and Calvert Distributors, Inc.
(the "Distributor").
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 common stock of the Fund (the "Fund shares") consists of
separate series ("Series") issuing separate classes of shares ("Series
shares"), each such class representing an interest in a particular managed
portfolio of securities and other assets; 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-1A to register itself as an open-end
management investment company (File No. _____) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No. _____)
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 certain variable annuity contracts 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
1
<PAGE>
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
WHEREAS, each Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of 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, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement (the
"Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Calvert Asset Management Company ("CAMCO"), (the "Investment
Manager") is registered as an investment adviser under the 1940 Act and any
applicable state securities laws and serves as an investment manager to the
Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Distributor agree as follows:
ARTICLE 1. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series 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 the shares of its Series 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 such net
asset value by 6:00 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 Fund
shares of any Series, if such action is required by law or by regulatory
2
<PAGE>
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 of any Series (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 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 of any Series 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
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 11:00 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 shares of each Series on the same day
that it places an order with the Fund to purchase those Series shares
for an Account. Payment for Series shares will be made by the
Account or the Company in Federal Funds transmitted to the Fund by
wire to be received by the close of the Business Day on the day the
Fund is properly notified of the purchase order for Series shares.
If Federal Funds are not received on time, such funds will be
invested, and Series shares purchased thereby will be issued, as soon
as practicable.
(c) Payment for Series shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by
wire on the day the Fund is notified of the redemption order of
Series 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. Neither the Fund nor the Distributor shall bear any
responsibility whatsoever for the proper disbursement or crediting
of redemption proceeds; the Company alone shall be responsible for
such action.
3
<PAGE>
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 to the Company on or before the 'X'
dividend date of any income dividends or capital gain distributions payable
on any Series 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 Series shares in the form of additional shares of that Series.
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 Series shares (and the amount of
dividends per share) 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 for each Series available to the Company by 6 p.m., E.S.T. each
Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Series is calculated, and shall calculate
such net asset value in accordance with the then currently effective Fund
Prospectus. Neither the Fund, any Series, the Distributor, nor the Investment
Manager nor any of their affiliates shall be liable for any information
provided to the Company pursuant to this Agreement which information is based
on incorrect information supplied by the Company to the Fund, the Distributor
or the Investment Manager.
1.8.
(a) The Company may withdraw the Account's investment in the
Fund or a Series 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 affected Series to substitute the shares of another
investment company for Series 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 Sect-
ion 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
Distributor (unless otherwise required by applicable law), take any action
to operate the Account as a management investment company under the 1940
Act.
4
<PAGE>
1.9. The Fund and the Distributor agree that Fund shares will be sold
only to Participating Insurance Companies and their separate accounts. The
Fund and the Distributor 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 of any Series 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 as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under
them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized
for issuance in accordance with applicable law and that the Fund is and shall
remain registered under the 1940 Act for so long as the Fund shares are
sold. The Fund further represents and warrants that it is a corporation duly
organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund further represents and warrants
that it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall
notify the Fund and the Distributor 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.
5
<PAGE>
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 Distributor represents and warrants that it is duly registered
as a broker-dealer under the 1934 Act, a member in good standing of the NASD,
and duly registered as a broker-dealer under applicable state securities
laws; its operations are in compliance with applicable law, and it will
distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents
and warrants that the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940 and is in compliance with
applicable federal and state securities laws.
2.9. 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 Distributor 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 of the current Fund Prospectus suitable for
printing and other assistance as is reasonably necessary in order for the
Company to have a new Contracts Prospectus printed together with the Fund
Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the
Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or 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. The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
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(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 each piece of sales literature or
other promotional material in which the Fund or the Investment Manager is
named to the Fund or the Distributor prior to its use. No such material shall
be used, except with the prior written permission of the Fund or the
Distributor. The Fund and the Distributor agree to respond to any request for
approval on a prompt and timely basis. If the Fund fails to respond within 10
days of the request by the Company, the Company shall so notify the
Distributor immediately. The Distributor shall have one business day
thereafter to respond to the Company. If the Company receives no response
thereafter, it shall be relieved of the obligation to obtain the prior
written permission of the Fund or the Distributor for that specific piece of
sales literature.
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 or by the Distributor, except with the prior
written permission of the Fund or the Distributor. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If neither the
Fund nor the Distributor responds within 10 days of a request by the Company,
the Company shall so notify the Distributor immediately. The Distributor
shall have one business day thereafter to respond to the Company. If the
Company receives no response thereafter, it shall be relieved of the
obligation to obtain the prior written permission of the Fund or the
Distributor for that specific piece of sales literature.
3.6. The Fund and the Distributor 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 or the Distributor, the Fund and the Distributor
shall so notify the Company immediately. The Company shall have one business
day thereafter to respond to the Fund or Distributor. If the Fund or
Distributor receives no response thereafter, it shall be relieved of the
obligation to obtain the prior written permission of the Company for that
specific piece of sales literature.
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-
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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, promptly after the filing of such
document with the SEC or other regulatory authorities after August 1, 1996.
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, promptly 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. If neither the Fund nor the
Distributor responds within 10 days of a request by the Company, the Company
shall notify the Distributor immediately. The Distributor shall have one
business day thereafter to respond to the Company.
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 order referred to in Article
VII, the Fund shall: solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the order referred to in Article
VII, the Company shall:
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(a) vote Fund shares of each Series attributable to Contract
owners in accordance with instructions or proxies received in timely
fashion from such Contract owners;
(b) vote Fund shares of each Series 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 of each Series 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 Contract owners. (If for this purpose
the Company prints the Fund Prospectuses and SAIs in a booklet 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 Contract owners.)
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 Contract owners. 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
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<PAGE>
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall register and qualify the
Contracts for sale to the extent required by applicable securities laws of
the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by
applicable securities laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in order to
inform the Fund of any applicable state-mandated investment restrictions
with which the Fund must comply.
(b) Should the Fund or the Distributor 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 VII. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and
Shared Funding Order") dated ________________ of the Securities and Exchange
Commission under Section 6(c) of the Act and, in particular, has reviewed the
conditions to the relief set forth in the related Notice. As set forth
therein, 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 the conditions of the
Mixed and Shared Funding Order 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.
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(a) If a majority of the whole Board, after notice to the Company and
a reasonable opportunity for the Company to appear before it and present its
case, determines that the Company is responsible for said conflict, and if
the Company agrees with that determination, the Company shall, at its sole
cost and expense, take whatever steps are necessary to remedy the
irreconcilable material conflict. These steps could include: (a) withdrawing
the assets allocable to some or all of the affected Accounts from the Fund
or any Series and reinvesting such assets in a different investment vehicle,
including another Series of the Fund, 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 (b)
establishing a new registered mutual fund or management separate account, or
taking such other action as is necessary to remedy or eliminate the
irreconcilable material 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. 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 controversy.
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 insurer was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund
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<PAGE>
shall assure the Company that it (the Fund) or that other insurer, as
applicable, shall, at its sole cost and expense, take whatever steps are
necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contract owner 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. Subject to the terms of Section 7.2 above, the Company shall carry
out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict with a view only to the
interests of Contract Owners.
7.5. 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, but 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 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, the Distributor and each person who controls or
is associated with the Fund (other than another Participating Insurance
Company) or the Distributor 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 in settlement
of, any action, suit or proceeding or any claim asserted), to which they or
any of them may become subject under any statute or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other promotional
material for the Contracts or the Contracts themselves (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission or such
alleged statement or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the Company by the Fund
or the Distributor (or a person authorized in writing to do so on behalf of
the Fund or the Distributor) 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
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<PAGE>
(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 1; 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 wilful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party
seeking indemnification.
8.2 INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the
federal securities laws and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid 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
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<PAGE>
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 or the Distributor 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 Distributor or
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
Distributor 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
Distributor or the Fund to the Company (or a person authorized in
writing to do so on behalf of the Fund or the Distributor); 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 Article VI of this
Agreement; and (ii) to provide the Company with accurate information
sufficient for it to calculate its accumulation and/or annuity unit
values in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3 INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and
hold harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject
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<PAGE>
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 or the Distributor 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 Distributor
or 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 Distributor or
the Fund to the Company (or a person authorized in writing to do so
on behalf of the Fund or the Distributor); 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 Article VI of this
Agreement; and (ii) to provide the Company with accurate information
sufficient for it to calculate its accumulation and/or annuity unit
values in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Distributor or 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
15
<PAGE>
to the wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.4. 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 part
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 laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
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(a) at the option of any party upon six months advance written
notice to the other parties; or
(b) at the option of the Company if shares of any Series 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, or
an expected or anticipated ruling, judgment or outcome which would, in the
Fund's reasonable judgment, materially impair the Company's ability to perform
the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment Manager or any
Sub-Investment Manager, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body regarding the duties of the
Fund or the Distributor under this Agreement, or an expected or anticipated
ruling, judgment or outcome which would, in the Company's reasonable judgment,
materially impair the Fund's or the Distributor's ability to perform Fund's or
Distributor's obligations and duties hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager by the
NASD, the SEC, or any state securities or insurance commission or any other
regulatory body which would, in the good faith opinion of the Company, result in
material harm to the Accounts, the Company, or Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of another
investment company for the corresponding Series shares of the Fund in accordance
with the terms of the Contracts; or
(g) 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
(h) 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
17
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(i) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail
to so qualify; or
(j) 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
(k) 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
(l) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their 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 either the Fund or the
Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that either:
(1) the Fund and the Distributor, or either of them, shall have
suffered a material adverse change in their respective businesses or
financial condition; or (2) the Fund or the Distributor, or both of
them, 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
(n) 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 Distributor.
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 all other parties
to this Agreement 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.
18
<PAGE>
(c) in the event that any termination is based upon the provisions of
Section 10.1(e) of this Agreement, such prior written notice shall be given at
least sixty (60) days before the date of any proposed vote to replace the Fund's
shares.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor 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) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the Distributor and the Fund will continue to make
Fund shares available after such termination. 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 or any conditions or undertakings
incorporated by reference in 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 a Separate Account investing in the Fund.
The provisions of this Agreement shall be equally applicable to each such class
of contracts or policies, unless the context otherwise requires.
19
<PAGE>
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:
Acacia Capital Corporation
c/o Calvert Group-Legal Department
4550 Montgomery Avenue, 10th Floor
Bethesda, MD 20814
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Distributor
-------------------
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.
20
<PAGE>
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.
21
<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.
ACACIA CAPITAL CORPORATION
Date: By:
Name:____________________________________________
Title:___________________________________________
LINCOLN NATIONAL LIFE INSURANCE CO.
(Company)
Date: By:
Name:____________________________________________
Title:___________________________________________
Date: By:
Name:____________________________________________
Title:___________________________________________
22
<PAGE>
Schedule 1
----------
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
Lincoln National Variable Annuity Account L
23
<PAGE>
Schedule 2
----------
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
Group Variable Annuity I Contracts
Group Variable Annuity II Contracts
Group Variable Annuity III Contracts
24
<PAGE>
Schedule 3
----------
State-mandated Investment Restrictions
Applicable to the Fund
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account portfolio
are (1) 10% of net asset value when borrowing for any general purpose; and (2)
25% of net asset value when borrowing as a temporary measure to facilitate
redemptions. Net asset value of a portfolio is the market value of all
investments or assets owned less outstanding liabilities of the portfolio at the
time that any new or additional borrowing is undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign countries
at all times. However, this minimum is reduced to four when foreign investments
comprise less than 80% of the portfolio's net asset value; to three when less
than 60% of that value; to two when less than 40%; and to one when less than
20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
25
<PAGE>
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. ROWE PRICE INVESTMENT SERVICES, INC.
AND
LINCOLN NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this _____ day of September,
1996 by and among Lincoln National Life Insurance Company (hereinafter, the
"Company"), an Indiana life insurance company, on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A hereto
as may be amended from time to time (each account hereinafter referred to as the
"Account"), and the T. Rowe Price International Series, Inc., a corporation
organized under the laws of Maryland (hereinafter referred to as the "Fund") and
T. Rowe Price Investment Services, Inc. (hereinafter the "Underwriter"), a
Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
-2-
WHEREAS, Rowe Price-Fleming International, Inc. (hereinafter referred to as
the "Adviser") is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission, and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees or Directors of the Fund (hereinafter the "Board") may refuse
to sell shares of any Designated Portfolio to any person, or suspend or
terminate the offering of shares of any Designated Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Designated Portfolio.
<PAGE>
-3-
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
4:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 4:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number
<PAGE>
-4-
of shares so issued as payment of such dividends and distributions. The Fund
shall use its best efforts to furnish advance notice of the day such dividends
and distributions are expected to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued in compliance
in all material respects with all applicable federal and state laws and that the
Company will require of every person distributing the Contract that the Contract
be sold in compliance in all material respects with all applicable federal and
state laws, including state insurance suitability requirements. 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
established the Account prior to any issuance or sale thereof as a segregated
asset account under the Indiana insurance laws and has registered or, prior to
any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Indiana to the extent required to perform this Agreement.
<PAGE>
-5-
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Indiana and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Indiana and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Fund are covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund, in an amount not less than $5 million. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Fund and the Underwriter in the event that such coverage no
longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company (at __________________'s or
Fund's expense) with as many copies of the Fund's current prospectus as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a camera ready final copy
of the new prospectus at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the _______________'s expense).
3.2 The Fund's prospectus shall state that the Statement of Additional
Information ("SAI") for the Fund is available from the Company, and the
Underwriter (or the Fund), at its expense, shall print and provide a copy of
such SAI free of charge to the Company for itself and for any owner of a
Contract who requests such SAI.
<PAGE>
-6-
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended
<PAGE>
-7-
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
or its designee or by the Underwriter, except with the permission of the Fund or
the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4. The Fund and the Underwriter 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 a registration statement or prospectus, or SAI for the Contracts,
as such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, within a reasonable
time after the filing of such document(s) with the SEC or other regulatory
authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, and solicitations for
voting instructions for the Fund. The Company will also provide applications
for exemptions and requests for no-action letters, and all amendments to any of
the above, that relate to the Contracts or the Account and their investment in
the Fund within a reasonable time after the filing of such document(s) with the
SEC or other regulatory authorities.
4.7 The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in change to the registration statement or prospectus for any Account.
The Fund will work with the Company so as to enable the Company to solicit
proxies from Contract Owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, 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, including brochures, circulars,
<PAGE>
-8-
reports, market letters, form letters, seminar texts, 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, and registration statements,
prospectuses, SAIs, shareholder reports, proxy materials, and any other
communications distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest its assets in such a manner as to ensure that the
Contracts will be treated as annuity or life insurance contracts, whichever is
appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company
<PAGE>
-9-
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.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is
a "modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
<PAGE>
-10-
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
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ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the Registration Statement, prospectus or statement of
additional information for the Contracts 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
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of
the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under
its authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature 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 if such a statement or
omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement (including a
<PAGE>
-12-
failure, whether unintentional or in good faith or
otherwise, to comply with the qualification requirements
specified in Section 6.3 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
all as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such Indemnified Party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Party will promptly notify the Company of the
commencement of any litigation or proceedings against the Indemnified Party in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including reasonable legal and other expenses) to which the Indemnified Parties
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts; and
<PAGE>
-13-
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or SAI or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund
by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus or sales literature
covering the Contracts, 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 statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund;
or
(iv) 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 a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Sections 6.1 and 6.2 of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter;
all as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross
<PAGE>
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negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the Indemnified Party named in the action. After notice from the Underwriter to
such Indemnified Party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not be liable to
such Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, expenses, damages, liabilities
or expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) 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 a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article VI
of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
<PAGE>
-15-
all as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Fund to such Indemnified Party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
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 Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by six (6) months' advance written
notice delivered to the other parties; or
<PAGE>
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(b) termination by the Company by written notice to the Fund and the
Underwriter based upon the Company's determination that shares of
the Fund are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to
be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the SEC, the Insurance Commissioner or like official 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 any Account, or the purchase of the
Fund shares, provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund,
Underwriter, or Adviser (or Sub-Adviser, if any), by the NASD,
the SEC, or any state securities or insurance department or any
other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event
that such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply with the Section
817(h) diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; or
<PAGE>
-17-
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(j) upon requisite vote of the Contract owners having an interest in
the Designated Portfolio (unless otherwise required by applicable
law) and written approval of the Company, to substitute shares of
another investment company for shares of the corresponding
Designated Portfolio in accordance with the terms of the
Contract.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may 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. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
<PAGE>
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If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802
Attention: Lincoln Life Law Department
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
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12.5 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.
12.6 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Indiana Insurance Commissioner with any non-privileged
information or reports in connection with services provided under this Agreement
which such Commissioner may request in order to ascertain whether the variable
annuity operations of the Company are being conducted in a manner consistent
with the Indiana variable annuity laws and regulations and any other applicable
law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By its authorized officer
By:____________________________________
Title:_________________________________
Date:__________________________________
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By:____________________________________
Title:_________________________________
Date:__________________________________
<PAGE>
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UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:____________________________________
Title:_________________________________
Date:__________________________________
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
- -------------------------------------- -------------------------- -----------------------
<S> <C> <C>
Lincoln National Variable Group Variable Annuity I T. Rowe Price International Series, Inc.
----------------------------------------
Annuity Account L Group Variable Annuity II * T. Rowe Price International Stock
([DATE]) Group Variable Annuity III Portfolio
</TABLE>
<PAGE>
[LETTERHEAD]
219-455-3018
September 20, 1996
The Lincoln National Life Insurance Company
1300 South Clinton Street
PO Box 1110
Fort Wayne IN 46801
RE: LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L, A SEGREGATED ACCOUNT OF THE
LINCOLN NATIONAL LIFE INSURANCE COMPANY - REGISTRATION UNDER THE SECURITIES
ACT OF 1933 ON FORM N-4 - SEC REG. NOS. 333-04999 & 811-07645; 333-5827 &
811-07645-01; 333-05815 & 811-07645-02
---------------------------------------------------------------------------
Ladies and Gentlemen:
I have made such examination of law and have examined such records and documents
as I have deemed necessary to render the opinion expressed below.
I am of the opinion that upon acceptance by Lincoln National Variable Annuity
Account L (the "Account"), a segregated account of The Lincoln National Life
Insurance Company (LNL), of contributions from a person pursuant to an insurance
policy issued in accordance with the prospectus contained in the registration
statement on Form N-4, and upon compliance with applicable law, such person will
have a legally issued interest in his or her individual account with the
Account, and the securities issued will represent binding obligations of LNL.
I consent to the filing of this Opinion as an exhibit to the Account's Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-4.
Very truly yours,
/s/ Jeremy Sachs
Jeremy Sachs
Senior Counsel
<PAGE>
Exhibit 99.10(a)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" in the Pre-Effective Amendment No. 1 to the Registration Statement
(Form N-4, No. 333-5827) pertaining to the Lincoln National Variable Annuity
Account L (Group Variable Annuity II) and to the use therein of our report
dated February 7, 1996 with respect to the consolidated financial statements
and schedules of The Lincoln National Life Insurance Company.
/s/ ERNST & YOUNG LLP
Fort Wayne, Indiana
September 20, 1996
<PAGE>
EXHIBIT 99.13
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
LINCOLN LIFE GROUP VARIABLE ANNUITY II
Initial Investment . . . . . . . . . . . . . . . . . . . . . . . .$1000
Annual Mortality & Expense Risk Charge . . . . . . . . . . . . . . 1.20%
VIP Equity-Income Life of Fund Average Annual
Total Return as of 12/31/95 . . . . . . . . . . . . . . . . . . .13.33%
(84/365)
9
1 + 13.33
$1000 ( ----------------) = $2,843.11
1 + 1.20
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$2,843.11
Minus Pro rated Administration Charge. . . . . . . . . . . . . ..$11.11
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$2,832.00
Minus 1% CDSC. . . . . . . . . . . . . . . . . . . . . . . . . ..$28.32
End of Period Value. . . . . . . . . . . . . . . . . . . . . $2,803.68
Standard Life of Fund Total Return
with Mortality & Expense Risk Charge, pro rated
portion of the Annual Administration Charge and CDSC.
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,803.68
Life of Fund Average Annual Total Return. . . . . . . . . . . 11.82%
Life of Fund Cumulative Total Return. . . . . . . . . . . . . 180.37%
Non-Standard Life of Fund Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,832.00
Life of Fund Average Annual Total Return. . . . . . . . . . . 11.94%
Life of Fund Cumulative Total Return. . . . . . . . . . . . ..183.20%
Non-Standard Life of Fund Total Return
with Mortality & Expense Risk Charge.
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,843.11
Life of Fund Average Annual Total Return. . . . . . . . . . . 11.99%
4/22/96
<PAGE>
Life of Fund Cumulative Total Return. . . . . . . . . . . . . 184.31%
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
LINCOLN LIFE GROUP VARIABLE ANNUITY II
Initial Investment . . . . . . . . . . . . . . . . . . . . . . . .$1000
Annual Mortality & Expense Risk Charge . . . . . . . . . . . . . . 1.20%
VIP Equity-Income 5 yr. Average Annual
Total Return as of 12/31/95 . . . . . . . . . . . . . . . . . . .21.32%
5
1 + 21.32
$1000 ( ----------------) = $2,476.05
1 + 1.20
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$2,476.05
Minus Pro rated Administration Charge. . . . . . . . . . . . . .$ 5.56
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$2,470.49
Minus 5% CDSC. . . . . . . . . . . . . . . . . . . . . . . . . .$123.52
End of Period Value. . . . . . . . . . . . . . . . . . . . . .$2,346.97
Standard 5 yr. Total Return
with Mortality & Expense Risk Charge, pro rated
portion of the Annual Administration Charge and CDSC.
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,346.97
5 yr. Average Annual Total Return . . . . . . . . . . . . . . 18.60%
5 yr. Cumulative Total Return . . . . . . . . . . . . . . . ..134.70%
Non-Standard 5 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,470.49
5 yr. Average Annual Total Return . . . . . . . . . . . . . . 19.83%
5 yr. Cumulative Total Return . . . . . . . . . . . . . . . . 147.05%
Non-Standard 5 yr. Total Return
with Mortality & Expense Risk Charge.
End of Period Value . . . . . . . . . . . . . . . . . . . .$2,476.05
4/22/96
<PAGE>
5 yr. Average Annual Total Return . . . . . . . . . . . . . . 19.88%
5 yr. Cumulative Total Return . . . . . . . . . . . . . . . . 147.61%
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
LINCOLN LIFE GROUP VARIABLE ANNUITY II
Initial Investment . . . . . . . . . . . . . . . . . . . . . . . .$1000
Annual Mortality & Expense Risk Charge . . . . . . . . . . . . . . 1.20%
VIP Equity-Income 3 yr. Average Annual
Total Return as of 12/31/95 . . . . . . . . . . . . . . . . . . .19.60%
3
1 + 19.60
$1000 ( ----------------) = $1,650.64
1 + 1.20
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,650.64
Minus Pro rated Administration Charge. . . . . . . . . . . . . .$ 3.33
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,647.31
Minus 5% CDSC. . . . . . . . . . . . . . . . . . . . . . . . . . $82.37
End of Period Value. . . . . . . . . . . . . . . . . . . . . .$1,564.94
Standard 3 yr. Total Return
with Mortality & Expense Risk Charge, pro rated
portion of the Annual Administration Charge and CDSC.
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,564.94
3 yr. Average Annual Total Return . . . . . . . . . . . . . . 16.10%
3 yr. Cumulative Total Return . . . . . . . . . . . . . . . . 56.49%
Non-Standard 3 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,647.31
3 yr. Average Annual Total Return . . . . . . . . . . . . . . 18.10%
3 yr. Cumulative Total Return . . . . . . . . . . . . . . . . 64.73%
Non-Standard 3 yr. Total Return
with Mortality & Expense Risk Charge.
4/22/96
<PAGE>
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,650.64
3 yr. Average Annual Total Return . . . . . . . . . . . . . . 18.18%
3 yr. Cumulative Total Return . . . . . . . . . . . . . . . . 65.06%
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
LINCOLN LIFE GROUP VARIABLE ANNUITY II
Initial Investment . . . . . . . . . . . . . . . . . . . . . . . .$1000
Annual Mortality & Expense Risk Charge . . . . . . . . . . . . . . 1.20%
VIP Equity-Income 1 yr. Average Annual
Total Return as of 12/31/95. . . . . . . . . . . . . . . . . . . .35.09%
1 + 35.09
$1000 ( ----------------) = $1,334.88
1 + 1.20
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,334.88
Minus Pro rated Administration Charge. . . . . . . . . . . . . .$ 1.11
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,333.77
Minus 5% CDSC. . . . . . . . . . . . . . . . . . . . . . . . . ..$66.69
End of Period Value. . . . . . . . . . . . . . . . . . . . . .$1,267.08
Standard 1 yr. Total Return
with Mortality & Expense Risk Charge, pro rated
portion of the Annual Administration Charge and CDSC.
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,267.08
1 yr. Average Annual Total Return . . . . . . . . . . . . . . 26.71%
Non-Standard 1 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,333.77
1 yr. Average Annual Total Return . . . . . . . . . . . . . . 33.38%
Non-Standard 1 yr. Total Return
with Mortality & Expense Risk Charge.
4/22/96
<PAGE>
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,334.88
1 yr. Average Annual Total Return . . . . . . . . . . . . . . 33.49%
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
LINCOLN LIFE GROUP VARIABLE ANNUITY II
Initial Investment . . . . . . . . . . . . . . . . . . . . . . . .$1000
Annual Mortality & Expense Risk Charge . . . . . . . . . . . . . . 1.20%
VIP Equity-Income Quarterly
Total Return as of 12/31/95. . . . . . . . . . . . . . . . . . . ..6.14%
1 + 6.14
$1000 (----------------------------) = $1,058.21
(92/365)
1 + 1.20
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,058.21
Minus Pro rated Administration Charge. . . . . . . . . . . . . .$ 1.11
Resulting Value. . . . . . . . . . . . . . . . . . . . . . . .$1,057.10
Minus 5% CDSC. . . . . . . . . . . . . . . . . . . . . . . . . ..$52.85
End of Period Value. . . . . . . . . . . . . . . . . . . . . .$1,004.25
Standard Quarter Total Return
with Mortality & Expense Risk Charge, pro rated
portion of the Annual Administration Charge and CDSC.
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,004.25
Quarterly Total Return. . . . . . . . . . . . . . . . . . . . . 0.42%
Non-Standard Quarterly Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,057.10
Quarterly Total Return. . . . . . . . . . . . . . . . . . . . ..5.71%
Non-Standard Quarterly Total Return
4/22/96
<PAGE>
with Mortality & Expense Risk Charge.
End of Period Value . . . . . . . . . . . . . . . . . . . .$1,058.21
Quarterly Total Return. . . . . . . . . . . . . . . . . . . . . 5.82%
4/22/96
<PAGE>
EXHIBIT A
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with the
exception of American States Lloyds Insurance Company, Delaware Distributors,
L.P., Founders CBO, L.P., and Lincoln National Mezzanine Fund, L.P.
------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| ------------------------
|--| American States Financial Corporation |
| | 83.3% - Indiana - Holding Company |
| ------------------------------------------
| -----------------------
| |__| American States Insurance Company |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------
| | ---------------------
| |--| American Economy Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| | --------------------------------------
| | ----------------------------
| | |--| American States Insurance Company of Texas |
| | | 100% - Texas - Property/Casualty |
| | ----------------------------------------------
| | ----------------------------
| |--| American States Life Insurance Company |
| | | 100% - Indiana - Life/Health |
| | ------------------------------------------
| | ------------------------------
| |--| American States Lloyds Insurance Company |
| | | Lloyds Plan - * - Texas - Property/Casualty |
| | -----------------------------------------------
| | -----------------------------
| |--| American States Preferred Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| | -----------------------------------------------
| | --------------------
| |--| City Insurance Agency, Inc. |
| | | 100% - Indiana |
| -------------------------------
| | --------------------------
| |--| Insurance Company of Illinois |
| | 100% - Illinois - Fire & Casualty Insurance |
| -----------------------------------------------
|
| --------------------------------
| | Aseguradora InverLincoln, S.A. Compania de Seguros y |
|--| Reaseguros, Grupo Financiero InverMexico |
| | 49% - Mexico - Life, Property and Casualty Insurance |
| ------------------------------------------------------
<PAGE>
------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
|
| -------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| -------------------------------
|
| ----------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
|
| ---------------------
|--| The Richard Leahy Corporation |
| | 100% - Indiana - Insurance Agency |
| --------------------------------------
| | --------------------
| |--| The Financial Alternative, Inc.|
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | -------------------------
| |--| Financial Alternative Resources, Inc.|
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | --------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | ----------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | --------------------------------------
| | ----------------------
| |--| Personal Financial Resources, Inc.|
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
<PAGE>
| | ------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
|
| --------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
|
|
|
<PAGE>
-------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| ------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ------------------------------------------
| | -------------------
| |--| LNC Equity Sales Corporation |
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------
| | --------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance|
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | -----------------------------------------------------
| | ------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
|
| -----------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ----------------------------
|
| ------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| ---------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
|
|
|
<PAGE>
-------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| --------------------------
|__| Lincoln National Investment Companies, Inc. |
| | 100% - Indiana - Holding Company |
| ---------------------------------------------
| | -------------------
| |--| Delaware Management Holdings, Inc. |
| | | 100% - Delaware - Holding Company |
| | ------------------------------------
| | | ---------------------
| | |--| DMH Corp. |
| | | 100% - Delaware - Holding Company |
| | -----------------------------------
| | | ----------------------
| | |--| Delaware Distributors, Inc. |
| | | | 100% - Delaware - General Partner |
| ------------------------------------
| | | | --------------------------------
| | | |--| Delaware Distributors, L.P. |
| | | | 100% - Delaware - Mutual Fund Distributor &
| | | | Broker/Dealer |
| | | ---------------------------------------------
| | | ----------------------------------------
| | |--| Delaware International Advisers Ltd. |
| | | | 81.1% - England - Investment Advisor |
| | | ----------------------------------------
| | | ---------------------------------------
| | |--| Delaware International Holdings Ltd. |
| | | | 100% - Bermuda - Marketing Services |
| | | ---------------------------------------
| | | | -----------------------
| | | |--| Delaware International Advisers Ltd. |
| | | | 18.9% - England - Investment Advisor |
| | | --------------------------------------
| | | ----------------------
| | |--| Delaware Investment Counselors, Inc. |
| | | | 100% - Delaware - Investment Advisor |
| | | --------------------------------------
| | | ----------------------------
| | |__| Delaware Investment & Retirement Services, Inc. |
| | | | 100% - Delaware - Registered Transfer Agent |
| | | ----------------------------------------------
| | | --------------------
| | |--| Delaware Management Company, Inc. |
| | | | 100% - Delaware - Investment Advisor |
| | | --------------------------------------
| | | | ---------------------
| | | |--| Founders Holdings, Inc. |
| | | | 100% - Delaware - General Partner |
| | | ------------------------------------
| | | | ----------------------------
| | | |--| Founders CBO, L.P. |
| | | | 100% - Delaware - Investment Partnership |
| | | -------------------------------------------
| | | | -------------------------------
| | | |--| Founders CBO Corporation |
| | | | 100% - Delaware - Co-Issuer with Founders CBO |
| | | ------------------------------------------------
| | | --------------------
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service |
| | | --------------------------------------
<PAGE>
| | | -------------------------------
| | |--| Delaware Service Company, Inc. |
| | | 100% - Delaware - Shareholder Services & Transfer Agent |
| | ---------------------------------------------------------
| | ----------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | ----------------------------------------------
| | | ----------------------------------
| | | | Lincoln National Mezzanine Corporation |
| | |--| 100% - Indiana - General Partner for Mezzanine Financing |
| | | Limited Partnership |
| | ------------------------------------------
| | | ----------------------------------
| | |--| Lincoln National Mezzanine Fund, L.P. |
| | | 50% - Delaware - Mezzanine Financing Limited |
| | Partnership |
| | -----------------------------------------------
<PAGE>
-------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| --------------------------
|__| Lincoln National Investment Companies, Inc. |
| | 100% - Indiana - Holding Company |
| ---------------------------------------------
| | ------------------------
| |--| Lynch & Mayer, Inc. |
| | | 100% - Indiana - Investment Adviser |
| | ----------------------------------------
| | | ----------------------------
| | |--| Lynch & Mayer Asia, Inc. |
| | | | 100% - Delaware - Investment Management |
| | | -----------------------------------------
| | | -----------------------
| | |--| Lynch & Mayer Securities Corp. |
| | | 100% - Delaware - Securities Broker |
| | ----------------------------------------
| | ----------------------------------
| | | Vantage Global Advisors, Inc. |
| |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | 100% - Delaware - Investment Adviser |
| -----------------------------------------------
|
| ------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| ----------------------------------
| | -----------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | ---------------------------------
| | ----------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------
| | ---------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | -------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | ----------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ----------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------
| |
<PAGE>
--------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
---------------------------------
|
| ---------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| ---------------------------
|
| | ---------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| ---------------------------------------
| | ----------------------------
| |--| Lincoln 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 |
| ---------------------------------------------------
| |
| | --------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| ---------------------------------------------
|
| -------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ----------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| -------------------------------------
|
| ----------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------
|
| -----------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ------------------------------------
<PAGE>
| | -----------------------
| |--| Lincoln European Reinsurance Company |
| | | 100% - Belgium |
| | -------------------------------
| |
| | ----------------------------------
| | | 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.) |
| --------------------------------------------------------
<PAGE>
------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| ---------------------------
|--| 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 |
| | | 100% - England/Wales - Sales Services|
| | --------------------------------------
| | ----------------------
| |--|Cannon Fund Managers Limite |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | -----------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ----------------------------------
| | | HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| | -------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ----------------------------
| |--|Laurentian Financial Group PLC |
| | 100% - England/Wales - Holding Company |
| -------------------------------------------------
| | | ---------------------------
| | |--| Lincoln Financial Advisers Limited |
| | | | (formerly: Laurentian Financial Advisers Ltd.)|
| | | | 100% - England/Wales - Sales Company |
| | | ------------------------------------------------
| | |
| | | ----------------------------
| | |--| Lincoln Investment Management Limited |
| | | | | (formerly: Laurentian Fund Management Ltd.) |
| | | | 100% - England/Wales - Investment Management |
| | --------------------------------------------
| | | --------------------------------
| | |--| Lincoln Independent Limited |
| | | | (formerly: Laurentian Independent Financial Planning Ltd.)|
| | | | 100% - England/Wales - Independent Financial Adviser |
-----------------------------------------------------------
<PAGE>
|------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
|--------------------------------
|
| ------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| |
| | ----------------------------
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company|
| ---------------------------------------
| | | --------------------
| | |--| Laurentian Life PLC |
| | | | 100% - England/Wales - Life Insurance|
| | | --------------------------------------
| |
| | | ----------------------
| | |--| Barnwood Property Group Limited |
| | | | 100% - England/Wales - Holding Company|
| | | --------------------------------------
| | | | |
| | | | | ---------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | |
| | | | | --------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | 100% - England/Wales - Property Investment |
| | | | --------------------------------------------
| | | |
| | | | ------------------------------
| | | --| IMPCO Properties Limited |
| | | |100% - England/Wales - Property Investment (Inactive)|
| | | ------------------------------------------------------
| | | ------------------------
| | |--| Laurentian Management Services Limited |
| | | | 100% - England/Wales - Management Services|
| | | -------------------------------------------
| | | |
| | | | ---------------------------
| | | |--|Laurit Limited |
| | | |100% - England/Wales - Data Processing Systems |
| | | ------------------------------------------------
| | | -----------------------
| | |--| Laurentian Milldon Limited |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | |
| | | -------------------------
| | |--| Laurentian Unit Trust Management Limited |
| | | | 100% - England/Wales - Unit Trust Management |
| | | ----------------------------------------------
| | | |
| | | | --------------------
| | | |--| LUTM Nominees Limited |
| | | 100% - England/Wales - Nominee Services |
| | | -----------------------------------------
| | | ----------------------------------
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| |-----------------------------------------------------------
| | |
| | | ------------------------
| | |--| The Money Club Direct Company Limited |
| | | 100% - Dormant |
| | ----------------------------------------
| | ------------------------
| |--| Liberty Life Assurance Limited |
| | | 100% - England/Wales - Inactive |
| | ----------------------------------------
<PAGE>
| | ----------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -----------------------------------------------
| | ----------------------
| |--| 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 Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| |
| | ------------------------------
| |--| Lincoln Fund Managers Limited |
| | | 100% - England/Wales - Unit Trust Management |
| | -------------------------------------------------
| |
| | --------------------------------
| |--| Lincoln Insurance Services Ltd. |
| | | 100% - Holding Company |
| | ----------------------------------------------------
| | |
| | | --------------------
| | |--| British National Life Sales Ltd.|
| | | | 100% - Inactive |
| | | ---------------------------------
| | |
| | | -----------------------------
| | |--| BNL Trustees Limited |
| | | | 100% - England/Wales - Corporate Pension Fund |
| | | -----------------------------------------------
| | |
| | | ---------------------
| | |--| Chapel Ash Financial Services Ltd. |
| | | | 100% - Direct Insurance Sales |
| | | -------------------------------------
| | |
| | | ---------------------------
| | |--| Lincoln General Insurance Co. Ltd. |
| | | | 100% - Accident & Health Insurance |
| | | ----------------------------------------------
| | | --------------
| | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | 100% - Inactive |
| | --------------------------
| | ------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| |
| | ----------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| |
| | ---------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | |
| | | --------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| |
| | -------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services |
| | --------------------------------------------------
| |
| | | -----------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
<PAGE>
------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| ------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| |
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| |
| | --------------------
| |--| Niloda Limited |
| | 100% - England/Wales - Investment Company |
| ---------------------------------------------
|
| ---------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
|
| ---------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| |
| | ----------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| --------------------------------------------------------
|
| -----------------------------------
| | 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
<PAGE>
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) The Financial Group, Inc. (Mission, KS)
8a) 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) Morgan Financial Group, Inc. (Baltimore, MD)
12) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
13) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
13a) Financial Consultants of Michigan, Inc. (Troy, MI)
14) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
15) Beardslee & Associates, Inc. (Clifton, NJ)
16) Lincoln Financial Group, Inc. (formerly: Resources/Financial,
Inc.))(Albuquerque, NM)
17) Lincoln Cascades, Inc. (Portland, OR)
18) Lincoln Financial Services, Inc. (Pittsburgh, PA)
19) Lincoln National Financial Group of Philadelphia, Inc.
(Philadelphia, PA)
20) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
