<PAGE>
As filed with the Securities and Exchange Commission on April 23, 1999
Registration No. 333-43373
811-08569
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
-------------------------------------------
(Exact Name of Registrant)
LINCOLN NATIONAL LIFE INSURANCE COMPANY
-------------------------------------------
(Name of Depositor)
1300 South Clinton Street
Fort Wayne, Indiana 46802
-------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (219)455-2000
Jack D. Hunter, Esq.
200 East Berry Street
Fort Wayne, Indiana 46802
Telephone No. (219)455-2000
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Kimberly J. Smith, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Title of securities being registered:
Interests in a separate account under group flexible premium deferred
variable annuity contracts.
---------------------
It is proposed that this filing will become effective:
- ----- immediately upon filing pursuant to paragraph (b) of Rule 485
X on 5/1/99 pursuant to paragraph (b) of Rule 485
- -----
- ----- 60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
- -----
Title of Securities Being Registered:
Units of Interest Under Variable Annuity Contracts
<PAGE>
Lincoln Life Variable Annuity Account Q group variable annuity contracts
Home office: Servicing Office:
Lincoln National Life Insurance Co. Lincoln National Life Insurance Co.
1300 South Clinton Street P.O. Box 9740
Fort Wayne, Indiana 46802 Portland, Maine 04104
Account Q
This Prospectus describes the group variable annuity contracts and individual
certificates that are issued by Lincoln National Life Insurance Company (Lin-
coln Life). They are for use with certain qualified retirement plans. General-
ly, neither the contractowner nor the individual participant pays federal in-
come tax on the contract's growth until it is paid out. The contract is de-
signed to accumulate account value and, as permitted by the plan, to provide
retirement income that a participant cannot outlive or for an agreed upon time.
These benefits may be a variable or fixed amount or a combination of both. If a
participant dies before the annuity commencement date, we pay the beneficiary
or the plan a death benefit.
Participants choose whether account value accumulates on a variable or a fixed
(guaranteed) basis or both. If participants allocate contributions to the fixed
account, we guarantee your principal and a minimum interest rate. We limit
withdrawals and transfers from the fixed side of the contract.
Allocated and unallocated contracts are available. In an allocated contract, we
maintain an account value on behalf of each individual participant, and the em-
ployer if requested; each participant receives a certificate. Under an unallo-
cated contract, the employer or an administrator performs participant account-
ing. Allocated and unallocated contracts have different features.
All contributions for benefits on a variable basis will be placed in Lincoln
Life Variable Annuity Account Q (variable annuity account [VAA]). The VAA is a
segregated investment account of Lincoln Life. If a participant puts all or
some contributions into one or more of the contract's subaccounts, the partici-
pant takes all the investment risk on the account value and the retirement in-
come. If the selected subaccounts make money, account value goes up; if they do
not, it goes down. How much it goes up or down depends on the performance of
the selected subaccounts. We do not guarantee how any of the funds or series
will perform. Also, neither the U.S. Government nor any federal agency insures
or guarantees investment in the contract.
The available subaccounts, and the funds and series, in which they invest are
listed below. The contractowner decides which of these subaccounts are avail-
able under the contract for participant allocations. For more information about
the investment objectives, policies and risks of the funds and series, please
refer to the Prospectus for the funds and series.
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Delaware Group Premium Fund, Inc.:
Global Bond Series
Growth & Income Series (formerly Decatur Total Return)
Trend Series
(BT) Insurance Trust Funds:
Equity 500 Index Fund
Small Cap Index Fund
Baron Capital Asset Fund Trust (Insurance Class)
Fidelity Variable Insurance Product Fund:
VIP Growth
Fidelity Variable Insurance Product Fund II: VIP II Contrafund
Janus Aspen Series, Worldwide Growth Fund
Neuberger Berman Advisors Management Trust (AMT): AMT Partners Fund
AMT Mid-Cap Growth Fund
This Prospectus gives you information about the contracts that contractowners
and participants should know before investing. Please review the prospectuses
for the funds and series that are attached, and keep the prospectuses for ref-
erence.
Neither the SEC nor any state securities commission has approved this contract
or determined that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
A Statement of Additional Information (SAI) has more information about the con-
tracts. Its terms are made part of this Prospectus. For a free copy, write:
Lincoln National Life Insurance Company, P.O. Box 9740, Portland, Maine, 04104,
or call 1-800-341-0441. The SAI and other information about Lincoln Life and
the VAA are also available on the SEC's web site (http://www.sec.gov). There is
a table of contents for the SAI on the last page of this Prospectus.
May 1, 1999
1
<PAGE>
Account Q
Table of contents
<TABLE>
<CAPTION>
Page
- -------------------------------------------------
<S> <C>
Special terms 2
- -------------------------------------------------
Expense tables 3
- -------------------------------------------------
Summary 7
- -------------------------------------------------
Condensed financial information 9
- -------------------------------------------------
Financial statements 10
- -------------------------------------------------
Lincoln National Life Insurance Co. 10
- -------------------------------------------------
Variable annuity account (VAA) 10
- -------------------------------------------------
Fixed side of the contract 10
- -------------------------------------------------
Investments of the variable annuity account 11
- -------------------------------------------------
Charges and other deductions 14
- -------------------------------------------------
The contracts 16
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------
<S> <C>
Annuity payouts 21
- --------------------------------------------------------------
Federal tax matters 22
- --------------------------------------------------------------
Voting rights 26
- --------------------------------------------------------------
Distribution of the contracts 26
- --------------------------------------------------------------
Return privilege 26
- --------------------------------------------------------------
State regulation 26
- --------------------------------------------------------------
Restrictions under the Texas Optional Retirement Program 26
- --------------------------------------------------------------
Records and reports 27
- --------------------------------------------------------------
Other information 27
- --------------------------------------------------------------
Statement of additional information
table of contents for VAA 29
- --------------------------------------------------------------
</TABLE>
For a free copy of the SAI please see page one of this booklet.
Special Terms
(We have italicized the special terms that have special meaning throughout this
Prospectus)
Account or variable annuity account (VAA) -- The segregated investment account,
Account Q, into which Lincoln Life sets aside and invests the assets for the
variable side of the contract offered in this Prospectus.
Account value -- At a given time before the annuity commencement date, the
value of all accumulation units for a contract plus the value of the fixed side
of the contract.
Accumulation unit -- A measure used to calculate account value for the variable
side of the contract.
Annuitant -- The person on whose life the annuity benefit payments made after
the annuity commencement date are based.
Annuity commencement date -- The valuation date when funds are withdrawn or
converted into annuity units or fixed dollar payout for payment of retirement
income benefits under an annuity payout option.
Annuity payout -- An amount paid at regular intervals after the annuity
commencement date under one of several options available to the annuitant
and/or any other payee. This amount may be paid on a variable or fixed basis,
or a combination of both.
Annuity unit -- A measure used to calculate the amount of annuity payouts for
the variable side of the contract after the annuity commencement date.
Beneficiary -- The person or entity designated by a non-ERISA 430(b) plan
participant or an annuitant to receive any death benefit payable on the death
of the participant or annuitant.
Contractowner (you, your, owner) -- The party named on the group annuity
contract (for example, an employer, or retirement plan trust, an association,
or other entity allowed by law).
Contract year -- Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Contributions -- Amounts paid into the contract.
Death benefit -- An amount payable to a designated beneficiary if a participant
under a 403(b) plan not subject to ERISA dies before his or her annuity
commencement date.
Lincoln Life (we, us, our) -- Lincoln National Life Insurance Company.
Participant -- A person defined as a participant in the plan, who has enrolled
under a contract and, under an allocated group contract, on whose behalf
Lincoln Life maintains an account value.
Participant Year -- Each 12 month period starting with the date a participant
enrolls under a contract and each participant year after that.
Plan -- The retirement program that an Employer offers to its employees for
which a contract is used to accumulate funds.
Subaccount -- The portion of the VAA that reflects investments in accumulation
and annuity units of a particular fund or series available under the contracts.
There is a separate subaccount which corresponds to each fund or series.
Valuation date -- Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period -- The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (valuation
date) and ending at the close of such trading on the next valuation date.
2
<PAGE>
Account Q
Expense tables
Summary of Contractowner or Participant expenses:
The maximum surrender charge (contingent deferred sales charge) (as a
percentage of account value withdrawn): 6%
Annual Contract Fee:
Per participant/contractowner (allocated contract): $25
The surrender charge percentage is reduced over time. The later the withdrawal
occurs, the lower the surrender charge percentage with respect to that
withdrawal. We may waive or reduce these charges in certain situations. See
Charges and other deductions.
- --------------------------------------------------------------------------------
VAA annual expenses for Account Q subaccounts:
(as a percentage of average account value):
<TABLE>
- ---------------------------------------------------
<S> <C>
"Standard" Mortality and expense risk charge 1.00%
"Breakpoint",
Mortality and expense risk charge* .75%
</TABLE>
- --------------------------------------------------------------------------------
*Only certain contracts or plans are eligible for a breakpoint charge. See
Charges and other deductions.
Annual expenses of the funds and series for the year ended December 31, 1998
(as a percentage of each fund's and series' average net assets):
<TABLE>
<CAPTION>
Management 12b-1 Other Total
fees + fees + expenses = expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Aggressive Growth (AG) 0.73 0.00 0.08 0.81
- -------------------------------------------------------------------------------
2. Bond (B) 0.44 0.00 0.13 0.57
- -------------------------------------------------------------------------------
3. Capital Appreciation
(CA) 0.75 0.00 0.08 0.83
- -------------------------------------------------------------------------------
4. Equity-Income (EI) 0.72 0.00 0.07 0.79
- -------------------------------------------------------------------------------
5. Global Asset Allocation
(GAA) 0.72 0.00 0.19 0.91
- -------------------------------------------------------------------------------
6. Growth and Income (GI) 0.31 0.00 0.04 0.35
- -------------------------------------------------------------------------------
7. International (I) 0.79 0.00 0.14 0.93
- -------------------------------------------------------------------------------
8. Managed (M) 0.36 0.00 0.03 0.39
- -------------------------------------------------------------------------------
9. Money Market (MM) 0.48 0.00 0.11 0.59
- -------------------------------------------------------------------------------
10. Social Awareness (SA) 0.34 0.00 0.04 0.38
- -------------------------------------------------------------------------------
11. Special Opportunities
(SO) 0.36 0.00 0.06 0.42
- -------------------------------------------------------------------------------
12. Delaware Growth &
Income (DGI)/1/ 0.60 0.00 0.11 0.71
- -------------------------------------------------------------------------------
13. Global Bond (GB)/1/** 0.68 0.00 0.17 0.85
- -------------------------------------------------------------------------------
14. Trend (T)/1/ 0.75 0.00 0.10 0.85
- -------------------------------------------------------------------------------
15. Equity 500 Index
(E500)/2/** 0.20 0.00 0.10 0.30
- -------------------------------------------------------------------------------
16. Small Cap Index
(SC)/2/** 0.35 0.00 0.10 0.45
- -------------------------------------------------------------------------------
17. Capital Asset
(CAT)/4/** 1.00 0.25 0.20 1.45
- -------------------------------------------------------------------------------
18. VIP II Contrafund
(VC)/5/** 0.59 0.10 0.11 0.80
- -------------------------------------------------------------------------------
19. VIP Growth (VG)/5/** 0.59 0.10 0.11 0.80
- -------------------------------------------------------------------------------
20. Aspen Worldwide Growth
(WWG)/6/** 0.65 0.00 0.07 0.72
- -------------------------------------------------------------------------------
21. AMT Partners (P) 0.78 0.00 0.06 0.84
- -------------------------------------------------------------------------------
22. AMT Mid-Cap Growth
(MG)/3/** 0.85 0.00 0.15 1.00
</TABLE>
- --------------------------------------------------------------------------------
**After waivers and/or reimbursements.
3
<PAGE>
Account Q
Voluntary fee reimbursements:
The following funds voluntarily waive expenses to the extent necessary to
maintain a maximum total expense ratio.
/1/The investment adviser for the Growth & Income Series (formerly Decatur
Total Return Series) and the Trend Series is Delaware Management Company,
Inc. The investment advisor for the Global Bond Series is Delaware
International Advisers Ltd. Effective May 1, 1999 through October 31, 1999,
the investment advisers for the Series of the Delaware Group Premium Fund
have voluntarily agreed to waive their management fees and reimburse each
series for expenses to the extent that total expenses will not exceed 0.80%
for the Growth & Income Series, 0.85% for the Trend Series and the Global
Bond Series. In addition the management fees for the Growth and Income will
not exceed 0.60%. The fee ratios shown above have been restated, if
necessary, to reflect the new voluntary limitations which took effect on May
1, 1999. The declaration of a voluntary expense limitation does not bind the
investment advisers to declare future expense limitations with respect to the
fund. Pursuant to a vote of the fund's shareholders on March 17, 1999, a new
management fee structure based on average daily net assets was approved. The
above ratios have been restated to reflect the new management fee structure
which took effect on May 1, 1999. Without the reimbursements or waivers total
expenses for each Series for year ended 12/31/98 would have been--Global
Bond, 0.92%, Trend, 0.85%.
/2/Under the Advisory Agreement with Bankers Trust Company (the "Advisor"), the
fund will pay an advisory fee at an annual percentage rate of 0.20% of the
average daily net assets of the Equity 500 Index Fund. These fees are accrued
daily and paid monthly. The Advisor has voluntarily undertaken to waive its
fee and to reimburse the fund for certain expenses so the fund's total
operating expenses will not exceed 0.30% of average daily net assets. Under
the Advisory Agreement with the Advisor, the Small Cap Index Fund will pay an
advisory fee at an annual percentage rate of 0.35% of the average daily net
assets of the fund. These fees are accrued daily and paid monthly. The
Advisor has voluntarily undertaken to waive its fee and to reimburse the fund
for certain expenses so the Fund's total operating expenses will not exceed
0.45% of average daily net assets.
/3/Neuberger Berman Management Inc. (NBMI) (the Advisor) has voluntarily
undertaken to reimburse certain operating expenses including compensation to
Neuberger Berman and excluding taxes interest, extraordinary expenses,
brokerage commissions and transaction costs that exceed in the aggregate,
1.0% of, the AMT Mid-Cap Growth Portfolio's average daily net asset value.
These expense reimbursement agreements are subject to termination upon 60
days written notice and there can be no assurance that these policies will be
continued thereafter without the reimbursement for the portfolio for year
ended 12/31/98 total expenses for the fund would have been 1.43%.
Contractual fee reimbursements:
The following Funds contractually waive the management fee to the extent
necessary to maintain a maximum total expense ratio.
/4/The advisor (BAMCO, Inc.) is contractually obligated to reduce its fee to
the extent required to limit Baron Capital Asset Fund's total operating
expenses to 1.5% for the first $250 million of assets in the fund, 1.35% for
fund assets over $250 million, and 1.25% for fund assets over $500 million.
Without the expense limitations, total operating expenses for the fund for
the period October 1, 1998 through December 31, 1998 would have been 7.62%.
/5/A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management &
Research Company ("FMR") on behalf of certain funds, have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.75% for VIP II Contrafund and VIP Growth.
/6/All expenses are stated with contractual waivers and fee reductions by the
Advisor, Janus Capital. Fee reductions for the Janus Aspen Worldwide Growth
Portfolio reduce the management Fee to the level of the corresponding Janus
retail fund. Other waivers, if applicable, are first applied against the
management fee and then against other expenses. Janus Capital has agreed to
continue the waivers and fee reductions until at least the next annual
renewal of the advisory agreement. Without the reimbursements or waivers
total expenses for the fund for the year ended 12/31/98 would have been
0.74%.
4
<PAGE>
Account Q
Examples
(expenses of the subaccounts and the funds and series):
If you make a full withdrawal at the end of the time period shown, you would
pay the following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------- ------------------- ------------------- -------------------
Standard Breakpoint Standard Breakpoint Standard Breakpoint Standard Breakpoint
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. AG $80 $78 $123 $117 $157 $147 $213 $191
- -----------------------------------------------------------------------------------------
2. B 78 76 115 109 142 132 181 159
- -----------------------------------------------------------------------------------------
3. CA 81 79 124 118 158 148 215 193
- -----------------------------------------------------------------------------------------
4. EI 80 78 122 117 156 146 211 189
- -----------------------------------------------------------------------------------------
5. GAA 81 79 126 120 161 152 223 202
- -----------------------------------------------------------------------------------------
6. GI 76 74 110 102 134 121 163 134
- -----------------------------------------------------------------------------------------
7. I 81 80 126 121 162 153 226 204
- -----------------------------------------------------------------------------------------
8. M 77 75 112 106 137 127 170 148
- -----------------------------------------------------------------------------------------
9. MM 78 76 116 110 145 135 188 166
- -----------------------------------------------------------------------------------------
10. SA 76 74 111 105 135 125 166 143
- -----------------------------------------------------------------------------------------
11. SO 77 75 112 106 137 127 170 148
- -----------------------------------------------------------------------------------------
12. DGI 79 77 120 114 152 142 202 180
- -----------------------------------------------------------------------------------------
13. GB 81 79 124 118 159 149 217 195
- -----------------------------------------------------------------------------------------
14. T 80 78 123 117 157 147 213 191
- -----------------------------------------------------------------------------------------
15. E500 75 74 108 102 131 121 157 134
- -----------------------------------------------------------------------------------------
16. SC 77 75 113 107 139 129 174 151
- -----------------------------------------------------------------------------------------
17. CAT 86 84 141 135 187 178 279 259
- -----------------------------------------------------------------------------------------
18. VC 78 77 117 111 147 137 191 169
- -----------------------------------------------------------------------------------------
19. VG 79 77 119 113 150 140 199 177
- -----------------------------------------------------------------------------------------
20. WWG 79 78 120 115 152 142 203 181
- -----------------------------------------------------------------------------------------
21. P 81 79 124 118 158 148 216 194
- -----------------------------------------------------------------------------------------
22. MG 82 80 128 123 166 156 233 212
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Account Q
If you do not withdraw account value or if you annuitize, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------- ------------------- ------------------- -------------------
Standard Breakpoint Standard Breakpoint Standard Breakpoint Standard Breakpoint
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. AG 18 16 57 51 98 88 213 191
- -----------------------------------------------------------------------------------------
2. B 15 13 48 42 83 72 181 159
- -----------------------------------------------------------------------------------------
3. CA 19 17 58 51 99 89 215 193
- -----------------------------------------------------------------------------------------
4. EI 18 16 56 50 97 87 211 189
- -----------------------------------------------------------------------------------------
5. GAA 19 17 60 54 103 93 223 202
- -----------------------------------------------------------------------------------------
6. GI 14 11 43 35 74 61 163 134
- -----------------------------------------------------------------------------------------
7. I 20 18 61 54 104 94 226 204
- -----------------------------------------------------------------------------------------
8. M 14 12 45 39 78 67 170 148
- -----------------------------------------------------------------------------------------
9. MM 16 14 50 44 86 76 188 166
- -----------------------------------------------------------------------------------------
10. SA 14 12 44 37 76 65 166 143
- -----------------------------------------------------------------------------------------
11. SO 14 12 45 39 78 67 170 148
- -----------------------------------------------------------------------------------------
12. DGI 17 15 54 48 93 82 202 180
- -----------------------------------------------------------------------------------------
13. GB 19 17 58 52 100 82 217 180
- -----------------------------------------------------------------------------------------
14. T 18 16 57 51 98 88 213 191
- -----------------------------------------------------------------------------------------
15. E500 13 11 41 35 71 61 157 134
- -----------------------------------------------------------------------------------------
16. SC 15 13 46 40 79 69 174 151
- -----------------------------------------------------------------------------------------
17. CAT 25 23 76 70 131 121 279 259
- -----------------------------------------------------------------------------------------
18. VC 16 14 51 45 88 77 191 169
- -----------------------------------------------------------------------------------------
19. VG 17 15 53 47 91 81 199 177
- -----------------------------------------------------------------------------------------
20. WWG 18 15 54 48 93 83 203 181
- -----------------------------------------------------------------------------------------
21. P 19 17 58 52 100 89 216 194
- -----------------------------------------------------------------------------------------
22. MG 20 18 63 57 108 97 233 212
</TABLE>
- --------------------------------------------------------------------------------
We provide these examples, to help you understand the direct and indirect costs
and expenses of the contract.
For more information, see Charges and other deductions in this Prospectus and
in the Prospectuses for the funds and series. Premium taxes may also apply,
although they do not appear in the examples. We also reserve the right to
impose a charge on transfers between subaccounts and to and from the fixed
account, currently, there is no charge. These examples should not be considered
a representation of past or future expenses. Actual expenses may be more or
less than those shown.
6
<PAGE>
Account Q
Summary
What kind of contract is this? It is a group annuity contract between the
contractowner and Lincoln Life. It may provide for a fixed annuity and/or a
variable annuity. This Prospectus describes the variable side of the contract.
See The Contracts.
What is the variable annuity account (VAA)? It is a separate account we
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to one or more subaccounts,
according to your investment choices. VAA assets are not chargeable with
liabilities arising out of any other business which Lincoln Life may conduct.
See Variable annuity account.
What are the contract's investment choices? Based upon instructions, the VAA
applies contributions to buy shares in one or more of the funds or series:
Aggressive Growth, Bond, Capital Appreciation, Equity-Income, Global Asset
Allocation, Growth and Income, International, Managed, Money Market, Social
Awareness, Special Opportunities, Delaware Growth & Income (formerly known as
Decatur Total Return), Global Bond, Trend, Equity 500 Index, Small Cap Index,
Capital Asset, VIP II Contrafund, VIP Growth, Worldwide Growth, Partners, and
MidCap Growth.
In turn, each fund or series holds a portfolio of securities consistent with
its investment policy. See Investments of the variable annuity accounts
Description of the fund and series.
Who invests my money? The investment advisor for the Lincoln funds is Lincoln
Investment Management, Inc. (Lincoln Investment), Fort Wayne, Indiana. The
investment advisor for the Trend Series and Decatur Total Return Series is
Delaware Management Company, Inc. (Delaware Management), and the investment
manager of the Global Bond Series is Delaware International Advisers Ltd., an
affiliate of Delaware Management, Philadelphia, Pennsylvania. Each is an
indirect subsidiary of Lincoln National Corporation (LNC), and registered as an
investment advisor with the SEC. The investment advisor for the Equity 500
Index Fund and the Small Cap Index Fund is Bankers Trust Company, New York, New
York. The investment advisor for the Capital Asset Fund is BAMCO, Inc., New
York, New York. The investment advisor for the Aspen Worldwide Growth Fund is
Janus Capital Corp., Denver, Colorado. The investment advisor for the AMT
Partners and AMT Mid-Cap Growth Fund is Neuberger Berman Management, Inc., New
York, New York. The investment advisor for the Variable Insurance Products Fund
(VIP) and Variable Insurance Products Fund (VIP II) is Fidelity Management &
Research Company, Boston, Massachusetts. See Investments of the variable
annuity account and Investment advisors.
How does the contract work? If we approve the application, we will send the
contractowner a contract. When participants make contributions during the
accumulation phase, they buy accumulation units. If the participant decides to
receive retirement income payments, we convert accumulation units into annuity
units. Retirement income payments will be based on the number of annuity units
received and the value of each annuity unit on payout days. See The contracts
and other deductions.
What charges do I pay under the contract? If you withdraw account value, you
pay a surrender charge from 0% to 6%, depending upon how many contract years
the participant has been in the contract. We may waive the surrender charge in
certain situations. See charges and other deductions--surrender charge.
Under allocated contracts, we charge an annual contract fee of $25 per
participant or contractowner account.
We will deduct any applicable premium tax from contributions or account value
at the time the tax is incurred or at another time we choose.
We apply an annual charge totaling 1.002% to the daily net asset value of the
VAA. Contracts issued for plans meeting certain eligibility requirements will
generally impose a lower (breakpoint) annual charge of .75%. See Charges and
other deductions.
Each fund and series pays a management fee based on its average daily net asset
value. See Investments of the variable annuity account--Investment advisor.
Each fund and series also has additional operating expenses. These are
described in the Prospectuses for the funds or series.
What contributions are necessary and how often? Contributions by or on behalf
of participants are payable to us at a frequency and in an amount selected in
the application. There are limits on the total amount of purchase payments in
any one year. See The contracts--contributions.
How will annuity payouts be calculated? If a participant decides to annuitize,
they select an annuity option and start receiving retirement income payments
from the contract as a fixed option or variable option or a combination of
both. See Annuity payouts--annuity options. Remember that participants in the
VAA benefit from any gain, and take a risk of any loss, in the value of the
securities in the funds' or series' portfolios.
What happens if a participant dies before annuitizing? Depending upon the plan,
the beneficiary may receive a death benefit and have options as to how the
death benefit is paid. See The contracts--Death benefit before the annuity
commencement date.
May participants transfer account value between subaccounts and between the
fixed side of the contract? Yes, subject to certain limits, which may include
limits under the terms of the plan. See The contracts--Transfers between
subaccounts on or before the annuity commencement date.
May a contractowner or participant withdraw account value? Yes, subject to
contract requirements and to the restrictions of any qualified retirement plan
for which the contract was purchased. (Participants may only withdraw account
value during their accumulation
7
<PAGE>
Account Q
period.) See Withdrawals. The contractowner must also approve certain
participant withdrawals. Certain charges may apply. See Charges and other
deductions. A portion of withdrawal proceeds may be taxable. In addition, a 10%
Internal Revenue Service (IRS) tax penalty may apply to distributions before
age 59 1/2. A withdrawal also may be subject to 20% withholding. See Federal
tax matters.
Do participants get a free look at their certificate? Under a Section 403(b)
plan and certain non-qualified plans, you can cancel a certificate within ten
days (in some states longer) of the date you receive the certificate. You must
give notice to our home office. See Return privilege.
8
<PAGE>
Account Q
Condensed financial information for the VAA
Accumulation unit values
The following information relating to accumulation unit values and number of
accumulation units for the period ended December 31, 1998 comes from the VAA's
financial statements. It should be read in conjunction with the VAA's financial
statements and notes which are all included in the SAI. The beginning unit
valuation date for both the standard and break point contract is June 1, 1998.
<TABLE>
<CAPTION>
1998 1998
Standard Breakpoint
- -------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth subaccount
Accumulation unit value
. Beginning of period 1.739 1.739
. End of period 1.567 1.569
Number of accumulation units
. End of period 1,150 554,132
- -------------------------------------------------------------------------------
Bond subaccount Accumulation unit value
. Beginning of period 4.776 4.776
. End of period 5.023 5.032
Number of accumulation units
. End of period 419 282,581
- -------------------------------------------------------------------------------
Capital Appreciation subaccount Accumulation unit value
. Beginning of period 2.119 2.119
. End of period 2.573 2.577
Number of accumulation units
. End of period 944 555,070
- -------------------------------------------------------------------------------
Equity-Income subaccount Accumulation unit value
. Beginning of period 2.356 2.356
. End of period 2.399 2.403
Number of accumulation units
. End of period 849 776,501
- -------------------------------------------------------------------------------
Global Asset Allocation subaccount Accumulation unit value
. Beginning of period 2.938 2.938
. End of period 3.056 3.061
Number of accumulation units
. End of period 681 140,127
- -------------------------------------------------------------------------------
Growth and Income subaccount Accumulation unit value
. Beginning of period 10.522 10.522
. End of period 11.496 11.515
Number of accumulation units
. End of period 190 600,110
- -------------------------------------------------------------------------------
International subaccount Accumulation unit value
. Beginning of period 1.799 1.799
. End of period 1.773 1.776
Number of accumulation units
. End of period 1,112 685,392
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1998
Standard Breakpoint
- -----------------------------------------------------------------------------
<S> <C> <C>
Managed subaccount Accumulation unit value
. Beginning of period 5.004 5.004
. End of period 5.260 5.269
Number of accumulation units
. End of period 400 220,384
- -----------------------------------------------------------------------------
Money Market subaccount Accumulation unit value
. Beginning of period 2.460 2.460
. End of period 2.516 2.521
Number of accumulation units
. End of period 813 846,660
- -----------------------------------------------------------------------------
Social Awareness subaccount Accumulation unit value
. Beginning of period 5.471 5.471
. End of period 5.875 5.883
Number of accumulation units
. End of period 366 824,493
- -----------------------------------------------------------------------------
Special Opportunities Subaccount Accumulation unit value
. Beginning of period 8.943 8.943
. End of period 8.721 8.733
Number of accumulation units
. End of period 224 108,908
- -----------------------------------------------------------------------------
Trend Subaccount
Accumulation unit value
. Beginning of period 1.220 1.220
. End of period 1.368 1.370
Number of accumulation units
. End of period 1,639 627,886
- -----------------------------------------------------------------------------
Delaware Growth & Income Subaccount
(formerly Decatur Total Return) Accumulation unit value
. Beginning of period 1.596 1.596
. End of period 1.611 1.613
Number of accumulation units
. End of period 1,253 198,730
- -----------------------------------------------------------------------------
Global Bond Subaccount
Accumulation unit value
. Beginning of period 1.125 1.125
. End of period 1.184 1.186
Number of accumulation units
. End of period 1,778 10,017
</TABLE>
- --------------------------------------------------------------------------------
Note: The Equity 500 Index, Small Cap Index, Capital Asset, VIP II Contrafund,
VIP Growth, Aspen Worldwide Growth, AMT Partners, and AMT Mid-Cap Growth
subaccounts are effective May 1, 1999, and do not have historical accumulation
unit information.
Additional information for the Money Market subaccount:
Seven-day yield: 3.15% Standard, 3.38% Breakpoint; Length of base period-7
days; Date of last day of base period: December 31, 1998.
Investment results
At times the VAA may advertise the Money Market subaccount's yield. The yield
refers to the income generated by an investment in the subaccount over a seven-
day period. This income is then annualized. The process of annualizing results
when the amount of
9
<PAGE>
Account Q
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The yield figure is based on historical earnings and is not intended to
indicate future performance.
The VAA advertises the annual performance of the subaccounts for the funds and
series on both a standardized and nonstandardized basis.
The standardized calculation measures average annual total return. This is
based on a hypothetical $1,000 payment made at the beginning of a one-year, a
five-year, and a 10-year period. This calculation reflects all fees and charges
that are or could be imposed on all contractowner accounts.
The nonstandardized calculation compares changes in accumulation unit values
from the beginning of the most recently completed calendar year to the end of
that year. It may also compare changes in accumulation unit values over shorter
or longer time periods. This calculation reflects mortality and expense risk
charges. It also reflects management fees and other expenses of the fund. It
does not include the surrender charge or the account charge; if included, they
would decrease the performance.
For additional information about performance calculations, please refer to the
SAI.
Financial statements
The financial statements of the VAA and the statutory-basis financial
statements of Lincoln Life are located in the SAI. You may obtain a free copy
by writing Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne,
Indiana 46801 or calling 1-800-4LINCOLN (454-6265).
Lincoln National Life Insurance Co.
Lincoln Life was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are
owned by Lincoln National Corp. (LNC) which is also organized under Indiana
law. LNC's primary businesses are insurance and financial services.
Variable annuity account (VAA)
On November 3, 1997, the VAA was established as an insurance company separate
account under Indiana law. It is registered with the SEC as a unit investment
trust under the provisions of the Investment Company Act of 1940 (1940 Act).
The SEC does not supervise the VAA or Lincoln Life. The VAA is a segregated
investment account, meaning that its assets may not be charged with liabilities
resulting from any other business that we may conduct. Income, gains and
losses, whether realized or not, from assets allocated to the VAA are, in
accordance with the applicable annuity contracts, credited to or charged
against the VAA. They are credited or charged without regard to any other
income, gains or losses of Lincoln Life. The VAA satisfies the definition of
separate account under the federal securities laws. We do not guarantee the
investment performance of the VAA. Any investment gain or loss depends on the
investment performance of the funds and series. Contractowners or participants,
as applicable, assume the full investment risk for all amounts placed in the
VAA.
Fixed side of the contract
Contributions allocated to the fixed side of the contract become part of
Lincoln Life's general account, and do not participate in the investment
experience of the VAA. The general account is subject to regulation and
supervision by the Indiana Department of Insurance 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 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
in it are regulated 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 our general account and
to the fixed account under the contract. 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 VAA, and therefore
contains only selected information regarding the fixed side of the contract.
Complete details regarding the fixed side of the contract are in the contract.
Contributions allocated to the fixed side of the contract are guaranteed to be
credited with a minimum interest rate, specified in the contract, of at least
3.0%. Contributions allocated to the fixed side of the contract are credited
with interest beginning on the next calendar day following the date of receipt
if all data is complete. Lincoln Life may vary the way in which it credits
interest to the fixed side of the contract from time to time.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE IN LINCOLN LIFE'S
SOLE DISCRETION. CONTRACTOWNERS AND PARTICIPANTS BEAR THE RISK THAT NO INTEREST
IN EXCESS OF 3.0% WILL BE DECLARED.
10
<PAGE>
Account Q
Investments of the variable annuity account
Contractowners of unallocated contracts and participants under allocated
contracts decide the subaccount(s) to which contributions are allocated. There
is a separate subaccount which corresponds to each fund and series.
Contractowners or participants, as applicable, may change allocations without
penalty or charges. Shares of the funds and series will be sold at net asset
value (See the Appendix to the Prospectuses for the funds or series for an
explanation of net asset value) to the VAA in order to fund the contracts. The
funds and series are required to redeem their shares at net asset value upon
our request. We reserve the right to add, delete or substitute funds and
series.
Investment advisors
Lincoln Investment (owned by LNC) is the advisor for each of the Lincoln funds
and is primarily responsible for the investment decisions affecting the funds.
The services it provides are explained in the Prospectuses of the funds. Under
an advisory agreement with each fund, Lincoln Investment provides portfolio
management and investment advice to that fund, subject to the supervision of
the fund's Board of Directors.
Additionally, Lincoln Investment currently has six sub-advisory agreements in
which the sub-advisor may
perform some or substantially all of the investment advisory services required
by those respective funds.
No additional compensation from the assets of those funds will be assessed as a
result of the sub-advisory agreements.
Following is a chart that shows the fund names and the advisors and sub-
advisors for each of the funds or series:
<TABLE>
<CAPTION>
Advisor Subadvisor Fund/Series
<S> <C> <C>
Lincoln Investment Mgmt Putnam Investment Management, Inc. LN Aggressive Growth
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Putnam Investment Management, Inc. LN Global Asset Allocation
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Janus Capital Corp. LN Capital Appreciation
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Delaware International Advisers Ltd. LN International
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt N/A LN Money Market
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt N/A LN Bond
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Fidelity Management Trust Co. LN Equity-Income
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Vantage Investment Advisors LN Growth and Income
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Vantage Investment Advisors LN Social Awareness
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Vantage Investment Advisors LN Special Opportunities
- ------------------------------------------------------------------------------------------------------------
Lincoln Investment Mgmt Vantage Investment Advisors LN Managed Fund (equity portion)
- ------------------------------------------------------------------------------------------------------------
Delaware Management Co., Inc. N/A Delaware Group Premium Fund
Trend Series
Growth & Income Series
- ------------------------------------------------------------------------------------------------------------
Delaware International Advisers, Ltd. N/A Delaware Group Premium Fund
Global Bond Series
- ------------------------------------------------------------------------------------------------------------
Bankers Trust Company N/A BT Equity 500 Index
- ------------------------------------------------------------------------------------------------------------
Bankers Trust Company N/A BT Small Cap Index
- ------------------------------------------------------------------------------------------------------------
BAMCO, Inc. N/A Baron Capital Asset
- ------------------------------------------------------------------------------------------------------------
Fidelity Investments N/A VIP II Contrafund
- ------------------------------------------------------------------------------------------------------------
Fidelity Investments N/A VIP Growth
- ------------------------------------------------------------------------------------------------------------
Janus Capital Corp. N/A Aspen Worldwide Growth
- ------------------------------------------------------------------------------------------------------------
Neuberger Berman Mgmt, Inc. Neuberger Berman, LLC AMT Partners
- ------------------------------------------------------------------------------------------------------------
Neuberger Berman Mgmt, Inc. Neuberger Berman, LLC AMT Mid-Cap Growth
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Note: "N/A" denotes no subadvisor for that fund or series.
11
<PAGE>
Account Q
Additional information regarding the investment advisors to each of the funds
may be found in the Prospectuses for the funds and series enclosed in this
booklet.
Description of the Funds and Series
Certain funds and series offered as part of this contract have similar
investment objectives and policies to other portfolios managed by the advisor.
The investment results of the funds, however, may be higher or lower than the
other portfolios that are managed by the advisor. There can be no assurance,
and no representation is made, that the investment results of any of the funds
will be comparable to the investment results of any other portfolio managed by
the advisor.
Funds
Following are brief summaries of the investment objectives and policies of the
funds. There is more detailed information in the current Prospectuses for the
funds, which are included in this booklet.
Some funds may not be available in all states and your employer may restrict
the availability of some funds.
All of the funds with the exception of the Lincoln National Special
Opportunities Fund are diversified, open-end management investment companies.
Diversified means not owning too great a percentage of the securities of any
one company. An open-end company is one which, in this case, permits Lincoln
Life to sell its shares back to the fund or series when you make a withdrawal,
surrender the contract or transfer from one fund to another. Management
investment company is the legal term for a mutual fund. The Special
Opportunities Fund is open-end, but is non-diversified. Non-diversified means
the fund may own a larger percentage of the securities of particular companies
than will a diversified company. These definitions are very general. The
precise legal definitions for these terms are contained in the 1940 Act. Please
be advised that there is no assurance that any of the funds or series will
achieve its stated objectives.
1. Aggressive Growth Fund -- The investment objective is to maximize capital
appreciation. The fund invests in stocks of smaller, lesser-known companies
which have a chance to grow significantly in a short time.
2. Bond Fund -- The investment objective is maximum current income consistent
with prudent investment strategy. The fund invests primarily in medium-and
long-term corporate and government bonds.
3. Capital Appreciation Fund -- The investment objective is long-term growth
of capital in a manner consistent with preservation of capital. The fund
primarily buys stocks in a large number of companies of all sizes if the
companies are competing well and if their products or services are in high
demand. It may also buy some money market securities and bonds, including
junk (high-risk) bonds.
4. Equity-Income Fund -- The investment objective is to achieve reasonable
income by investing primarily in income-producing equity securities. The
fund invests mostly in high-income stocks and some high-yielding bonds
(including junk bonds).
5. Global Asset Allocation Fund -- The investment objective is long-term total
return consistent with preservation of capital. The fund allocates its
assets among several categories of equity and fixed-income securities, both
of U.S. and foreign issuers.
6. Growth and Income Fund -- The investment objective is long-term capital
appreciation. The fund buys stocks of established companies.
7. International Fund -- The investment objective is long-term capital
appreciation. The fund trades in securities issued outside the United
States--mostly stocks, with an occasional bond or money market security.
8. Managed Fund -- The investment objective is maximum long-term total return
(capital gains plus income) consistent with prudent investment strategy.
The fund invests in a mix of stocks, bonds, and money market securities, as
determined by an investment committee.
9. Money Market Fund -- The investment objective is maximum current income
consistent with the preservation of capital. The fund invests in short-term
obligations issued by U.S. corporations; the U.S. Government; and
federally-chartered banks and U.S. branches of foreign banks.
10. Social Awareness Fund -- The investment objective is long-term capital
appreciation. The fund buys stocks of established companies which adhere to
certain specific social criteria.
11. Special Opportunities Fund -- The investment objective is maximum capital
appreciation. The fund primarily invests in mid-size companies whose stocks
have significant growth potential. Current income is a secondary
consideration.
12. Equity 500 Index Fund -- The investment objective is to replicate as
closely as possible the performance of the Standard & Poor's 500 Composite
Stock Price Index before the deduction of Fund expenses.
13. Small Cap Index Fund -- The investment objective is to replicate as closely
as possible (before the deduction of expenses) the total return of the
Russell 2000 Small Stock Index (the "Russell 2000"), an index consisting of
12
<PAGE>
Account Q
approximately 2,000 small-capitalization common stocks.
14. Capital Asset Fund -- The investment objective is to purchase stocks,
judged by the advisor, to have the potential of increasing their value at
least 50% over two subsequent years, although that goal may not be
achieved.
15. VIP II Contrafund Fund -- The investment objective is capital appreciation
by investing primarily in securities of common companies whose value the
advisor believes is not fully recognized by the public.
16. VIP Growth Fund -- The investment objective is to achieve capital
appreciation. The Portfolio normally purchases common stock.
17. Aspen Worldwide Growth Fund -- The investment objective is long-term growth
of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic issuers and
may at times invest in fewer than five countries or even a single country.
Janus Capital Corporation serves as the Fund's investment advisor.
18. AMT Partners Fund -- The investment objective is capital growth through an
investment approach that is designed to increase capital with reasonable
risk. It invests mainly in common stocks of mid-to large-capitalization
companies, using the value-oriented investment approach.
19. AMT Mid-Cap Growth Fund -- The investment objective is growth of capital
through an investment approach that is designed to increase capital with
reasonable risk. It invests mainly in common stocks of mid-to large-
capitalization companies.
Series
Following are brief summaries of the investment objectives and policies of the
three series being offered by Delaware Group Premium Fund, Inc. More detailed
information may be obtained from the current prospectus for those series, which
is included in this booklet. Please be advised that there is no assurance that
any of the series will achieve its stated objectives.
1. Delaware Growth & Income (formerly known as Decatur Total Return) -- The
investment objective is the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. This series has the same
objective and investment disciplines as the Delaware Growth & Income Fund,
Inc., a separate Delaware Group fund, in that it invests generally, but not
exclusively, in common stocks and income-producing securities convertible
into common stocks, consistent with the series' objective.
2. Trend -- The investment objective is long-term capital appreciation by
investing primarily in small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These securities will have
been judged to be responsive to changes in the market place and to have
fundamental characteristics to support growth. Income is not an objective.
This series has the same objective and investment disciplines as Delaware
Group Trend Fund, Inc., a separate Delaware Group fund.
3. Global Bond -- The investment objective is current income consistent with
preservation of principal by investing primarily in fixed income securities
that may also provide the potential for capital appreciation. This series is
a global fund. As such, at least 65% of the series' assets will be invested
in fixed income securities of issuers organized or having a majority of
their assets in or deriving a majority of their operating income in at least
three different countries, one of which may be the United States. This
series has the same objective and investment disciplines as the Global Bond
Series of Delaware Group Global & International Funds, Inc., a separate
Delaware Group fund.
Shares of the funds and series may be sold to Lincoln Life for investment of
the assets of the VAA and of Lincoln National Variable Annuity Account C, for
variable annuity contracts, and of Lincoln Life Flexible Premium Variable Life
Account K, for variable life insurance contracts. Shares of some, but not all,
of the funds may also be sold to Lincoln Life for investment of the assets of
Lincoln Life Flexible Premium Variable Life Accounts D and G, also to fund
variable life insurance contracts. Shares of funds other than the Lincoln funds
may be sold to separate accounts of insurers not affiliated with Lincoln Life
for variable annuity or variable life insurance contracts, or to qualified
plans. In addition, shares of the Delaware Group Premium Fund, Inc. are sold to
separate accounts of life insurance companies other than Lincoln Life. See
Other information. Shares of the funds and series are not sold directly to the
general public.
The funds may engage in mixed and shared funding. Due to differences in
redemption rates or tax treatment, or other considerations, the interests of
various contractowners participating in a fund could conflict. The funds'
Directors or Trustees will monitor for the existence of any material conflicts,
and determine what actions, if any, should be taken. See the Prospectuses for
the funds.
13
<PAGE>
Account Q
We will purchase shares of the funds and series at net asset value and direct
them to the appropriate subaccounts of the VAA. We will redeem sufficient
shares of the appropriate funds and series to pay annuity payouts, death
benefits, withdrawal proceeds or for purposes described in the contract. If
contractowners or participants desire to transfer all or part of their
investment from one subaccount to another, we may redeem shares held in the
first and purchase shares for the other subaccount.
Please note: as of the date of this Prospectus, all funds and series are not
available in all states. Please contact your investment dealer for current
information. Some plans limit the funds and series available to participants.
Investment objectives, policies and restrictions
All of the investment objectives of the funds and series are fundamental which
means that no changes may be made without the affirmative vote of a majority of
the outstanding voting securities of each respective fund or series. The extent
to which the particular investment policies, practices or restrictions for each
fund or series are fundamental or nonfundamental depends on the particular fund
or series. If they are nonfundamental, they may be changed by the Board of
Directors of the funds or series without shareholder approval.
Contractowners and participants are urged to consult the Prospectuses in this
booklet and SAIs for each individual fund or series for additional information
regarding the fundamental and non-fundamental policies, practices and
restrictions of each of the funds and series.
Reinvestment of dividends and capital gain distributions
All dividends and capital gain distributions of the funds and series are
automatically reinvested in shares of the distributing funds and series at
their net asset value on the date of distribution. Dividends are not paid out
to contractowners or participants as additional units, but are reflected in
changes in unit values.
Addition, deletion or substitution of investments
We reserve the right, within the law, to make additions, deletions and
substitutions for the funds and series held by the VAA. (We may substitute
shares of another series or of other funds for shares already purchased, or to
be purchased in the future, under the contract. This substitution might occur
if shares of a fund and series should no longer be available, or if investment
in any fund's and series' shares should become inappropriate, in the judgment
of our management, for the purposes for the contract.) We cannot substitute
shares of one fund for another without approval by the SEC. We will also notify
you.
Charges and other deductions
Deductions from contributions
There are no front-end deductions for sales charges made from purchase
payments. However, we will deduct premium taxes, when applicable.
Contract fee
We will deduct $25 per account maintained on behalf of a participant or
contractowner from account value on the last valuation date of each participant
year to compensate us for the administrative services provided; this $25
contract fee will also be deducted from account value upon total or partial
withdrawals of all account value by a contractowner or participant.
Administrative services include processing applications; issuing contracts and
certificates; processing purchase and redemptions of fund shares; maintaining
records; administering annuity payouts; providing accounting, valuation,
regulatory and reporting services.
Surrender charge
A surrender charge is imposed in the event of a total or partial withdrawal of
account value before the annuity commencement date. The surrender charge
associated with withdrawals is paid to us to compensate us for the loss we
experience on contract distribution costs when there are withdrawals before
distribution costs have been recovered. Charges are the same for all
withdrawals except that, partial withdrawals of up to a cumulative percentage
limit of 20% of (i) the account value attributable to an unallocated group
contract or (ii) the account value attributable to a participant or the
contractowner in an allocated group contract, as applicable, made in any
contract year are not subject to a surrender charge. (To determine the 20%
limit, all partial withdrawals during the contract year, including the
withdrawal amount being requested, are added together, and the sum is divided
by the account value at the time of the requested withdrawal.) Restrictions
apply to the extent a withdrawal is requested from the fixed side of the
contract. See The Contracts Discontinuance and Withdrawals. Partial withdrawals
in excess of the cumulative percentage limit in any contract year are subject
to the surrender charge. In addition, if a total withdrawal of all account
value in the VAA is requested, then the entire amount of withdrawal is subject
to the surrender charge. The surrender charge is defined in the following
table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Contract year
in which
Surrender/Withdrawal occurs
- -------------------------------------------------------------------------------------------------------
1-4 5 6 7 8 9 10+
surrender
charge 6% 5% 4% 3% 2% 1% 0
</TABLE>
14
<PAGE>
Account Q
There will be no surrender charge imposed on any withdrawal after a group
contract has been in force for ten years.
Although the applicable surrender charge is calculated based on group contract
withdrawals, and group contract years in force, any applicable charges in
connection with a participant's withdrawal are generally imposed on the
participant. Depending on various factors, the contractowner may elect to
reimburse a participant for a surrender charge imposed in connection with a
participant's withdrawal.
The surrender charge will not apply in the event of a withdrawal for one of the
following reasons: (1) to make a payment due to the participant's death,
disability, retirement or termination of employment, excluding termination of
employment due to plan termination, plant shutdown, or any other program
instituted by the participant's employer which would reduce the work force by
more than 20%; (2) to make a payment for a participant hardship situation as
allowed by the plan; (3) to make a payment pursuant to a qualified domestic
relations order; or (4) to purchase an annuity option as permitted under the
contract.
Additional information
Participants in the Texas Optional Retirement Program should refer to
Restrictions under the Texas Optional Retirement Program, later in this
Prospectus booklet.
The charges associated with total and partial withdrawals are paid to us to
compensate us for the cost of distributing the contracts. As required by the
National Association of Securities Dealers, Inc., in no event will the
aggregate surrender charge under a contract exceed 8.5% of total contributions.
Deductions from the VAA for assumption of mortality and expense risks
We deduct from the VAA an amount, computed daily, which is no higher than an
effective annual rate of 1.002% or .75% of the daily net asset value, to
compensate us for our assumption of certain risks described below. This equates
to a daily factor no higher than .000027590 or .000020625, respectively. This
maximum level of mortality and expense risk charge is guaranteed not to
increase.
Contracts eligible for the lower, or "breakpoint," mortality and expense risk
charge are those contracts which, at the time of issue, have account value
equal to or in excess of $5 million, or under which annual contributions are
anticipated to be equal to or in excess of $500,000, as determined in our sole
discretion. Certain contracts which are purchased with the surrender proceeds
of an existing group variable annuity contract are not eligible for the
breakpoint mortality and expense risk charge.
Contracts which, after issue and at the end of a calendar quarter, have account
value equal to or in excess of $5 million will be eligible for the lower
mortality and expense risk charge. The lower mortality and expense risk charge
will be implemented on the calendar quarter-end valuation date following the
end of the calendar quarter in which the contract became eligible for the lower
charge.
Our assumption of mortality risks guarantees that the annuity payouts made will
not be affected by annuitants receiving annuity payouts live longer than we
assumed when we calculated our guaranteed rates. We assume this mortality risk
through guaranteed annuity rates incorporated into the contract which we cannot
change. We also assume the risk that the charges for administrative expenses,
which we cannot change, will be insufficient to cover actual administrative
costs.
If the mortality and expense risk charge proves insufficient to cover
underwriting and administrative costs in excess of the charges made for
administrative expenses, we will absorb the loss. However, if the amount
deducted proves more than sufficient, we will keep the profit.
Special Arrangements
The surrender charge, annual mortality and expense risk charge, account charge,
loan set-up fee, and loan rate of interest may be reduced or eliminated for any
particular contract. In addition, the interest rate declared on the fixed
account may be enhanced for certain contracts. Such reductions, eliminations or
enhancements may be available where Lincoln Life's administrative and/or
distribution costs or expenses are anticipated to be lower due to, for example,
the terms of the contract, the duration or stability of the plan or contract;
economies due to the size of the plan, the number or certain characteristics of
participants, or the amount or frequency of contributions anticipated; or other
support provided by the contractowner or the plan. In addition, the group
contractowner or the plan may pay the account charge on behalf of the
participants under a contract. Lincoln Life will enhance the fixed interest
crediting rate and reduce or eliminate fees, charges, or rates in accordance
with Lincoln Life's eligibility criteria in effect at the time a contract is
issued, or in certain cases, after a contract has been held for a period of
time. Lincoln Life may from time to time modify both the amounts of reductions
or enhancements and the criteria for qualification. Reductions, enhancements,
or waivers will not be unfairly discriminatory against any person, including
participants under other contracts issued through the VAA.
Fees, charges and rates under the contracts, including charges for premium
taxes; loan rates of interest; and the availability of certain free
withdrawals, may be subject to variation based on state insurance regulation.
15
<PAGE>
Account Q
The contractowner and participant should read the contract carefully to
determine whether any variations apply in the state in which the contract is
issued. The exact amount for all fees, charges and rates applicable to a
particular contract will be stated in that contract.
Deductions for premium taxes
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the contracts or the VAA will be deducted from account value
when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation, or by judicial action. These premium taxes will
generally depend upon the law of your state of residence. The tax ranges from
0.5% to 4.0%.
Other charges and deductions
There are deductions from and expenses paid out of the assets of the funds and
the series that are described later in this booklet and in the funds'
Prospectuses and in the Prospectus for the series respectively.
The contracts
Purchase of contracts
A prospective contractowner wishing to purchase a contract must apply for it
through one of our authorized sales representatives. The completed application
is sent to us and we decide whether to accept or reject it. Once the
application is accepted, a contract is prepared and executed by our legally
authorized officers. The contract is then sent to the contractowner through its
sales representative. See Distribution of the contracts.
Upon a completed application and all other information necessary for processing
a purchase order are received, an initial contribution will be priced no later
than two business days after we receive the order.
If we receive contribution amounts without allocation instructions, we will
notify the contractowner and direct contribution amounts to the pending
allocation account. The pending allocation account invests in the Lincoln
National Money Market Fund.
We will transfer account value in the pending allocation account in accordance
with allocation percentages elected on properly completed allocation
instructions within two valuation dates of receipt of such form, and allocate
all future contributions in accordance with these percentages until such time
as we are notified of a change. If we do not receive properly completed
instructions after we have sent three monthly notices, we will refund the
contributions in the pending allocation account, together with earnings thereon
(unless applicable ERISA requirements preclude return of earnings), for which
no properly completed instructions have been received within 105 days of the
date of receipt of the initial contribution.
The account charge will not apply to the pending allocation account.
Participants may not allocate contributions to, make transfers to or from, take
loans from, or make withdrawals from the pending allocation account, except as
set forth in the contract.
Who can invest
In order to purchase a group contract, the plan on whose behalf the contract
will be held must be one of the qualified plans for which the contracts are
designed. Also, depending on state law requirements, a minimum of ten
participants may be required to be participating in the plan. Lincoln Life may
impose additional eligibility requirements; any such additional eligibility
requirements will be applied in a nondiscriminatory manner.
Contributions
Contributions are payable to us at a frequency and in an amount selected in the
application. Contributions in any one contract year which exceed twice the
amount of contributions made in the first contract year may be made only with
our permission. If contributions stop, the contract will remain in force as a
paid-up contract. Payments may be resumed at any time until the group contract
or certificate, as applicable, terminates.
Valuation date
Accumulation and annuity units will be valued once daily as of the close of
trading (currently 4:00 p.m., New York time) on each day that the NYSE is open
for trading (valuation date). On any date other than a valuation date, the
accumulation unit value and the annuity unit value will not change.
Allocation of contributions
Contributions are placed into the VAA's subaccounts, each of which invests in
shares of its corresponding fund or series, according to contractowners or
participants instructions. Contributions may be allocated to a maximum of ten
subaccounts, or to a maximum of nine subaccounts and the fixed account.
Upon allocation to the appropriate subaccount, contributions are converted into
accumulation units. The number of accumulation units credited is determined by
dividing the amount of each contribution allocated to each subaccount by the
value of an accumulation unit for that subaccount on the valuation date on
which the contribution is received at the contribution if received before the
end of the valuation date (usually 4:00 p.m. New York time). If the
contribution is received at or after that time, we will use the accumulation
unit value computed on the next valuation date. The number of
16
<PAGE>
Account Q
accumulation units determined in this way shall not be changed by any
subsequent change in the value of an accumulation unit. However, the dollar
value of an accumulation unit will vary depending not only upon how well the
investments perform, but also upon the related expenses of the VAA and the
underlying funds and series.
Valuation of accumulation units
Contributions allocated to the variable account are converted into accumulation
units. This is done by dividing each contribution by the value of an
accumulation unit for the valuation period during which the contribution is
allocated to the VAA. The accumulation unit value for each subaccount was or
will be established at the inception of the subaccount. It may increase or
decrease from valuation period to valuation period. The accumulation unit value
for a subaccount for a later valuation period is determined as follows:
1. The total value of fund or series shares held in the subaccount is
calculated by multiplying the number of fund or series shares owned by the
subaccount at the beginning of the valuation period by the net asset value
per share of the fund or series at the end of the valuation period, and
adding any dividend or other distribution of the fund or series if an ex-
dividend date occurs during the valuation period; minus
2. The liabilities of the subaccount at the end of the valuation period; these
such liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for by
us that we determine result from the operations of the VAA; and
3. The result of 2. is divided by the number of subaccount units outstanding at
the beginning of the valuation period.
The daily charges imposed on a subaccount for any valuation period are equal to
the mortality and expense risk charge for the number of calendar days in the
valuation period.
Transfers on or before the annuity commencement date
The contractowner (under an unallocated group contract) or participant or
contractowner (under an allocated group contract) may transfer all or a portion
of account value from one subaccount to another. A transfer involves the
redemption of accumulation units in one subaccount and the purchase of
accumulation units in the other subaccount. A transfer will be done using the
respective accumulation unit values as of the valuation date immediately
following receipt of the transfer request.
Transfers between subaccounts are restricted to once every 30 days. We reserve
the right to further limit the number of transfers.
A transfer may be made by writing to the home office or, if a Telephone
Exchange Authorization form (available from us) is on file with us, by a toll-
free telephone call. In order to prevent unauthorized or fraudulent telephone
transfers, we may require a contractowner or participant, as applicable, to
provide certain identifying information before we will act upon their
instructions. We may also assign the contractowner or participant, as
applicable, a Personal Identification Number (PIN) to serve as identification.
We will not be liable for following telephone instructions we reasonably
believe are genuine. Telephone transfer requests may be recorded and written
confirmation of all transfer requests will be mailed to the contractowner or
participant, as applicable, on the next valuation date.
Telephone transfers will be processed on the valuation date that they are
received when they are received at our customer service center before the end
of the valuation date (usually 4:00 p.m. New York time).
The contractowner (under an unallocated group contract) or participant or
contractowner (under an allocated group contract) may also transfer all or any
part of the account value from the subaccount(s) to the fixed account. Under an
allocated contract, a participant may transfer account value from the fixed
side to the various subaccount(s), provided that the sum of the transfers and
withdrawals of account value in the fixed side transferred is limited to 20% of
the account value in the fixed side in any 365 day period. Under an unallocated
contract, a group contractowner may transfer account value from the fixed side
to the various subaccount(s), provided that the sum of the transfers and
withdrawals of account value in the fixed side transferred is limited to 20% of
account value in the fixed side in any 365 day period. In the alternative, a
scheduled transfer (or withdrawal) of value in the fixed side may be requested
over a five year period, according to the following schedule:
<TABLE>
<C> <S>
Percentage eligible for transfer
Transaction dates (or withdrawal)
------------------ ---------------------------------------------------
Initial date 20% of the value in the fixed account on such date
First anniversary 20% of the value in the fixed account on such date
Second anniversary 25% of the value in the fixed account on such date
Third anniversary 33% of the value in the fixed account on such date
Fourth anniversary 50% of the value in the fixed account on such date
Fifth anniversary 100% of the value in the fixed account on such date
</TABLE>
The initial amount of the transfer or withdrawal will be reduced by the amount
of any transfer or withdrawal from the fixed side during the preceding 365 day
period.
17
<PAGE>
Account Q
A contractowner or participant thinking about a transfer of account value
should consider the inherent risk involved. Frequent transfers based on short-
term expectations may increase the risk that a transfer will be made at an
inopportune time.
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
Transfers after the annuity commencement date
Contractowners or participants, may transfer all or a portion of the investment
in one subaccount to another subaccount or to the fixed side of the contract.
Those transfers will be limited to three times per contract year. However,
after the annuity commencement date, no transfers are allowed from the fixed
side of the contract to the subaccounts.
Death benefit before the annuity commencement date
If a participant under an allocated contract issued in connection with a
Section 403(b) plan that is not subject to ERISA dies before the annuity
commencement date, a death benefit will be paid to the participant's designated
beneficiary equal to the participant's account value less any outstanding loan
balance. (No surrender charge or account charge is deducted from the death
benefit.) The death benefit will be determined at the end of the valuation
period during which both due proof of death and election of a form of benefit
have been received by Lincoln Life.
The participant may designate a beneficiary during the life of the participant
and change the beneficiary by filing a written request with the home office.
Each change of beneficiary revokes any previous designation. Unless otherwise
provided in the beneficiary designation, if no beneficiary survives the
participant, the death benefit will be paid in one sum to the participant's
estate.
All death benefit payments will be subject to the laws and regulations
governing death benefits. In addition, no payment of death benefit provided
upon the death of the participant will be allowed that does not satisfy the
requirements of Section 401(a)(9) of the tax code.
The death benefit may be paid in a lump sum or under a settlement option then
available. If a lump sum settlement is elected, the proceeds will generally be
paid within seven days of approval by us of the claim. This payment may be
postponed as permitted by the 1940 Act.
An additional option is available if a lump sum settlement is requested and the
amount of the settlement is $10,000 or more. A SecureLine(C) account can be
established in the name of the beneficiary for that amount. SecureLine(C) is an
account established in the name of the beneficiary and maintained in Lincoln
Life's general account. State Street Bank and Trust Company of Boston, MA
administers check writing privileges for the SecureLine(C) account.
SecureLine(C) accounts, like all amounts maintained in Lincoln Life's general
account, are not deposits or obligations of, or guaranteed or endorsed by, any
bank or depository institution, and the SecureLine(C) account is not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other investment agency. Once the account is established, only
the beneficiary can authorize checks drawn on the account.
Discontinuance and withdrawals
Discontinuance. A group contractowner may discontinue a group contract at any
time by giving written notice to Lincoln Life. The contract will be deemed
discontinued on the later of the valuation date the contractowner specifies or
the valuation date on which we receive the written notice.
Lincoln Life may also give a group contractowner written notice that the group
contract will be discontinued by Lincoln Life if the plan does not qualify for
special tax treatment under Section 401, 403, 408, 414 or 457 of the tax.
Lincoln Life will give the group contractowner at least 15 days advance written
notice in which to cure any remediable defaults before discontinuing the group
contract.
With respect to an allocated group contract, if the contract is discontinued
due to the contractowner's request, participants will be given written notice.
As of the date the contract is discontinued, no additional contributions will
be accepted. However, transfers, withdrawals, and loans will continue to be
permitted, in accordance with the terms of the contract.
Subject to applicable regulatory requirements, if an allocated group contract
is discontinued due to not qualifying for special tax treatment under Section
401, 403, 408, 414, or 457 of the tax code, the account value will be paid to
the contractowner or participant, subject to the charges and restrictions
applicable to a withdrawal of the entire account value. Participants will be
given written notice.
Subject to applicable regulatory requirements, if an unallocated group contract
is discontinued, the account value will be paid to the contractowner, subject
to the charges and restrictions applicable to a withdrawal of the entire
account value.
In the event that Lincoln Life ceases to offer the contracts to new purchasers,
we may also determine to deactivate a group contract by prohibiting additional
contributions and/or the addition of new participants under the contract.
Contractowners will be given at least 90 days' notice of deactivation of the
contract.
Some contracts provide that the account value in the fixed side of the contract
may be paid in a lump sum subject to a market value adjustment. This option is
18
<PAGE>
Account Q
available under allocated group contracts if the contract is discontinued and
the contract is subject to ERISA. It is also available within unallocated
group contracts if 100% of the account value is requested. If this option is
selected, the account value in the fixed side of the contract will be paid in
a lump sum equal to the market value factor times the account value in the
fixed side reduced by the sum of the surrender charges and the account charge
times the number of participants. The market value factor is the lessor of
1.00 or the ratio of:
Current Bond Price
-----------
Par Value of that Bond
The Current Bond Price will be calculated at the time of contract
discontinuance and will be equal to the price of a bond: 1) issued with a
maturity of 6.5 years; 2) bearing interest at the weighted average of the
declared interest rates in effect as of the discontinuance date; and 3)
calculated to yield the Merrill Lynch Baa Intermediate Industrial Average for
the week in which the notice of discontinuance is received. The amount payable
will never be less than the principal in the fixed side of contract
accumulated at an effective annual interest rate of 3.00%.
Withdrawals. Withdrawals of account value under the contract for any one of
the following reasons ("benefit responsive withdrawals") may be made at any
time and in any amount, and are not subject to a surrender charge: (i) to make
a payment due to the participant's death, disability, retirement, or
termination of employment, excluding termination of employment due to plan
termination, plant shutdown, or any other program instituted by the
participant's employer which would reduce the work force by more than 20%;
(ii) to make a payment for a participant hardship situation as permitted by
the plan; (iii) to make a payment pursuant to a Qualified Domestic Relations
Order (QDRO); or (iv) to purchase an annuity option under the contract.
Withdrawals of account value that are not benefit responsive withdrawals are
generally subject to a surrender charge in accordance with the terms of the
contract. See Charges and other deductions. Such withdrawals are also subject
to certain additional conditions, as follows:
. Partial withdrawals of up to a cumulative percentage limit of 20% of the
account value attributable to an unallocated group contract, or a
participant or contractowner under an allocated group contract, may be made
in each contract year without imposition of a surrender charge. (To
determine the 20% limit, all partial withdrawals during the contract year,
including the withdrawal amount being requested, are added together, and the
sum is divided by the account value at the time of the requested
withdrawal.) Partial withdrawals in excess of the cumulative percentage
limit in any contract year are subject to the surrender charge. In addition,
if a complete withdrawal of all account value in the VAA is requested, then
the entire amount of such withdrawal is subject to the surrender charge. In
the event that a withdrawal of the entire account value allocated to both
the VAA and the side is requested, then the account charge will also be
deducted from account value prior to payment.
. Withdrawals of account value from the fixed side of the contract may be
requested as either periodic elective withdrawals or systematic withdrawals.
In any 365 day period, a periodic elective withdrawal of up to 20% of
account value per contractowner or per participant, as applicable, from the
fixed side may be made. The cumulative percentage limit of 20% is the sum of
all periodic elective transfers and withdrawals from the fixed side during
the preceding 364-day period plus the amount of the requested withdrawal,
divided by the then-current account value in the fixed side. Periodic
elective withdrawals (or transfers) from the fixed side in excess of this
cumulative percentage limit will not be permitted.
In addition, a systematic withdrawal of the entire account value in the
fixed side over a five-year period may be elected as follows:
<TABLE>
<C> <S>
Transaction date Percentage eligible for payment
-------------------- -------------------------------------------
Initial payment date 20% of value in fixed side as of such date
First anniversary 20% of value in fixed side as of such date
Second anniversary 25% of value in fixed side as of such date
Third anniversary 33% of value in fixed side as of such date
Fourth anniversary 50% of value in fixed side as of such date
Fifth anniversary 100% of value in fixed side as of such date
</TABLE>
The initial payment of a systematic withdrawal will be reduced by the amount
of any periodic elective withdrawals (or transfers) from the fixed side during
the immediately preceding 365 day period. Neither a contractowner nor a
participant can make periodic elective withdrawals (or transfers) from the
fixed side while a systematic withdrawal (or transfer) election is effective,
or for one calendar year after the systematic withdrawal (or transfer)
election has been rescinded. In addition, while the systematic withdrawal (or
transfer) election is in effect, a participant cannot allocate contributions
to the fixed side.
General. All withdrawal requests must be submitted to us in writing, and,
unless the contract has been issued in connection with a Section 403(b) plan
not subject to the Employee Retirement Income Security Act of 1974,
19
<PAGE>
Account Q
as amended (ERISA), must be authorized by the group contractowner. In a 403(b)
plan that is not subject to ERISA the participant may submit the withdrawal
request.
Special restrictions on withdrawals apply if the contract is purchased as part
of a retirement plan of a public school system or Section 501(c)(3)
organization under Section 403(b) of the tax. In order for a contract to retain
its tax-qualified status, Section 403(b) prohibits a withdrawal from a Section
403(b) contract of post-1988 contributions (and earnings on those
contributions) pursuant to a salary reduction agreement. However, this
restriction does not apply if the annuitant attains age (a) 59 1/2, (b)
separates from service, (c) dies, (d) becomes totally and permanently disabled
and/or (e) experiences financial hardship (in which event the income
attributable to those contributions may not be withdrawn). Pre-1989
contributions and earnings through December 31, 1988, are not subject to the
previously stated restriction.
Any withdrawal after an annuity commencement date depends upon the annuity
option selected.
The account value available upon withdrawal is determined at the end of the
valuation period during which the written request for withdrawal is received at
the home office. Withdrawal payments from the VAA will be mailed within seven
days after we receive a valid written request at the home office. The payment
may be postponed as permitted by the 1940 Act.
Unless a request for withdrawal specifies otherwise, withdrawals will be made
from all subaccounts within the VAA and from the fixed side in the same
proportion that the amount withdrawn bears to the total account value.
As discussed above, there are charges associated with withdrawal of account
value during the first ten contract years. See Charges and other deductions--
surrender charge. You may specify that the charges be deducted from the amount
you request withdrawn or from the remaining account value. If you specify that
the charges be deducted from the remaining account value, the amount of the
total withdrawal will be increased according to a formula for calculating the
impact of the applicable surrender charge percentage; consequently, the amount
of the charge associated with that withdrawal will also increase.
The tax consequences of withdrawals are discussed later in this booklet. See
Federal tax matters.
The contract will terminate when there is no account value remaining. See the
contract for more information.
Loans
With respect to an allocated group contract, a participant under a plan that
permits loans may apply for a loan under the contract prior to such
participant's annuity commencement date. A participant must complete a loan
application and assign account value in the fixed side equal to the loan amount
as security for the loan. If the account value in the fixed side is less than
the loan amount, we will transfer account value from the VAA to the fixed side,
from either the subaccounts specified by the participant or on a pro rata basis
from all subaccounts. For purposes of applying transfer and withdrawal
restrictions from the fixed side of the contract, any amount allocated to the
fixed side of the contract as security for a loan will be included in the
calculation of account value in the fixed side of the contract. However,
neither withdrawals nor transfers from the fixed side of the contract are
allowed to the extent that such a withdrawal or transfer would cause the value
in the fixed side to be less than any outstanding loan. The minimum loan amount
is $1,000. A participant may borrow up to the lesser of 50% of the account
value or $50,000 on all outstanding loans to the participant under all plans.
However, for plans not subject to ERISA, if 50% of the total account value is
less than $10,000, the participant may borrow the lesser of $10,000 or 100% of
the account value. A participant may have only one contract loan with us at any
one time. Also, if the participant has taken a loan during the preceding twelve
month period, the $50,000 maximum loan limit is reduced by the excess of the
highest outstanding balance of loans during the preceding twelve month period
over the outstanding current loan balance.
The loan interest rate is adjustable, which means it may change from time to
time. The initial annual loan rate of interest, which we declare quarterly,
will generally be the Moody's Corporate Bond Yield monthly average for the
calendar month two months prior to the first day of each calendar quarter,
rounded down to the next .25%. At the beginning of each calendar quarter, we
will compare each loan's interest rate to the then current declared interest
rate. If the then current declared interest rate is less than the loan's
interest rate by .50% or more, the loan's interest rate will be decreased to
equal the then current declared interest rate. The loan's interest rate will
remain unchanged if the then current declared interest rate differs from the
loan's interest rate by less than .50%. The loan rate for an existing loan may
decrease, but it will never increase. During the time that the loan is
outstanding, the amount of the loan principal pledged as security for the loan
will earn interest at an annual rate of at least 3.00%, as specified in the
contract. Loan payments of principal and interest must be paid in level
amortized payments, either monthly or quarterly. The loan must be repaid within
5 years unless it is being used to purchase a principal residence for the
participant in which case the loan must be repaid within 20 years or less.
The amounts and terms of a participant loan may be subject to the restrictions
imposed under Section 72(p)
20
<PAGE>
Account Q
of the tax code, Title I of ERISA, and any applicable plan. Under certain
contracts, a one-time fee of up to $35 may be charged to set up a loan. Please
see your contract for more information about loans, including interest rates
and applicable fees and charges. This provision is not available in an
unallocated group contract.
Please note: as of the date of this Prospectus, not all states have approved
the loan provisions outlined above. Therefore, your contract may contain loan
provisions with the following differences: 1) the loan interest rate for new
loans is determined monthly (not quarterly); 2) the loan interest rate for
existing loans is adjusted on the anniversary of the loan (not at the beginning
of each quarter); and 3) the loan interest rate for existing loans may increase
or decrease (not just decrease). See the contract for more information.
Delay of payments
Contract proceeds from the VAA will be paid within seven days, except (i) when
the NYSE is closed (except weekends and holidays); (ii) times when the market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect contractowners.
Reinvestment privilege
Contractowners and participants may elect to make a reinvestment purchase with
any part of the proceeds of a withdrawal, and we will recredit the withdrawal
charges previously deducted. This election must be made within 30 days of the
date of the withdrawal, and the repurchase must be of a contract covered by
this Prospectus. In the case of a qualified contract, a representation must be
made that the proceeds being used to make the purchase have retained their tax-
favored status under an arrangement for which the contracts offered by this
Prospectus are designed. The number of accumulation units which will be
credited when the proceeds are reinvested will be based on the value of the
accumulation unit(s) on the next valuation date. This computation will occur
following receipt of the proceeds and request for reinvestment at the home
office. No one may utilize the reinvestment privilege more than once. For tax
reporting purposes, we will treat a withdrawal and a subsequent reinvestment
purchase as separate transactions. Consult a tax advisor before requesting a
withdrawal or subsequent reinvestment purchase.
Amendment of contract
We reserve the right to amend the contract to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified in writing of any changes, modifications or waivers.
Commissions
The maximum commission which could be paid to dealers is 9% on the total
contributions received during the first contract year and 5.25% on each
contribution in renewal contract years (or an equivalent schedule).
Ownership
Contractowners have all rights under the contract. According to Indiana law,
the assets of the VAA are held for the exclusive benefit of all contractowners,
participants and their designated beneficiaries. The assets of the VAA are not
chargeable with liabilities arising from any other business that we may
conduct. Contracts used for qualified plans may not be assigned or transferred
except as permitted by the Employee Retirement Income Security Act (ERISA) of
1974 and upon written notification to us. We assume no responsibility for the
validity or effect of any assignment. Consult a tax advisor about the tax
consequences of an assignment.
Contractowner and participant questions
The obligations to purchasers under the contracts are those of Lincoln Life.
Your questions and concerns should be directed to us at 1-800-4LINCOLN
(454-6265).
Annuity payouts
The contract provides that all or part of the account value may be used to
purchase an annuity. Optional forms of annuity payouts are available, each of
which is payable on a variable basis, a fixed basis or a combination of both.
We may choose to make other annuity options available in the future.
Depending on the terms of the plan, the group contractowner or the participant
may elect annuity payouts in monthly, quarterly, semiannual or annual
installments. If the payouts from any subaccount would be or become less than
$50, we have the right to reduce their frequency until the payouts are at least
$50 each. Following are explanations of the annuity options available.
Annuity options
Life Annuity. This option offers a periodic payout during the lifetime of the
annuitant and ends with the last payout before the death of the annuitant. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a death benefit for beneficiaries.
However, there is the risk under this option that the annuitant would receive
no payouts if death occurs before the date set for the first payout; only one
payout if death occurs before the second scheduled payout, and so on.
21
<PAGE>
Account Q
Annuity
Life Income with Guaranteed Period. This option guarantees periodic payouts
during a designated period, usually 10 or 20 years, and then continues
throughout the lifetime of the annuitant. The designated period is selected by
the contractowner on behalf of participants in an unallocated contract or the
participant in an allocated contract.
Joint Life Annuity. This option offers a periodic payout during the joint
lifetime of the annuitant and a designated joint annuitant. The payouts
continue during the lifetime of the survivor.
Joint Life Annuity with Guaranteed Period. This option guarantees periodic
payouts during a designated period, usually 10 or 20 years, and continues
during the joint lifetime of the annuitant and a designated joint annuitant.
The payouts continue during the lifetime of the survivor. The designated period
is selected by the contractowner or the participant, as applicable.
Unit Refund Life Annuity. This option offers a periodic payout during the
lifetime of the annuitant with the guarantee that upon death a payout will be
made of the value of the number of annuity units (see Variable annuity payouts)
equal to the excess, if any, of: (a) the total amount applied under this option
divided by the annuity unit value for the date payouts begin, divided by (b)
the annuity units represented by each payout to the annuitant multiplied by the
number of payouts paid before death. The value of the number of annuity units
is computed on the date the death claim is approved for payment by the home
office.
General information
Under the options listed above, you may not make withdrawals. Other options may
be made available by us. Options are only available to the extent they are
consistent with the requirements of the contract and Section 401(a)(9) of the
tax code, if applicable. The mortality and expense risk charge will be assessed
on all variable annuity payouts, including options that do not have a life
contingency and therefore no mortality risk.
Under any option providing for guaranteed payouts, the number of payouts which
remain unpaid at the date of the annuitant's death (or surviving annuitant's
death in the case of a joint life annuity) will be paid to the beneficiary as
payouts become due.
Variable annuity payouts
Variable annuity payouts will be determined using:
1. The account value on the annuity commencement date;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
4. The investment performance of the fund(s) or series selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the contract with a fixed number of annuity units equal to the first
periodic payout divided by the annuity unit value; and
3. Calculate the value of the annuity units each month thereafter.
We assume an investment return of 5% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying fund(s) and series perform, relative to the 5% assumed
rate. If the actual net investment rate (annualized) exceeds the assumed rate,
the payout will increase at a rate proportional to the amount of such excess.
Conversely, if the actual rate is less than the assumed rate, annuity payouts
will decrease. There is a more complete explanation of this calculation in the
SAI.
Federal tax matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax
rules that may affect the contractowner, participant and contract. This
discussion also does not address other Federal tax consequences, or state or
local tax consequences, associated with the contract. As a result,
contractowner and participant should always consult a tax adviser about the
application of tax rules to their individual situation.
Taxation of nonqualified annuities
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan receiving special tax
treatment under the tax code, such as an IRA or a section 403(b) plan.
Tax deferral on earnings
The Federal income tax law generally does not tax any increase in the contract
value until contractowner or participant receives a contract distribution.
However, for this general rule to apply, certain requirements must be
satisfied:
. An individual must own the contract (or the tax law must treat the contract
as owned by an individual).
. The investments of the VAA must be "adequately diversified" in accordance
with IRS regulations.
22
<PAGE>
Account Q
. The right to choose particular investments for a contract must be limited.
. The annuity commencement date must not occur near the end of the annuitant's
life expectancy.
Contracts not owned by an individual
If a contract is owned by an entity (rather than an individual) the tax code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the contract pays tax currently on
the excess of the contract value over the contributions for the contract.
Examples of contracts where the owner pays current tax on the contract's
earnings are contracts issued to a corporation or a trust. Exceptions to this
rule exist. For example, the tax code treats a contract as owned by an
individual if the named owner is a trust or other entity that holds the
contract as an agent for an individual. However, this exception does not apply
in the case of any employer that owns a contract to provide deferred
compensation for its employees.
Investments in the VAA must be diversified
For a contract to be treated as an annuity for Federal income tax purposes, the
investments of the VAA must be "adequately diversified." IRS regulations define
standards for determining whether the investments of the VAA are adequately
diversified. If the VAA fails to comply with these diversification standards,
participant could be required to pay tax currently on the excess of the
contract value over the contract contributions. Although we do not control the
investments of the underlying investment options, we expect that the underlying
investment options will comply with the IRS regulations so that the VAA will be
considered "adequately diversified."
Restrictions
Federal income tax law limits contractowner's and participant's rights to
choose particular investments for the contract. Because the I.R.S. has not
issued guidance specifying those limits, the limits are uncertain and your
right to allocate contract values among the subaccounts may exceed those
limits. If so, contractowner and/or participant would be treated as the owner
of the assets of the VAA and thus subject to current taxation on the income and
gains from those assets. We do not know what limits may be set by the I.R.S. in
any guidance that it may issue and whether any such limits will apply to
existing contracts. We reserve the right to modify the contract without
contractowner's or participant's consent to try to prevent the tax law from
considering them as the owner of the assets of the VAA.
Age at which annuity payouts begin
Federal income tax rules do not expressly identify a particular age by which
annuity payouts must begin. However, those rules do require that an annuity
contract provide for amortization, through annuity payouts, of the contract's
contributions and earnings. If annuity payouts under the contract begin or are
scheduled to begin on a date past the annuitant's 85th birthday, it is possible
that the tax law will not treat the contract as an annuity for Federal income
tax purposes. In that event, contractowner and/or participant would be
currently taxable on the excess of the contract value over the contributions of
the contract.
Tax treatment of payments
We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that the contract will be treated as an annuity for Federal income tax purposes
and that the tax law will not tax any increase in the contract value until
there is a distribution from the contract.
Taxation of withdrawals and surrenders
Contractowner and/or participant will pay tax on withdrawals to the extent
their contract value exceeds contributions in the contract. This income (and
all other income from the contract) is considered ordinary income. A higher
rate of tax is paid on ordinary income than on capital gains. Contractowner
and/or participant will pay tax on a surrender to the extent the amount
received exceeds contributions. In certain circumstances contributions are
reduced by amounts received from the contract that were not included in income.
Taxation of annuity payouts
The tax code imposes tax on a portion of each annuity payout (at ordinary
income tax rates) and treats a portion as a nontaxable return of contributions
in the contract. We will notify you annually of the taxable amount of your
annuity payout. Once you have recovered the total amount of the purchase
payment in the contract, you will pay tax on the full amount of your annuity
payouts. If annuity payouts end because of the annuitant's death and before the
total amount of the contributions in the contract has been received, the amount
not received generally will be deductible.
Taxation of death benefits
We may distribute amounts from the contract because of the death of a
contractowner or a participant. The tax treatment of these amounts depends on
whether participant or the annuitant dies before or after the annuity
commencement date.
. Death prior to the annuity commencement date--
. If the beneficiary receives death benefits under an annuity payout option,
they are taxed in the same manner as annuity payouts.
. If the beneficiary does not receive death benefits under an annuity payout
option, they are taxed in the same manner as a withdrawal.
23
<PAGE>
Account Q
. Death after the annuity commencement date--
. If death benefits are received in accordance with the existing annuity
payout option, they are excludible from income if they do not exceed the
contributions not yet distributed from the contract. All annuity payouts
in excess of the contributions not previously received are includible in
income.
. If death benefits are received in a lump sum, the tax law imposes tax on
the amount of death benefits which exceeds the amount of contributions not
previously received.
Penalty taxes payable on withdrawals, surrenders, or annuity payouts
The tax code may impose a 10% penalty tax on any distribution from the contract
which contractowner and/or participant must include in gross income. The 10%
penalty tax does not apply if one of several exceptions exists. These
exceptions include withdrawals, surrenders, or annuity payouts that:
. participant receives on or after they reach age 59 1/2,
. participant receives because they became disabled (as defined in the tax
law),
. a beneficiary receives on or after participant's death, or
. participant receives as a series of substantially equal periodic payments for
their life (or life expectancy).
Special rules if you own more than one annuity contract
In certain circumstances, we must combine some or all of the nonqualified
annuity contracts participant owns in order to determine the amount of an
annuity payout, a surrender, or a withdrawal that participant must include in
income. For example, if contractowner and/or participant purchase two or more
deferred annuity contracts from the same life insurance company (or its
affiliates) during any calendar year, the tax code treats all such contracts as
one contract. Treating two or more contracts as one contract could affect the
amount of a surrender, a withdrawal or an annuity payout that participant must
include in income and the amount that might be subject to the penalty tax
described above.
Loans and assignments
Except for certain qualified contracts, the tax code treats any amount received
as a loan under a contract, and any assignment or pledge (or agreement to
assign or pledge) any portion of participant's contract value, as a withdrawal
of such amount or portion.
Gifting a contract
If contractowner and participant transfer ownership of the contract to a person
other than participant's spouse (or to participant's former spouse incident to
divorce), and receive a payment less than the contract's value, participant
will pay tax on their contract value to the extent it exceeds contractowner's
and participant's contributions not previously received. The new owner's
contributions in the contract would then be increased to reflect the amount
included in contractowner's and/or participant's income.
Loss of interest deduction
After June 8, 1997 if a contract is issued to a taxpayer that is not an
individual, or if a contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest
expenses. This disallowance does not apply if you pay tax on the annual
increase in the contract value. Entities that are considering purchasing a
contract, or entities that will benefit from someone else's ownership of a
contract, should consult a tax advisor.
Qualified retirement plans
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with different types of
qualified plans. The Federal income tax rules applicable to those plans are
complex and varied. As a result, this Prospectus does not attempt to provide
more than general information about use of the contract with the various types
of qualified plans. Persons planning to use the contract in connection with a
qualified plan should obtain advice from a competent tax advisor.
Types of qualified contracts and terms of contracts
Currently, we issue contracts in connection with the following types of
qualified plans:
. Individual Retirement Accounts and Annuities ("Traditional IRAs")
. Roth IRAs
. Simplified Employee Pensions ("SEPs")
. Savings Incentive Matched Plan for Employees ("SIMPLE 401(k) plans")
. Public school system and tax-exempt organization annuity plans ("403(b)
plans)
. Qualified corporate employee pension and profit-sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
. Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
. Deferred compensation plans of state and local governments and tax-exempt
organizations ("457 plans").
We may issue a contract for use with other types of qualified plans in the
future.
24
<PAGE>
Account Q
We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions, regardless of the contract's terms and conditions. In addition, we
are not bound by the terms and conditions of qualified plans to the extent such
terms and conditions contradict the contract, unless we consent.
Tax treatment of qualified contracts
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example,
. Federal tax rules limit the amount of contributions that can be made, and the
tax deduction or exclusion that may be allowed for the contributions. These
limits vary depending on the type of qualified plan and the plan
participant's specific circumstances, e.g., the participant's compensation.
. Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the
participant must begin receiving payments from the contract in certain
minimum amounts by a certain age, typically age 70 1/2. However, these
"minimum distribution rules" do not apply to a Roth IRA.
. Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) plans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are subject
to a variety of limitations, including restrictions as to the loan amount,
the loan's duration, and the manner of repayment. Your contract or plan may
not permit loans.
Tax treatment of payments
Federal income tax rules generally include distributions from a qualified
contract in the participant's income as ordinary income. These taxable
distributions will include contributions that were deductible or excludible
from income. Thus, under many qualified contracts the total amount received is
included in income since a deduction or exclusion from income was taken for
contributions. There are exceptions. For example, participant does not include
amounts received from a Roth IRA in income if certain conditions are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the
qualified plan.
Federal penalty taxes payable on distributions
The tax code may impose a 10% penalty tax on the amount received from the
qualified contract that must be included in income. The tax code does not
impose the penalty tax if one of several exceptions applies. The exceptions
vary depending on the type of qualified contract purchased. For example, in the
case of an IRA, exceptions provide that the penalty tax does not apply to a
withdrawal, surrender, or annuity payout:
. received on or after the participant reaches age 59 1/2,
. received on or after the participant's death or because of the participant's
disability (as defined in the tax law),
. received as a series of substantially equal periodic payments for the
participant's life (or life expectancy), or
. received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
Transfers and direct rollovers
In many circumstances, money may be moved between qualified contracts and
qualified plans by means of a rollover or a transfer. Special rules apply to
such rollovers and transfers. If the applicable rules are not followed,
participant may suffer adverse Federal income tax consequences, including
paying taxes which might not otherwise have had to be pay. A qualified advisor
should always be consulted before contractowner or participant move or attempt
to move funds between any qualified plan or contract and another qualified plan
or contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 401(a) plans, section 403(a) or (b) plans, HR 10
plans, and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs or section 457 plans).
The direct rollover rules require that we withhold Federal income tax equal to
20% of the eligible rollover distribution from the distribution amount, unless
participant elects to have the amount directly transferred to certain qualified
plans or contracts.
Before we send a rollover distribution, we will provide the participant with a
notice explaining these requirements and how the 20% withholding can be avoided
by electing a direct rollover.
Federal income tax withholding
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the participant notifies us at or
before
25
<PAGE>
Account Q
the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender, or annuity payout is requested, we will give the
participant an explanation of the withholding requirements.
Tax status of Lincoln Life
Under existing Federal income tax laws, Lincoln Life does not pay tax on
investment income and realized capital gains of the VAA. Lincoln Life does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the taxes.
Changes in the law
The above discussion is based on the tax code, IRS regulations, and
interpretations existing on the date of this Prospectus. However, Congress, the
IRS, and the courts may modify these authorities, sometimes retroactively.
Voting rights
As required by law, we will vote the fund shares held in the VAA at meetings of
shareholders of the funds. The voting will be done according to the
instructions of participants that have interests in any subaccounts which
invest in the funds. If the 1940 Act or any regulation under it should be
amended or if present interpretations should change, and if as a result we
determine that we are permitted to vote the fund shares in our own right, we
may elect to do so.
The number of votes which the participant has the right to cast will be
determined by applying the participant's percentage interest in a subaccount to
the total number of votes attributable to the subaccount. In determining the
number of votes, fractional shares will be recognized.
Shares held in a subaccount for which no timely instructions are received will
be voted by us in proportion to the voting instructions which are received for
all contracts participating in that subaccount. Voting instructions to abstain
on any item to be voted on will be applied on a pro-rata basis to reduce the
number of votes eligible to be cast.
Whenever a shareholders meeting is called, we will furnish participants with a
voting interest in a subaccount with proxy voting materials, reports, and
voting instruction forms. Since the funds engage in shared funding, other
persons or entities besides Lincoln Life may vote fund shares. See Sale of
Shares of the Fund.
Distribution of the contracts
We are the distributor and principal underwriter of the contracts. They will be
sold by our registered representatives who have been licensed by state
insurance departments. The contracts will also be sold by independent broker-
dealers who have been licensed by state insurance departments to represent us
and who have selling agreements with us. We are registered with the SEC under
the Securities Exchange Act of 1934 as a broker-dealer and are a member of the
National Association of Securities Dealers (NASD). Lincoln Life will offer
contracts in all states where it is licensed to do business.
Return privilege
With respect to a participant under an allocated group contract, within the
free-look period after you first receive the certificate, you may cancel it for
any reason by delivering or mailing it postage prepaid, to the home office at
P.O. Box 2340, 1300 South Clinton Street, Fort Wayne, Indiana, 46801. A
certificate canceled under this provision will be void. With respect to the
fixed side of a contract, we will return contributions. With respect to the
VAA, except as explained in the following paragraph, we will return the account
value as of the date of receipt of the cancellation, plus any account charge
and any premium taxes which had been deducted. No surrender charge will be
assessed. A participant who allocates contributions to the VAA is subject to
the risk of a market loss during the free-look period.
For contracts written in those states whose laws require that we assume this
market risk during the free-look period, a contract may be canceled, subject to
the conditions explained before, except that we will return only the
contribution(s).
State regulation
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Department of Insurance at all times. A full examination of our operations is
conducted by that Department at least once every five years.
26
<PAGE>
Account Q
Restrictions under the Texas Optional Retirement Program
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a variable annuity contract issued under the ORP only upon:
1. Termination of employment in all institutions of higher education as
defined in Texas law;
2. Retirement; or
3. Death.
Accordingly, participants in the ORP will be required to obtain a certificate
of termination from their employer(s) before accounts can be redeemed.
Records and reports
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
will mail to you, at your last known address of record at the home office, at
least semiannually after the first contract year, reports containing
information required by the 1940 Act or any other applicable law or regulation.
We have entered into an agreement with the Delaware Service Company, Inc. Co.,
2005 Market Street, Philadelphia, PA 19203, to provide accounting services to
the VAA.
Other information
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933, as amended, for the contracts being offered by this Prospectus. This
Prospectus does not contain all the information in the Registration Statement,
its amendments and exhibits. Please refer to the Registration Statement for
further information about the VAA, Lincoln Life and the contracts offered.
Statements in this Prospectus about the content of contracts and other legal
instruments are summaries. For the complete text of those contracts and
instruments, please refer to those documents as filed with the SEC.
Other segregated investment accounts of ours registered under the 1940 Act are
authorized to invest assets in the funds and series. We are not the sole
shareholder of the funds or series. Collectively, the VAA and the variable life
accounts may be referred to in this booklet and in the SAI as the variable
accounts.
Due to differences in redemption rates, tax treatment or other considerations,
the interests of contractowners under the variable life accounts could conflict
with those of contractowners under the VAA. In those cases where assets from
variable life and variable annuity separate accounts are invested in the same
fund or funds or series (i.e., where mixed funding occurs), the Boards of
Directors of the funds or series involved will monitor for any material
conflicts and determine what action, if any, should be taken. If it becomes
necessary for any separate account to replace shares of any fund or series with
another investment, that fund or series may have to liquidate securities on a
disadvantageous basis. Refer to the Prospectus for each fund and for the series
for more information about mixed funding.
In the future, we may purchase shares in the funds and series for one or more
unregistered segregated investment accounts.
Contract proceeds from the VAA will be paid within seven days, except (i) when
the NYSE is closed (except weekends and holidays); (ii) times when market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect contract owners.
Advertisements/sales literature
In marketing the contracts, we and our various sales representatives may refer
to certain ratings assigned to us under the Rating System of the A.M. Best Co.,
Oldwick, New Jersey. The objective of Best's Rating System is to evaluate the
various factors affecting the overall performance of an insurance company in
order to provide Best's opinion about that company's relative financial
strength and ability to meet its contractual obligations. The procedure
includes both a quantitative and qualitative review of the insurance company.
In marketing the contracts and the underlying funds and series, we may at times
use data published by other nationally-known independent statistical services.
These service organizations provide relative measures of such factors as an
insurer's claim-paying ability, the features of particular contracts, and the
comparative investment performance of the funds and series with other
portfolios having similar objectives. A few such services are: Duff & Phelps,
the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS. There is
more information about each of these services under Advertising and sales
literature in the SAI. Marketing materials may employ illustrations of compound
interest and dollar-cost averaging; discuss automatic withdrawal services;
describe our customer base, assets, and our relative size in the industry. They
may also discuss other features of Lincoln Life, the VAA, the funds, the series
and their investment management.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services for individually
sold life insurance and annuities.
27
<PAGE>
Account Q
Preparing for Year 2000
Many existing computer programs use only two digits in the date field to
identify the year. If left uncorrected these programs, which were designed and
developed without considering the impact of the upcoming change in the century,
could fail to operate or could produce erroneous results when processing dates
after December 31, 1999. For example, for a bond with a stated maturity date of
July 1, 2000, a computer program could read and store the maturity date as July
1, 1900. This problem is known by many names, such as the "Year 2000 Problem",
"Y2K", and the "Millenium Bug".
The Year 2000 Problem affects virtually all computer programs worldwide. It can
cause a computer system to suddenly stop operating. It can also result in a
computer corrupting vital company records, and the problem could go undetected
for a long time. For our products, if left unchecked it could cause such
problems as purchase payment collection and deposit errors; claim payment
difficulties; accounting errors; erroneous unit values; and difficulties or
delays in processing transfers, surrenders and withdrawals. In a worst case
scenario, this could result in a material disruption to the operations both of
Lincoln Life and of Delaware Service Company, Inc. (Delaware), the provider of
the accounting and valuation services for the VAA.
However, both companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year
2000. Both Lincoln Life and Delaware have dedicated Year 2000 teams and
steering committees that are answerable to their counterparts in LNC.
In light of the potential problems discussed above, Lincoln Life, as part of
its Year 2000 updating process, has assumed responsibility for correcting all
high-priority Information Technology (IT) systems which service the VAA.
Delaware is responsible for updating all its high-priority IT systems to
support these vital services. The Year 2000 effort, for both IT and non-IT
systems, is organized into four phases:
. awareness-raising and inventory of all assets (including third-party agent
and vendor relationships)
. assessment and high-level planning and strategy
. remediation of affected systems and equipment; and
. testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
remediated and tested to demonstrate readiness by June 30, 1999. During the
third and fourth quarters of 1999 additional testing of the environment will
continue. Both companies are currently on schedule and have their high-priority
non-IT systems (elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty
include (but are certainly not limited to) a possible loss of technical
resources to perform the work; failure to identify all susceptible systems; and
non-compliance by third parties whose systems and operations impact Lincoln
Life. In a report dated February 26, 1999, entitled, Investigating the Impact
of the Year 2000 Technology Problem, S. Prt. 106-10, the U.S. Senate Special
Committee on the Year 2000 Technology Problem expressed its concern that
"Financial services firms....are particularly vulnerable to....the risk that a
material customer or business partner will fail, as a result of the computer
problems, to meet its obligations."
One important source of uncertainty is the extent to which the key trading
partners of Lincoln Life and of Delaware will be successful in their own
remediation and testing efforts. Lincoln Life and Delaware have been monitoring
the progress of their trading partners; however, the efforts of these partners
are beyond our control.
Lincoln Life and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
Legal proceedings
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of these proceedings are routine
and in the ordinary course of business. In some instances they include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for equitable relief. After consultation with legal counsel
and a review of available facts, it is management's opinion that the ultimate
liability, if any, under these suits will not have a material adverse effect on
the financial position of Lincoln Life.
Lincoln Life is presently defending three lawsuits in which Plaintiffs seek to
represent national classes of policyholders in connection with alleged fraud,
breach of contract and other claims relating to the sale of interest-sensitive
universal and participating whole life insurance policies. As of the date of
this prospectus, the courts have not certified a class in any of the suits.
Plaintiffs seek unspecified damages and penalties for themselves and on behalf
of the putative class. Although the relief sought in these cases is
substantial, the cases are in the preliminary stages of litigation, and it is
premature to make assessments about potential loss, if any. Management is
defending these suits vigorously. The amount of liability, if any, which may
ultimately arise as a result of these suits cannot be reasonably determined at
this time.
28
<PAGE>
Account Q
Statement of Additional Information table of contents for Variable Annuity
Account Q
<TABLE>
<CAPTION>
Item
- ----------------------------------------------------
<S> <C>
General information and history of Lincoln Life
Special terms
Services
Purchase of securities being offered
Calculation of performance data
Annuity payouts
</TABLE>
<TABLE>
<CAPTION>
Item
- ---------------------------------------------------------
<S> <C>
Federal tax matters
Determination of accumulation and annuity unit value
Advertising and sales literature
Financial statements
Performance data
</TABLE>
29
<PAGE>
Account Q
Lincoln Life
Variable Annuity Account Q (VAA) (Registrant)
Lincoln National
Life Insurance Company (Depositor)
Statement of Additional Information (SAI)
This SAI should be read in conjunction with the Prospectus of the VAA dated May
1, 1999. You may obtain a copy of the VAA Prospectus on request and without
charge. Please write Lincoln National Life Insurance Co., P.O. Box 9740,
Portland, ME 04104 or call 1-800-341-0441.
Table of contents
<TABLE>
<CAPTION>
Page
- ----------------------------------------------
<S> <C>
General information and history
of Lincoln Life B-2
- ----------------------------------------------
Special terms B-2
- ----------------------------------------------
Services B-2
- ----------------------------------------------
Purchase of securities being offered B-2
- ----------------------------------------------
Calculation of performance data B-2
- ----------------------------------------------
Annuity payouts B-3
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Page
- ----------------------------------------------
<S> <C>
Federal tax matters B-4
- ----------------------------------------------
Determination of accumulation and
annuity unit value B-6
- ----------------------------------------------
Advertising and sales literature B-6
- ----------------------------------------------
Financial statements B-9
- ----------------------------------------------
Performance data/Appendix A B-10
- ----------------------------------------------
</TABLE>
This SAI is not a Prospectus.
The date of this SAI is May 1, 1999.
B-1
<PAGE>
Account Q
General information
and history of Lincoln National Life
Insurance Co. (Lincoln Life)
The Lincoln National Life Insurance Company (Lincoln Life), organized in 1905,
is an Indiana stock insurance corporation, engaged primarily in the direct
insurance of life and health insurance contracts and annuities, and is also a
professional reinsurer. Lincoln Life is wholly owned by Lincoln National
Corporation (LNC), a publicly held insurance and financial services holding
company domiciled in Indiana.
Special terms
The special terms used in this SAI are the ones defined in the Prospectus. They
are italicized to make this document more understandable.
Services
Independent auditors
The financial statements of the VAA and the statutory-basis financial
statements of Lincoln Life appearing in this SAI and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports also appearing elsewhere in this document and in the Registration
Statement. The financial statements audited by Ernst & Young LLP have been
included in this document in reliance on their reports given on their authority
as experts in accounting and auditing.
Keeper of records
All accounts, books, records and other documents which are required to be
maintained for the VAA are maintained by Lincoln Life. No separate charge
against the assets of the VAA is made by Lincoln Life for this service. We have
entered into an agreement with Delaware Management Co., 2005 Market Street,
Philadelphia, PA 19203, to provide accounting services to the VAA.
Principal underwriter
Lincoln Life is the principal underwriter for the group variable annuity
contracts. We may not offer a contract continuously or in every state. Lincoln
Life retains no underwriting commissions from the sale of the group variable
annuity contracts.
Purchase of securities being offered
The variable annuity contracts are offered to the public through licensed
insurance agents who specialize in selling Lincoln Life products; through
independent insurance brokers; and through certain securities broker/dealers
selected by Lincoln Life whose personnel are legally authorized to sell annuity
products. There are no special purchase plans for any class of prospective
buyers. However, under certain limited circumstances described in the
Prospectus under the section Charges and other deductions, the contract and/or
the surrender charges may be waived.
There are exchange privileges between subaccounts, and between the VAA and
Lincoln Life's General Account (See Transfers of accumulation units between
subaccounts in the Prospectus.) No exchanges are
permitted between the VAA and other separate accounts.
Lincoln Life has contracted with some broker/dealers, and may contract with
others, to sell the group variable annuity contracts through certain legally
authorized persons and organizations. These dealers are compensated under a
standard Compensation Schedule.
Calculation of performance data
a. Money market fund subaccount:
The yield that will be reported in this SAI and in the table of condensed
financial information in the Prospectus will be determined by calculating
the change in unit value for the base period (the 7-day period ended
December 31); then dividing this figure by the account value at the
beginning of the period; then annualizing this result by the factor of
365/7. This yield includes all deductions charged to the participants, and
excludes any realized gains and losses from the sale of securities. The
yield for the 7 day period ending December 31, 1998, was: 3.15% Standard
and 3.38% Breakpoint.
B-2
<PAGE>
Account Q
b. Other subaccounts:
1. Total return -- Total return will show, for the various subaccounts of
the VAA, an average annual total return as of the stated periods, based
upon a hypothetical initial purchase
payment of $1,000, calculated according to the formula set forth below.
<TABLE>
<CAPTION>
June 1, 1998
Total return for Life of to
Subaccount: December 31, 1998
- ----------------------------------------------
<S> <C>
Growth and Income 0.26
Bond -0.04
Money Market -3.70
Special Opportunities -11.12
Managed -2.47
Social Awareness -2.18
Global Asset Allocation -3.32
International -8.78
Equity-Income -5.79
Aggressive Growth -20.98
Capital Appreciation 10.09
Trend Series 1.05
Decatur Total Return Series -6.04
Global Bond Series -0.73
</TABLE>
The Average annual total return for each period is determined by finding the
average annual compounded rate of return over each period that would equate the
initial amount invested to the ending redeemable value for that period,
according to the following formula --
P (1 + T)n = ERV
Where: P = a hypothetical initial purchase payment of $1,000
T = average annual total return for the period in question
n = number of years
ERV = redeemable value (as of the end of the period in question) of a
hypothetical $1,000 purchase payment made at the beginning of the 1-year, 5-
year, or 10-year period in question (or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been charged to
participant accounts; 2) all applicable nonrecurring charges are deducted at
the end of the period in question; and 3) there will be a complete redemption
at the end of the period in question. The performance figures shown relate to
the contract form containing the highest level of charges.
2. Nonstandardized performance data
The VAA advertises the performance of its various subaccounts by observing how
they perform over various time periods--monthly, year-to-date, yearly (fiscal
year); and over periods of three years and more. Monthly, year-to-date and
yearly performance are computed on a cumulative basis; performance for a three-
year period and for greater periods is computed both on a cumulative and on an
annualized basis.
Cumulative quotations are arrived at by calculating the change in the
accumulation unit value between the first and last day of the base period being
measured, and expressing the difference as a percentage of the unit value at
the beginning of the base period. The calculation reflects the mortality and
expense risk fees under the contracts and the management fees and other
expenses of the fund and series. The calculation does not include the CDSC or
the account charge, which, if included, would decrease the performance.
Annualized quotations are arrived at by applying a formula which determines the
level rate of return which, if earned over the entire base period, would
produce the cumulative return.
For information regarding the historical performance of the funds and series
adjusted for the contract and VAA fees and expenses, see Appendix A.
Annuity payouts
Variable annuity payouts
Variable annuity payouts will be determined on the basis of: (1) the value of
the contract on the annuity commencement date; (2) the annuity tables contained
in the contract; (3) the type of annuity option selected; and (4) the
investment performance of the eligible fund(s) selected. In order to determine
the amount of variable annuity payouts, Lincoln Life makes the following
calculation: first, it determines the dollar amount of the first payout;
second, it credits the annuitant with a fixed number of annuity units based on
the amount of the first payout; and third, it calculates the value of the
annuity units each period thereafter. These steps are explained below.
The dollar amount of the first variable annuity payout is determined by
applying the total value of the accumulation units credited under the contract
valued as of the annuity commencement date (less any premium
B-3
<PAGE>
Account Q
taxes) to the annuity tables contained in the contract. The first variable
annuity payout will be paid 14 days after the annuity commencement date. This
date will become the date on which all future annuity payouts will be paid.
Amounts shown in the tables are based on the 1983 "a' Individual Annuity
Mortality Tables, with an assumed investment return at the rate of 5% per
annum. The first annuity payout is determined by multiplying the benefit per
$1,000 of value shown in the contract tables by the number of thousands of
dollars of contract value under the contract. These annuity tables vary
according to the form of annuity selected and the age of the annuitant at the
annuity commencement date. The 5% interest rate stated above is the measuring
point for subsequent annuity payouts. If the actual Net Investment Rate
(annualized) exceeds 5%, the payment will increase at a rate equal to the
amount of such excess. Conversely, if the actual rate is less than 5%, annuity
payouts will decrease. If the assumed rate of interest were to be increased,
annuity payouts would start at a higher level but would decrease more rapidly
or increase more slowly.
Lincoln Life may use sex distinct annuity tables in contracts that are not
associated with employer sponsored plans where not prohibited by law.
At an annuity commencement date, the annuitant is credited with annuity units
for each subaccount on which variable annuity payouts are based. The number of
annuity units to be credited is determined by dividing the amount of the first
payout by the value of an annuity unit in each subaccount selected. Although
the number of annuity units is fixed by this process, the value of such units
will vary with the value of the underlying eligible funds. The amount of the
second and subsequent annuity payouts is determined by multiplying the
contractowner's fixed number of annuity units in each subaccount by the
appropriate annuity unit value for the valuation date ending 14 days before the
date that payment is due.
The value of each subaccount annuity unit was arbitrarily established. The
annuity unit value for each subaccount at the end of any valuation date is
determined as follows:
1. The total value of fund or series shares held in the subaccount is
calculated by multiplying the number of shares by the net asset value at end
of valuation period plus any dividend or other distribution.
2. The liabilities of the subaccount, including daily charges and taxes, are
subtracted.
3. The result is divided by the number of annuity units in the subaccount at
beginning of valuation period, and adjusted by a factor to neutralize the
assumed investment return in the annuity table.
The value of the annuity units is determined as of a valuation date 14 days
before the payout date in order to permit calculation of amounts of annuity
payouts and mailing of checks in advance of their due dates. Such checks will
normally be issued and mailed at least three days before the due date.
Proof of age, sex and survival
Lincoln Life may require proof of age, sex or survival of any payee upon whose
age, sex or survival payouts depend.
Federal tax matters
General
The operations of the VAA form a part of, and are taxed with, the operations of
Lincoln Life under the Internal Revenue Code of 1986, as amended (the code).
Investment income and realized net capital gains on the assets of the VAA are
reinvested and taken into account in determining the accumulation and annuity
unit values. As a result, such investment income and realized net capital gains
are automatically retained as part of the reserves under the contract. Under
existing federal income tax law, Lincoln Life believes that VAA investment
income and realized net capital gains are not taxed to the extent they are
retained as part of the reserves under the contracts. Accordingly, Lincoln Life
does not anticipate that it will incur any federal income tax liability
attributable to the VAA, and therefore it does not intend to make any provision
for such taxes. However, if changes in the federal tax laws or interpretations
thereof result in Lincoln Life's being taxed on income or gains attributable to
the VAA, then Lincoln Life may impose a charge against the VAA in order to make
provision for payment of such taxes.
Qualified plans
The rules governing the tax treatment of contributions and distributions under
qualified plans, as set forth in the code and applicable rulings and
regulations, are complex and subject to change. These rules also vary according
to the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made herein to provide more than general information about the
use of contracts with the various types of plans, based on Lincoln Life's
understanding of the current federal tax laws as interpreted by the Internal
Revenue Service (IRS). Purchasers of contracts for use with such a plan and
plan participants and beneficiaries should consult counsel and other competent
advisors as to the suitability of the plan and the contract to their specific
needs, and as to applicable code limitations and tax consequences. Participants
under such plans, as well as contractowners, annuitants and beneficiaries,
should also be aware that the rights of any person to any benefits under such
plans may be subject to the terms and conditions of the plans themselves
regardless of the terms and conditions of the contract.
Following are brief descriptions of the various types of
plans and of the use of contracts in connection therewith.
B-4
<PAGE>
Account Q
Public school systems and section 501(c)(3) organizations (403(b))
Payments made to purchase annuity contracts by public school systems or
certain Section 501(c)(3) organizations for their employees are excludable
from the gross income of the employee to the extent that aggregate payments
for the employee do not exceed the exclusion allowance provided by Section
403(b) of the code, the over-all limits for excludable contributions of
Section 415 of the code or the limit on elective contributions. Furthermore,
the investment results of the fund or series credited to the account are not
taxable until benefits are received either in the form of annuity payouts or
in a single sum.
If an employee's individual account is surrendered, usually the full amount
received would be includable in income for that year at ordinary rates.
Qualified corporate employee's pension and profit-sharing trusts and qualified
annuity plans
Payments made by a corporate employer and the increments on all payments for
qualified corporate plans are not taxable as income to the employee until
distributed. However, the employee may be required to include these amounts in
gross income before distribution if the qualified plan or trust loses its
qualification. Corporate plans qualified under Sections 401(a) or 403(a) of
the code are subject to extensive rules, including limitations on maximum
contributions or benefits.
Distributions of amounts in excess of nondeductible employee contributions
allocated to such distributions are generally taxable as ordinary income. If
an employee or beneficiary receives a lump sum distribution, that is, if the
employee or beneficiary receives in a single tax year the total amounts
payable with respect to that employee and the benefits are paid as a result of
the employee's death or separation from service or after the employee attains
59 1/2, taxable gain may be either eligible for special lump sum averaging
treatment or, if the recipient was age 50 before January 1, 1986, eligible for
taxation at a 20% rate to the extent the distribution reflects payouts made
before January 1, 1974. For plan years beginning after December 31, 1996, tax
exempt organizations (except state or local governments) may have 401(k)
plans. These special tax rules are not available in all cases.
Deferred compensation plans (457 plans)
Under the code provisions, employees and independent contractors
(participants) performing services for state and local governments and tax-
exempt organizations may establish deferred compensation plans. Plans of state
or local governments established on August 20, 1996, or later, must hold all
assets and income in trust (or custodial accounts or an annuity contract) for
the exclusive benefit of participants and their beneficiaries. Governmental
Section 457 plans that were in existence before August 20, 1996 are allowed
until January 1, 1999 to meet this requirement. While participants in such
plans may be permitted to specify the form of investment in which their plan
accounts will participate, all such investments are owned by the sponsoring
employer and are subject to the claims of its creditors. The amounts deferred
under a plan which meet the requirements of Section 457 of the code are not
taxable as income to the participant until paid or otherwise made available to
the participant or beneficiary. Deferrals are taxed as compensation from the
employer when they are actually or constructively received by the employee. As
a general rule, the maximum amount which can be deferred in any one year is
the lesser of $7,500 (as indexed) or 33 1/3% of the participant's includable
compensation. However, in the limited circumstances, up to $15,000 may be
deferred in each of the last three years before retirement.
Simplified employee pension plans (SEP)
An employer may make contributions on behalf of employees to a SEP as provided
by Section 408(k) of the code. The contributions and distribution dates are
limited by the code provisions. All distributions from the plan will be taxed
as ordinary income. For tax years after 1996, salary reduction SEP's (SAR/SEP)
may no longer be established. However, SAR/SEPs in existence prior to January
1, 1997 may continue to receive contributions.
Any distribution before the employee attains age 59 1/2 (except in the event
of death or disability) or the failure to satisfy certain other code
requirements may result in adverse tax consequences.
Savings incentive matched plan for employees (SIMPLE)
Employers with 100 or fewer employees who earned $5,000 during the proceeding
year, may establish SIMPLEs. For tax years beginning after December 31, 1996,
SIMPLE plans are available and may be in the form of an IRA or part of a
401(k) plan. Under a SIMPLE IRA, employees are permitted to make elective
contributions to an IRA, stated as a percentage of the employees compensation,
but not to exceed $6,000 annually as indexed. Such deferrals are not subject
to income tax until withdrawn. Withdrawals made by an employee in the first
two years of the employees participation are subject to a 25% penalty. Later
withdrawals are subject to penalties applicable to IRAs. Under a SIMPLE
401(k), employee deferrals are limited to no more than $6,000 annually.
Employer contributions are usually required for each type of SIMPLE.
B-5
<PAGE>
Account Q
Tax on distributions from qualified contracts
The following rules generally apply to distributions from contracts purchased
in connection with the plans discussed previously, other than deferred
compensation plans.
The portion, if any, of any contribution under a contract made by or on behalf
of an individual which is not excluded from the employee's gross income
(generally, the employee's own nondeductible contributions) constitutes the
investment in the contract. If a distribution is made in the form of annuity
payouts, the employee's investment in the contract (adjusted for certain refund
provisions) divided by the life expectancy (or other period for which annuity
payouts are expected to be made) constitutes a tax-free return of capital each
year. The dollar amount of annuity payouts received in any year in excess of
such return is taxable as ordinary income. All distributions will be fully
taxable once the employee is deemed to have recovered the dollar amount of the
investment in the contract.
If a surrender of or withdrawal from the contract is effected and distribution
is made from the plan in a single payout, the proceeds may qualify for special
lump sum distribution treatment under certain qualified plans, as discussed
above. Otherwise, the amount by which the payment exceeds the investment in the
contract (adjusted for any prior withdrawal) allocated to that payment, if any,
will be taxed as ordinary income in the year of receipt. Rules generally
provide that all distributions which are not received as an annuity will be
taxed as a pro rata distribution of taxable and nontaxable amounts (rather than
as a distribution first of nontaxable amounts).
Distributions from qualified plans, Keoghs, SEPs, 403(b) plans and IRAs will be
subject to (1) a 10% penalty tax if made before age 59 1/2 unless certain other
exceptions apply. Failure to meet certain minimum distribution requirements for
the above plans, as well as for Section 457 plans, will result in a 50% excise
tax. Various other adverse tax consequences may also be potentially applicable
in certain circumstances to these types of plans.
Upon an employee's death, the taxation of benefits payable to the beneficiary
generally follows these same principles, subject to a variety of special rules.
Other considerations
It should be understood that the foregoing comments about the federal tax
consequences under these contracts are not exhaustive and that special rules
are provided with respect to other tax situations not discussed herein.
Further, the foregoing discussion does not address any applicable state, local
or foreign tax laws. Finally, in recent years numerous changes have been made
in the federal income tax treatment of contracts and retirement plans, which
are not fully discussed above. Before an investment is made in any of the
contracts, a competent tax advisor should be consulted.
Determination of accumulation and annuity unit value
A description of the days on which accumulation and
annuity units will be valued is given in the Prospectus. The New York Stock
Exchange's (NYSE) most recent announcement (which is subject to change) states
that in 1997 it will be closed on New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
It may also be closed on other days.
Since the portfolios of some of the funds and series will consist of securities
primarily listed on foreign exchanges or otherwise traded outside the United
States, those securities may be traded (and the net asset value of those funds
and series and of the variable account could therefore be significantly
affected) on days when the investor has no access to those funds and series.
Advertising and sales literature
As set forth in the Prospectus, Lincoln Life may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM--evaluates the various factors affecting the overall
performance of an insurance company in order to provide an opinion as to an
insurance company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS--insurance company claims paying ability (CPA) service provides
purchasers of insurance company policies and contracts with analytical and
statistical information on the solvency and liquidity of major U.S licensed
insurance companies, both mutual and stock.
EAFE Index--is prepared by Morgan Stanley Capital International (MSCI). It
measures performance of securities in Europe, Australia and the Far East. The
index reflects the movements of world stock markets by representing the
evolution of an unmanaged portfolio. The EAFE Index offers international
diversification with over 1000 companies across 20 different countries.
B-6
<PAGE>
Account Q
LIPPER -- VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a
publisher of statistical data covering the investment company industry in the
United States and overseas. Lipper is recognized as the leading source of data
on open-end and closed-end funds. Lipper currently tracks the performance of
over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
MOODY'S -- insurance claims-paying rating is a system of rating insurance
company's financial strength, market leadership and ability to meet financial
obligations. The purpose of Moody's ratings is to provide investors with a
simple system of gradation by which the relative quality of insurance companies
may be noted.
MORNINGSTAR -- is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
variable annuity contracts.
STANDARD & POOR's CORP. -- insurance claims-paying ability rating is an
assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with the terms. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
VARDS (Variable Annuity Research Data Service) provides a comprehensive guide
to variable annuity contract features and historical fund performance. The
service also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable
contracts.
STANDARD & POOR'S 500 INDEX (S&P 500) -- broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks; commonly known as the S&P 500. The selection of stocks, their
relative weightings to reflect differences in the number of outstanding shares
and publication of the index itself are services of Standard & Poor's Corp., a
financial advisory, securities rating and publishing firm.
STANDARD & POOR'S INDEX (S&P 400) -- Consists of 400 domestic stocks chosen for
market size, liquidity, and industry group representations.
NASDAQ-OTC Price Index -- this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) -- price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express
Co. and American Telephone and Telegraph Co. Prepared and published by Dow
Jones & Co., it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
SALOMON BROTHERS 90-DAY TREASURY BILL INDEX -- Equal dollar amounts of three-
month Treasury bills are purchased at the beginning of each of three
consecutive months. As each bill matures, all proceeds are rolled over or
reinvested in a new three-month bill.
SALOMON BROTHERS WORLD GOVERNMENT BOND (NON US) INDEX -- A market
capitalization weighted index consisting of government bond markets of the
following 13 countries: Australia, Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, and The United Kingdom.
RUSSELL 1000 INDEX -- Measures the performance of the 1,000 largest companies
in the Russell 3000 Index, which represents approximately 90% of the total
market capitalization of the Russell 3000 that measures 3000 of the largest US
companies.
RUSSELL 2000 INDEX -- Measures the performance of the 2,000 smallest companies
in the Russell 3000 Index, which represents approximately 10% of the total
market capitalization of the Russell 3000 that measures 3000 of the largest US
companies.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- Composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
the Asset-Backed Securities Index. Indexes are rebalanced monthly by market
capitalization.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX -- Composed of all bonds that
are investment grade (rates Baa or higher by Moody's or BBB or higher by S&P,
if unrated by Moody's). Issues must have at least one year to maturity.
LEHMAN BROTHERS GOVERNMENT INTERMEDIATE BOND INDEX -- Composed of all bonds
covered by the Lehman Brothers Government Bond Index (all publicly issued,
nonconvertible, domestic debt of the US government or any agency thereof,
quasi-federal corporations, or corporate debt guaranteed by the US government)
with maturities between one and 9.99 years.
MERRILL LYNCH HIGH YIELD MASTER INDEX-- This is an index of high yield debt
securities. High yield securities are those below the top four quality rating
categories and are considered more risky than investment grade. Issues must be
rated by Standard &
B-7
<PAGE>
Account Q
Poor's or by Moody's Investors Service as less than investment grade (i.e., BBB
or Baa) but not in default (i.e. DDD1 or less). Issues must be in the form of
publicly placed nonconvertible, coupon-bearing US domestic debt and must carry
a term to maturity of at least one year.
MORGAN STANLEY WORLD CAPITAL INTERNATIONAL WORLD INDEX -- A market
capitalization weighted index composed of companies representative of the
market structure of 22 Developed Market countries in North America, Europe and
the Asia/Pacific Region.
In its advertisements and other sales literature for the VAA and the eligible
funds, Lincoln Life intends to illustrate the advantages of the contracts in a
number of ways:
Compound interest illustrations. These will emphasize several advantages of the
variable annuity contract. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the variable account over the fixed side; and the
compounding effect when a client makes regular contributions to his or her
account.
Internet -- An electronic communications network which may be used to provide
information regarding Lincoln Life performance of the subaccounts and
advertisement literature.
Dollar-cost averaging illustrations. These illustrations will generally discuss
the price-leveling effect of making regular purchases in the same subaccounts
over a period of time, to take advantage of the trends in market prices of the
portfolio securities purchased for those subaccounts.
Automatic withdrawal service. A service provided by Lincoln Life, through which
a contractowner may take any distribution allowed by code Section 401(a)(9) in
the case of qualified contracts, or permitted under code Section 72 in the case
of nonqualified contracts, by way of an automatically generated payment.
Earnings sweep. A service provided by Lincoln Life which allows a client to
designate one of the variable subaccounts or the fixed side as a holding
account, and to transfer earnings from that side to any other variable
subaccount. The contractowner chooses a specific fund as the holding account.
At specific intervals, account value in the holding account fund that exceeds a
certain designated baseline amount is automatically transferred to another
specified fund(s). The minimum account value required for the Earnings Sweep
feature is $10,000.
Lincoln Life's customers. Sales literature for the VAA, the funds and series
may refer to the number of employers and the number of individual annuity
clients which Lincoln Life serves. As of February 28, 1997, Lincoln Life was
serving over 10,000 organizations and had more than 1 million annuity clients.
Lincoln Life's assets, size. Lincoln Life may discuss its general financial
condition (see, for example, the reference to A.M. Best Co., above); it may
refer to its assets; it may also discuss its relative size and/or ranking among
companies in the industry or among any subclassification of those companies,
based upon recognized evaluation criteria. For example, at December 31, 1998,
Lincoln Life had statutory-basis admitted assets of over $70 billion.
Sales literature may reference the Multi-Fund "Solutions" newsletter which is a
newsletter distributed quarterly to clients of the VAA. The contents of the
newsletter will be a commentary on general economic conditions and, on some
occasions, referencing matters in connection with the Multi-Fund annuity.
Sales literature and advertisements may reference these and other similar
reports from Best's or other similar publications which report on the insurance
and financial services industries.
The graphs below compare accumulations attributable to contributions to
conventional savings vehicles such as savings accounts at a bank or credit
union, nonqualified contracts purchased with after tax contributions, and
qualified contracts purchased with pre-tax contributions under tax-favored
retirement programs.
The power of tax deferred growth
The hypothetical chart below compares the results of contributing $1,200 per
year ($100 per month) during the time periods illustrated. Each graph assumes a
28% tax rate and an 8% fixed rate of return (before fees
[BAR CHART APPEARS HERE]
and charges). For tax deferred annuities (TDA), the results are based on
contributing $1,666.66 ($138.88 per month) during the time periods illustrated.
The additional $38.88 per month is the amount of federal taxes paid by those
contributing to the conventional savings accounts or nonqualified contracts. In
this example, it has been invested by the contributors to
B-8
<PAGE>
Account Q
the qualified contracts. The deduction of fees and charges is also indicated in
the graph. The dotted lines represent the amount remaining after deducting any
taxes due and all fees (including CDSC). See Charges and other deductions in
the Prospectus for discussion of charges. Additionally, a 10% tax penalty (not
included here) may apply to withdrawals before age 59 1/2.
The contributions and interest earnings on conventional savings accounts are
usually taxed currently. For nonqualified contracts contributions are usually
taxed currently, while earnings are not usually subject to income tax until
withdrawn. However, contributions to and earnings on qualified plans are
ordinarily not subject to income tax until withdrawn. Therefore, having greater
amounts re-invested in a qualified or nonqualified plan increases the
accumulation power of savings over time.
As you can see, a tax deferred plan can provide a much higher account value
over a long period of time. Therefore, tax deferral is an important component
of a retirement plan or other long-term financial goals. (The above chart is
for illustrative purposes and should not be construed as representative of
actual results, which may be more or less.)
Tax benefits today
When you put a portion of
your salary in a tax
deferred retirement plan,
your contributions don't
appear as taxable income on
your W-2 form at the end of
the calendar year. So while
you are contributing, you
can reduce your taxes and
increase your take-home
pay.
Here's an example: Let's
assume you are single, your
taxable income is $50,000,
and you are in the 28% tax
bracket.
<TABLE>
<CAPTION>
Traditional Savings of
savings plan pre-tax dollars
- ----------------------------------------------------------------------
<S> <C> <C>
Your income $50,000 $50,000
Tax-deferred savings -0- 2,400
Taxable income 50,000 47,600
*Estimated federal income taxes 10,481 9,809
Income after taxes 39,519 37,791
After-tax savings 2,400 -0-
Remaining income after savings and taxes 37,119 37,791
</TABLE>
With a tax-deferred plan, you have $672 more
spendable income each year because you are
paying less taxes currently.
*The above chart assumes a 28% marginal
federal tax rate on conventional
contributions. TDA contributions are
generally taxed as ordinary income when
withdrawn. Federal tax penalties generally
apply to distributions before age 59 1/2.
For illustrative purposes only.
Financial statements
Financial statements of the
VAA and the statutory-basis
financial statements of
Lincoln Life appear on the
following pages.
B-9
<PAGE>
Appendix A
Appendix A
Historical Fund/Series Performance Adjusted for Contract and VAA Fees and
Charges. Returns are provided for years before the fund and series were
available investment options under the contract. Returns for those periods
reflect an adjusted return as if those funds and series were available under the
contract, and reflect the deduction of the two levels of mortality (Standard and
Breakpoint) and expense risk charge.
TABLE 1
<TABLE>
<CAPTION>
1 Year Ending 5 Years Ending 10 Years Ending Life of Fund Ending
12/31/98 12/31/98 12/31/98 12/31/98
--------------------------------------------------------------------------------
standard breakpoint standard breakpoint standard breakpoint standard breakpoint
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth (7.13)% (6.90)% N/A N/A N/A N/A 8.95% 9.23%
Bond 8.46 8.74 5.85% 6.12% 8.07% 8.35% 9.95 10.23
Capital Appreciation 36.58 36.93 N/A N/A N/A N/A 20.75 21.07
Trend Series 14.87 15.16 N/A N/A N/A N/A 12.46 12.76
Delaware Growth & Income
(formerly Decatur Total
Return) 10.24 10.51 N/A N/A N/A N/A 19.53 19.86
Global Bond Series 6.75 7.02 N/A N/A N/A N/A 6.53 6.80
Equity-Income 11.61 11.89 N/A N/A N/A N/A 18.84 19.16
Global Asset Allocation 12.37 12.65 12.59 12.87 11.77 12.05 10.28 10.56
Growth and Income 19.14 19.44 20.22 20.52 15.98 16.27 15.43 15.72
International 13.51 13.80 7.36 7.63 N/A N/A 7.75 8.02
Managed 11.59 11.88 13.22 13.51 11.72 12.00 11.16 11.44
Money Market 4.06 4.32 3.90 4.16 4.31 4.57 5.58 5.85
Social Awareness 18.70 19.00 23.79 24.10 18.88 19.18 18.05 18.35
Special Opportunities 5.73 6.00 14.71 15.00 15.56 15.85 13.57 13.86
Equity 500 Index* 27.43 27.75 N/A N/A N/A N/A 22.99 23.30
Small Cap Index* -3.16 -2.92 N/A N/A N/A N/A 0.83 1.08
Capital Asset Fund* N/A N/A N/A N/A N/A N/A 32.17 32.25**
Contrafund* 28.65 28.97 N/A N/A N/A N/A 27.40 27.72
Growth* 38.10 38.45 20.52 20.82 18.21 18.51 16.19 16.48
Worldwide Growth* 27.64 27.96 20.10 20.41 N/A N/A 22.79 23.10
Partners* 3.17 3.43 N/A N/A N/A N/A 18.52 18.82
MidCap Growth* 37.90 38.24 N/A N/A N/A N/A 51.11 51.49
</TABLE>
*The performance for the subaccount is hypothetical based on how the subaccount
would have performed over each time frame had it been in Multi-Fund Group
Variable Annuity, Account Q since its inception.
**Performance is not annualized as the age (inception date) of the fund is less
than 1 year.
B-10
<PAGE>
Appendix A
Tables 2 and 3 below assume a hypothetical investment of $1,000 at the
beginning of the period via each subaccount and show total return information
on a calendar year basis assuming no withdrawal within the first ten contract
years. The rates of return shown reflect the two levels of mortality and
expense risk charge, but do not reflect the surrender charge or the pro rata
deduction of the account charge.
TABLE 2
CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO ACCOUNT CHARGE--
STANDARD MORTALITY AND EXPENSE RISK CHARGE*
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth N/A% N/A% N/A% N/A% N/A% N/A% 33.42% 15.78% 21.86% (7.13)%
Bond 12.07 5.63 16.21 6.84 11.25 (5.18) 17.96 1.29 8.15 8.46
Capital Appreciation N/A N/A N/A N/A N/A N/A 27.20 17.47 23.99 36.58
Trend Series N/A N/A N/A N/A N/A N/A N/A N/A 20.17 14.87
Delaware Growth &
Income (formerly known
as Decatur Total
Return) N/A N/A N/A N/A N/A N/A N/A N/A 29.72 10.24
Global Bond Series N/A N/A N/A N/A N/A N/A N/A N/A (.13) 6.75
Equity-Income N/A N/A N/A N/A N/A N/A 32.87 19.57 29.29 11.61
Global Asset Allocation 16.91 (.08) 17.43 5.43 16.28 (2.82) 22.59 14.37 18.16 12.37
Growth and Income 19.75 (.05) 29.61 0.84 12.12 0.31 37.00 18.46 29.48 19.14
International N/A N/A N/A (8.93) 37.90 2.28 7.60 8.81 4.94 13.51
Managed 15.97 2.50 20.66 2.66 10.53 (2.84) 27.97 11.32 20.46 11.59
Money Market 8.01 6.94 4.68 2.42 1.71 2.78 4.59 3.99 4.06 4.06
Social Awareness 30.18 (5.30) 36.22 2.59 12.56 (.81) 41.82 27.96 36.06 18.70
Special Opportunities 31.90 (8.42) 41.83 6.28 17.42 (2.01) 30.54 15.79 26.81 5.63
</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 or series
was in existence. The returns assume that the $1,000 will remain in the
contract for ten contract years; thus, the standard mortality and expense risk
charge is reflected, but the account charge and the surrender charges have not
been deducted.
TABLE 3
CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO ACCOUNT CHARGE--
"BREAKPOINT" MORTALITY AND EXPENSE RISK CHARGE**
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth N/A% N/A% N/A% N/A% N/A% N/A% 33.76% 16.08% 22.17% (6.90)%
Bond 12.36 5.90 16.51 7.11 11.54 (4.94) 18.26 1.55 8.43 8.74
Capital Appreciation N/A N/A N/A N/A N/A N/A 27.52 17.77 24.30 36.93
Trend Series N/A N/A N/A N/A N/A N/A N/A N/A 20.47 15.16
Delaware Growth &
Income (formerly known
as Decatur Total
Return) N/A N/A N/A N/A N/A N/A N/A N/A 30.05 10.51
Global Bond Series N/A N/A N/A N/A N/A N/A N/A N/A 0.13 7.02
Equity-Income N/A N/A N/A N/A N/A N/A 33.21 19.88 29.62 11.89
Global Asset Allocation 17.20 0.18 17.73 5.70 16.57 (2.57) 22.90 14.66 18.46 12.65
Growth and Income 20.05 0.20 29.94 1.09 12.41 0.57 37.34 18.76 29.81 19.44
International N/A N/A N/A (8.70) 38.25 2.54 7.87 9.09 5.21 13.80
Managed 16.27 2.76 20.97 2.92 10.81 (2.60) 28.29 11.61 20.77 11.88
Money Market 8.28 7.21 4.94 2.68 1.97 3.05 4.86 4.25 4.33 4.32
Social Awareness 30.51 (5.06) 36.57 2.86 12.84 (.56) 42.18 28.28 36.41 19.00
Special Opportunities 32.23 (8.19) 42.19 6.55 17.71 (1.76) 30.88 16.08 27.13 6.00
</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 or series
was in existence. The returns assume that the $1,000 will remain in the
contract for ten contract years; thus, the "breakpoint" mortality and expense
risk charge is reflected, but the account charge and surrender charges have not
been deducted.
B-11
<PAGE>
Lincoln Life Variable Annuity Account Q
Statement of assets and liability
December 31, 1998
<TABLE>
<CAPTION>
Lincoln Lincoln
National Lincoln National Delaware Delaware
Aggressive National Capital Premium Decatur
Growth Bond Appreciation Trend Total Return
Combined Fund Fund Fund Series Series
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
.Investments at
Market--Affiliated
(Cost $22,210,173) $24,463,676 $871,277 $1,424,078 $1,433,082 $862,713 $322,531
- ----------------------- ----------- -------- ---------- ---------- -------- --------
Total Assets 24,463,676 871,277 1,424,078 1,433,082 862,713 322,531
- -----------------------
Liability--Payable to
The Lincoln National
Life Insurance Company 503 18 29 29 17 7
- ----------------------- ----------- -------- ---------- ---------- -------- --------
Net Assets $24,463,173 $871,259 $1,424,049 $1,433,053 $862,696 $322,524
- ----------------------- =========== ======== ========== ========== ======== ========
Percentage of net
assets 100.00% 3.56% 5.82% 5.86% 3.53% 1.32%
- ----------------------- =========== ======== ========== ========== ======== ========
Net assets are
represented by:
Multifund GVA with
assets greater than
or equal to
$5,000,000:
.Units in accumulation
period 554,132 282,581 555,070 627,886 198,730
- -----------------------
.Unit value $ 1.569 $ 5.032 $ 2.577 $ 1.370 $ 1.613
- ----------------------- -------- ---------- ---------- -------- --------
.Value in accumulation
period 869,457 1,421,945 1,430,624 860,453 320,506
- ----------------------- -------- ---------- ---------- -------- --------
Multifund GVA with
assets
less than $5,000,000:
.Units in accumulation
period 1,150 419 944 1,639 1,253
- -----------------------
.Unit value $ 1.567 $ 5.023 $ 2.573 $ 1.368 $ 1.611
- ----------------------- -------- ---------- ---------- -------- --------
.Value in accumulation
period 1,802 2,104 2,429 2,243 2,018
- ----------------------- -------- ---------- ---------- -------- --------
Net Assets $871,259 $1,424,049 $1,433,053 $862,696 $322,524
- ----------------------- ======== ========== ========== ======== ========
</TABLE>
See accompanying notes.
Q-1
<PAGE>
<TABLE>
<CAPTION>
Lincoln
Lincoln National Lincoln Lincoln Lincoln Lincoln
Delaware National Global National Lincoln Lincoln National National National
Global Equity- Asset Growth and National National Money Social Special
Bond Income Allocation Income International Managed Market Awareness Opportunities
Series Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
$13,984 $1,867,731 $431,027 $6,912,642 $1,218,920 $1,163,246 $2,136,262 $4,853,068 $953,115
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
13,984 1,867,731 431,027 6,912,642 1,218,920 1,163,246 2,136,262 4,853,068 953,115
1 37 9 141 25 24 48 99 19
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
$13,983 $1,867,694 $431,018 $6,912,501 $1,218,895 $1,163,222 $2,136,214 $4,852,969 $953,096
======= ========== ======== ========== ========== ========== ========== ========== ========
0.06% 7.63% 1.76% 28.26% 4.98% 4.75% 8.73% 19.84% 3.90%
======= ========== ======== ========== ========== ========== ========== ========== ========
10,017 776,501 140,127 600,110 685,392 220,384 846,660 824,493 108,908
$ 1.186 $ 2.403 $ 3.061 $ 11.515 $ 1.776 $ 5.269 $ 2.521 $ 5.883 $ 8.733
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
11,878 1,865,657 428,937 6,910,316 1,216,924 1,161,120 2,134,168 4,850,822 951,145
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
1,778 849 681 190 1,112 400 813 366 224
$ 1.184 $ 2.399 $ 3.056 $ 11.496 $ 1.773 $ 5.260 $ 2.516 $ 5.875 $ 8.721
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
2,105 2,037 2,081 2,185 1,971 2,102 2,046 2,147 1,951
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
$13,983 $1,867,694 $431,018 $6,912,501 $1,218,895 $1,163,222 $2,136,214 $4,852,969 $953,096
======= ========== ======== ========== ========== ========== ========== ========== ========
</TABLE>
Q-2
<PAGE>
Lincoln Life Variable Annuity Account Q
Statement of operations
Period from June 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
Lincoln Lincoln Delaware
National Lincoln National Delaware Decatur
Aggressive National Capital Premium Total
Growth Bond Appreciation Trend Return
Combined Fund Fund Fund Series Series
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income
(Loss):
. Dividends from
investment income $ 201,064 $ -- $ 33,108 $ -- $ -- $ 684
- -----------------------------------------------------------
Mortality and expense
guarantees:
- -----------------------------------------------------------
. Multifund GVA with
assets greater than
or equal to
$5,000,000 (38,018) (1,264) (2,278) (2,147) (1,410) (377)
- -----------------------------------------------------------
. Multifund GVA with
assets less than
$5,000,000 (159) (10) (12) (12) (11) (11)
- -----------------------------------------------------------
---------- ------- -------- -------- -------- -------
Net investment income
(loss) 162,887 (1,274) 30,818 (2,159) (1,421) 296
- -----------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments:
- -----------------------------------------------------------
. Net realized gain
(loss) on investments (6,915) 84 4,918 4,157 (10,440) 189
- -----------------------------------------------------------
. Net change in
unrealized
appreciation or
depreciation on
investments 2,253,503 93,527 (12,199) 241,321 111,574 19,026
- -----------------------------------------------------------
---------- ------- -------- -------- -------- -------
Net realized and
unrealized gain (loss)
on investments 2,246,588 93,611 (7,281) 245,478 101,134 19,215
- -----------------------------------------------------------
---------- ------- -------- -------- -------- -------
Net increase in net
assets resulting from
operations $2,409,475 $92,337 $ 23,537 $243,319 $ 99,713 $19,511
- -----------------------------------------------------------
========== ======= ======== ======== ======== =======
</TABLE>
See accompanying notes.
Q-3
<PAGE>
<TABLE>
<CAPTION>
Lincoln Lincoln
Lincoln National National Lincoln Lincoln Lincoln
Delaware National Global Growth Lincoln Lincoln National National National
Global Equity- Asset and National National Money Social Special
Bond Income Allocation Income International Managed Market Awareness Opportunities
Series Fund Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
$184 $ 13,323 $ 2,176 $ 53,367 $ 6,451 $19,883 $32,247 $ 31,775 $ 7,866
(20) (2,749) (469) (9,655) (2,014) (1,743) (5,013) (7,506) (1,373)
(12) (11) (11) (12) (11) (12) (12) (11) (11)
---- -------- ------- -------- ------- ------- ------- -------- --------
152 10,563 1,696 43,700 4,426 18,128 27,222 24,258 6,482
-- 1,384 45 1,184 (1,125) 668 -- (10,162) 2,183
97 113,428 29,783 798,002 60,727 59,978 -- 638,794 99,445
---- -------- ------- -------- ------- ------- ------- -------- --------
97 114,812 29,828 799,186 59,602 60,646 -- 628,632 101,628
---- -------- ------- -------- ------- ------- ------- -------- --------
$249 $125,375 $31,524 $842,886 $64,028 $78,774 $27,222 $652,890 $108,110
==== ======== ======= ======== ======= ======= ======= ======== ========
</TABLE>
Q-4
<PAGE>
Lincoln Life Variable Annuity Account Q
Statement of changes in net assets
Period from June 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
Lincoln Lincoln
National Lincoln National Delaware Delaware
Aggressive National Capital Premium Decatur
Growth Bond Appreciation Trend Total Return
Combined Fund Fund Fund Series Series
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Changes From Operations:
. Net investment income
(loss) $ 162,887 $ (1,274) $ 30,818 $ (2,159) $ (1,421) $ 296
- ------------------------
. Net realized gain
(loss) on investments (6,915) 84 4,918 4,157 (10,440) 189
- ------------------------
. Net change in
unrealized
appreciation or
depreciation on
investments 2,253,503 93,527 (12,199) 241,321 111,574 19,026
- ------------------------ ----------- -------- ---------- ---------- -------- --------
Net increase in net
assets resulting from
operations 2,409,475 92,337 23,537 243,319 99,713 19,511
- ------------------------
Change From Unit
Transactions:
Accumulation Units:
. Contract purchases 23,749,544 789,562 1,533,973 1,213,563 836,066 303,722
- ------------------------
. Terminated contracts (1,695,846) (10,640) (133,461) (23,829) (73,083) (709)
- ------------------------ ----------- -------- ---------- ---------- -------- --------
Net increase in net
assets resulting from
unit transactions 22,053,698 778,922 1,400,512 1,189,734 762,983 303,013
- ------------------------ ----------- -------- ---------- ---------- -------- --------
Total increase in net
assets 24,463,173 871,259 1,424,049 1,433,053 862,696 322,524
- ------------------------ ----------- -------- ---------- ---------- -------- --------
Net assets at December
31, 1998 $24,463,173 $871,259 $1,424,049 $1,433,053 $862,696 $322,524
- ------------------------ =========== ======== ========== ========== ======== ========
</TABLE>
See accompanying notes.
Q-5
<PAGE>
<TABLE>
<CAPTION>
Lincoln
Lincoln National Lincoln Lincoln Lincoln Lincoln
Delaware National Global National Lincoln Lincoln National National National
Global Equity- Asset Growth and National National Money Social Special
Bond Income Allocation Income International Managed Market Awareness Opportunities
Series Fund Fund Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
$ 152 $ 10,563 $ 1,696 $ 43,700 $ 4,426 $ 18,128 $ 27,222 $ 24,258 $ 6,482
-- 1,384 45 1,184 (1,125) 668 -- (10,162) 2,183
97 113,428 29,783 798,002 60,727 59,978 -- 638,794 99,445
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
249 125,375 31,524 842,886 64,028 78,774 27,222 652,890 108,110
13,740 1,754,457 399,647 6,452,115 1,200,711 1,204,153 2,829,727 4,284,041 934,067
(6) (12,138) (153) (382,500) (45,844) (119,705) (720,735) (83,962) (89,081)
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
13,734 1,742,319 399,494 6,069,615 1,154,867 1,084,448 2,108,992 4,200,079 844,986
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
13,983 1,867,694 431,018 6,912,501 1,218,895 1,163,222 2,136,214 4,852,969 953,096
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
$13,983 $1,867,694 $431,018 $6,912,501 $1,218,895 $1,163,222 $2,136,214 $4,852,969 $953,096
======= ========== ======== ========== ========== ========== ========== ========== ========
</TABLE>
Q-6
<PAGE>
Lincoln Life Variable Annuity Account Q
Notes to Financial Statements
1. Accounting Policies & Account Information
The Account: Lincoln Life Variable Annuity Account Q (the Variable Account) is
a segregated investment account of the Lincoln National Life Insurance Company
(the Company) and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended, as a unit investment
trust. The operations of the Variable Account, which commenced on June 1, 1998,
are part of the operations of the Company. The Variable Account consists of a
Multifund Group Variable Annuity (GVA) product offering a mortality and expense
guarantee reduction for assets greater than or equal to $5,000,000.
The assets of the Variable Account are owned by the Company. The portion of the
Variable Account's assets supporting the annuity contracts may not be used to
satisfy liabilities arising out of any other business of the Company.
Basis of Presentation: The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles for unit investment
trusts.
Investments: The Variable Account invests in the Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital
Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln
National Global Asset Allocation Fund, Inc., Lincoln National Growth and Income
Fund, Inc., Lincoln National International Fund, Inc., Lincoln National Managed
Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National Social
Awareness Fund, Inc., Lincoln National Special Opportunities Fund, Inc.,
Delaware Premium Trend Series, Delaware Premium Decatur Total Return Series and
the Delaware Global Bond Series (the Funds). The Funds are registered as open-
end investment management companies. Investments in the Funds are stated at the
closing net asset value per share on December 31, 1998, which approximates fair
value. The difference between cost and fair value is reflected as unrealized
appreciation and depreciation of investments.
Investment transactions are accounted for on a trade date basis. The cost of
investments sold is determined by the average cost method.
Dividends: Dividends paid to the Variable Account are automatically reinvested
in shares of the Funds on the payable date. Dividend income is recorded on the
ex-dividend date.
Federal Income Taxes: Operations of the Variable Account form a part of and are
taxed with operations of the Company, which is taxed as a "life insurance
company" under the Internal Revenue Code. The Variable Account will not be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code. Using current federal income tax law, no federal income taxes are
payable with respect to the Variable Account's net investment income and the
net realized gain on investments.
Annuity Reserves: Reserves on contracts not involving life contingencies are
calculated using an assumed investment rate of 5%. Reserves on contracts
involving life contingencies are calculated using a modification of the 1971
Individual Annuitant Mortality Table and an assumed investment rate of 5%.
2. Mortality and Expense Guarantees & Other Transactions with Affiliate
Amounts are paid to the Company for mortality and expense guarantees at a
percentage of the current value of the Variable Account each day. The rates are
as follows:
. Multifund GVA with assets greater than or equal to $5,000,000 at a daily rate
of .0020547945% (.750% on an annual basis).
. Multifund GVA with assets less than $5,000,000 at a daily rate of .00274525%
(1.002% on an annual basis).
In addition, no amounts were retained by the Company from the proceeds of the
sales of annuity contracts for contract charges and surrender charges.
Accordingly, the Company is responsible for all sales, general, and
administrative expenses applicable to the Variable Account.
Q-7
<PAGE>
Lincoln Life Variable Annuity Account Q
Notes to Financial Statements (continued)
3. Net Assets
The following is a summary of net assets owned at December 31, 1998.
<TABLE>
<CAPTION>
Lincoln Lincoln
National National Delaware Delaware
Aggressive Lincoln Capital Premium Decatur
Growth National Appreciation Trend Total Return
Combined Fund Bond Fund Fund Series Series
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unit Transactions:
. Accumulation units $22,053,698 $778,922 $1,400,512 $1,189,734 $762,983 $303,013
- -----------------------
. Accumulated net
investment income
(loss) 162,887 (1,274) 30,818 (2,159) (1,421) 296
- -----------------------
. Accumulated net
realized gain (loss)
on investments (6,915) 84 4,918 4,157 (10,440) 189
- -----------------------
. Net unrealized
appreciation or
depreciation on
investments 2,253,503 93,527 (12,199) 241,321 111,574 19,026
- ----------------------- ----------- -------- ---------- ---------- -------- --------
$24,463,173 $871,259 $1,424,049 $1,433,053 $862,696 $322,524
=========== ======== ========== ========== ======== ========
</TABLE>
Q-8
<PAGE>
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln Lincoln
Delaware National National National Lincoln Lincoln National National National
Global Equity- Global Asset Growth and National National Money Social Special
Bond Income Allocation Income International Managed Market Awareness Opportunities
Series Fund Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
$13,734 $1,742,319 $399,494 $6,069,615 $1,154,867 $1,084,448 $2,108,992 $4,200,079 $844,986
152 10,563 1,696 43,700 4,426 18,128 27,222 24,258 6,482
-- 1,384 45 1,184 (1,125) 668 -- (10,162) 2,183
97 113,428 29,783 798,002 60,727 59,978 -- 638,794 99,445
------- ---------- -------- ---------- ---------- ---------- ---------- ---------- --------
$13,983 $1,867,694 $431,018 $6,912,501 $1,218,895 $1,163,222 $2,136,214 $4,852,969 $953,096
======= ========== ======== ========== ========== ========== ========== ========== ========
</TABLE>
Q-9
<PAGE>
Lincoln Life Variable Annuity Account Q
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1998.
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
- ---------------------------------------------------------------------
<S> <C> <C>
Lincoln National Aggressive Growth Fund $ 782,316 $ 4,650
Lincoln National Bond Fund 1,916,909 485,550
Lincoln National Capital Appreciation Fund 1,293,525 105,921
Delaware Premium Trend Series 859,938 98,359
Delaware Decatur Total Return Series 306,123 2,807
Delaware Global Bond Series 13,913 26
Lincoln National Equity-Income Fund 1,845,967 93,048
Lincoln National Global Asset Allocation Fund 404,417 3,218
Lincoln National Growth and Income Fund 6,500,086 386,630
Lincoln National International Fund 1,239,939 80,621
Lincoln National Managed Fund 1,185,289 82,689
Lincoln National Money Market Fund 3,031,752 895,490
Lincoln National Social Awareness Fund 4,451,618 227,182
Lincoln National Special Opportunities Fund 914,371 62,884
----------- ----------
$24,746,163 $2,529,075
=========== ==========
</TABLE>
5. Investments
The following is a summary of investments owned at December 31, 1998.
<TABLE>
<CAPTION>
Net
Shares Asset Value of Cost of
Outstanding Value Shares Shares
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lincoln National Aggressive Growth
Fund 65,175 $13.37 $ 871,277 $ 777,750
Lincoln National Bond Fund 112,229 12.69 1,424,078 1,436,277
Lincoln National Capital
Appreciation Fund 65,822 21.77 1,433,082 1,191,761
Delaware Premium Trend Series 43,682 19.75 862,713 751,139
Delaware Decatur Total Return
Series 16,608 19.42 322,531 303,505
Delaware Global Bond Series 1,309 10.68 13,984 13,887
Lincoln National Equity-Income Fund 86,012 21.71 1,867,731 1,754,303
Lincoln National Global Asset
Allocation Fund 27,350 15.76 431,027 401,244
Lincoln National Growth and Income
Fund 149,339 46.29 6,912,642 6,114,640
Lincoln National International Fund 76,268 15.98 1,218,920 1,158,193
Lincoln National Managed Fund 61,317 18.97 1,163,246 1,103,268
Lincoln National Money Market Fund 213,626 10.00 2,136,262 2,136,262
Lincoln National Social Awareness
Fund 120,473 40.28 4,853,068 4,214,274
Lincoln National Special
Opportunities Fund 28,523 33.42 953,115 853,670
----------- -----------
$24,463,676 $22,210,173
=========== ===========
</TABLE>
Q-10
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
Board of Directors of The Lincoln National Life Insurance Company
and
Contract Owners of Lincoln Life Variable Annuity Account Q
We have audited the accompanying statement of assets and liability of Lincoln
Life Variable Annuity Account Q ("Variable Account") (comprised of the Lincoln
National Aggressive Growth, Lincoln National Bond, Lincoln National Capital
Appreciation, Delaware Premium Trend, Delaware Decatur Total Return, Delaware
Global Bond, Lincoln National Equity-Income, Lincoln National Global Asset
Allocation, Lincoln National Growth and Income, Lincoln National International,
Lincoln National Managed, Lincoln National Money Market, Lincoln National
Social Awareness, and Lincoln National Special Opportunities subaccounts), as
of December 31, 1998, and the related statements of operations and changes in
net assets for the period from June 1, 1998 (commencement of operations) to
December 31, 1998. These financial statements are the responsibility of the
Variable Account's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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. Our
procedures included confirmation of investments owned as of December 31, 1998,
by correspondence with the custodian. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Lincoln Life Variable Annuity Account Q at
December 31, 1998, the results of their operations and the changes in their net
assets for the period from June 1, 1998 to December 31, 1998, in conformity
with generally accepted accounting principles.
Fort Wayne, Indiana
March 30, 1999
Q-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $23,830.9 $18,560.7
- ------------------------------------------------------------------------------------
Preferred stocks 236.0 257.3
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 259.3 436.0
- ------------------------------------------------------------------------------------
Affiliated common stocks 322.1 412.1
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,932.9 3,012.7
- ------------------------------------------------------------------------------------
Real estate 473.8 584.4
- ------------------------------------------------------------------------------------
Policy loans 1,606.0 660.5
- ------------------------------------------------------------------------------------
Other investments 434.4 335.5
- ------------------------------------------------------------------------------------
Cash and short-term investments 1,725.4 2,133.0
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 32,820.8 26,392.2
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 33.3 42.4
- ------------------------------------------------------------------------------------
Accrued investment income 432.8 343.5
- ------------------------------------------------------------------------------------
Reinsurance recoverable 171.6 71.1
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 53.7 44.1
- ------------------------------------------------------------------------------------
Federal income taxes recoverable from parent company 64.7 6.9
- ------------------------------------------------------------------------------------
Goodwill 49.5 52.4
- ------------------------------------------------------------------------------------
Other admitted assets 89.3 85.6
- ------------------------------------------------------------------------------------
Separate account assets 36,907.0 31,330.9
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $70,622.7 $58,369.1
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $12,310.6 $ 5,872.9
- ------------------------------------------------------------------------------------
Other policyholder funds 16,647.5 16,360.1
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 897.6 878.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 795.8 720.4
- ------------------------------------------------------------------------------------
Asset valuation reserve 484.5 450.0
- ------------------------------------------------------------------------------------
Interest maintenance reserve 159.7 135.4
- ------------------------------------------------------------------------------------
Other liabilities 504.5 294.7
- ------------------------------------------------------------------------------------
Short-term loan payable to parent company 140.0 120.0
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (789.0) (761.9)
- ------------------------------------------------------------------------------------
Separate account liabilities 36,907.0 31,330.9
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 68,058.2 55,400.7
- ------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National
Corporation) 25.0 25.0
- ------------------------------------------------------------------------------------
Surplus notes due to Lincoln National Corporation 1,250.0 --
- ------------------------------------------------------------------------------------
Paid-in surplus 1,930.1 1,821.8
- ------------------------------------------------------------------------------------
Unassigned surplus (deficit) (640.6) 1,121.6
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,564.5 2,968.4
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $70,622.7 $58,369.1
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $12,737.6 $ 5,589.0 $ 7,268.5
- ----------------------------------------------------------------------------
Net investment income 2,107.2 1,847.1 1,756.3
- ----------------------------------------------------------------------------
Amortization of interest maintenance reserve 26.4 41.5 27.2
- ----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 179.9 99.7 90.9
- ----------------------------------------------------------------------------
Expense charges on deposit funds 134.6 119.3 100.7
- ----------------------------------------------------------------------------
Separate account investment management and administration service fees 396.3 325.5 244.6
- ----------------------------------------------------------------------------
Other income 31.3 21.3 16.8
- ---------------------------------------------------------------------------- --------- --------- ---------
Total revenues 15,613.3 8,043.4 9,505.0
- ----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 13,964.1 4,522.1 5,989.9
- ----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,919.4 3,053.9 3,123.1
- ---------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 16,883.5 7,576.0 9,113.0
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before dividends to policyholders, income taxes
and net realized gain on investments (1,270.2) 467.4 392.0
- ----------------------------------------------------------------------------
Dividends to policyholders 67.9 27.5 27.3
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before federal income taxes and net realized
gain on investments (1,338.1) 439.9 364.7
- ----------------------------------------------------------------------------
Federal income taxes (credit) (141.0) 78.3 83.6
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before net realized gain on investments (1,197.1) 361.6 281.1
- ----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding
net transfers to the interest maintenance reserve 46.8 31.3 53.3
- ---------------------------------------------------------------------------- --------- --------- ---------
Net income (loss) $(1,150.3) $ 392.9 $ 334.4
- ---------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- -----------------------------------------------------------------------------
Correction of prior year's asset valuation reserve -- (37.6) --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets -- (57.0) --
- ----------------------------------------------------------------------------- --------- --------- ---------
2,968.4 1,868.0 1,732.9
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income (loss) (1,150.3) 392.9 334.4
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (304.8) (36.2) 38.6
- -----------------------------------------------------------------------------
Nonadmitted assets (17.1) (0.4) (3.0)
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (35.2) (3.9) 0.6
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.4) (0.9) (0.4)
- -----------------------------------------------------------------------------
Asset valuation reserve (34.5) (36.9) (105.5)
- -----------------------------------------------------------------------------
Proceeds from surplus notes from shareholder 1,250.0 -- --
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 108.4 938.4 100.0
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation -- (2.6) --
- -----------------------------------------------------------------------------
Dividends to shareholder (220.0) (150.0) (135.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,564.5 $ 2,968.4 $ 1,962.6
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 13,495.2 $ 6,364.3 $ 8,059.4
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (632.4) (649.2) (767.5)
- -----------------------------------------------------------------------
Investment income received 2,003.9 1,798.8 1,700.6
- -----------------------------------------------------------------------
Separate account investment management and administration service fees 396.3 325.5 244.6
- -----------------------------------------------------------------------
Benefits paid (7,395.8) (5,345.2) (4,050.4)
- -----------------------------------------------------------------------
Insurance expenses paid (2,909.7) (3,193.0) (3,216.8)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) 84.2 (87.0) (72.3)
- -----------------------------------------------------------------------
Dividends to policyholders (12.9) (28.4) (27.7)
- -----------------------------------------------------------------------
Other income received and expenses paid, net 207.0 (8.7) 117.0
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 5,235.8 (822.9) 1,986.9
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 10,926.5 12,142.6 12,542.0
- -----------------------------------------------------------------------
Purchase of investments (16,950.0) (10,345.0) (14,175.4)
- -----------------------------------------------------------------------
Other sources (uses) including reinsured policy loans (778.3) 529.1 (377.2)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (6,801.8) 2,326.7 (2,010.6)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 108.4 -- 100.0
- -----------------------------------------------------------------------
Proceeds from surplus notes from shareholder 1,250.0 -- --
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 140.0 120.0 100.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (120.0) (100.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (220.0) (150.0) (135.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 1,158.4 (130.0) 2.0
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments (407.6) 1,373.8 (21.7)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 2,133.0 759.2 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 1,725.4 $ 2,133.0 $ 759.2
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1998, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health & Casualty
Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC")
and Lincoln Life & Annuity Company of New York ("LLANY").
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Insurance Department"), which practices differ from generally
accepted accounting principles ("GAAP"). The more significant variances from
GAAP are as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or fair value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported directly
in shareholder's equity after adjustments for related amortization of
deferred acquisition costs, additional policyholder commitments and deferred
income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis. Real estate owned and occupied by the Company is
classified as a real estate investment rather than reported as an operating
asset, and investment income and operating expenses include rent for the
Company's occupancy of those properties. Changes between cost and admitted
asset investment amounts are credited or charged directly to unassigned
surplus rather than to a separate surplus account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period in which the asset giving rise to the gain or loss is sold and
valuation allowances are provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
are charged to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
subsidiaries are carried at their statutory-basis net equity and presented
in the balance sheet as affiliated common stocks.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
period of the related policies using assumptions consistent with those used
in computing policy benefit reserves. For universal life insurance, annuity
and other investment-type products, deferred policy acquisition costs, to
the extent recoverable from future gross profits, are amortized generally in
proportion to the present value of expected gross profits from surrender
charges and investment, mortality and expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies consist of the entire premium received.
Under GAAP, premiums received in excess of policy charges are not recognized
as premium revenue.
Premiums and deposits with respect to annuity and other investment-type
contracts are reported as premium revenues; whereas, under GAAP, such
premiums and deposits are treated as liabilities and policy charges
represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Insurance Department to assume such business. Changes to
those amounts are credited or charged directly to unassigned surplus. Under
GAAP, an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity and assumption reinsurance agreements is
accounted for as a purchase for GAAP reporting purposes and the ceding
commission represents the purchase price. Under purchase accounting, assets
acquired and liabilities assumed are reported at fair value at the date of
the transaction and the excess of the purchase price over the sum of the
amounts assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory-basis, the ceding commission is expensed when paid
and reinsurance premiums and benefits are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
SURPLUS NOTES DUE TO LNC
Surplus notes due to LNC are reported as surplus rather than as liabilities.
On a statutory-basis, interest on surplus notes is not accrued until
approval is received from the Indiana Insurance Commissioner whereas under
GAAP, interest would be accrued periodically based on the outstanding
principal and the interest rate.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
A reconciliation of the Company's net income (loss) and capital and surplus
determined on a statutory-basis with amounts determined in accordance with
GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1996
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory-basis $ 2,564.5 $ 2,968.4 $(1,150.3) $ 392.9 $ 334.4
- -------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs,
present value of future profits and
goodwill 3,085.2 958.3 48.5 (98.9) 66.7
----------------------------------------
Policy and contract reserves (2,299.9) (1,672.9) 1,743.4 (48.6) (57.1)
----------------------------------------
Interest maintenance reserve 159.7 135.4 24.4 58.7 (39.7)
----------------------------------------
Deferred income taxes 181.6 (13.0) (218.6) 70.3 1.8
----------------------------------------
Policyholders' share of earnings and
surplus on participating business (132.8) (79.8) 3.2 5.3 (.3)
----------------------------------------
Asset valuation reserve 484.5 450.0 -- -- --
----------------------------------------
Net realized gain (loss) on investments (174.1) (91.5) (116.7) (20.4) 78.7
----------------------------------------
Unrealized gain on investments 1,335.1 1,245.5 -- -- --
----------------------------------------
Nonadmitted assets, including nonadmitted
investments 119.1 61.0 -- -- --
----------------------------------------
Investments in subsidiary companies 490.4 188.8 41.3 (80.5) 29.9
----------------------------------------
Surplus notes and related interest (1,251.5) -- (1.5) -- --
----------------------------------------
Other, net (120.1) (162.5) 103.6 (35.0) (82.6)
---------------------------------------- --------- --------- --------- --------- ---------
Net increase (decrease) 1,877.2 1,019.3 1,627.6 (149.1) (2.6)
- ------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 4,441.7 $ 3,987.7 $ 477.3 $ 243.8 $ 331.8
- ------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, 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.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items and are amortized over the
remaining lives of the hedged items as adjustments to investment income or
benefits from the hedged items through the IMR. Any unamortized gains or
losses are recognized when the underlying hedged items are sold. The
premiums paid for interest rate caps and swaptions are deferred and
amoritized to net investment income on a straight-line basis over the term
of the respective derivative.
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, increased liabilities associated with certain
reinsurance agreements and foreign exchange risk. Moreover, the derivatives
used are designated as a hedge and reduce the indicated risk by having a
high correlation between 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 or if the hedged items have
been sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the repurchase price. It is the Company's
policy to take possession of securities with a market value at least equal
to the securities loaned. Securities loaned are recorded at amortized cost
as long as the value of the related collateral is sufficient. The Company's
agreements with third parties generally contain contractual provisions to
allow for additional collateral to be obtained when necessary. The Company
values collateral daily and obtains additional collateral when deemed
appropriate.
GOODWILL
Goodwill, which represents the excess, subject to certain limitations, of
the ceding commission over statutory-basis net assets of business purchased
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
under an assumption reinsurance agreement, is amortized on a straight-line
basis over ten years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Insurance Department. The Company waives deduction of deferred fractional
premiums on the death of life and annuity policy insureds and returns any
premium beyond the date of death, except for policies issued prior to March
1977. Surrender values on policies do not exceed the corresponding benefit
reserves. Additional reserves are established when the results of cash flow
testing under various interest rate scenerios indicate the need for such
reserves. If net premiums exceed the gross premiums on any insurance
in-force, additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and
unreported claims incurred during the year. The Company does not discount
claims and claim adjustment expense reserves. The reserves for unpaid claims
and claim adjustment expenses are estimated using individual case-basis
valuations and statistical analyses. Those estimates are subject to the
effects of trends in claim severity and frequency. Although considerable
variability is inherent in such estimates, management believes that the
reserves for claims and claim adjustment expenses are adequate. The
estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and claims and claim adjustment expenses are
accounted for on bases consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Certain
business is transacted on a funds withheld basis and investment income on
investments managed by the Company are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC and certain LNC subsidiaries.
Pursuant to an intercompany tax sharing agreement with LNC, the Company
provides for income taxes on a separate return filing basis. The tax sharing
agreement also provides that the Company 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.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
the intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable life
and variable annuity contracts and for which the contractholder, rather than
the Company, bears the investment risk. Separate account assets are reported
at fair value. The operations of the separate accounts are not included in
the accompanying financial statements. Policy administration and investment
management fees charged on separate account policyholder deposits are
included in income from separate account investment management and
administration service fees. Mortality charges on variable universal life
contracts are included in income from expense charges on deposit funds. Fees
charged relative to variable annuity and variable universal life
administration agreements for separate account products sold by other
insurance companies and not recorded on the Company's financial statements
are included in income from separate account investment management and
administration service fees.
RECLASSIFICATION
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation. These reclassifications had no effect on
unassigned surplus or net income previously reported.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Insurance Department. "Prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
ACCOUNTING PRACTICES AND PROCEDURES MANUAL and a variety of other NAIC
publications. "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state and may
change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various
states before it becomes the prescribed statutory-basis of accounting for
insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the state of Indiana must
adopt Codification as the prescribed basis of accounting on which domestic
insurers must report their statutory-basis results to the Insurance
Department. At this time, it is anticipated that Indiana will adopt
Codification, however, based on current guidance, management believes that
the impact of Codification will not be material to the Company's
statutory-basis financial statements.
The Company has received written approval from the Insurance Department to
record surrender charges applicable to separate account liabilities for
variable life and annuity products as a liability in the separate account
financial statements payable to the Company's general account. In the
accompanying financial statements, a corresponding receivable is recorded
with the related income impact recorded in the accompanying Statement of
Operations as a change in reserves or change in premium and other deposit
funds.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,714.3 $ 1,524.4 $ 1,442.2
----------------------------------------------------------------
Preferred stocks 19.7 23.5 9.6
----------------------------------------------------------------
Unaffiliated common stocks 10.6 8.3 6.5
----------------------------------------------------------------
Affiliated common stocks 5.2 15.0 9.5
----------------------------------------------------------------
Mortgage loans on real estate 323.6 257.2 269.3
----------------------------------------------------------------
Real estate 81.4 92.2 114.4
----------------------------------------------------------------
Policy loans 86.5 37.5 35.0
----------------------------------------------------------------
Other investments 26.5 28.2 22.4
----------------------------------------------------------------
Cash and short-term investments 104.7 70.3 48.9
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,372.5 2,056.6 1,957.8
- -------------------------------------------------------------------
Expenses:
Depreciation 19.3 21.0 25.0
----------------------------------------------------------------
Other 246.0 188.5 176.5
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 265.3 209.5 201.5
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 2,107.2 $ 1,847.1 $ 1,756.3
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
amounted to $2,600,000, consisting principally of interest
on bonds in default and mortgage loans. No accrued
investment income was nonadmitted at December 31, 1998.
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Corporate $17,658.4 $ 1,159.8 $ 148.2 $18,670.0
------------------------------------------------
U.S. government 900.7 88.8 3.4 986.1
------------------------------------------------
Foreign government 947.8 59.9 61.2 946.5
------------------------------------------------
Mortgage-backed 4,312.1 171.6 33.4 4,450.3
------------------------------------------------
State and municipal 11.9 .7 -- 12.6
------------------------------------------------ --------- ----------- ----------- ---------
$23,830.9 $ 1,480.8 $ 246.2 $25,065.5
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1997:
Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9
------------------------------------------------
U.S. government 436.3 67.9 -- 504.2
------------------------------------------------
Foreign government 1,202.1 104.9 5.4 1,301.6
------------------------------------------------
Mortgage-backed 3,874.3 215.2 27.1 4,062.4
------------------------------------------------
State and municipal 44.2 .3 -- 44.5
------------------------------------------------ --------- ----------- ----------- ---------
$18,560.7 $ 1,330.5 $ 92.6 $19,798.6
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1998 and 1997 reflects adjustments of
$11,800,000 and $5,500,000, respectively, to decrease
amortized cost as a result of the Securities Valuation
Office of the NAIC ("SVO") designating certain investments
as low or lower quality.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1998, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1999 $ 705.6 $ 712.6
--------------------------------------------------------------------------
In 2000-2003 4,041.9 4,142.8
--------------------------------------------------------------------------
In 2004-2008 6,652.0 6,860.1
--------------------------------------------------------------------------
After 2008 8,119.3 8,899.7
--------------------------------------------------------------------------
Mortgage-backed securities 4,312.1 4,450.3
-------------------------------------------------------------------------- --------- ---------
Total $23,830.9 $25,065.5
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investments in bonds during 1998,
1997 and 1996 were $9,395,000,000, $9,715,000,000 and
$10,996,900,000, respectively. Gross gains during 1998, 1997
and 1996 of $186,300,000, $218,100,000 and $169,700,000,
respectively, and gross losses of $138,000,000, $78,000,000
and $177,000,000, respectively, were realized on those
sales.
At December 31, 1998 and 1997, investments in bonds, with an
admitted asset value of $97,800,000 and $76,200,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
Unrealized gains and losses on investments in unaffiliated
common stocks and preferred stocks are reported directly in
unassigned surplus and do not affect operations. The cost or
amortized cost, gross unrealized gains and losses and the
fair value of investments in unaffiliated common stocks and
preferred stocks are as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
(IN MILLIONS)
--------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Preferred stocks $236.0 $ 8.9 $ 2.4 $242.5
- ----------------------------------------
Unaffiliated common stocks 223.3 62.0 26.0 259.3
- ----------------------------------------
At December 31, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1998 and 1997 reflects adjustments of
$5,800,000 and $4,000,000, respectively, to decrease
amortized cost as a result of the SVO designating certain
investments as low or lower quality.
During 1998, the minimum and maximum lending rates for
mortgage loans were 6.41% and 8.08%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1998, the
Company did not hold any mortgages with interest overdue
beyond one year. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan
over the maximum loan that would be allowed on the land
without the building.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The components of the Company's real estate are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Occupied by the Company:
Land $ 2.5 $ 2.5
--------------------------------------------------------------------------------
Buildings 9.0 8.4
--------------------------------------------------------------------------------
Less accumulated depreciation (1.7) (1.2)
-------------------------------------------------------------------------------- --------- ---------
Net real estate occupied by the Company 9.8 9.7
- -----------------------------------------------------------------------------------
Other:
Land 93.2 124.1
--------------------------------------------------------------------------------
Buildings 413.0 491.6
--------------------------------------------------------------------------------
Other 7.9 8.1
--------------------------------------------------------------------------------
Less accumulated depreciation (50.1) (49.1)
-------------------------------------------------------------------------------- --------- ---------
Net other real estate 464.0 574.7
- ----------------------------------------------------------------------------------- --------- ---------
Net real estate $ 473.8 $ 584.4
- ----------------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 179.7 $ 209.3 $ 69.3
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $27.3,
$54.0 and $(6.7) in 1998, 1997 and 1996, respectively) 50.8 100.2 (12.4)
- ------------------------------------------------------------------------ --------- --------- ---------
128.9 109.1 81.7
Less federal income taxes on realized gains 82.1 77.8 28.4
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 46.8 $ 31.3 $ 53.3
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly owned insurance subsidiaries is
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,221.1 $ 333.9 $ 403.6 $ 1,938.0
- ---------------------------------------------------------
Other assets 40.3 31.3 490.0 270.2
- --------------------------------------------------------- --------- ----------- --------- ---------
Total admitted assets $ 1,261.4 $ 365.2 $ 893.6 $ 2,208.2
- --------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
Insurance reserves $ 1,149.8 $ 266.3 $ 281.8 $ 1,814.5
- ---------------------------------------------------------
Other liabilities 42.0 24.0 553.7 45.1
- ---------------------------------------------------------
Liabilities related to separate accounts -- -- -- 236.9
- ---------------------------------------------------------
Capital and surplus 69.6 74.9 58.1 111.7
- --------------------------------------------------------- --------- ----------- --------- ---------
Total liabilities and capital and surplus $ 1,261.4 $ 365.2 $ 893.6 $ 2,208.2
- --------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 310.4 $ 165.0 $ 150.3 $ 1,402.6
- -----------------------------------------------------------
Expenses 310.6 164.4 139.5 1,656.1
- -----------------------------------------------------------
Net realized gains (losses) (0.3) 0.9 (0.1) (0.7)
- ----------------------------------------------------------- --------- ----------- --------- ---------
Net income (loss) $ (0.5) $ 1.5 $ 10.7 $ (254.2)
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3
- -----------------------------------------------------------
Other assets 36.9 77.3 481.6 130.8
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7
- -----------------------------------------------------------
Other liabilities 48.4 21.7 546.4 5.8
- -----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 164.7
- -----------------------------------------------------------
Capital and surplus 70.7 73.7 54.9 212.9
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0
- -------------------------------------------------------------
Expenses 262.6 244.2 114.6 224.4
- -------------------------------------------------------------
Net realized gains (losses) .1 .6 (.1) (.1)
- ------------------------------------------------------------- --------- --------- ----------- -----------
Net income (loss) $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------- --------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The Company also owns three non-insurance subsidiaries, all
of which were formed or acquired in 1998. AnnuityNet, Inc.
was formed for the distribution of variable annuities over
the internet and is valued on the equity method with an
admitted asset value of $1,500,000 at December 31, 1998.
Lincoln National Insurance Associates was purchased for
$600,000 and is valued on the equity method with an admitted
asset value of $600,000 at December 31, 1998. Sagemark
Consulting, Inc. ("Sagemark") was purchased in 1998 and is a
broker dealer acquired in connection with a reinsurance
transaction completed in 1998. Sagemark is valued on the
equity method with an admitted asset value of $5,700,000 at
December 31, 1998.
The carrying value of all affiliated common stocks, was
$322,100,000 and $412,100,000 at December 31, 1998 and 1997,
respectively. The insurance affiliates are carried at
statutory-basis net equity while other affiliates are
recorded at GAAP basis net equity, adjusted for certain
items which would be non-admitted under statutory accounting
principles. The cost basis of investments in subsidiaries as
of December 31, 1998 and 1997 was $631,100,000 and
$466,200,000, respectively.
During 1998, 1997 and 1996 the Company's insurance
subsidiaries paid dividends of $5,200,000, $15,000,000 and
$10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate in the accompanying
statements of operations differs from the prevailing
statutory tax rate principally due to tax-exempt investment
income, dividends received tax deductions and differences
between statutory accounting and tax return recognition
relative to policy acquisition costs, policy and contract
liabilities and reinsurance ceding commissions.
In 1997 and 1996, federal income taxes incurred totaled
$78,300,000 and $83,600,000, respectively. In 1998, a
federal income tax net operating loss of $103,800,000 and
tax credits of $19,300,000 were incurred and carried back to
recover taxes paid in prior years.
The Company paid $2,300,000, $164,500,000 and $100,400,000
to LNC in 1998, 1997 and 1996, respectively, for federal
income taxes.
Under prior income tax law, one-half of the excess of a life
insurance company's income from operations over its taxable
investment income was not taxed, but was set aside in a
special tax account designated as "Policyholders' Surplus."
The Company has approximately $187,000,000 of untaxed
"Policyholders' Surplus" on which no payment of federal
income taxes will be required unless it is distributed as a
dividend, or under other specified conditions. Barring the
passage of unfavorable legislation, the Company does not
believe that any significant portion of the account will be
taxed in the foreseeable future and no related tax liability
has been recognized. If the entire balance of the account
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
became taxable under the current federal income tax rate,
the tax would be approximately $65,500,000.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other admitted assets", includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future policy
benefits and claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 4,081.8 $ 1,431.0
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 79.9 35.9
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions, excluding assumption reinsurance,
included in the income statement caption, "Premiums and
deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 9,018.9 $ 727.2 $ 241.3
- ----------------------------------------------------------------------
Insurance ceded 877.1 302.9 193.3
- ---------------------------------------------------------------------- --------- --------- ---------
Net amount included in premiums $ 8,141.8 $ 424.3 $ 48.0
- ---------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and settlement
expenses," is net of reinsurance recoveries of
$2,098,800,000, $1,240,500,000 and $787,900,000 for 1998,
1997 and 1996, respectively.
Details underlying the balance sheet caption "Other
policyholder funds" are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Premium deposit funds $16,285.2 $16,201.8
- -----------------------------------------------------------------------------
Undistributed earnings on participating business 348.4 142.0
- -----------------------------------------------------------------------------
Other 13.9 16.3
- ----------------------------------------------------------------------------- --------- ---------
$16,647.5 $16,360.1
--------- ---------
--------- ---------
</TABLE>
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and fees in course of collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 9.5 $ 3.4 $ 6.1
- -----------------------------------------------------------------------
Ordinary renewal (13.7) 11.3 (25.0)
- -----------------------------------------------------------------------
Group life 14.2 .2 14.0
- ----------------------------------------------------------------------- --------- ----- -----------
$ 10.0 $ 14.9 $ (4.9)
--------- ----- -----------
--------- ----- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.2 $ 2.4 $ .8
- ------------------------------------------------------------------------
Ordinary renewal 17.8 3.2 14.6
- ------------------------------------------------------------------------
Group life 10.6 .2 10.4
- ------------------------------------------------------------------------ --------- --- -----
$ 31.6 $ 5.8 $ 25.8
--------- --- -----
--------- --- -----
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance
Consultants, Inc. to write group life and health business.
Direct premiums written related to the agreements amounted
to $11,900,000 and $13,400,000 in 1998 and 1997,
respectively. During 1996, LNC Administrative Services
Corporation, an affiliate, entered into a similar agreement
with the Company with direct premiums written amounting to
$7,000,000 and $7,200,000 in 1998 and 1997, respectively.
Authority granted by the managing general agents agreements
include underwriting, claims adjustment and claims payment
services.
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES
At December 31, 1998, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------
(IN MILLIONS)
----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,659.5 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 2,959.2 5
-----------------------------------------------------------------------------
At market value 35,472.0 63
----------------------------------------------------------------------------- --------- ---
41,090.7 73
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 12,747.3 22
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,625.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 56,463.1 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,683.8
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $54,779.3
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
A reconciliation of the total net annuity reserves and
deposit fund liabilities to the amounts reported in the
Company's 1998 Annual Statement and the Company's Separate
Accounts Annual Statement is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
(IN MILLIONS)
-------------
<S> <C>
Per 1998 Annual Statement:
Exhibit 8, Section B -- Total (net) $ 2,554.6
- ----------------------------------------------------------------
Exhibit 8, Section C -- Total (net) 26.0
- ----------------------------------------------------------------
Exhibit 10, Column 1, Line 19 16,579.6
- ---------------------------------------------------------------- -------------
19,160.2
- ---------------------------------------------------------------- -------------
Per Separate Accounts Annual Statement
Exhibit 6, Column 2, Line 0299999 146.4
- ----------------------------------------------------------------
Page 3, Line 3 35,472.7
- ---------------------------------------------------------------- -------------
35,619.1
- ---------------------------------------------------------------- -------------
Total net annuity reserves and deposit fund liabilities $54,779.3
- ---------------------------------------------------------------- -------------
-------------
</TABLE>
8. CAPITAL AND SURPLUS
In 1998, the Company issued two surplus notes to LNC in return for cash of
$1,250,000,000. The first note for $500,000,000 was issued to LNC in
connection with the CIGNA indemnity reinsurance transaction on January 5,
1998. This note calls for the Company to pay the principal amount of the
notes on or before March 31, 2028 and interest to be paid quarterly at an
annual rate of 6.56%. Subject to approval by the Indiana Insurance
Commissioner, LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the anniversary date of the
note, but not before January 5, 2003. Any payment of interest or
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL AND SURPLUS (CONTINUED)
repayment of principal may be paid only out of the Company's earnings, only
if the Company's surplus exceeds specified levels ($2,315,700,000 at
December 31, 1998), and subject to approval by the Indiana Insurance
Commissioner. No interest payments were approved by the Indiana Insurance
Commissioner as of December 31, 1998 and, thus, no amounts were accrued at
that date.
The second note for $750,000,000 was issued on December 18, 1998 to LNC in
connection with the Aetna indemnity reinsurance transaction. This note calls
for the Company to pay the principal amount of the notes on or before
December 31, 2028 and interest to be paid quarterly at an annual rate of
6.03%. Subject to approval by the Indiana Insurance Commissioner, LNC also
has a right to redeem the note for immediate repayment in total or in part
once per year on the anniversary date of the note, but not before December
18, 2003. Any payment of interest or repayment of principal may be paid only
out of the Company's earnings, only if the Company's surplus exceeds
specified levels ($2,379,600,000 at December 31, 1998), and subject to
approval by the Indiana Insurance Commissioner. No interest payments were
approved by the Indiana Insurance Commissioner as of December 31, 1998 and,
thus, no amounts were accrued at that date.
A summary of the terms of these surplus notes follows:
<TABLE>
<CAPTION>
CURRENT YEAR
PRINCIPAL PRINCIPAL INTEREST
DATE ISSUED AMOUNT OF NOTE OUTSTANDING PAID
------------------------------- -------------- ------------- ------------
<S> <C> <C> <C>
January 5, 1998 $500,000,000 $ 500,000,000 $ 32,300,000
-------------------------------
December 18, 1998 750,000,000 750,000,000 --
-------------------------------
</TABLE>
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1998, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In January 1998, the Company assumed a block of
individual life insurance and annuity business from CIGNA and in October
1998, the Company assumed a block of individual life insurance business from
Aetna (SEE NOTE 10). The statutory accounting regulations do not allow
goodwill to be recognized on indemnity reinsurance transactions and
therefore, the related ceding commission was expensed in the accompanying
Statement of Operations and resulted in the reduction of unassigned surplus.
As a result of these transactions, the Company's statutory-basis unassigned
surplus is negative as of December 31, 1998 and it will be necessary for the
Company to obtain prior approval of the Indiana Insurance Commissioner
before paying any dividends to LNC until such time as statutory-basis
unassigned surplus is positive. It is expected that statutory-basis
unassigned surplus will return to a positive position within two to three
years from the closing of the Aetna transaction assuming a level of
statutory-basis earnings coinciding with recent earnings patterns. If
statutory-basis earnings are less then recent patterns due to adverse
operating conditions or further indemnity reinsurance transactions of this
nature or other factors, or if dividends are approved and paid at amounts
higher than recent history, the statutory-basis unassigned surplus may not
return to a positive position as soon as expected. Although no assurance can
be given, management believes that the approvals for the payment of such
dividends in amounts consistent with those paid in the past can be obtained.
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory-basis financial statements of income or
financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Option issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
As of December 31, 1998, 885,252 and 504,369 shares of LNC common stock were
subject to options granted to Company employees and agents, respectively,
under the stock option incentive plans of which 430,053 and 87,160,
respectively, were exercisable on that date. The exercise prices of the
outstanding options range from $23.50 to $96.41. During 1998, 1997 and 1996,
136,469, 170,789 and 72,405 options were exercised, respectively, and
18,288, 1,846 and 10,950 options were forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1998 and 1997 is a net
liability of $670,100,000 and $516,900,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels and/or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves could be required in the future. Accordingly, this liability may
prove to be deficient or excessive. The Company reviews reserve levels on an
ongoing basis. However, it is management's opinion that such future
development will not materially affect the financial position of the
Company.
During 1997, the Company conducted an in-depth review of loss experience on
its disability income business. As a result of this study, the reserve level
was deemed to be inadequate to meet future obligations if current incident
levels were to continue in the future. In order to address this situation,
the Company strengthened its disability income reserves by $80,000,000 in
1997.
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the 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. Accordingly, these liabilities may prove
to be deficient or excessive. However, it is management's opinion that such
future
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
development will not materially affect the financial position of the
Company.
LEASES
The Company leases its 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. The Company also 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 ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1998, 1997 and 1996 was
$34,000,000, $29,300,000 and $26,400,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
1999 $ 18.9
- --------------------------------------
2000 18.4
- --------------------------------------
2001 18.7
- --------------------------------------
2002 18.7
- --------------------------------------
2003 18.6
- --------------------------------------
Thereafter 116.6
- -------------------------------------- ---------
$ 209.9
---------
---------
</TABLE>
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for information technology services for the Fort Wayne operations.
Total costs incurred in 1998 were $54,800,000. Future minimum annual costs
range from $33,600,000 to $56,800,000, however future costs are dependent on
usage and could exceed these amounts.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. Prior to December 31, 1997, the Company
limited its maximum coverage that it retained on an individual to
$3,000,000. Based on a review of the capital and business in-force effective
in January 1998, the Company changed the amount it will retain on an
individual to $10,000,000. Portions of the Company's deferred annuity
business have also been reinsured with other companies to limit its exposure
to interest rate risks. At December 31, 1998, the reserves associated with
these reinsurance arrangements totaled $1,608,500,000. To cover products
other than life insurance, the Company acquires other insurance coverages
with retentions and limits that management believes are appropriate for the
circumstances. The accompanying statutory-basis financial statements reflect
premiums, benefits and policy acquisition expenses net of reinsurance ceded.
The Company remains liable if its reinsurers are unable to meet their
contractual obligations under the applicable reinsurance agreements.
Proceeds from the sale of common stock of American Statements Financial
Corporation ("American States") and proceeds from the January 5, 1998
surplus note, were used to finance an indemnity reinsurance transaction
whereby the Company and LLANY reinsured 100% of a block of individual life
insurance and annuity business from CIGNA Corporation ("CIGNA"). The Company
paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of the
reinsurance agreement and recognized a ceding commission expense of
$1,127,700,000 in 1998, which is included in the Statement of Operations
line item "Underwriting, acquisition, insurance and other expenses." At the
time of closing, this block of business had statutory liabilities of
$4,658,200,000 that became the Company's obligation. The Company also
received assets, measured on a historical statutory basis, equal to the
liabilities.
Pursuant to the terms of the reinsurance agreement, the Company, LLANY and
CIGNA are in the final stages of agreeing to the statutory-basis values of
these assets and liabilities. Any changes to these values that may occur in
future periods will not be material to the Company's financial position.
Subsequent to this transaction, the Company and LLANY announced that they
had reached an agreement to sell the administration rights to a variable
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
annuity portfolio that had been acquired as part of the block of business
assumed on January 2, 1998. This sale closed on October 12, 1998 with an
effective date of August 1, 1998.
In connection with the completion of the CIGNA reinsurance transaction, the
Company recorded a charge of $31,000,000 to cover certain costs of
integrating the existing operations with the new block of business.
On October 1, 1998, the Company and LLANY entered into an indemnity
reinsurance transaction whereby the Company and LLANY reinsured 100% of a
block of individual life insurance business from Aetna, Inc. The Company
paid $856,300,000 to Aetna on October 1, 1998 under the terms of the
reinsurance agreement and recognized a ceding commission expense of
$815,300,000 in 1998, which is included in the Statement of Operations line
item "Underwriting, acquisition, insurance and other expenses." At the time
of closing, this block of business had statutory liabilities of
$2,813,300,000 that became the Company's obligation. The Company also
received assets, measured on a historical statutory basis, equal to the
liabilities. The Company financed this reinsurance transaction with proceeds
from short-term debt borrowings from LNC until the December 18, 1998 surplus
note was approved by the Insurance Department. Subsequent to the Aetna
transaction, the Company and LLANY announced that they had reached an
agreement to retrocede the sponsored life business assumed for $87,600,000.
The retrocession agreement closed on October 14, 1998 with an effective date
of October 1, 1998.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1998, the Company has provided $44,900,000 of
statutory-basis surplus relief to other insurance companies under
reinsurance transactions. The Company has retroceded 100% of this accepted
surplus relief to its off-shore reinsurance affiliates. 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.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $43,400,000 and $8,200,000 at December 31, 1998
and 1997, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1998, the Company did not have a material concentration of
financial instruments in a single investee or industry. The Company's
investments in mortgage loans principally involve commercial real estate. At
December 31, 1998, 25% of such mortgages ($980,500,000) involved properties
located in Texas and California. Such investments consist of first mortgage
liens on completed income-producing properties and the mortgage outstanding
on any individual property does not exceed $58,200,000.
At December 31, 1998, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or 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 severe
impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for claims in excess of $5,000,000. The degree
of applicability of this coverage will depend on the specific facts of each
proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will not have a material adverse affect on the financial position of the
Company.
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
Four lawsuits involving alleged fraud in the sale of interest sensitive
universal life and whole life insurance have been filed as class actions
against the Company, although the court has not certified a class in any of
these cases. Plaintiffs seek unspecified damages and penalties for
themselves and on behalf of the putative class. While the relief sought in
these cases is substantial, it is premature to make assessments about the
potential loss, if any, because the status of the cases ranges from the
early states of litigation to the dismissal and appeals stage. Management
intends to defend these suits vigorously. The amount of liability, if any,
which may arise as a result of these suits cannot be reasonably estimated at
this time.
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.
GUARANTEES
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-
balance-sheet risks at December 31, 1998 relate to mortgage loan
pass-through certificates. 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. The
outstanding guarantees as of December 31, 1998 and 1997 were $30,900,000 and
$41,600,000, respectively. 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, 1998 and 1997.
The Company's wholly owned subsidiary, LNH&C, accepts personal accident
reinsurance programs from other insurance companies. Most of these programs
are presented to LNH&C by independent brokers who represent the ceding
companies. Certain excess of loss personal accident reinsurance programs
created in the London market during 1993 through 1996 have produced and have
potential to produce significant losses. At December 31, 1998 and 1997,
liabilities of $177,400,000 and $186,300,000, respectively, have been
established for such programs. These reserves are based on various estimates
that are subject to considerable uncertainty. Accordingly, this reserve may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the financial position of
the Company.
The Company and LNH&C continue to investigate the personal accident
reinsurance programs to determine if there are additional programs including
certain workers compensation programs, which may produce losses. At this
time, the Company and LNH&C do not have sufficient information to determine
whether or not it is probable that additional losses have been incurred nor
can the Company and LNH&C accurately estimate the ultimate cost or timing of
the outcome on these programs.
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, commodity risk, credit risk, increased liabilities
associated with reinsurance agreements 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 value generally are
offset by changes in the value of the items
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
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>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1998 1998 1997 1997
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,108.8 $4,900.0 $ 9.3 $ .9 $13.9 $ .9
---------------------------------
Swaptions 1,899.5 1,752.0 16.2 2.5 6.9 6.9
---------------------------------
Interest rate swaps 258.3 10.0 -- 9.9 -- (1.8)
---------------------------------
Put options 21.3 -- -- 2.2 -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,287.9 6,662.0 25.5 15.5 20.8 6.0
Foreign currency derivatives:
Forward contracts 1.5 163.1 -- -- 5.4 5.4
---------------------------------
Foreign currency swaps 47.2 15.0 -- .3 -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
48.7 178.1 -- .3 5.4 3.3
Commodity derivatives:
Commodity swaps 8.1 -- -- 2.4 -- --
--------------------------------- -------- -------- -------- ----- -------- ------
$6,344.7 $6,840.1 $25.5 $18.2 $26.2 $ 9.3
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation of the notional or contract amounts for the significant
programs using derivative agreements and contracts at December 31 is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------
(IN MILLIONS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ------------------------------------
New contracts 708.8 -- -- 50.0 218.3 1,080.0
- ------------------------------------
Terminations and maturities (1,500.0) (600.0) -- (50.0) (70.8) --
- ------------------------------------ --------- --------- --- --------- --------- ---------
Balance at end of year $ 4,108.8 $ 4,900.0 $ -- $ -- $ 1,899.5 $ 1,752.0
- ------------------------------------ --------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES
CONTRACTS INTEREST RATE SWAPS
--------------------------------------------
1998 1997 1998 1997
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ -- $ 147.7 $ 10.0 $ --
- -------------------------------------------------------------
New contracts -- 88.3 2,226.6 10.0
- -------------------------------------------------------------
Terminations and maturities -- (236.0) (1,978.3) --
- ------------------------------------------------------------- --- --------- --------- ---------
Balance at end of year $ -- $ -- $ 258.3 $ 10.0
- ------------------------------------------------------------- --- --------- --------- ---------
--- --------- --------- ---------
</TABLE>
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
PUT OPTIONS COMMODITY SWAPS
------------------------------------------------
1998 1997 1998 1997
------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ -- $ -- $ -- $ --
- --------------------------------------------------------------------
New contracts 21.3 -- 8.1 --
- --------------------------------------------------------------------
Terminations and maturities -- -- -- --
- -------------------------------------------------------------------- --------- --- --- ---
Balance at end of year $ 21.3 $ -- $ 8.1 $ --
- -------------------------------------------------------------------- --------- --- --- ---
--------- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES (FOREIGN INVESTMENTS)
------------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------
(IN MILLIONS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------------
New contracts 419.8 833.1 -- -- 39.2 --
- -------------------------------------------
Terminations and maturities (581.4) (921.6) -- (43.9) (7.0) --
- ------------------------------------------- --------- --------- --- --------- --------- ---------
Balance at end of year $ 1.5 $ 163.0 $ -- $ -- $ 47.2 $ 15.0
- ------------------------------------------- --------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
</TABLE>
INTEREST RATE CAP AGREEMENTS
The interest rate cap agreements, which expire in 1999 through 2006, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by 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 rising interest rates. The premium paid for the interest rate caps is
included in other assets ($9,300,000 as of December 31, 1998) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 1999 through 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of rising
interest rates. The premium paid for the swaptions is included in other
assets ($16,200,000 as of December 31, 1998) and is being amortized over the
terms of the agreements. This amortization is included in net investment
income.
SPREAD LOCK AGREEMENTS
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
government 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 government
security and the price sensitivity of the swap at that time. The purpose of
the Company's spread-lock program is to protect a portion of its fixed
maturity securities against widening of spreads.
FINANCIAL FUTURE CONTRACTS
The Company uses exchange-traded financial futures contracts to hedge
against interest rate risks and to manage duration of a portion of its
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. They 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.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the agreements the stream of variable coupon
payments generated from the bonds, and in turn, receives a fixed payment
from the counterparty at a predetermined interest rate. The net
receipts/payments from interest rate swaps are recorded in net investment
income.
The Company also uses interest rate swap agreements to hedge its exposure to
interest rate fluctuations related to the anticipated purchase of assets to
support newly acquired or assumed blocks of business. Once the assets are
purchased, the gains resulting from the termination of the swap agreements
are applied to the basis of the assets purchased. The gains are recognized
in earnings over the life of the assets.
PUT OPTION
The Company uses put options, combined with various perpetual fixed income
securities, and interest rate swaps to replicate a fixed income, fixed
maturity investment. The put options give the Company the right, but not the
obligation, to sell to the counterparty of the agreement the specified
securities on a specified date at a fixed price.
FOREIGN CURRENCY DERIVATIVES (FOREIGN INVESTMENTS)
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
re-exchange the two currencies at the same rate of exchange at a specified
future date.
COMMODITY SWAP
The Company uses a commodity swap to hedge its exposure to fluctuations in
the price of gold, which is the underlying variable in determining the
periodic interest payments associated with a fixed income security. A
commodity swap is a contractual agreement to exchange a certain amount of a
particular commodity for a fixed amount of cash. The Company owns a fixed
income security that meets its coupon payment obligations in gold bullion.
The Company is obligated to pay to the counterparty the gold bullion, and in
return, receives from the counterparty a stream of fixed income payments.
The fixed income payments are the product of the swap notional multiplied by
the fixed rate stated in the swap agreement. The net receipts/payments from
commodity swaps are recorded in net investment income.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$10,000,000, $7,000,000 and $6,900,000 in 1998, 1997 and 1996, respectively.
Deferred losses of $48,200,000 as of December 31, 1998, were the result of:
1) terminated and expired spread-lock agreements and; 2) terminated interest
rate swaps. These losses 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, swaptions, spread-lock
agreements, financial futures, interest rate swaps, put options and foreign
currency derivatives. However, the Company does not anticipate
nonperformance
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
by any of the 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, 1998, the exposure was $21,100,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. 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.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values 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 of unaffiliated common stocks
are based on quoted market prices.
PREFERRED STOCK
Fair values of preferred stock are based on quoted market prices, where
available. For preferred stock not actively traded, fair values are based on
values of issues of comparable yield and quality.
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. The ratings 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 based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are calculated on a
composite discounted cash flow basis using Treasury interest rates
consistent with the maturity durations assumed. These durations are based on
historical experience.
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other investments and cash and
short-term investments in the accompanying statutory-basis balance sheets
approximate their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder 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. These calculations are based on interest rates
currently offered on similar contracts with maturities that are consistent
with those remaining for the contracts being valued.
The remainder of the balance sheet captions "Future policy benefits and
claims" and "Other policyholder 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
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 DEBT
For short-term debt, the carrying value approximates fair value.
SURPLUS NOTES DUE TO LNC
Fair values for surplus notes are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
GUARANTEES
The Company's guarantees include guarantees related to 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 zero.
DERIVATIVES
The Company employs several different methods for determining the fair value
of its derivative instruments. Fair values for these contracts are based on
current settlement values. These values are based on quoted market prices
for the foreign currency exchange contracts and financial future contracts
and; 2) industry standard models that are commercially available for
interest rate cap agreements, swaptions, spread lock agreements, interest
rate swaps, commodity swaps and put options.
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. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the accompanying
statutory-basis balance sheets at fair value. The related liabilities are
also reported at fair value in amounts equal to the separate account assets.
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. 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
----------------------------------------------
1998 1997
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 23,830.9 $ 25,065.5 $ 18,560.7 $ 19,798.6
- -----------------------------------------------
Preferred stocks 236.0 242.5 257.3 268.7
- -----------------------------------------------
Unaffiliated common stocks 259.3 259.3 436.0 436.0
- -----------------------------------------------
Mortgage loans on real estate 3,932.9 4,100.1 3,012.7 3,179.2
- -----------------------------------------------
Policy loans 1,606.0 1,685.9 660.5 648.3
- -----------------------------------------------
Other investments 434.4 434.4 335.5 335.5
- -----------------------------------------------
Cash and short-term investments 1,725.4 1,725.4 2,133.0 2,133.0
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,845.8) (17,486.4) (17,324.2) (16,887.6)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (714.4) (738.2) (1,267.0) (1,294.6)
--------------------------------------------
Short-term debt (140.0) (140.0) (120.0) (120.0)
- -----------------------------------------------
Surplus notes due to LNC (1,250.0) (1,335.1) -- --
- -----------------------------------------------
Derivatives 25.5 18.2 26.2 9.3
- -----------------------------------------------
Investment commitments -- (0.6) -- (0.5)
- -----------------------------------------------
Separate account assets 36,907.0 36,907.0 31,330.9 31,330.9
- -----------------------------------------------
Separate account liabilities (36,907.0) (36,907.0) (31,330.9) (31,330.9)
- -----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In October 1996, the Company and LLANY purchased a block of group
tax-qualified annuity business from UNUM Corporation affiliates. The bulk of
the transaction was completed in the form of an assumption reinsurance
transaction, which resulted in a ceding commission of $71,800,000. The
ceding commission resulted in admissible goodwill of $62,300,000, which is
being amortized on a straight-line basis over 10 years. LLANY was required
by the New York Department of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals of the Company
and its wholly owned subsidiary increased by $3,200,000,000 as a result of
this transaction.
In 1997, LNC contributed 25,000,000 shares of common stock of American
States to the Company. American States is a property casualty insurance
holding company of which LNC owned 83.3%. The contributed common stock was
accounted for as a capital contribution equal to the fair value of the
common stock received by the Company. Subsequently, the American States
common stock owned by the Company, along with all other American States
common stock owned by LNC and its affiliates, was sold. The Company received
proceeds from the sale in the amount of $1,175,000,000. The Company
recognized no gain or loss on the sale of its portion of the common stock
due to the receipt of the stock at fair value. The proceeds from this sale
of stock were used to partially finance the CIGNA indemnity reinsurance
transaction.
S-30
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Life and Annuity Distributors,
Inc. ("LLAD"), has a nearly exclusive general agent's 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 LLAD override commissions of $76,700,000 in 1998 and override
commissions and operating expense allowances of $61,600,000 and $56,300,000
in 1997 and 1996, respectively. LLAD incurred expenses of $102,400,000,
$5,500,000 and $15,700,000 in 1998, 1997 and 1996, respectively, in excess
of the override commissions and operating expense allowances received from
the Company, which the Company is not required to reimburse. Effective in
January 1998, the Company and LLAD agreed to increase the override
commission expense and eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1998 and 1997 include the
Company's participation in a short-term investment pool with LNC of
$383,600,000 and $325,600,000, respectively. Related investment income
amounted to $16,800,000, $15,500,000 and $15,300,000 in 1998, 1997 and 1996,
respectively. Short-term loan payable to parent company at December 31, 1998
and 1997 represent notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $92,100,000, $48,500,000 and
$34,100,000 in 1998, 1997 and 1996, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 13.7 $ 11.9 $ 17.9
- ----------------------
Insurance ceded 290.1 100.3 302.8
- ----------------------
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 197.3 $ 245.5
- ------------------------
Future policy benefits
and claims ceded 1,125.0 997.2
- ------------------------
Amounts recoverable on
paid and unpaid losses 84.2 30.4
- ------------------------
Reinsurance payable on
paid losses 6.0 5.3
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,375.4 1,115.4
- ------------------------
</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 $318,300,000 and $280,900,000 at December 31, 1998 and 1997,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1998 and 1997, LNC had guaranteed $237,000,000 and $229,100,000,
respectively, of these letters of credit. At December 31, 1998, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $122,400,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets held by the Company consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds and are
carried at market value. Substantially all of the separate accounts do not
have any minimum guarantees and the investment risks associated with market
value changes are borne entirely by the policyholder.
Separate account premiums, deposits and other considerations amounted to
$3,953,300,000, $4,821,800,000 and $4,148,700,000 in 1998, 1997
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
and 1996, respectively. Reserves for separate accounts with assets at fair
value were $36,145,900,000 and $30,560,700,000 at
December 31, 1998 and 1997, respectively. All reserves are subject to
discretionary withdrawal at market value.
A reconciliation of transfers to (from) separate accounts is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of the
various separate accounts:
Transfers to separate accounts $ 3,954.9 $ 4,824.0
- ------------------------------------------------------------
Transfers from separate accounts (4,069.8) (2,943.8)
- ------------------------------------------------------------ --------- ---------
Net transfers to (from) separate accounts as reported in the
Summary of Operations $ (114.9) $ 1,880.2
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS
In 1997, certain errors were identified by the Illinois
Insurance Department in the calculation of the AVR as of
December 31, 1996 and 1995. The effects of the AVR errors
also resulted in the need for revisions in the calculation
of certain investment limitation thresholds, the results of
which indicated that additional assets should have been
nonadmitted as of December 31, 1996. As discussed by the
Company with the Indiana and Illinois Insurance Departments,
corrections were made to affected pages of the Company's
NAIC Annual Statement which were refiled with various state
insurance departments. However, due to immateriality of the
corrections in relation to the financial statements taken as
a whole, the audited 1996 and 1995 statutory-basis financial
statements were not corrected and re-issued.
The Company's 1997 NAIC Annual Statement, as filed with
various state insurance departments, also includes the
corrected balances for 1996 and 1995. The following is a
reconciliation of total admitted assets, total liabilities
and capital and surplus as of December 31, 1996 as presented
in the 1997 NAIC Annual Statement (as corrected) to the
accompanying audited financial statements.
<TABLE>
<CAPTION>
TOTAL CAPITAL
ADMITTED TOTAL AND
ASSETS LIABILITIES SURPLUS
---------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1996 as
reported in the accompanying audited
financial statements $50,016.6 $ 48,054.0 $1,962.6
- ----------------------------------------
Effect of AVR errors -- 37.6 (37.6)
- ----------------------------------------
Effect of change in investment
limitations (57.0) -- (57.0)
- ---------------------------------------- --------- ----------- --------
Balance as of December 31, 1996 as
reported in the 1997 NAIC Annual
Statement $49,959.6 $ 48,091.6 $1,868.0
- ---------------------------------------- --------- ----------- --------
--------- ----------- --------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The Company has been
redirecting a large portion of internal Information Technology efforts and
contracting with outside consultants to update systems to address Year 2000
issues. Experts have been engaged to assist in developing work plans and
cost estimates and to complete remediation activities.
For the year ended December 31, 1998, the Company identified expenditures of
$26,300,000 to address this issue. This brings the expenditures for 1996
through 1998 to $34,200,000 million. The Company's financial plans for 1999
and 2000 include expected expenditures of an additional $38,300,000 bringing
estimated overall Year 2000 expenditures to $72,500,000. Because updating
systems and procedures is an integral part of the Company's on-going
operations, approximately 50% of expenditures shown above are expected to
continue after all Year 2000 issues have been resolved. Actual Year 2000
expenditures through December 31, 1998 and future Year 2000 expenditures are
expected to be funded from operating cash flows. The anticipated cost of
addressing Year 2000 issues is based on management's current best estimates
which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. Such costs will be closely monitored
by management. Nevertheless, there can be no guarantee that actual costs
will not be higher than these estimated costs. Specific factors that might
cause such differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer problems and other uncertainties. The total
expenditures identified represent only the Company's portion of LNC's larger
expenditures to address the Year 2000 issue.
The current scope of the overall Year 2000 program includes the following
four major project areas: 1) addressing the readiness of business
applications, operating systems and hardware on mainframe, personal computer
and Local Area Network platforms (IT); 2) addressing the readiness of non-IT
embedded software and equipment (non-IT); 3) addressing the readiness of key
business partners and 4) establishing Year 2000 contingency plans.
The projects to address IT and non-IT readiness have four major phases.
Phase one involves raising awareness and creating an inventory of all IT and
non-IT assets. The second phase consists of assessing all items inventoried
to initially determine whether they are affected by the Year 2000 issue and
preparing general plans and strategies. The third phase entails the detailed
planning and remediation of affected systems and equipment. The last phase
consists of testing to verify Year 2000 readiness.
The Company has completed those four phases for over two-thirds of its high
priority IT systems, including those provided by software vendors. While the
Company's year 2000 program for nearly all high priority IT systems is
expected to be completed in the first quarter 1999, phase four, for a small
but important subset of these systems, will continue through the end of the
second quarter 1999. As of December 31, 1998, the status of projects
addressing readiness of IT assets is: 100% of IT assets have been
inventoried (Phase 1) and assessed (Phase 2); 94% of IT projects have been
through the remediation phase (Phase 3) with the last project scheduled for
completion by the end of March 1999; and 69% of IT projects have completed
the testing phase (Phase 4) with the last project scheduled to finish
testing by the end of June 1999. A portion of the effort that extends into
1999 is dependent on outside third parties and is behind the original
schedule. The Company is working with these parties to modify the completion
schedule.
As of December 31, 1998, the status of projects that address readiness of
high priority non-IT assets is: 100% of non-IT assets have been inventoried
(Phase 1) and assessed (Phase 2); 79% of non-IT projects addressing
remediation (Phase 3) have been completed and 21% of non-IT projects have
completed the testing phase (Phase 4). The Company expects to have all
phases related to high priority non-IT completed by the end of October 1999.
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. CENTURY COMPLIANCE (UNAUDITED) (CONTINUED)
Concurrent with the IT and non-IT projects, the readiness of key business
partners is being reviewed and Year 2000 contingency plans are being
developed. The most significant categories of key business partners are
financial institutions, software vendors and utility providers (gas,
electric and telecommunications). Surveys have been mailed to these key
business partners. Based on responses received, current levels of readiness
are being assessed, follow-up contacts are underway, alternative strategies
are being developed and testing is being scheduled where feasible. This
effort is expected to continue well into 1999. As noted above, software
vendor assessments are considered part of the IT projects and, therefore,
would follow the schedule shown above for such projects.
While the Company is working to meet the schedules outlined above, some
uncertainty remains. Specific factors that give rise to this uncertainty
include a possible loss of technical resources to perform the work, failure
to identify all susceptible systems, non-compliance by third parties whose
systems and operations impact the Company and other similar uncertainties.
A worst case scenario might include the Company's inability to achieve Year
2000 readiness with respect to one or more of the Company's significant
policyholder systems resulting in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in
its ability to collect and process premiums or deposits, process claim
payments, accurately maintain policyholder information, accurately maintain
accounting records and/or perform adequate customer service. Should the
worst case scenario occur, it could, depending on its duration, have a
material impact on the Company's results of operations and financial
position. Simple failures can be repaired and returned to production within
a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period would have a more serious impact. For this
reason, the Company is placing significant emphasis on risk management and
Year 2000 contingency planning. The Company is in the process of modifying
its contingency plans to address potential Year 2000 issues. Where these
efforts identify high risks due either to unacceptable work around
procedures or significant readiness risks, appropriate risk management
techniques are being developed. These techniques, such as resource shifting
or use of alternate providers, will be employed to provide stronger
assurances of readiness. The Company has gone through exercises to identify
worst case scenario failures. At this time, the Company believes its plans
are sufficient to mitigate identified worst case scenarios.
S-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (a wholly owned
subsidiary of Lincoln National Corporation) as of December 31,
1998 and 1997, and the related statutory-basis statements of
operations, changes in capital and surplus and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements 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.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted
accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the
accompanying financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of The
Lincoln National Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
/s/ Ernst & Young LLP
February 1, 1999
S-35
<PAGE>
PART C--OTHER INFORMATION
Item 24.
- --------
(a) LIST OF FINANCIAL STATEMENTS
(1) Part A The Table of Condensed Financial Information is included in
Part A of this Registration Statement.
(2) Part B
The following financial statements of Lincoln Life Variable Annuity
Account Q are included in the SAI:
Statement of Assets and Liability -- December 31, 1998
Statement of Operations -- Year ended December 31, 1998
Statements of Changes in Net Assets -- Year ended
December 31, 1998
Notes to Financial Statements --
Report of Ernst & Young LLP, Independent Auditors
(3) Part B
The following statutory-basis financial statements of Lincoln National
Life Insurance Company are included in the SAI:
Balance Sheets -- Statutory-Basis -- Years ended
December 31, 1998 and 1997
Statements of Income -- Statutory Basis -- Years ended
December 31, 1998, 1997 and 1996
Statements of Changes in Capital and Surplus -- Statutory Basis --
Years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows -- Statutory Basis -- Years ended
December 31, 1998, 1997 and 1996
Notes to Statutory-Basis Financial Statements -- December 31, 1998
Report of Ernst & Young LLP, Independent Auditors
24 (b) LIST OF EXHIBITS
(1) Resolution of Board of Directors and Memorandum authorizing
establishment of the Variable Account. (is herein incorporated by
reference to Registrant's initial registration statement on form
N-4 filed December 29, 1997.)
(2) N/A
(3) N/A
(4) Variable Annuity Contract
(a) Allocated Group Deferred Variable Annuity Contract (dated
5/99)
(b) Unallocated Group Deferred Variable Annuity Contract (dated
5/99)
(c) Active Life Certificate (dated 5/99)
(d) Section 457 Annuity Endorsement*
(e) Section 403(b) Annuity Endorsement*
(f) Plan-Reimbursement Endorsement*
(g) Plan-Reimbursement Endorsement*
(h) Individual Enrollment*
(i) Allocated Group Deferred Variable Annuity Contract (dated
8/98)
(j) Amendment to 8/98 Group Deferred Variable Annuity Contract,
Harris Trust (dated 1/99)
(k) Active Life Certificate (dated 8/98)
(l) Amendment to 8/98 Active Life Certificate (dated 1/99)
(5) (a) Form of application*
(6) (a) Articles of Incorporation of The Lincoln National Life
Insurance Company are incorporated herein by reference to
Registration Statement on Form N-4 (33-27783) filed on
December 5, 1996.
(b) By-Laws of The Lincoln National Life Insurance Company are
incorporated herein by reference to Post effective Amendment
#1 to the Registration Statement on Form N-4 (333-40937)
filed on November 9, 1998.
(8)(a) Services Agreement between Delaware Management Holdings, Inc.,
Delaware Service Company, Inc. and Lincoln National Life
Insurance Company is incorporated herein by reference to the
Registration Statement on Form S-6 (333-40745) filed on November
21, 1997.
(8)(b) Participation Agreement among Lincoln National Aggressive Growth
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment No. 8 to
the Registration Statement on Lincoln National Aggressive Growth
Fund form N-1A, 33-70742 filed on April 16, 1999.)
(8)(c) Participation Agreement among Lincoln National Bond Fund, Inc.
and Lincoln National Life Insurance Company. (Incorporated by
reference to Post Effective Amendment No. 21 to the Registration
Statement on Lincoln National Bond Fund form N-1A, 2-80746 filed
on April 16, 1999.)
(8)(d) Participation Agreement among Lincoln National Capital
Appreciation Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective Amendment
No. 7 to the Registration Statement on Lincoln National Capital
Appreciation Fund form N-1A, 33-70272 filed on April 16, 1999.)
(8)(e) Participation Agreement among Lincoln National Equity-Income
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment No. 7 to
the Registration Statement on Lincoln National Equity Income
Fund form N-1A, 33-71158 filed on April 16, 1999.)
(8)(f) Participation Agreement among Lincoln National Global Asset
Allocation Fund, Inc. (formerly Putnam Master Fund, Inc.) and
Lincoln National Life Insurance Company. (Incorporated by
reference to Post Effective Amendment No. 15 to the Registration
Statement on Lincoln National Global Asset Allocation Fund form
N-1A, 33-13530 filed on April 16, 1999.)
(8)(g) Participation Agreement among Lincoln National Growth and Income
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment No. 20 to
the Registration Statement on Lincoln National Growth and Income
Fund form N-1A, 2-80741 filed on April 16, 1999.)
(8)(h) Participation Agreement among Lincoln National International
Fund, Inc. (formerly Real Estate Fund, Inc.) and Lincoln
National Life Insurance Company. (Incorporated by reference to
Post Effective Amendment No. 11 to the Registration Statement on
Lincoln National International Fund form N-1A, 33-38335 filed on
April 16, 1999.)
(8)(i) Participation Agreement among Lincoln National Managed Fund,
Inc. and Lincoln National Life Insurance Company. (Incorporated
by reference to Post Effective Amendment No. 19 to the
Registration Statement on Lincoln National Managed Fund form
N-1A, 2-82276 filed on April 16, 1999.)
(8)(j) Participation Agreement among Lincoln National Money Market
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment No. 20 to
the Registration Statement on Lincoln National Money Market Fund
form N-1A, 2-80743 filed on April 16, 1999.)
(8)(k) Participation Agreement among Lincoln National Social Awareness
Fund, Inc. (formerly Government Securities Fund, Inc.) and
Lincoln National Life Insurance Company. (Incorporated by
reference to Post Effective Amendment No. 13 to the Registration
Statement on Lincoln National Social Awareness Fund form N-1A,
33-19896 filed on April 16, 1999.)
(8)(l) Participation Agreement among Lincoln National Special
Opportunities Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective Amendment
No. 20 to the Registration Statement on Lincoln National Special
Opportunities Fund form N-1A, 2-80731 filed on April 16, 1999.)
(8)(m) Participation Agreement between Lincoln National Life Insurance
Co. and Delaware Group Premium Fund, Inc. (incorporated herein
by reference to Registration Statement on Form N-4 (File No.
33-25990) filed on April 22, 1998).
(8)(n) Amendment to Schedule 1 to the Fund Participation
Agreement between Lincoln National Life Insurance Company and
Delaware Group Premium Fund and Delaware Distributors LLP
dated November 1, 1998 (Incorporated by reference to the
Registration Statement of Lincoln National Life Insurance
form N-4, filing no. 33-25990 on April 22, 1999).
(8)(o) Participation Agreement among Bankers Trust (BT) Insurance Trust
(Equity 500 Index Fund and Small Cap Index Fund) and Lincoln
National Life Insurance Company. (Incorporated by reference to
the Registration Statement of Lincoln National form N-4,
333-62819 on April 21, 1999.)
(8)(p) Participation Agreement among Baron Capital Asset Fund and
Lincoln National Life Insurance Company. (Incorporated by
reference to the Registration Statement of Lincoln National form
N-4, 333-04999 on September 30, 1998.)
(8)(q) Participation Agreement among Fidelity Variable Insurance Trust
(VIP) II and Lincoln National Life Insurance Company.
(Incorporated by reference to the Registration Statement of
Lincoln National form N-4, 333-04999 on September 30, 1998.)
(8)(r) Participation Agreement among Janus Aspen Series and Lincoln
National Life Insurance Company. (Incorporated by reference to
the Registration Statement of Lincoln National form N-4,
333-04999 on September 30, 1998.)
(8)(s) Participation Agreement among Neuberger Berman AMT Funds and
Lincoln National Life Insurance Company. (Incorporated by
reference to the Registration Statement of Lincoln National form
N-4, 333-04999 on September 30, 1998.)
(8)(t) Participation Agreement among Variable Insurance Trust (VIP) and
Lincoln National Life Insurance Company. (Incorporated by
reference to the Registration Statement of Lincoln National form
N-4, 333-04999 on September 30, 1998.)
(9) Opinion and Consent of Jeremy Sachs, Counsel.*
(10) Consent of Ernst & Young LLP, Independent Auditors
(11) Not applicable.
(13) Schedule of Computation of performance data.*
(14) Not applicable.
(15) (a) Organizational Chart of Lincoln National Life Insurance
Holding Company System
(b) Memorandum Concerning Books and Records
(16) Powers of attorney.
*Incorporated by reference to the pre-effective amendment No. 1 to the
registration statements of Lincoln National Life Insurance Company on
form N-4, file number 333-32273, filed on April 23, 1998.
Item 25.
- --------
DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name Positions and Offices
- ---- ----------------------
<S> <C>
Gabriel L. Shaheen* President, Chief Executive Officer and Director
Jon A. Boscia** Director
John H. Gotta**** Senior Vice President
Stephen H. Lewis* Senior Vice President
H. Thomas McMeekin** Director
Cynthia A. Rose** Secretary and Assistant Vice President
Lawrence T. Rowland*** Executive Vice President and Director
Keith J. Ryan* Senior Vice President, Chief Financial Officer and
Assistant Treasurer
Eldon J. Summers** Assistant Vice President and Treasurer
Richard C. Vaughan** Director
Roy V. Washington***** Vice President and Chief Compliance Officer
</TABLE>
* Principal business address is 1300 South Clinton Street, Fort Wayne, IN
46802-3506
** Principal business address is 200 East Berry Street, Fort Wayne, IN
46802-2706.
*** Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne, IN 48604-1538
**** Principal business address is 350 Church Street, Hartford, CT 06103
***** Principal business address is 915 S. Clinton, Fort Wayne, IN 46802
Item 26.
- --------
PERSONS CONTROLLED BY OR UNDER COMMON
CONTROL WITH THE DEPOSITOR OR REGISTRANT
See Exhibit 15(a): The organizational chart of The Lincoln National
Insurance Holding Company System is hereby incorporated herein by this
reference.
Item 27.
- --------
NUMBER OF CONTRACT OWNERS
As of February 28, 1999 there were 2 Contract owners under Lincoln Life Variable
Annuity Account Q, with approximately 850 participants.
Item 28.
- --------
<PAGE>
INDEMNIFICATION--UNDERTAKING
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life
Insurance Company (LNL) provides that LNL will indemnify certain
persons against expenses, judgments and certain other specified costs
incurred by any such person if he/she is made a party or is threatened
to be made a party to a suit or proceeding because he/she was a
director, officer, or employee of LNL, as long as he/she acted in good
faith and in a manner he/she reasonably believed to be in the best
interests of, or not opposed to the best interests of, LNL. Certain
additional conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of LNL in connection with suits by, or in the
rights of, LNL.
Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b)
hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the requirements of,
Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item
28(a) above 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 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any such 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 Act and will be governed by the final
adjudication of such issue.
Item 29.
- --------
PRINCIPAL UNDERWRITER
(a) Lincoln National Variable Annuity Fund A (Group); Lincoln National
Variable Annuity Fund A (Individual); Lincoln Life Flexible Premium
Variable Life Account D; Lincoln National Variable Annuity Account E;
Lincoln Life Flexible Premium Variable Life Account F; Lincoln Life
Flexible Premium Variable Life Account G; Lincoln National Variable
Annuity Account H; Lincoln Life Flexible Premium Variable Life Account
K; Lincoln Life Flexible Premium Variable Life Account M; Lincoln Life
Variable Annuity Account N; Lincoln Life Flexible Premium Variable Life
Account R; Lincoln National Variable Annuity Accounts 50 and 51;
(b) See Item 25.
(c) Commissions and Other Compensation Received by Lincoln National Life
Insurance Company from Lincoln Life Variable Annuity Account Q during
the fiscal year which ended December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting
Name of Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
- ----------------- ---------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
The Lincoln National
Life Insurance (a) (b)
Company None None None 38,177
</TABLE>
Notes:
(a) These figures represent compensation received by Lincoln National Life
Insurance Company for surrender, withdrawal and contract charges. See Charges
and other deductions, in the Prospectus.
(b) These figures represent compensation received by Lincoln National Life
Insurance Company for mortality and expense guarantees. See Charges and other
deductions, in the Prospectus.
Item 30.
- --------
LOCATION OF ACCOUNTS AND RECORDS
Exhibit 15(b) is hereby expressly incorporated herein by this reference.
Item 31.
- --------
Not applicable.
Item 32. Undertakings
- --------
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Certificate or an Individual 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) Registrant undertakes to deliver any Statement of Additional Information
and any financial statement required to be made available under this Form
promptly upon written or oral request to Lincoln Life at the address or
phone number listed in the Prospectus.
(d) The Lincoln National Life Insurance company hereby represents that the fees
and charges deducted under the contract, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by The Lincoln National Life Insurance Company.
(e) Registrant hereby represents that it is relying on the American Council of
Life Insurance (avail. Nov. 28, 1988) no-action letter with respect to
Contracts used in connection with retirement plans meeting the requirements
of Section 403(b) of the Internal Revenue Code, and represents further that
it will comply with the provisions of paragraphs (1) through (4) set forth
in that no-action letter.
Item 33.
- --------
Registrant represents that it is relying on the American Council of Life
Insurance (avail. Nov. 28, 1988) no-action letter with respect to Contracts
used in connection with retirement plan meeting the requirements of Section
403(b) of the Internal Revenue Code, and represents further that it will
comply with the provisions of paragraphs (1) through (4) set forth in that
no-action letter.
Item 34.
- --------
For Contracts sold in connection with the Texas Option Retirement Program,
Registrant is relying on Rule 6c-7 and represents that paragraphs (a)
through (d) of that rule have been complied with.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Amendment and has caused
this Amendment to the Registration Statement to be signed on its behalf, in the
City of Fort Wayne, and the State of Indiana on this 23rd day of April, 1999.
LINCOLN LIFE VARIABLE ANNUITY
Account Q - Group Multi-Fund
(Registrant)
By: /s/ Stephen H. Lewis
------------------------------------
Stephen H. Lewis
(Signature-Officer of Depositor)
Senior Vice President, LNL
(Title)
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
By: /s/ Kelly D. Clevenger
---------------------------------
Kelly D. Clevenger
Vice President, LNL
(b) As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed for the Depositors by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
* Chief Executive Officer, April 23, 1999
- ----------------------- President & Director
Gabriel L. Shaheen (Principal Executive Officer)
* Executive Vice President April 23, 1999
- ----------------------- and Director
Lawrence T. Rowland
* Senior Vice President, Chief April 23, 1999
- ----------------------- Financial Officer and
Keith J. Ryan Assistant Treasurer (Principal
Accounting Officer and
Principal Financial Officer
* Director April 23, 1999
- -----------------------
Jon A. Boscia
* Director April 23, 1999
- -----------------------
H. Thomas McMeekin
* Director April 23, 1999
- -----------------------
Richard C. Vaughan
*By /s/ Steven M. Kluever pursuant to a Power of
--------------------- Attorney filed with this
Steven M. Kluever Registration Statement
</TABLE>
<PAGE>
[INSERT LINCOLN NATIONAL LIFE INSURANCE CO. LOGO]
GROUP ANNUITY CONTRACT
This Contract is issued in consideration of the application of the Contractowner
and of the payment of Contributions as provided in this Contract.
This Contract is delivered in the jurisdiction of and is governed by the laws of
[State/Commonwealth of Contractowner].
Signed for Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
/s/ Gabriel L. Shaheen /s/ Kathleen Adamson
Gabriel L. Shaheen, President Kathleen Adamson, Second Vice President
Allocated
Group Deferred Variable Annuity or Variable and Fixed Annuity
Periodic Premium
Nonparticipating
ALL 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.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Article Page
<S> <C>
1 Special Terms 5
2 Purpose of Contract 7
3 Funding 8
4 Transfers and Withdrawals 11
5 Death Benefits 14
6 Annuity Options 15
7 Contract Loan 18
8 Contract Discontinuance 20
9 General Provisions 22
10 Annuity Purchase Rates Under a Variable Payment Option 24
11 Annuity Purchase Rates Under a Fixed Payment Option 25
</TABLE>
2
<PAGE>
Contract Specifications
Contract Number: [Specimen]
Contractowner: [The Trustees of A.B.C. Company Pension Trust]
Effective Date: [August 1, 1998]
Employer: [A.B.C. Company]
Plan: [A.B.C. Company Pension Plan]
VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account Q. Contributions may be
directed to any of the available Subaccounts, subject to limitations. See
Article 3. The amounts allocated to each Subaccount will be invested at net
asset value in the shares of one of the regulated investment companies. The
Subaccounts are:
1. [Equity 500 Index]
2. [Small Cap Index]
3. [Capital Asset]
4. [AVIS International]
5. [AVIS Global Growth]
6. [DGPF Growth & Income]
7. [DGPF Global Bond]
8. [International]
9. [DGPF Trend]
10. [VIP II Contrafund]
11. [VIP Growth]
12. [Equity-Income]
13. [Capital Appreciation]
14. [Aspen Worldwide Growth]
15. [Money Market]
16. [Bond]
17. [Managed]
18. [Aggressive Growth]
19. [AMT Partners]
20. [AMT MidCap Growth]
21. [Global Asset Allocation]
22. [Growth & Income]
23. [Social Awareness]
24. [Special Opportunities]
See Article 3 for provisions governing any substitution or elimination of
Subaccounts.
FIXED ACCOUNT GUARANTEED INTEREST RATE: [3.00%] during all years.
LIMITATIONS ON TRANSFERS AND WITHDRAWALS: See Article 4 for provisions governing
the limitations on transfers and withdrawals.
ANNUAL ACCOUNT CHARGE: [$25.00] per account maintained on behalf of a
Participant or Contractowner.
3
<PAGE>
ANNUAL MORTALITY AND EXPENSE RISK CHARGE: [1.002%]
[This Contract will be eligible for a lower annual Mortality and Expense Risk
Charge of [0.75%] if on the last calendar day of any calendar quarter the sum of
all Account Value under this Contract equals or exceeds $5 million. The lower
charge will be implemented on the calendar quarter-end Valuation Date following
the end of the calendar quarter in which the Contract became eligible for the
lower charge.]
[OR]
[This Contract will be eligible for a lower annual Mortality and Expense Risk
Charge of [0.75%] if on the last calendar day of any calendar quarter the sum of
all Account Value under all Contracts issued to [group name] equals or exceeds
$5 million. The lower charge will be implemented on all Contracts issued to
[group name] on the calendar quarter-end Valuation Date following the end of the
calendar quarter in which the Contracts became eligible for the lower charge.]
CONTINGENT DEFERRED SALES CHARGE (CDSC):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal During
Contract Year 1 2 3 4 5 6 7 8 9 10+
CDSC (as a [6%] [6%] [6%] [6%] [5%] [4%] [3%] [2%] [1%] [0%]
percentage of
withdrawal amount)
</TABLE>
There will be no other CDSC after the Contract has been in force for [9]
complete Contract Years.
LOAN SET-UP CHARGE: [$35.00]
4
<PAGE>
ARTICLE 1
Special Terms
Section
1.01 Account Value - Value held under this Contract. The value may be maintained
in either the Fixed Account, the Variable Account or both, depending on
allocations.
1.02 Accumulation Unit - A unit of measure used to calculate the variable
Account Value during the accumulation period.
1.03 Annuitant and Contingent Annuitant - The persons upon whose lives the
Annuity Payouts made after the Annuity Commencement Date will be based.
1.04 Annuity Commencement Date - The Valuation Date when money is withdrawn for
payment of Annuity Payouts under the annuity option selected.
1.05 Annuity Payout - An amount paid at regular intervals under one of several
options available to the Annuitant and/or any other payee. This amount may be
paid on a variable or fixed basis, or a combination of both.
1.06 Annuity Unit - A unit of measure used after the Annuity Commencement Date
to calculate the amount of variable Annuity Payout.
1.07 Beneficiary - The person or entity designated by a Participant under a
403(b) plan that is not subject to ERISA or an Annuitant to receive a death
benefit, if any, payable upon the death of the Participant or the Annuitant.
1.08 Code - This is the Internal Revenue Code (IRC) of 1986, as amended.
1.09 Contingent Deferred Sales Charge (CDSC) - This charge is assessed on
certain premature withdrawals of Account Value, calculated according to the
Contract provisions.
1.10 Contract - The agreement between the Contractowner and Lincoln Life
providing a variable annuity to fund the Plan.
1.11 Contractowner (you, your) - The Contractowner named in the Contract
Specifications.
1.12 Contract Year - This is the 12 month period which begins on the effective
date as set forth in the Contract Specifications or on the anniversary of the
effective date.
1.13 December 31, 1988 Grandfathered Balance - This is the balance that is
available for withdrawal, under a 403(b) plan, without meeting an otherwise
distributable event such as death, disability, termination of employment or
attainment of age 59 1/2.
1.14 ERISA - This is the Employee Retirement Income Security Act of 1974.
1.15 Fixed Account - An account established for this Contract by Lincoln Life
which is a part of the general assets of Lincoln Life.
1.16 Funds - Any of the mutual funds into which Contributions allocated to the
Variable Account are indirectly invested.
5
<PAGE>
1.17 Home Office - The Lincoln National Life Insurance Co., 1300 South Clinton
Street, Fort Wayne, Indiana 46802 or an institution designated by us.
1.18 Lincoln Life (we, us, our) - The Lincoln National Life Insurance Co.
1.19 Net Asset Value Per Share - The value of a Fund or Series share
calculated in accordance with the Fund's or Series' prospectus.
1.20 Participant - A person defined as a Participant in the Plan, who has
enrolled under this Contract and on whose behalf Lincoln Life maintains an
Account Value.
1.21 Participant Year - This is a 12 month period, which begins on the date
that we receive the first Contribution on behalf of that Participant under this
Contract and on each 1 year anniversary, thereafter.
1.22 Pending Allocation Account - This is an account established under the
Variable Account that invests Contributions received without allocation
instructions in shares of a money market mutual fund.
1.23 Plan - The Plan or arrangement named in the Contract Specifications,
which includes any employer based arrangement whether or not considered a plan
under State or Federal law.
1.24 Contributions - Amounts paid into the Contract.
1.25 Series - Any of the underlying portfolios of a Fund in which
Contributions allocated to the Variable Account are indirectly invested.
1.26 Subaccount - That portion of the Variable Account which invests in shares
of a particular Fund or Series. There is a separate Subaccount that corresponds
to each Fund and Series.
1.27 Valuation Date - Each day the New York Stock Exchange (NYSE) is open for
trading and we are open for business.
1.28 Valuation Period - The period commencing at the close of trading on the
NYSE on a Valuation Date and ending at the close of trading on the NYSE on the
next succeeding Valuation Date.
1.29 Variable Account - The segregated investment account into which Lincoln
Life sets aside and invests the variable assets attributable to this variable
annuity Contract.
1.30 Servicing Office - All correspondence and inquiries should be submitted to
our Servicing Office: [P. O. Box 9740, Portland, Maine 04104-5001].
6
<PAGE>
ARTICLE 2
Purpose of Contract
Section
2.01 This is a group annuity Contract. This Contract may be used to fund all or
part of the Plan's obligation to the Participants.
2.02 The provisions of the Plan control the operation of the Plan. The
provisions of the Contract control the operation of the Contract.
2.03 We are not a party to the Plan. The Plan is mentioned merely for
reference purposes. Except for the obligations provided under this Contract, we
have no liability under the Plan. We are under no obligation under or by reason
of issuance of this Contract either (a) to determine whether any payment,
distribution or transfer under this Contract complies with the provisions, terms
and conditions of the Plan or with applicable law, or (b) to administer the
Plan, including without limitation, any provisions required by the Retirement
Equity Act of 1984.
2.04 This Contract can be issued in connection with a Plan which meets the
requirements of Sections 401(a), 403(a), 403(b), 414(d) or 457 of the Code. We
may require evidence of qualification of the Plan.
7
<PAGE>
ARTICLE 3
Funding
Section
3.01 Account Value will be maintained by us on behalf of each Participant. At
your request, Account Value will also be maintained by us for your use under
this Contract.
3.02 Contributions must be made to us at our Home Office.
3.03 Contributions under this Contract may be allocated to the Variable
Account and/or to the Fixed Account of this Contract in 1% increments.
If complete allocation instructions have not been received by us in order for us
to perform our duties under this Contract, we will direct such Contribution to
the Pending Allocation Account as described in Section 1.22.
We will follow up with you monthly for a period of 90 days for allocation
instructions for Account Values in the Pending Allocation Account.
Within 2 business days of receipt of complete allocation instructions, the
Account Value in the Pending Allocation Account will be transferred to the
accounts as instructed.
If allocation instructions are not received after the 90 day notice, we will
refund the Contributions in the Pending Allocation Account, together with
earnings thereon (unless applicable ERISA requirements preclude return on
earnings) within 105 days of the date of receipt of the initial Contribution.
The Pending Allocation Account will only be used for the purpose mentioned in
this Section 3.03; you or Participants may not direct a portion of Contributions
to this Subaccount. Contributions directed to 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:
Section 3.13 of this Article 3-Funding, Article 4-Transfers and Withdrawals,
Article 6-Annuity Options and Article 7-Contract Loan.
3.04 Contributions in any one Contract Year which exceed twice the amount of
Contributions made in the first Contract Year may be made only with our
permission. If Contributions are stopped, the Account Values will remain in
force as paid-up. Contributions may resume at any time until the Participant's
Annuity Commencement Date, a request to withdraw the entire Account Value or
payment of any death benefit, whichever comes first.
3.05 We will credit interest daily on the Account Value in the Fixed Account.
The rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Values in the Fixed Account at an effective annual rate not
less than [3.00%] during all years.
Interest rates for each quarter will be declared and made available reasonably
in advance of that quarter.
Contributions received in any quarter will earn interest at the declared rate
for that quarter [plus [.50%]] and the next three quarters. When Contributions
are beyond the initial four-quarter period, they will earn interest at the
portfolio rate. The portfolio rate is declared for the coming quarter
8
<PAGE>
and is in effect only for that quarter. Interest rates applicable to contract
loan principal are declared for the coming quarter and are in effect only for
that quarter.
3.06 Contributions may be allocated to a maximum of [10] Subaccounts, or to a
maximum of [9] Subaccounts and the Fixed Account. The Contributions allocated
to each Subaccount will be applied to purchase Accumulation Units at the
Accumulation Unit value next calculated after receipt at our Home Office.
3.07 We reserve the right to eliminate the availability of the shares of any
Fund or Series and substitute the securities of a different investment company
if the shares of a Fund or Series are no longer available for investment, or, if
in our judgement, any Fund or Series should become inappropriate in view of the
purposes of this Contract. We may add a Subaccount investing in a new Fund or
Series. We will give you written notice of the elimination or substitution of
any Fund or Series no later than 15 days after the substitution occurs. Any
such eliminations, substitutions or additions will be subject to compliance with
any applicable regulatory requirements.
3.08 We will use each Contribution allocated to the Variable Account to buy
Accumulation Units in the Subaccount(s) selected by you. The number of
Accumulation Units bought will be determined by dividing the amount directed to
the Subaccount by the dollar value of an Accumulation Unit in that Subaccount as
of the end of the Valuation Period during which the Contribution is received at
our Home Office. The number of Accumulation Units held for the Variable Account
by you will not be changed by any change in the dollar value of Accumulation
Units in any Subaccount.
3.09 The value of a Subaccount on any Valuation Date is the number of
Accumulation Units in the Subaccount multiplied by the value of an Accumulation
Unit of the Subaccount at the end of the Valuation Period.
3.10 Contributions allocated to the Variable Account are converted into
Accumulation Units. The number of Accumulation Units resulting from each
Contribution is equal to the Contribution divided by the value of an
Accumulation Unit for the Valuation Period during which the Contribution is
allocated to the Variable Account. The Accumulation Unit value for each
Subaccount was or will be arbitrarily established at the inception of the
Subaccount. It may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Subaccount for any later Valuation
Period is determined as follows:
1. The total value of Fund or Series shares held in the Subaccount is calculated
by multiplying the number of Fund or Series shares owned by the Subaccount at
the beginning of the Valuation Period by the Net Asset Value Per Share of the
Fund or Series at the end of the Valuation Period, and adding any dividend or
other distribution of the Fund or Series if an ex-dividend date occurs during
the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period; such
liabilities include daily charges imposed on the Subaccount, and may include
a charge or credit with respect to any taxes paid or reserved for by us that
we determine result from the operations of the Variable Account; and
3. The result of 2. is divided by the outstanding number of Accumulation Units
in the Subaccount at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to
the mortality and expense risk charge for the number of calendar days in the
Valuation Period.
9
<PAGE>
3.11 The assets of the Variable Account equal to its reserves and other
liabilities will not be charged with the liabilities arising from any other part
of our business.
3.12 The Accumulation Unit value may increase or decrease the dollar value of
benefits under the Contract.
3.13 On the last Valuation Date of each Participant Year, we will deduct the
Account Charge, specified in the Contract Specifications. Such amount will be
deducted from the Account Value maintained on behalf of each Participant and on
behalf of the Contractowner on a pro rata basis based on the balances of such
Account Values on such date in the Fixed Account and Variable Account. The full
Account Charge will be deducted upon withdrawal of the entire Account Value. If
you choose to pay the Account Charge, we will bill you at the end of each
calendar year for an amount equal to the Account Charge times the number of
Participants and Contractowner on whose behalf Account Values are maintained as
of the last day of the calendar year plus the number of Participants and
Contractowner that have withdrawn their entire Account Values within the last 6
months of the calendar year. If the Account Charge is not paid within 30 days
of receipt of the bill, the amount will be deducted from the Account Value as
described in this Section.
3.14 At least once during each Contract Year, we will provide a report of the
value of each Account Value, including Account Value maintained on behalf of
each Participant and on behalf of the Contractowner.
10
<PAGE>
ARTICLE 4
Transfers and Withdrawals
Section
4.01 A transfer of funds may be directed from one Subaccount to another
Subaccount or to the Fixed Account. A transfer of Account Value may be directed
from the Fixed Account to one or more Subaccounts or the Variable Account,
subject to the limitations described in Section 4.03. A transfer request may be
in writing, or by telephone provided we have received the appropriate
authorization from you. Amounts transferred to the Subaccount(s) will purchase
Accumulation Units as described in Section 3.08.
There may not be more than one transfer in any 30 day period. We reserve the
right to further limit the number of transfers.
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
Transfers after the Annuity Commencement Date will be subject to the provisions
of Section 6.10.
4.02 A transfer among Subaccounts will result in the purchase of Accumulation
Units in one Subaccount and the redemption of Accumulation Units in the other
Subaccount. Such a transfer will be effected at Accumulation Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of the Accumulation Units is
described in Section 3.10.
4.03 Subject to the following limitations, Account Value held in the Fixed
Account may be transferred to any Subaccount or may be withdrawn from this
Contract. A withdrawal for any reason not stated in Section 4.05 will be subject
to this Section.
* Periodic Elective Transfers or Withdrawals - The cumulative percentage limit
available under this paragraph for a transfer or withdrawal is 20% in any 365
day period. The cumulative percentage is the sum of all transfers and
withdrawals under this Section in the preceding 364 day period plus the
amount to be transferred or withdrawn under this Section, divided by the then
current Account Value in the Fixed Account. A cumulative percentage exceeding
20% in any 365 day period will not be allowed.
* Systematic Transfers or Withdrawals - A scheduled transfer or withdrawal of
the entire Account Value in the Fixed Account may be elected over a 5 year
period. The timing and percentage of each transfer or withdrawal is indicated
in the following schedule.
Transaction dates Percentage eligible for transfer or withdrawal
Initial date 20% of the balance on such date
First anniversary 20% of the balance on such date
Second anniversary 25% of the balance on such date
Third anniversary 33% of the balance on such date
Fourth anniversary 50% of the balance on such date
Fifth anniversary 100% of the balance on such date
If Systematic Transfers or Withdrawals are elected, Periodic Elective
Transfers or Withdrawals will not be available during the period of scheduled
payments. This election may at any time after the initial date be rescinded.
In this event, Periodic Elective Transfers or Withdrawals will
11
<PAGE>
not be available until the 1 year anniversary of the last Systematic Transfer
or Withdrawal made before rescinding the election.
If Systematic Transfers or Withdrawals are elected and a Periodic Elective
Transfer or Withdrawal was made within the last 364 day period, the payment
due on the initial date will be reduced by the sum of any Periodic Elective
Transfer or Withdrawal made within the last 364 day period.
If Systematic Transfers or Withdrawals are elected, no further Contributions
may be allocated to the Fixed Account unless the election is rescinded.
4.04 All withdrawal requests must be submitted in writing to us. A withdrawal
request for a Participant must be authorized by you. A withdrawal request for a
Participant under a 403(b) plan that is not subject to ERISA must be authorized
by the Participant. Withdrawals will be effected at Accumulation Unit values
calculated at the end of the Valuation Period during which we receive written
request at our Home Office. We reserve the right to require proof of the event
giving rise to any withdrawal under this Contract.
4.05 Withdrawals of Account Value will be allowed during the life of this
Contract without being subject to CDSC, if the withdrawal is for one of the
following reasons:
* To make a payment due to the Participant's death, disability, retirement or
termination of employment, excluding termination of employment due to Plan
termination, plant shutdown or any other program instituted by the
Participant's employer which would reduce the work force by more than 20%;
* To make a payment for a Participant hardship situation as allowed by the
Plan;
* To make a payment pursuant to a Qualified Domestic Relations Order (QDRO);
* To purchase an annuity option under Article 6.
A withdrawal from the Account Value, for any reason outlined in this Section,
will not be subject to the provisions of Sections 4.03, 4.06 or 4.07.
4.06 Subject to the following limitations and the limitations set forth in
Section 4.03, a partial withdrawal, without being subject to CDSC, of Account
Value may be requested during the Contract Year for any reason other than those
specified in Section 4.05.
The cumulative percentage limit available under this Section for partial
withdrawal, without being subject to the CDSC, is 20% in any Contract Year. The
cumulative percentage is the sum of all withdrawals under this Section during
the Contract Year plus the amount to be withdrawn under this Section divided by
the then current Account Value.
Partial withdrawals under this Section exceeding the 20% cumulative percentage
will be subject to the CDSC.
4.07 If we receive a request for a withdrawal of 100% of the Account Value for
any reason other than those specified in Section 4.05; the Account Value will be
distributed as follows:
* 100% of the Account Value in the Variable Account will be subject to the CDSC
and will be paid in a cash payment as provided in Section 4.08.
12
<PAGE>
* The Account Value in the Fixed Account will be paid in accordance with the
systematic withdrawal schedule over a 5 year period as provided in Section
4.03. 100% of each scheduled withdrawal will be subject to the CDSC.
4.08 Any cash payment will be mailed from our Home Office within 7 days after
the date of withdrawal; however, we may be permitted to defer payments from the
Variable Account under the Investment Company Act of 1940, as in effect at the
time a request for withdrawal is received. We reserve the right to defer any
payment from the Fixed Account for a period not to exceed 6 months after a
request is received.
13
<PAGE>
ARTICLE 5
Death Benefits
Section
5.01 Article 5 only applies to a Participant under a 403(b) plan that is
not subject to ERISA.
5.02 If a Participant dies prior to the Annuity Commencement Date, upon receipt
of due proof of death and required claim forms we will pay the Beneficiary, if
one is living, a death benefit equal to the Account Value less any outstanding
loan balance.
A Participant may designate a Beneficiary during the life of the Participant.
Unless otherwise stated in the Beneficiary designation, if there is more than
one Beneficiary, they are presumed to share equally.
The Participant may change any Beneficiary unless otherwise provided in the
previous designation. A change of Beneficiary will revoke any previous
designation. A change may be made by filing a written request, in a form
acceptable to us, at our Home Office. The change will become effective upon
receipt of the written request by us at our Home Office.
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Participant, that Beneficiary's interest will go to any other
Beneficiaries named, according to their respective interests. If there are no
Beneficiaries, the Beneficiary's interest will pass to a contingent
Beneficiary(s), if any. If no Beneficiary or contingent Beneficiary survives the
Participant, the death benefit will be paid in one sum to the Participant's
estate.
5.03 We will calculate the death benefit as of the end of the Valuation Period
during which we receive due proof of death, pursuant to Section 5.04, and the
election of a form of benefit.
5.04 Due proof of death will be a certificate of death, a copy of a certified
decree of a court of competent jurisdiction as to the finding of death, or any
other proof satisfactory to us.
5.05 All death benefit payments will be subject to the laws and regulations
governing death benefits.
Notwithstanding any provision of this Contract to the contrary, no payment of
death benefit provided upon the death of the Participant will be allowed that
does not satisfy the requirements of Section 401(a)(9) of the Code. All such
requirements are herein incorporated by reference.
5.06 The death benefit may be paid in a lump sum or under a settlement option
then available. If a lump sum settlement is elected, the proceeds will be paid
within 7 days of approval by us of the claim. This payment may be postponed as
permitted by the Investment Company Act of 1940, as amended.
14
<PAGE>
ARTICLE 6
Annuity Options
Section
6.01 You may purchase an annuity option for any Participant or Beneficiary. The
annuity option will be purchased using the rates in Article 10 or 11.
6.02 The following annuity options are available:
* Life annuity/life annuity with fixed period - Annuity Payouts will be made
for the life of the Annuitant with no certain period, or with a 10 years
certain period, or with a 20 years certain period. Upon the death of the
Annuitant, Annuity Payouts will continue to the Beneficiary for the
remainder, if any, of the certain period.
* Joint life annuity/joint life annuity with fixed period - Annuity Payouts
will be made for the joint lives of the Annuitant and a Contingent Annuitant
of the Annuitant's choice with no certain period, or with 10 years certain
period, or with a 20 years certain period. Annuity Payouts continue for the
life of the survivor at the death of the Annuitant or Contingent Annuitant.
Upon the death of both Annuitants, Annuity Payouts will continue to a
Beneficiary for the remainder, if any, of the certain period.
* Unit refund life annuity - Annuity Payouts will be made for the life of the
Annuitant with the guarantee that upon the death of the Annuitant a payout to
the Beneficiary will be made of the value of the number of Annuity Units
equal to the excess, if any, of (a) over (b) where (a) is the total amount
applied under the option divided by the Annuity Unit value at the Annuity
Commencement Date and (b) is the product of the number of Annuity Units
represented by each Annuity Payout and the number of Annuity Payouts paid
before death.
* Other options may be available as agreed upon in writing by us.
6.03 At the time an annuity option is selected under the provisions of this
Contract, you may specify an Annuity Commencement Date and elect, on behalf of
the Participant, to have the total Account Value applied to provide a variable
Annuity Payout, a fixed Annuity Payout or a combination fixed and variable
Annuity Payout.
The amount of Annuity Payout will depend on the age and sex (except in cases
where unisex rates are required) of the Annuitant as of the Annuity Commencement
Date. A choice may be made to receive payouts once each month, four times each
year, twice each year or once each year. The Account Value and Annuity Unit
value used to effect Annuity Payouts will be calculated as of the Annuity
Commencement Date on the monthly, quarterly, semi-annual or annual anniversary
of the Annuity Commencement Date.
For a 100% fixed Annuity Payout, the Annuity Commencement Date must be at least
30 days before the first Annuity Payout date. For a combination fixed and
variable Annuity Payout or a 100% variable Annuity Payout, the Annuity
Commencement Date will be 14 days before the first Annuity Payout date.
After the Annuity Commencement Date, the Annuity Payout option can not be
changed.
6.04 Article 10 of this Contract illustrates the minimum Annuity Payout amounts
and the age adjustments which will be used to determine the monthly Annuity
Payouts under a fixed Annuity
15
<PAGE>
Payout option. The tables show the dollar amount of the guaranteed monthly
Annuity Payout which can be purchased with each $1,000.00 of Account Value,
after deduction of any applicable premium tax. Amounts shown use the 1983 'a'
Individual Annuity Mortality Table, modified, with an assumed interest rate of
return of 3.00% per year and a 2.00% expense load.
6.05 Article 11 of this Contract illustrates the minimum Annuity Payout amounts
and the age adjustments which will be used to determine the first monthly
Annuity Payout under a variable Annuity Payout option. The tables show the
dollar amount of the first monthly Annuity Payout which can be purchased with
each $1,000.00 of Account Value, after deduction of any applicable premium
taxes. Amounts shown use the 1983 'a' Individual Annuity Mortality Table,
modified, with an assumed interest rate of return of 5.00% per year and a 2.50%
expense load.
6.06 To determine the amount of the variable Annuity Payouts after the first
payout, the first variable Annuity Payout is subdivided into components each of
which represents the product of: (a) the percentage elected by you on behalf of
the Participant of a specific Subaccount, the performance of which will
determine future variable Annuity Payouts, and (b) the entire first variable
Annuity Payout. Each variable Annuity Payout after the first payout attributable
to a specific Subaccount will be determined by multiplying the Annuity Unit
value for that Subaccount on the monthly, quarterly, semi-annual or annual
anniversary of the Annuity Commencement Date by the number of Annuity Units
attributable to that Subaccount. The number of Annuity Units for each specific
Subaccount is determined by dividing the component of the first payout
attributable to that Subaccount as described previously by the Annuity Unit
value for that Subaccount on the Annuity Commencement Date. The total variable
Annuity Payout will be the sum of the payouts attributable to each Subaccount.
6.07 The Annuity Unit value for any Valuation Period for any Subaccount is
determined by multiplying the Annuity Unit value for the immediately preceding
Valuation Period by the product of (a) 0.999866337 raised to a power equal to
the number of days in the current Valuation Period and (b) is the Accumulation
Unit value of the same Subaccount for this Valuation Period divided by the
Accumulation Unit value of the same Subaccount for the immediately preceding
Valuation Period.
6.08 The valuation of all assets in the Subaccount will be determined in
accordance with the provisions of applicable laws, rules and regulations. The
method of determination by us of the value of an Accumulation Unit and of an
Annuity Unit will be conclusive upon the Participant and any recipient of a
death benefit, if any.
6.09 We guarantee that the dollar amount of each installment after the first
will not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
6.10 After the Annuity Commencement Date, if any portion of the Annuity Payout
is a variable Annuity Payout, the Participant may direct a transfer of assets
from one Subaccount to another Subaccount or to a fixed Annuity Payout. These
transfers will be limited to 3 times per Contract Year. A fixed Annuity Payout
may not be changed to a variable Annuity Payout.
A transfer from one Subaccount to another Subaccount will result in the purchase
of Annuity Units in one Subaccount, and the redemption of Annuity Units in the
other Subaccount. Such a transfer will be effected at Annuity Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of Annuity Units is described in
Section 3.09. A transfer from one Subaccount to a fixed Annuity Payout will
result in the redemption of Annuity Units in one Subaccount and the purchase of
a fixed Annuity Payout.
6.11 If the annuity option chosen results in Annuity Payouts of less than $50.00
per month, the
16
<PAGE>
frequency will be changed so that Annuity Payouts will be at least $50.00.
6.12 A certificate will be issued to the Annuitant showing the amount and terms
of the purchased annuity.
6.13 No annuity option may be assigned or attached, except, if applicable, those
benefits assigned or attached by a Qualified Domestic Relations Order under
Section 414(p) of the Code, or pursuant to a Federal Tax Levy under Section 6331
of the Code.
6.14 If we receive proof that a person receiving Annuity Payouts under this
Contract is legally or mentally incompetent, the Annuity Payouts may be made to
any person deemed a legal representative by a court of competent jurisdiction.
6.15 We will require satisfactory proof of each Annuitant's age. If it is later
proven to us that the Annuitant's age has been misstated, the Annuity Payouts
will be adjusted. Any underpayouts already made by us will be made up
immediately and any overpayouts already made by us will be charged against the
Annuity Payouts falling due after the adjustment.
6.16 The Annuitant may name the Beneficiary or Contingent Annuitant for any
purchased annuity option. The Annuitant may change the Beneficiary at any time
without the consent of the previous Beneficiary unless the previous designation
provides otherwise. However, if the Annuitant is married, the Annuitant's spouse
must agree in writing to another person being named Beneficiary or Contingent
Annuitant. The change is effective when written notice is received by us. The
annuity option or the Contingent Annuitant may not be changed. The Beneficiary
or the Contingent Annuitant does not have the right to name the Beneficiary.
6.17 If the Annuitant dies and there is no named Beneficiary living at the time
of the Annuitant's death, the Annuitant's estate will be paid any remaining
guaranteed Annuity Payouts, under a period certain annuity option, in one lump
sum. If the named Beneficiary is receiving guaranteed Annuity Payouts and dies,
the remaining Annuity Payouts will be paid in one lump sum to the contingent
Beneficiary if living at the time of the Beneficiary's death. Payment will
otherwise be made to the Beneficiary's estate. Lump sum Annuity Payouts will
equal the discounted guaranteed payouts at the interest rate then being credited
under Section 3.05, compounded annually.
6.18 We may, at any time, require proof that any payee under this Contract is
living when payout is contingent upon survival of that payee.
17
<PAGE>
ARTICLE 7
Contract Loan
Section
7.01 Prior to a Participant's Annuity Commencement Date, if permitted by the
Plan, a Participant may apply for a loan under this Contract. We will loan, upon
written application and assignment of the Account Value equal to the loan amount
as security for the loan, a sum which will not be less than $1,000.00. The
Account Value which is assigned to us as security for the loan must be allocated
to the Fixed Account. For purposes of applying the transfer and withdrawal
provisions of Article 4 and Article 8, any amount allocated to the Fixed Account
as security for a loan will be included in the calculation of Fixed Account
Value. However, neither withdrawals nor transfers from the Fixed Account are
allowed to the extent that such a withdrawal or transfer would cause the Fixed
Account Value to be less than any outstanding loan.
7.02 Unless otherwise restricted by the Plan, the maximum loan amount is equal
to 50% of the vested Account Value, not to exceed a total of $50,000.00 on all
outstanding loans to the Participant under all plans. However, for all plans not
subject to ERISA, if 50% of the total Account Value is less than $10,000.00, the
Participant can borrow the lesser of $10,000.00 or 100% of the vested Account
Value. If there has been a loan in the preceding 12 month period, the $50,000.00
maximum loan limit is reduced by the excess of the highest outstanding balance
of loans during the preceding 12 month period over the outstanding current loan
balance. A Participant may have only one loan outstanding at any time under this
Contract.
7.03 The loan rate is adjustable, which means that it may change from time to
time. A loan's initial interest rate will be based on the declared rate in
effect at the time a loan is established. The declared interest rate will be
determined quarterly and will be equal to Moody's Corporate Bond Yield monthly
average for the calendar month two months prior to the first day of each
calendar quarter, rounded down to the next 0.25%. If the average is no longer
made available, then the declared interest rate will be a comparable rate
acceptable to the regulatory authorities.
At the beginning of each calendar quarter, we will compare each loan's interest
rate to the then current declared interest rate. If the then current declared
interest rate is less than the loan's interest rate by .50% or more, the loan's
interest rate will be decreased to equal the then current declared interest
rate. The loan's interest rate will remain unchanged if the then current
declared interest rate differs from the loan's interest rate by less than .50%.
The loan rate for an existing loan may decrease, but it will never increase.
During the existence of a contract loan, the amount of the contract loan
principal in the Fixed Account will earn interest at an effective annual rate of
not less than [3.00%]. The interest rates applicable to contract loan principal
will be declared quarterly, in advance of each quarter, and will be in effect
only for that quarter.
Loan payments of principal and interest must be paid in level amortized
payments, either monthly or quarterly. The loan must be repaid within 5 years
unless it is being used to purchase a principal residence for the Participant in
which case the loan must be repaid within 20 years or less. The contract loan
maybe repaid in full at any time while this Contract is in force and prior to
the Annuity Commencement Date.
7.04 If the required loan payment is not paid in full within 90 days after the
date the payment is due the total outstanding loan balance will be determined to
be in default. Following the 90-day grace period the defaulted amount will first
be deducted from the Account Value equal to the Participant's December 31, 1988
Grandfathered Balance. In addition, if allowed by the Plan, any
18
<PAGE>
amounts equal to employer Contributions and earnings on those Contributions will
be deducted from the Account Value following the 90-day grace period. Any
remaining defaulted amount will be deducted from the Account Value when one of
the following events occur: the Participant's termination of service with the
employer, attainment of age 59 1/2, disability or death.
7.05 The amounts and terms of a loan may be subject to the restrictions imposed
under 72(p) of the tax code, Title 1 of ERISA, and any applicable plan.
7.06 We will charge an amount as specified in the Contract Specifications, each
time a loan is established. The amount will be withdrawn from the Account Value.
19
<PAGE>
ARTICLE 8
Contract Discontinuance
Section
8.01 You may discontinue this Contract at any time by giving written notice to
us at our Home Office. The Contract will be deemed discontinued on the later of
the Valuation Date you specify or the Valuation Date that the written notice is
received by us.
8.02 We may give you written notice that this Contract is to be discontinued if
the Plan does not qualify for special tax treatment under Sections 401(a),
403(a), 403(b), 414(d) or 457 of the Code. Discontinuance pursuant to this
Section 8.02 will be effective as of a Valuation Date specified by us, provided
you are given at least 15 days advance written notice in which to cure any
remediable defaults. Discontinuance by us supercedes any date established under
Section 8.01.
8.03 As of the date this Contract is discontinued under Section 8.01 and if the
Plan is not subject to ERISA, no further Contributions will be accepted.
However, transfers, withdrawals and loans will continue to be permitted, in
accordance with the terms of this Contract.
8.031 As of the date this Contract is discontinued under Section 8.01 and if the
Plan is subject to ERISA, you may elect to have the Participant's Account Value
remain in this Contract as provided in Section 8.03 or you may elect to have the
Account Value of the Contract paid as follows:
As of the date this Contract is discontinued, no further Contributions,
transfers, withdrawals or loans will be permitted.
100% of the Account Value in the Variable Account will be subject to the CDSC
and will be paid in a cash payment as provided in Section 4.08.
The Account Value in the Fixed Account may be paid in either of the following
payment options:
a. The Account Value in the Fixed Account will be paid in accordance with the
Systematic Transfers or Withdrawals schedule over a 5-year period as provided
in Section 4.03. 100% of each scheduled withdrawal will be subject to the
CDSC. After the initial date, assets remaining in the Fixed Account will
continue to receive interest in the same manner as before systematic
withdrawals began, but at no less than the rate the Fixed Account is earning
on the initial date of the first systematic withdrawal less 1.50%.
b. The Account Value in the Fixed Account will be paid in a lump sum. We will
determine the amount payable in the Fixed Account as follows:
The amount payable will be the market value factor times the Account Value in
the Fixed Account reduced by the sum of CDSC and Account Charge times the
number of Participants. The market value factor is the lesser of 1.00 or the
ratio of:
Current Bond Price
------------------
Par Value of that Bond
We calculate at the time of contract discontinuance the Current Bond Price to
equal the price of a bond:
20
<PAGE>
1. issued with a maturity of 6.5 years;
2. bearing interest at the weighted average of the declared interest rates in
effect as of the discontinuance date;
3. calculated to yield the Merrill Lynch Baa Intermediate Industrial Average
for the week in which the notice of discontinuance is received. If such
average ceases to be published, we will select a comparable survey.
If the amount payable, as determined above, is less than the principal in the
Fixed Account accumulated at an effective annual interest rate of [3.00%],
then the amount payable will be changed to equal the principal accumulated at
an effective annual interest rate of [3.00%]. For purposes of this paragraph,
principal is defined as Contributions allocated to the Fixed Account plus
transfers to the Fixed Account minus withdrawals and transfers from the Fixed
Account and minus any applicable CDSC and Account Charge times the number of
Participants, but no less than zero.
Your election to receive the Fixed Account in a lump sum must be done for the
primary benefit of the Participants. If, subsequent to such lump sum payment,
we are ordered by any court of competent jurisdiction to refund all or any
portion of a loss to Participants, you will reimburse such amounts to us.
8.032 As of the date this Contract is discontinued under Section 8.02, no
further Contributions, transfers, withdrawals or loans will be permitted.
Subject to applicable regulatory requirements, as of the discontinuance date
established under Section 8.02 the Account Value will be paid in accordance with
the provisions of Section 4.07.
8.033 If the Contract is discontinued under Section 8.01 or Section 8.02, we
will send written notice to each Participant's last known address stating that
the Contract is discontinued.
8.04 The Contract will terminate when there is no Account Value remaining under
this Contract.
21
<PAGE>
ARTICLE 9
General Provisions
Section
9.01 This Contract, together with your attached application and any riders or
endorsements, constitutes the entire Contract between you and us.
9.02 We may rely on any action or information provided by you under the terms of
this Contract and will 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.
9.03 Except as allowed by the Plan or applicable law, neither this Contract nor
the Participant's interest in this Contract may be transferred, sold, assigned,
discounted or pledged, either as collateral for a loan or as security for the
performance of an obligation or for any other purpose.
9.04 We may prohibit new Participants under this Contract if we discontinue
offering this Contract form to the public. This is termed deactivation. If we
deactivate this Contract, we will deactivate all contracts of this class issued
to other contractowners. The date of deactivation will be effective as of a
Valuation Date specified by us, provided you are given at least 90 days advanced
written notice. Deactivation will not affect our Account Values established for
Participants under this Contract prior to our notice of deactivation and we will
continue to accept Contributions under this Contract on behalf of those
Participants.
9.05 We have the right to amend this Contract to maintain this Contract under
applicable local, State or Federal laws or regulations.
9.06 You and we may also mutually agree to amend this Contract. The consent of
any Participant, Annuitant or Beneficiary is not required.
9.07 Any change to this Contract must be in writing and signed by the President,
Vice President, Secretary or an Assistant Secretary of Lincoln Life.
9.08 This Contract is subject to the incontestability laws of the state in which
it is delivered.
9.09 We are not liable to provide sufficient funds to provide the Plan's
benefits.
9.10 No suit may be brought in relationship to this Contract unless it is
brought within 3 years after the date on which the suit could have first been
brought. If this limitation is prohibited by the laws of the state by which the
Contract is governed, this limitation shall be deemed to be amended to agree
with the minimum period of limitation permitted by those laws.
9.11 The failure on our part to perform or insist upon the strict performance of
any provision or condition of the Contract will neither constitute a waiver of
our rights to perform or require performance of such provision or condition, nor
stop us from exercising any other rights it may have in such provision,
condition, or otherwise in this Contract or any Plan.
9.12 If any provision of this Contract is determined to be invalid, the
remainder of the provisions shall remain in full force and effect.
9.13 Federal, state or local government premium tax, if applicable, will be
deducted from either
22
<PAGE>
the Contribution when received or at time of withdrawal or annuitization.
9.14 A Participant will receive an Active Life Certificate upon our receipt of a
duly completed participation enrollment form, except if this Contract is used to
fund a 457 plan. If the Participant chooses not to participate under this
Contract, he/she may exercise a free-look right by sending a written notice to
us that he/she does not wish to participate under this Contract within 20 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/her free-look right in accordance with the
foregoing procedure, we will refund the value of any Contributions allocated to
the Variable Account and/or any Contribution allocated to the Fixed Account.
9.15 If you have any questions concerning this Contract, please contact your
Lincoln Life representative or our Servicing Office at [800-341-0441].
9.16 Any notice required by this Contract must be delivered to us at our
Servicing Office: [The Lincoln National Life Insurance Company, P.O. Box 9740,
Portland, Maine 04104-5001] and notices to you will be delivered to you at the
address shown on our records.
23
<PAGE>
ARTICLE 10
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYOUT OPTION
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- ------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- ------------------------------------------------------------------------
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
55 $5.15 $5.12 $5.02 $5.04
56 5.22 5.19 5.07 5.10
57 5.29 5.25 5.12 5.16
58 5.37 5.32 5.18 5.22
59 5.45 5.40 5.24 5.29
60 5.54 5.48 5.29 5.36
61 5.63 5.56 5.35 5.43
62 5.73 5.65 5.42 5.51
63 5.84 5.75 5.48 5.59
64 5.95 5.85 5.54 5.68
65 6.07 5.96 5.60 5.78
66 6.21 6.07 5.67 5.88
67 6.35 6.19 5.73 5.98
68 6.50 6.32 5.79 6.09
69 6.66 6.45 5.85 6.21
70 6.84 6.60 5.91 6.34
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- ------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Thirds Survivor
- ------------------------------------------------------------------------
Certain Period Certain Period
- ------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$4.82 $4.82 $4.81 55 $5.16 $5.13 $5.03
4.87 4.87 4.85 56 5.23 5.19 5.08
4.92 4.92 4.90 57 5.30 5.26 5.13
4.98 4.98 4.96 58 5.38 5.33 5.18
5.04 5.04 5.01 59 5.46 5.41 5.24
5.11 5.10 5.07 60 5.54 5.49 5.30
5.18 5.17 5.13 61 5.64 5.57 5.36
5.25 5.25 5.19 62 5.74 5.66 5.42
5.33 5.32 5.26 63 5.84 5.75 5.48
5.42 5.41 5.32 64 5.96 5.86 5.54
5.51 5.50 5.39 65 6.08 5.96 5.61
5.60 5.59 5.46 66 6.21 6.07 5.67
5.71 5.70 5.54 67 6.35 6.19 5.73
5.82 5.80 5.61 68 6.50 6.32 5.79
5.95 5.92 5.68 69 6.66 6.45 5.85
6.08 6.05 5.75 70 6.83 6.59 5.91
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Age Adjustment Table
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Before 1920 + 2 1960-1969 - 3
1920-1929 + 1 1970-1979 - 4
1930-1939 0 1980-1989 - 5
1940-1949 - 1 1990-1999 - 6
1950-1959 - 2 ETC. ETC.
</TABLE>
24
<PAGE>
ARTICLE 11
ANNUITY PURCHASE RATES UNDER A FIXED PAYOUT OPTION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- ------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- ------------------------------------------------------------------------
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
55 $4.01 $3.99 $3.91 $3.89
56 4.08 4.06 3.97 3.95
57 4.16 4.13 4.03 4.01
58 4.24 4.21 4.09 4.08
59 4.33 4.29 4.15 4.15
60 4.42 4.38 4.22 4.18
61 4.52 4.47 4.29 4.26
62 4.62 4.56 4.36 4.34
63 4.73 4.66 4.43 4.42
64 4.85 4.77 4.50 4.51
65 4.97 4.89 4.57 4.60
66 5.11 5.01 4.64 4.69
67 5.25 5.13 4.71 4.79
68 5.41 5.27 4.78 4.90
69 5.57 5.41 4.85 5.01
70 5.75 5.56 4.91 5.13
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- ------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Thirds Survivor
- ------------------------------------------------------------------------
Certain Period Certain Period
- ------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$3.69 $3.69 $3.68 55 $4.02 $4.00 $3.91
3.75 3.75 3.73 56 4.09 4.07 3.97
3.81 3.81 3.79 57 4.17 4.14 4.03
3.87 3.87 3.85 58 4.25 4.22 4.09
3.94 3.94 3.91 59 4.33 4.30 4.16
4.01 4.01 3.98 60 4.43 4.38 4.22
4.09 4.08 4.05 61 4.52 4.47 4.29
4.17 4.16 4.12 62 4.63 4.57 4.36
4.25 4.25 4.19 63 4.74 4.67 4.43
4.34 4.34 4.26 64 4.85 4.78 4.50
4.44 4.43 4.34 65 4.98 4.89 4.57
4.54 4.54 4.42 66 5.11 5.01 4.64
4.66 4.64 4.50 67 5.26 5.13 4.71
4.77 4.76 4.58 68 5.41 5.27 4.78
4.90 4.88 4.66 69 5.57 5.41 4.85
5.04 5.01 4.74 70 5.75 5.55 4.91
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Age Adjustment Table
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Before 1920 + 2 1960-1969 - 3
1920-1929 + 1 1970-1979 - 4
1930-1939 0 1980-1989 - 5
1940-1949 - 1 1990-1999 - 6
1950-1959 - 2 ETC. ETC.
</TABLE>
25
<PAGE>
Exhibit 4(b)
[LOGO OF LINCOLN NATIONAL LIFE INSURANCE CO. APPEARS HERE]
GROUP ANNUITY CONTRACT
This Contract is issued in consideration of the application of the Contractowner
and of the payment of Contributions as provided in this Contract.
This Contract is delivered in the jurisdiction of and is governed by the laws of
(State/Commonwealth of Contractowner).
Signed for The Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
/s/ Gabriel L. Shaheen /s/ Kathleen Adamson
- ---------------------------- --------------------------------------
Gabriel L. Shaheen, President Kathleen Adamson, Second Vice President
Unallocated
Group Deferred Variable Annuity or Variable and Fixed Annuity
Periodic Premium
Nonparticipating
ALL 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.
<PAGE>
Table of Contents
Article Page
1 Special Terms 5
2 Purpose of Contract 7
3 Funding 8
4 Transfers and Withdrawals 10
5 Annuity Options 13
6 Contract Discontinuance 16
7 General Provisions 17
8 Annuity Purchase Rates Under a Variable Payment Option 19
9 Annuity Purchase Rates Under a Fixed Payment Option 20
2
<PAGE>
Contract Specifications
Contract Number: [Specimen]
Contractowner: [The Trustees of A.B.C. Company Pension Trust]
Effective Date: [May 1, 1999]
Employer: [A.B.C. Company]
Plan: [A.B.C. Company Pension Plan]
VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account Q. Contributions may be
directed to any of the available Subaccounts, subject to limitations. See
Article 3. The amounts allocated to each Subaccount will be invested at net
asset value in the shares of one of the regulated investment companies. The
Subaccounts are:
1. [Equity 500 Index]
2. [Small Cap Index]
3. [Capital Asset]
4. [AVIS International]
5. [AVIS Global Growth]
6. [DGPF Growth & Income]
7. [DGPF Global Bond]
8. [International]
9. [DGPF Trend]
10. [VIP Contrafund]
11. [VIP Growth]
12. [Equity-Income]
13. [Capital Appreciation]
14. [Aspen Worldwide Growth]
15. [Money Market]
16. [Bond]
17. [Managed]
18. [Aggressive Growth]
19. [AMT Partners]
20. [AMT MidCap Growth]
21. [Global Asset Allocation]
22. [Growth & Income]
23. [Social Awareness]
24. [Special Opportunities]
See Article 3 for provisions governing any substitution or elimination of
Subaccounts.
FIXED ACCOUNT GUARANTEED INTEREST RATE: [3.00%] during all years.
LIMITATIONS ON TRANSFERS AND WITHDRAWALS: See Article 4 provisions governing the
limitations on transfers and withdrawals.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE: [1.002%]
[This Contract will be eligible for a lower annual Mortality and Expense Risk
Charge of [0.75%] if on the last calendar day of any calendar quarter the sum of
all the Account Value under this Contract equals or exceeds $5 million. The
lower charge will be implemented on the calendar quarter-end
3
<PAGE>
Valuation Date following the end of the calendar quarter in which the Contract
became eligible for the lower charge.]
[OR]
[This Contract will be eligible for a lower annual Mortality and Expense Risk
Charge of [0.75%] if on the last calendar day of any calendar quarter the sum of
all Account Value under all Contracts issued to [group name] equals or exceeds
$5 million. The lower charge will be implemented on all Contracts issued to
[group name] on the calendar quarter-end Valuation Date following the end of the
calendar quarter in which the Contracts became eligible for the lower charge.]
CONTINGENT DEFERRED SALES CHARGE (CDSC):
Withdrawal During
Contract Year 1 2 3 4 5 6 7 8 9 10+
CDSC (as a [6]% [6]% [6]% [6]% [5]% [4]% [3]% [2]% [1]% [0]%
percentage of
withdrawal amount)
There will be no other CDSC after the Contract has been in force for [9]
complete Contract Years.
4
<PAGE>
ARTICLE 1
Special Terms
Section
1.01 Account Value - Value held under this Contract. The value may be
maintained in either the Fixed Account, the Variable Account or both, depending
on allocations.
1.02 Accumulation Unit - A unit of measure used to calculate the variable
Account Value during the accumulation period.
1.03 Annuitant and Contingent Annuitant - The persons upon whose lives the
Annuity Payouts made after the Annuity Commencement Date will be based.
1.04 Annuity Commencement Date - The Valuation Date when money is withdrawn
for payment of Annuity Payouts under the annuity option selected.
1.05 Annuity Payout - An amount paid at regular intervals under one of several
options available to the Annuitant and/or any other payee. This amount may be
paid on a variable or fixed basis, or a combination of both.
1.06 Annuity Unit - A unit of measure used after the Annuity Commencement Date
to calculate the amount of variable Annuity Payout.
1.07 Beneficiary - The person or entity designated by the Annuitant to receive
a death benefit, if any, payable upon the death of the Annuitant.
1.08 Code - This is the Internal Revenue Code of 1986, as amended.
1.09 Contingent Deferred Sales Charge (CDSC) - This charge is assessed on
certain premature withdrawals of Account Value, calculated according to the
Contract provisions.
1.10 Contract - The agreement between the Contractowner and Lincoln Life
providing a variable annuity to fund the Plan.
1.11 Contractowner (you, your) - The Contractowner named in the Contract
Specifications.
1.12 Contract Year - This is the 12 month period which begins on the effective
date as set forth in the Contract Specifications or on the anniversary of the
effective date.
1.13 ERISA - This is the Employee Retirement Income Security Act of 1974.
1.14 Fixed Account - An account established for this Contract by Lincoln Life
which is a part of the general assets of Lincoln Life.
1.15 Funds - Any of the mutual funds into which Contributions allocated to the
Variable Account are indirectly invested.
1.16 Home Office - The Lincoln National Life Insurance Co., 1300 South Clinton
Street, Fort Wayne, Indiana 46802 or an institution designated by us.
1.17 Lincoln Life (we, us, our) - The Lincoln National Life Insurance Co.
1.18 Net Asset Value Per Share - The value of a Fund or Series share
calculated in accordance with the Fund's or Series' prospectus.
5
<PAGE>
1.19 Participant - A person defined as a Participant in the Plan.
1.20 Pending Allocation Account - This is an account established under the
Variable Account that invests Contributions received without allocation
instructions in shares of a money market mutual fund.
1.21 Plan - The Plan or arrangement named in the Contract Specifications,
which includes any employer based arrangement whether or not considered a plan
under State or Federal law.
1.22 Contributions - Amounts paid into the Contract.
1.23 Series - Any of the underlying portfolios of a Fund in which
Contributions allocated to the Variable Account are indirectly invested.
1.24 Subaccount - That portion of the Variable Account which invests in shares
of a particular Fund or Series. There is a separate Subaccount that corresponds
to each Fund and Series.
1.25 Valuation Date - Each day the New York Stock Exchange (NYSE) is open for
trading and we are open for business.
1.26 Valuation Period - The period commencing at the close of trading on the
NYSE on a Valuation Date and ending at the close of trading on the NYSE on the
next succeeding Valuation Date.
1.27 Variable Account - The segregated investment account into which Lincoln
Life sets aside and invests the variable assets attributable to this variable
annuity Contract.
1.28 Servicing Office - All correspondence and inquiries should be submitted
to our Servicing Office: [P.O. Box 9740, Portland, Maine 04104-5001].
6
<PAGE>
ARTICLE 2
Purpose of Contract
Section
2.01 This is a group annuity Contract. This Contract may be used to fund all
or part of the Plan's obligation to the Participants.
2.02 The provisions of the Plan control the operation of the Plan. The
provisions of the Contract control the operation of the Contract.
2.03 We are not a party to the Plan. The Plan is mentioned merely for
reference purposes. Except for the obligations provided under this Contract, we
have no liability under the Plan. We are under no obligation under or by reason
of issuance of this Contract either (a) to determine whether any payment,
distribution or transfer under this Contract complies with the provisions, terms
and conditions of the Plan or with applicable law, or (b) to administer the
Plan, including without limitation, any provisions required by the Retirement
Equity Act of 1984.
2.04 This Contract can be issued in connection with a Plan which meets the
requirements of Sections 401(a), 403(a), 403(b), 414(d) or 457 of the Code. We
may require evidence of qualification of the Plan.
7
<PAGE>
ARTICLE 3
Funding
Section
3.01 Contributions must be made to us at our Home Office.
3.02 Contributions under this Contract may be allocated to the Variable
Account and/or to the Fixed Account of this Contract in 1% increments.
If complete allocation instructions have not been received by us in order for us
to perform our duties under this Contract, we will direct such Contribution to
the Pending Allocation Account as described in Section 1.20.
We will follow up with you monthly for a period of 90 days for allocation
instructions for the Account Values in the Pending Allocation Account.
Within 2 business days of receipt of complete allocation instructions, the
Account Value in the Pending Allocation Account will be transferred to the
accounts as instructed.
If allocation instructions are not received after the 90 day notice, we will
refund the Contributions in the Pending Allocation Account, together with
earnings thereon (unless applicable ERISA requirements preclude return on
earnings) within 105 days of the date of receipt of the initial Contribution.
The Pending Allocation Account will only be used for the purpose mentioned in
this Section 3.02; you may not direct a portion of your Contributions to this
Subaccount. Contributions directed to the Pending Allocation Account will not be
afforded the same rights as Contributions under this Contract. The following
Articles under this Contract will not be applicable: Article 4-Transfers and
Withdrawals and Article 5-Annuity Options.
3.03 Contributions in any one Contract Year which exceed twice the amount of
Contributions made in the first Contract Year may be made only with our
permission.
3.04 We will credit interest daily on the Account Value in the Fixed Account.
The rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Value in the Fixed Account at an effective annual rate not
less than [3.00%] during all years.
Interest rates for each quarter will be declared and made available reasonably
in advance of that quarter.
Contributions received in any quarter will earn interest at the declared rate
for that quarter [plus [1.00%]] and the next three quarters. When Contributions
are beyond the initial four-quarter period, they will earn interest at the
portfolio rate. The portfolio rate is declared for the coming quarter and is in
effect only for that quarter.
3.05 Contributions may be allocated to a maximum of [10] Subaccounts, or to a
maximum of [9] Subaccounts and the Fixed Account. The Contributions allocated to
each Subaccount will be applied to purchase Accumulation Units at the
Accumulation Unit value next calculated after receipt at our Home Office.
3.06 We reserve the right to eliminate the availability of the shares of any
Fund or Series and substitute the securities of a different investment company
if the shares of a Fund or Series are no longer available for investment, or, if
in our judgment, any Fund or Series should become
8
<PAGE>
inappropriate in view of the purposes of this Contract. We may add a Subaccount
investing in a new Fund or Series. We will give you written notice of
elimination or substitution of any Fund or Series no later than 15 days after
the substitution occurs. Any such eliminations, substitutions or additions will
be subject to compliance with any applicable regulatory requirements.
3.07 We will use each Contribution allocated to the Variable Account to buy
Accumulation Units in the Subaccount(s) selected by you. The number of
Accumulation Units bought will be determined by dividing the amount directed to
the Subaccount by the dollar value of an Accumulation Unit in that Subaccount as
of the end of the Valuation Period during which the Contribution is received at
our Home Office. The number of Accumulation Units held for the Variable Account
by you will not be changed by any change in the dollar value of Accumulation
Units in any Subaccount.
3.08 The value of a Subaccount on any Valuation Date is the number of
Accumulation Units in the Subaccount multiplied by the value of an Accumulation
Unit of the Subaccount at the end of the Valuation Period.
3.09 Contributions allocated to the Variable Account are converted into
Accumulation Units. The number of Accumulation Units resulting from each
Contribution is equal to the Contribution divided by the value of an
Accumulation Unit for the Valuation Period during which the Contribution is
allocated to the Variable Account. The Accumulation Unit value for each
Subaccount was or will be arbitrarily established at the inception of the
Subaccount. It may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Subaccount for any later Valuation
Period is determined as follows:
1. The total value of Fund or Series shares held in the Subaccount is calculated
by multiplying the number of Fund or Series shares owned by the Subaccount at
the beginning of the Valuation Period by the Net Asset Value Per Share of the
Fund or Series at the end of the Valuation Period, and adding any dividend or
other distribution of the Fund or Series if an ex-dividend date occurs during
the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period; such
liabilities include daily charges imposed on the Subaccount, and may include
a charge or credit with respect to any taxes paid or reserved for by us that
we determine result from the operations of the Variable Account; and
3. The result of 2. is divided by the outstanding number of Accumulation Units
in the Subaccount at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to
the mortality and expense risk charge for the number of calendar days in the
Valuation Period.
3.10 The assets of the Variable Account equal to its reserve and other
liabilities will not be charged with the liabilities arising from any other part
of our business.
3.11 The Accumulation Unit value may increase or decrease the dollar value of
benefits under the Contract.
3.12 At least once during each Contract Year, we will provide a report of the
Account Value.
9
<PAGE>
ARTICLE 4
Transfers and Withdrawals
Section
4.01 You may direct a transfer of funds from one Subaccount to another
Subaccount or to the Fixed Account. You may direct a transfer of Account Value
from the Fixed Account to one or more Subaccounts of the Variable Account,
subject to the limitations described in Section 4.03. A transfer request may be
in writing, or by telephone provided we have received the appropriate
authorization from you. Amounts transferred to the Subaccount(s) will purchase
Accumulation Units as described in Section 3.07.
There may not be more than one transfer in any 30 day period. We reserve the
right to further limit the number of transfers.
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
Transfers after the Annuity Commencement Date will be subject to the provisions
of Section 5.10.
4.02 A transfer among Subaccounts will result in the purchase of Accumulation
Units in one Subaccount and the redemption of Accumulation Units in the other
Subaccount. Such a transfer will be effected at Accumulation Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of the Accumulation Units is
described in Section 3.08.
4.03 Subject to the following limitations, Account Value held in the Fixed
Account may be transferred to any Subaccount or may be withdrawn from this
Contract. A withdrawal for any reason not stated in Section 4.05 will be subject
to this Section.
. Periodic Elective Transfers or Withdrawals - The cumulative percentage limit
available under this paragraph for transfer or withdrawal is 20% in any 365 day
period. The cumulative percentage is the sum of all transfers and withdrawals
under this Section in the preceding 364 day period plus the amount to be
transferred or withdrawn under this Section, divided by the then current Account
Value in the Fixed Account. A cumulative percentage exceeding 20% in any 365 day
period will not be allowed.
. Systematic Transfers or Withdrawals - A scheduled transfer or withdrawal of
the entire Account Value in the Fixed Account may be elected over a 5 year
period. The timing and percentage of each transfer or withdrawal is indicated in
the following schedule.
Transaction dates Percentage eligible for transfer or withdrawal
Initial date 20% of the balance on such date
First anniversary 20% of the balance on such date
Second anniversary 25% of the balance on such date
Third anniversary 33% of the balance on such date
Fourth anniversary 50% of the balance on such date
Fifth anniversary 100% of the balance on such date
If Systematic Transfers or Withdrawals are elected, Periodic Elective
Transfers or Withdrawals will not be available during the period of scheduled
payments. This election may at any time after the initial date be rescinded.
In this event, Periodic Elective Transfers or Withdrawals will not be
available until the 1 year anniversary of the last Systematic Transfer or
Withdrawal made before rescinding the election.
10
<PAGE>
If Systematic Transfers or Withdrawals are elected and a Periodic Elective
Transfer or Withdrawal was made within the last 364 day period, the payment
due on the initial date will be reduced by the sum of any Periodic Elective
Transfers or Withdrawals made within the last 364 day period.
If Systematic Transfers or Withdrawals are elected, no further Contributions
may be allocated to the Fixed Account unless the election is rescinded.
4.04 All withdrawal requests must be submitted in writing to us. Withdrawals
will be effected at Accumulation Unit values calculated at the end of the
Valuation Period during which we receive written request at our Home Office. We
reserve the right to require proof of the event giving rise to any withdrawal
under this Contract.
4.05 Withdrawals of Account Value will be allowed during the life of this
Contract without being subject to CDSC, if the withdrawal is for one of the
following reasons:
. To make a payment due to a Participant's death, disability, retirement or
termination of employment, excluding termination of employment due to Plan
termination, plant shutdown or any other program instituted by the Participant's
employer which would reduce the work force by more than 20%;
. To make a payment for a Participant hardship situation as allowed by the
Plan;
. To make a payment pursuant to a Qualified Domestic Relations Order (QDRO);
. To purchase an annuity option under Article 5.
A withdrawal from the Account Value, for any reason outlined in this Section,
will not be subject to the provisions of Sections 4.03, 4.06 or 4.07.
4.06 Subject to the following limitations and the limitations set forth in
Section 4.03, a partial withdrawal, without being subject to CDSC, of Account
Value may be requested during the Contract Year for any reason other than those
specified in Section 4.05.
The cumulative percentage limit available under this Section for partial
withdrawal, without being subject to the CDSC, is 20% in any Contract Year. The
cumulative percentage is the sum of all withdrawals under this Section during
the Contract Year plus the amount to be withdrawn under this Section divided by
the then current Account Value.
Partial withdrawals under this Section exceeding the 20% cumulative percentage
will be subject to the CDSC.
4.07 If we receive a request for a withdrawal of 100% of the Account Value for
any reason other than those specified in Section 4.05, the Account Value will be
distributed as follows:
. 100% of the Account Value in the Variable Account will be subject to the CDSC
and will be paid in a cash payment as provided in Section 4.08.
. The Account Value in the Fixed Account may be paid in either of the following
payment options:
a. The Account Value in the Fixed Account will be paid in accordance with
the Systematic Transfers or Withdrawals schedule over a 5-year period
as provided in Section 4.03. 100% of each scheduled withdrawal will be
subject to the CDSC. After the initial date, assets remaining in the
Fixed Account will continue to receive interest in the same manner as
before systematic withdrawals began, but at not less than the rate the
Fixed
11
<PAGE>
Account is earning on the initial date of the first systematic withdrawal
less 1.50%.
b. The Account Value in the Fixed Account will be paid in a lump sum. Lincoln
Life will determine the amount payable in the Fixed Account as follows:
The amount payable will be the market value factor times the Account
Value in the Fixed Account reduced by the CDSC. The market value factor is
the lesser of 1.00 or the ratio of:
Current Bond Price
------------------
Par Value of that Bond
Lincoln Life calculates at the time of contract discontinuance the Current
Bond Price to equal the price of a bond:
1. issued with a maturity of 6.5 years;
2. bearing interest at the weighted average of the declared interest rate
in effect as of the discontinuance date;
3. calculated to yield the Merrill Lynch Baa Intermediate Industrial
Average for the week in which the notice of discontinuance is
received. If such average ceases to be published, Lincoln Life will
select a comparable survey.
If the amount payable, as determined above, is less than the principal in
the Fixed Account accumulated at an effective annual interest rate of
[3.00%], then the amount payable will be changed to equal the principal
accumulated at an effective annual interest rate of [3.00%]. For purposes
of this paragraph, principal is defined as Contributions allocated to the
Fixed Account plus transfers to the Fixed Account minus withdrawals and
transfers from the Fixed Account and minus CDSC, if any, but no less than
zero.
Your election to receive the Fixed Account in a lump sum must be done for
the primary benefit of the Participants. If, subsequent to such lump sum
payment, we are ordered by any court of competent jurisdiction to refund
all or any portion of a loss to Participants, you will reimburse such
amounts to us.
4.08 Any cash payment will be mailed from our Home Office within 7 days after
the date of withdrawal; however, we may be permitted to defer payments from the
Variable Account under the Investment Company Act of 1940, as in effect at the
time a request for withdrawal is received. We reserve the right to defer any
payment from the Fixed Account for a period not to exceed 6 months after a
request is received.
12
<PAGE>
ARTICLE 5
Annuity Options
Section
5.01 You may purchase an annuity option for any Participant or Beneficiary.
The annuity option will be purchased using the rates in Article 8 or 9.
5.02 The following annuity options are available:
. Life annuity/life annuity with fixed period - Annuity Payouts will be made
for the life of the Annuitant with no certain period, or with a 10 years certain
period, or with a 20 years certain period. Upon the death of the Annuitant,
Annuity Payouts will continue to the Beneficiary for the remainder, if any, of
the certain period.
. Joint life annuity/joint life annuity with fixed period - Annuity Payouts
will be made for the joint lives of the Annuitant and a Contingent Annuitant of
the Annuitant's choice with no certain period, or with 10 years certain period,
or with a 20 years certain period. Annuity Payouts continue for the life of the
survivor at the death of the Annuitant or Contingent Annuitant. Upon the death
of both Annuitants, Annuity Payouts will continue to a Beneficiary for the
remainder, if any, of the certain period.
. Unit refund life annuity - Annuity Payouts will be made for the life of the
Annuitant with the guarantee that upon the death of the Annuitant a payout to
the Beneficiary will be made of the value of the number of Annuity Units equal
to the excess, if any, of (a) over (b) where (a) is the total amount applied
under the option divided by the Annuity Unit value at the Annuity Commencement
Date and (b) is the product of the number of Annuity Units represented by each
Annuity Payout and the number of Annuity Payouts paid before death.
. Other options may be available as agreed upon in writing by us.
5.03 At the time an annuity option is selected under the provisions of this
Contract, you may specify an Annuity Commencement Date and elect, on behalf of
the Participant, to have the total Account Value applied to provide a variable
Annuity Payout, a fixed Annuity Payout or a combination fixed and variable
Annuity Payout.
The amount of Annuity Payout will depend on the age and sex (except in cases
where unisex rates are required) of the Annuitant as of the Annuity Commencement
Date. A choice may be made to receive payouts once each month, four times each
year, twice each year or once each year. The Account Value and Annuity Unit
value used to effect Annuity Payouts will be calculated as of the Annuity
Commencement Date on the monthly, quarterly, semi-annual or annual anniversary
of the Annuity Commencement Date.
For a 100% fixed Annuity Payout, the Annuity Commencement Date must be at least
30 days before the first Annuity Payout date. For a combination fixed and
variable Annuity Payout or a 100% variable Annuity Payout, the Annuity
Commencement Date will be 14 days before the first Annuity Payout date.
After the Annuity Commencement Date, the Annuity Payout option cannot be
changed.
5.04 Article 8 of this Contract illustrates the minimum Annuity Payout amounts
and the age adjustments which will be used to determine the monthly Annuity
Payouts under a fixed Annuity Payout option. The tables show the dollar amount
of the guaranteed monthly Annuity Payout which can be purchased with each
$1,000.00 of Account Value, after deduction of any applicable premium tax.
Amounts shown use the 1983 'a' Individual Annuity Mortality Table, modified,
with
13
<PAGE>
an assumed interest rate of return of 3.00% per year and a 2.00% expense load.
5.05 Article 9 of this Contract illustrates the minimum Annuity Payout amounts
and the age adjustments which will be used to determine the first monthly
Annuity Payout under a variable Annuity Payout option. The tables show the
dollar amount of the first monthly Annuity Payout which can be purchased with
each $1,000.00 of Account Value, after deduction of any applicable premium
taxes. Amounts shown use the 1983 'a' Individual Annuity Mortality Table,
modified, with an assumed interest rate of return of 5.00% per year and a 2.50%
expense load.
5.06 To determine the amount of the variable Annuity Payouts after the first
payout, the first variable Annuity Payout is subdivided into components each of
which represents the product of: (a) the percentage elected by you on behalf of
the Participant of a specific Subaccount, the performance of which will
determine future variable Annuity Payouts, and (b) the entire first variable
Annuity Payout. Each variable Annuity Payout after the first payout attributable
to a specific Subaccount will be determined by multiplying the Annuity Unit
value for that Subaccount on the monthly, quarterly, semi-annual or annual
anniversary of the Annuity Commencement Date by the number of Annuity Units
attributable to that Subaccount. The number of Annuity Units for each specific
Subaccount is determined by dividing the component of the first payout
attributable to that Subaccount as described previously by the Annuity Unit
value for that Subaccount on the Annuity Commencement Date. The total variable
Annuity Payout will be the sum of the payouts attributable to each Subaccount.
5.07 The Annuity Unit value for any Valuation Period for any Subaccount is
determined by multiplying the Annuity Unit value for the immediately preceding
Valuation Period by the product of (a) 0.999866337 raised to a power equal to
the number of days in the current Valuation Period and (b) is the Accumulation
Unit value of the same Subaccount for this Valuation Period divided by the
Accumulation Unit value of the same Subaccount for the immediately preceding
Valuation Period.
5.08 The valuation of all assets in the Subaccount will be determined in
accordance with the provisions of applicable laws, rules and regulations. The
method of determination by us of the value of an Accumulation Unit and of an
Annuity Unit will be conclusive upon the Participant and any recipient of a
death benefit, if any.
5.09 We guarantee that the dollar amount of each installment after the first
will not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
5.10 After the Annuity Commencement Date, if any portion of the Annuity Payout
is a variable Annuity Payout, the Participant may direct a transfer of assets
from one Subaccount to another Subaccount or to a fixed Annuity Payout. These
transfers will be limited to 3 times per Contract Year. A fixed Annuity Payout
may not be changed to a variable Annuity Payout.
A transfer from one Subaccount to another Subaccount will result in the purchase
of Annuity Units in one Subaccount, and the redemption of Annuity Units in the
other Subaccount. Such a transfer will be effected at Annuity Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of Annuity Units is described in
Section 3.08. A transfer from one Subaccount to a fixed Annuity Payout will
result in the redemption of Annuity Units in one Subaccount and the purchase of
a fixed Annuity Payout.
5.11 If the annuity option chosen results in Annuity Payouts of less than
$50.00 per month, the frequency will be changed so that Annuity Payouts will be
at least $50.00.
5.12 A certificate will be issued to the Annuitant showing the amount and
terms of the purchased annuity.
5.13 No annuity option may be assigned or attached, except, if applicable,
those benefits assigned or attached by a Qualified Domestic Relations Order
under Section 414(p) of the Code, or pursuant
14
<PAGE>
to a Federal Tax Levy under Section 6331 of the Code.
5.14 If we receive proof that a person receiving Annuity Payouts under this
Contract is legally or mentally incompetent, the Annuity Payouts may be made to
any person deemed a legal representative by a court of competent jurisdiction.
5.15 We will require satisfactory proof of each Annuitant's age. If it is
later proven to us that the Annuitant's age has been misstated, the Annuity
Payouts will be adjusted. Any underpayouts already made by us will be made up
immediately and any overpayouts already made by us will be charged against the
Annuity Payouts falling due after the adjustment.
5.16 The Annuitant may name the Beneficiary or Contingent Annuitant for any
purchased annuity option. The Annuitant may change the Beneficiary at any time
without the consent of the previous Beneficiary unless the previous designation
provides otherwise. However, if the Annuitant is married, the Annuitant's spouse
must agree in writing to another person being named Beneficiary or Contingent
Annuitant. The change is effective when written notice is received by us. The
annuity option or the Contingent Annuitant may not be changed. The Beneficiary
or the Contingent Annuitant does not have the right to name the Beneficiary.
5.17 If the Annuitant dies and there is no named Beneficiary living at the
time of the Annuitant's death, the Annuitant's estate will be paid any remaining
guaranteed Annuity Payouts, under a period certain annuity option, in one lump
sum. If the named Beneficiary is receiving guaranteed Annuity Payouts and dies,
the remaining Annuity Payouts will be paid in one lump sum to the contingent
Beneficiary if living at the time of the Beneficiary's death. Payment will
otherwise be made to the Beneficiary's estate. Lump sum Annuity Payouts will
equal the discounted guaranteed payouts at the interest rate then being credited
under Section 3.04, compounded annually.
5.18 We may, at any time, require proof that any payee under this Contract is
living when payout is contingent upon survival of that payee.
15
<PAGE>
ARTICLE 6
Contract Discontinuance
Section
6.01 You may discontinue this Contract at any time by giving written notice to
us at our Home Office. The Contract will be deemed discontinued on the later of
the Valuation Date you specify or the Valuation Date that the written notice is
received by us.
6.02 We may give you written notice that this Contract is to be discontinued
if the Plan does not qualify for special tax treatment under Sections 401(a),
403(a), 403(b), 414(d) or 457 of the Code. Discontinuance pursuant to this
Section 6.02 will be effective as of a Valuation Date specified by us, provided
you are given at least 15 days advance written notice in which to cure any
remediable defaults. Discontinuance by us supercedes any date established under
Section 6.01.
6.03 As of the date this Contract is discontinued under either Section 6.01 or
Section 6.02 above, no additional Contributions, transfers or withdrawals will
be permitted except as provided in this Article.
6.04 Subject to applicable regulatory requirements, as of the discontinuance
date the Account Value will be paid in accordance with the provisions of Section
4.07.
6.05 All payments will be made by check or by Federal wire, if we receive
adequate information to institute the wire, to a Plan trustee or a financial
institution as specified by you. We may rely on your notice to transfer funds to
a specified party. We do not need to verify that the specified party has the
right to receive any payments.
6.06 The Contract will terminate when there is no Account Value remaining
under this Contract.
16
<PAGE>
ARTICLE 7
General Provisions
Section
7.01 This Contract, together with your attached application and any riders or
endorsements, constitutes the entire Contract between you and us.
7.02 We may rely on any action or information provided by you under the terms
of this Contract and will 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.
7.03 Except as allowed by the Plan or applicable law, neither this Contract
nor the Participant's interest in this Contract may be transferred, sold,
assigned, discounted or pledged, either as collateral for a loan or as security
for the performance of an obligation or for any other purpose.
7.04 We may prohibit new Participants under this Contract if we discontinue
offering this Contract form to the public. This is termed deactivation. If we
deactivate this Contract, we will deactivate all contracts of this class issued
to other contractowners. The date of deactivation will be effective as of a
Valuation Date specified by us, provided you are given at least 90 days advanced
written notice. For purposes of this Section 7.04 new Participants will mean any
Participant whose Plan contributions you were not remitting to this Contract
prior to our notice of deactivation.
7.05 We have the right to amend this Contract to maintain this Contract under
applicable local, State or Federal laws or regulations.
7.06 We and you may also mutually agree to amend this Contract. The consent of
any Participant, Annuitant or Beneficiary is not required.
7.07 Any change to this Contract must be in writing and signed by the
President, Vice President, Secretary or an Assistant Secretary of Lincoln Life.
7.08 This Contract is subject to the incontestability laws of the state in
which it is delivered.
7.09 We are not liable to provide sufficient funds to provide the Plan's
benefits.
7.10 No suit may be brought in relationship to this Contract unless it is
brought within 3 years after the date on which the suit could have first been
brought. If this limitation is prohibited by the laws of the state by which the
Contract is governed, this limitation shall be deemed to be amended to agree
with the minimum period of limitation permitted by those laws.
7.11 The failure on our part to perform or insist upon the strict performance
of any provision or condition of the Contract will neither constitute a waiver
of our rights to perform or require performance of such provision or condition,
nor stop us from exercising any other rights it may have in such provision,
condition, or otherwise in this Contract or any Plan.
7.12 If any provision of this Contract is determined to be invalid, the
remainder of the provisions shall remain in full force and effect.
7.13 Federal, state or local government premium tax, if applicable, will be
deducted from either the Contribution when received or at time of withdrawal or
annuitization.
7.14 If you have any questions concerning this Contract, please contact your
Lincoln Life representative or our Servicing Office at [(800) 341-0441].
17
<PAGE>
7.15 Any notice required by this Contract must be delivered to us at our
Servicing Office: [The Lincoln National Life Insurance Company, P.O. Box 9740,
Portland, Maine 04104-5001]; and notices to you will be delivered to you at the
address shown on our records.
18
<PAGE>
ARTICLE 8
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYOUT OPTION
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- ------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- ------------------------------------------------------------------------
55 $ 5.15 $ 5.12 $ 5.02 $ 5.04
56 5.22 5.19 5.07 5.10
57 5.29 5.25 5.12 5.16
58 5.37 5.32 5.18 5.22
59 5.45 5.40 5.24 5.29
60 5.54 5.48 5.29 5.36
61 5.63 5.56 5.35 5.43
62 5.73 5.65 5.42 5.51
63 5.84 5.75 5.48 5.59
64 5.95 5.85 5.54 5.68
65 6.07 5.96 5.60 5.78
66 6.21 6.07 5.67 5.88
67 6.35 6.19 5.73 5.98
68 6.50 6.32 5.79 6.09
69 6.66 6.45 5.85 6.21
70 6.84 6.60 5.91 6.34
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- ------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Thirds Survivor
- ------------------------------------------------------------------------
Certain Period Certain Period
- ------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$4.82 $4.82 $4.81 55 $5.16 $5.13 $5.03
4.87 4.87 4.85 56 5.23 5.19 5.08
4.92 4.92 4.90 57 5.30 5.26 5.13
4.98 4.98 4.96 58 5.38 5.33 5.18
5.04 5.04 5.01 59 5.46 5.41 5.24
5.11 5.10 5.07 60 5.54 5.49 5.30
5.18 5.17 5.13 61 5.64 5.57 5.36
5.25 5.25 5.19 62 5.74 5.66 5.42
5.33 5.32 5.26 63 5.84 5.75 5.48
5.42 5.41 5.32 64 5.96 5.86 5.54
5.51 5.50 5.39 65 6.08 5.96 5.61
5.60 5.59 5.46 66 6.21 6.07 5.67
5.71 5.70 5.54 67 6.35 6.19 5.73
5.82 5.80 5.61 68 6.50 6.32 5.79
5.95 5.92 5.68 69 6.66 6.45 5.85
6.08 6.05 5.75 70 6.83 6.59 5.91
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Age Adjustment Table
<S> <C> <C> <C>
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ---------------------- ----------------- ------------- -----------------
Before 1920 + 2 1960-1969 - 3
1920-1929 + 1 1970-1979 - 4
1930-1939 0 1980-1989 - 5
1940-1949 - 1 1990-1999 - 6
1950-1959 - 2 ETC. ETC.
</TABLE>
19
<PAGE>
ARTICLE 9
ANNUITY PURCHASE RATES UNDER A FIXED PAYOUT OPTION
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- ------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- ------------------------------------------------------------------------
55 $4.01 $ 3.99 $ 3.91 $ 3.89
56 4.08 4.06 3.97 3.95
57 4.16 4.13 4.03 4.01
58 4.24 4.21 4.09 4.08
59 4.33 4.29 4.15 4.15
60 4.42 4.38 4.22 4.18
61 4.52 4.47 4.29 4.26
62 4.62 4.56 4.36 4.34
63 4.73 4.66 4.43 4.42
64 4.85 4.77 4.50 4.51
65 4.97 4.89 4.57 4.60
66 5.11 5.01 4.64 4.69
67 5.25 5.13 4.71 4.79
68 5.41 5.27 4.78 4.90
69 5.57 5.41 4.85 5.01
70 5.75 5.56 4.91 5.13
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- ------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Thirds Survivor
- ------------------------------------------------------------------------
Certain Period Certain Period
- ------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.69 $ 3.69 $3.68 55 $ 4.02 $ 4.00 $ 3.91
3.75 3.75 3.73 56 4.09 4.07 3.97
3.81 3.81 3.79 57 4.17 4.14 4.03
3.87 3.87 3.85 58 4.25 4.22 4.09
3.94 3.94 3.91 59 4.33 4.30 4.16
4.01 4.01 3.98 60 4.43 4.38 4.22
4.09 4.08 4.05 61 4.52 4.47 4.29
4.17 4.16 4.12 62 4.63 4.57 4.36
4.25 4.25 4.19 63 4.74 4.67 4.43
4.34 4.34 4.26 64 4.85 4.78 4.50
4.44 4.43 4.34 65 4.98 4.89 4.57
4.54 4.54 4.42 66 5.11 5.01 4.64
4.66 4.64 4.50 67 5.26 5.13 4.71
4.77 4.76 4.58 68 5.41 5.27 4.78
4.90 4.88 4.66 69 5.57 5.41 4.85
5.04 5.01 4.74 70 5.75 5.55 4.91
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Age Adjustment Table
<S> <C> <C> <C>
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ---------------------- ----------------- ------------- -----------------
Before 1920 + 2 1960-1969 - 3
1920-1929 + 1 1970-1979 - 4
1930-1939 0 1980-1989 - 5
1940-1949 - 1 1990-1999 - 6
1950-1959 - 2 ETC. ETC.
</TABLE>
20
<PAGE>
[LOGO OF LINCOLN NATIONAL LIFE INSURANCE CO.]
A part of LINCOLN NATIONAL CORPORATION
1300 South Clinton Street, Fort Wayne, Indiana 46802
ACTIVE LIFE CERTIFICATE
Contractowner: [The Trustees of A.B.C. Company Pension Trust]
Group Annuity Contract Number: [Specimen]
Contract Effective Date: [August 1, 1998]
Employer: [A.B.C. Company]
Plan: [A.B.C. Company Pension Plan]
Lincoln Life will provide you with the benefits described in this certificate,
under the terms of the Group Annuity Contract. Your benefits described in this
certificate may be subject to Contractowner 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 Contractowner and Lincoln Life. This certificate
replaces any certificates previously issued to you as a Participant regarding
this Contract.
20 DAY RIGHT TO EXAMINE THIS CERTIFICATE - You may choose not to participate in
this Contract within 20 days of receiving this certificate. You must return this
certificate to Lincoln Life and state in writing that you do 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 the value of any Contributions allocated to the Variable
Account and/or the Fixed Account.
PROVIDED BY THIS ALL VALUES CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF
A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
<PAGE>
CERTIFICATE SPECIFICATIONS
- --------------------------
VARIABLE ACCOUNT:
Lincoln Life Variable Annuity Account Q. Contributions may be directed to any of
the available Subaccounts, subject to limitations. See VARIABLE ACCOUNT. The
amounts allocated to each Subaccount will be invested at net asset value in the
shares of one of the regulated investment companies. The Subaccounts are:
1. [Equity 500 Index]
2. [Small Cap Index]
3. [Capital Asset]
4. [AVIS International]
5. [AVIS Global Growth]
6. [DGPF Growth & Income]
7. [DGPF Global Bond]
8. [International]
9. [DGPF Trend]
10. [VIP Contrafund]
11. [VIP Growth]
12. [Equity-Income]
13. [Capital Appreciation]
14. [Aspen Worldwide Growth]
15. [Money Market]
16. [Bond]
17. [Managed]
18. [Aggressive Growth]
19. [AMT Partners]
20. [AMT MidCap Growth]
21. [Global Asset Allocation]
22. [Growth & Income]
23. [Social Awareness]
24. [Special Opportunities]
See the VARIABLE ACCOUNT provision of this certificate for provisions governing
any substitution or elimination of Subaccounts.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE: [1.002%]
This charge is applicable to the Subaccounts under the Variable Account.
FIXED ACCOUNT GUARANTEED INTEREST RATE: [3.00%]
ANNUAL ACCOUNT CHARGE: [$25.00]
On the last day of the Participant Year, the Account Charge will be deducted
from the Account Value. Such amount will be deducted from the Account Value on a
pro rata basis based on the balances held on such date in the Fixed Account and
Variable Account. The full account charge will be deducted upon withdrawal of
the entire Account Value.
2
<PAGE>
CONTINGENT DEFERRED SALES CHARGE (CDSC):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal During
Contract Year 1 2 3 4 5 6 7 8 9 10+
CDSC (as a [6%] [6%] [6%] [6%] [5%] [4%] [3%] [2%] [1%] [0%]
percentage of
withdrawal amount)
</TABLE>
There will be no CDSC after the Contract has been in force for [9] complete
Contract Years.
LIMITATIONS ON TRANSFERS AND WITHDRAWALS:
a) A transfer of funds may be directed from one Subaccount to another Subaccount
or to the Fixed Account.
b) A transfer from the Fixed Account or a withdrawal from the Fixed Account for
any reason not specified in (e) will be subject to the following limitations:
Periodic Elective Transfers or Withdrawals - The cumulative percentage limit
available under this paragraph (b) for a transfer or withdrawal is 20% in any
365 day period. The cumulative percentage is the sum of all transfers and
withdrawals under this paragraph (b), in the preceding 364 day period plus
the amount to be transferred or withdrawn under this paragraph (b), divided
by the then current Account Value in the Fixed Account. A cumulative
percentage exceeding 20% in any 365 day period will not be allowed.
Systematic Transfers or Withdrawals - A scheduled transfer or withdrawal of
the entire Account Value in the Fixed Account may be elected over a 5 year
period. The timing and percentage of each transfer or withdrawal is indicated
in the following schedule.
Transaction dates Percentage eligible for transfer or withdrawal
Initial date 20% of the balance on such date.
First Anniversary 20% of the balance on such date.
Second Anniversary 25% of the balance on such date.
Third Anniversary 33% of the balance on such date.
Fourth Anniversary 50% of the balance on such date.
Fifth Anniversary 100% of the balance on such date.
If Systematic Transfers or Withdrawals are elected, Periodic Elective
Transfers or Withdrawals will not be available during the period of scheduled
payments. This election may at any time after the initial date be rescinded.
In this event, Periodic Elective Transfers or Withdrawals will not be
available until the 1 year anniversary of the last Systematic Transfer or
Withdrawal made before rescinding the election.
If Systematic Transfers or Withdrawals are elected and a Periodic Elective
Transfer or Withdrawal was made within the last 364 day period, the payment
due on the initial date will be reduced by the sum of any Periodic Elective
Transfer or Withdrawal made within the last 364 day period.
If Systematic Transfers or Withdrawals are elected, no further Contributions
may be allocated to the Account Value in the Fixed Account unless the
election is rescinded.
c) Subject to the following provisions and the limitations set forth in
paragraph (b), a partial
3
<PAGE>
withdrawal, without being subject to CDSC, of the Account Value may be
requested during the Contract Year for any reason other than those specified
in paragraph (e).
The cumulative percentage limit available under this paragraph (c) for
partial withdrawal, without being subject to the CDSC, is 20% in any Contract
Year. The cumulative percentage is the sum of all withdrawals under this
paragraph (c) during the Contract Year plus the amount to be withdrawn under
this paragraph (c) divided by the then current Account Value.
Partial withdrawals under this paragraph (c) exceeding the 20% cumulative
percentage will be subject to the CDSC.
d) If you request 100% of the Account Value for any reason other than those
specified in paragraph (e), the Account Value will be distributed as follows:
* 100% of the Account Value in the Variable Account will be subject to the
CDSC and will be paid in a cash payment as provided in the WITHDRAWAL
provision of this certificate.
* The Account Value in the Fixed Account will be paid in accordance with the
Systematic Withdrawal Schedule over a 5 year period as provided in
paragraph (b) of this certificate. 100% of each scheduled withdrawal will
be subject to the CDSC.
e) Withdrawals of Account Value will be allowed during the life of the Contract
without being subject to CDSC, if the withdrawal is for one of the following
reasons:
* Participant's death, disability, retirement or termination of employment,
excluding termination of employment due to Plan termination, plant
shutdown, or any other program instituted by the Participant's employer
which would reduce the work force by more than 20%.
* Participant hardship situation as allowed by the Plan.
* To purchase an annuity option under the Contract on behalf of the
Participant or their Beneficiary.
* Pursuant to a Qualified Domestic Relations Order (QDRO).
A withdrawal from the Account Value for any reason outlined in this paragraph
(e) is not subject to the provisions of paragraph (b), (c) or (d).
LOAN SET-UP CHARGE: [$35.00]
4
<PAGE>
SPECIAL TERMS
- -------------
Account Value - Value maintained under the Contract on your behalf. The value
may be maintained in either the Fixed Account, the Variable Account or both,
depending on allocations.
Accumulation Unit - A unit of measure used to calculate the variable Account
Value during the accumulation period.
Annuitant and Contingent Annuitant - The persons upon whose lives the Annuity
Payouts made after the Annuity Commencement Date will be based.
Annuity Commencement Date - The Valuation Date when money is withdrawn for
payment of Annuity Payouts under the annuity option selected.
Annuity Payout - An amount paid at regular intervals under one of several
options available to the Annuitant and/or any other payee. This amount may be
paid on a variable or fixed basis, or a combination of both.
Beneficiary - The person or entity designated by a Participant under a 403(b)
Plan that is not subject to ERISA or an Annuitant to receive a death benefit, if
any, payable upon the death of the Participant or the Annuitant.
Code - This is the Internal Revenue Code of 1986, as amended.
Contingent Deferred Sales Charge (CDSC) - This charge is assessed on certain
premature withdrawals of the Account Value, calculated according to the Contract
provisions.
Contract - The agreement between the Contractowner and Lincoln Life providing a
variable annuity to fund the Plan.
Contractowner - The Contractowner named on the cover of this certificate.
Contract Year - This is the 12 month period which begins on the Contract
effective date or on the anniversary of the effective date.
Contributions - Amounts paid into the Contract to purchase an annuity.
December 31, 1988 Grandfathered Balance - This is the balance that is available
for withdrawal, under a 403(b) plan, without meeting an otherwise distributable
event such as death, disability, termination of employment or attainment of age
59 1/2.
ERISA - This is the Employee Retirement Income Security Act of 1974.
Fixed Account - An account established for the Contract by Lincoln Life which is
a part of the general assets of Lincoln Life.
Funds - Any of the mutual funds into which Contributions allocated to the
Variable Account are indirectly invested.
Home Office - The Lincoln National Life Insurance Co., 1300 South Clinton
Street, Fort Wayne, Indiana 46802 or an institution designated by us.
Lincoln Life (we, us, our) - The Lincoln National Life Insurance Co.
5
<PAGE>
Net Asset Value Per Share - The value of a Fund or Series share calculated in
accordance with the Fund's or Series' prospectus.
Participant (you, your) - A person defined as a Participant in the Plan, who has
enrolled under the Contract and Lincoln Life maintains an Account Value.
Participant Year - This is the 12 month period, which begins on the date that we
receive the first Contribution on behalf of that Participant under this Contract
and on each 1 year anniversary, thereafter.
Pending Allocation Account - This is an account established under the Variable
Account that invests Contributions received without allocation instructions in
shares of a money market mutual fund.
Plan - The Plan or arrangement named on the cover of this certificate, which
includes any employer based arrangement whether or not considered a plan under
State or Federal law.
Series - Any of the underlying portfolios of a Fund in which Contributions
allocated to the Variable Account are indirectly invested.
Servicing Office - All correspondence and inquiries should be submitted to our
Servicing Office: [P.O. Box 9740, Portland, Maine 04104-5001].
Subaccount - That portion of the Variable Account which invests in shares of a
particular Fund or Series. There is a separate Subaccount that corresponds to
each Fund and Series.
Valuation Date - Each day the New York Stock Exchange (NYSE) is open for trading
and we are open for business.
Valuation Period - The period commencing at the close of trading on the NYSE on
a Valuation Date and ending at the close of trading on the NYSE on the next
succeeding Valuation Date.
Variable Account - The segregated investment account into which Lincoln Life
sets aside and invests the variable assets attributable to this variable annuity
Contract.
PURCHASE PAYMENTS
- -----------------
Contributions under the Contract may be allocated to the Variable Account and/or
the Fixed Account in 1% increments.
If complete allocation instructions have not been received by us in order for us
to perform our duties under the Contract, we will direct such Contributions to
the Pending Allocation Account as described in the SPECIAL TERMS.
We will follow up with the Contractowner monthly for a period of 90 days for
allocation instructions for Account Value in the Pending Allocation Account as
described in the SPECIAL TERMS.
Within 2 business days of receipt of complete allocation instructions, the
Account Value in the Pending Allocation Account will be transferred to the
accounts as instructed.
If allocation instructions are not received after the 90 days notice, we will
refund to the Contractowner, the Contributions in the Pending Allocation Account
together with earnings thereon
6
<PAGE>
(unless applicable ERISA requirements preclude return on earnings) within 105
days of the date of receipt of the initial Contribution.
The Pending Allocation Account will only be used for the purpose mentioned in
this section; you or the Contractowner may not direct a portion of Contributions
to this Subaccount. Contributions directed to the Pending Allocation Account
will not be afforded the same rights as Contributions under the Contract. The
following provisions under this certificate will not be applicable: the Account
Charge described in the CERTIFICATE SPECIFICATIONS, TRANSFERS, WITHDRAWALS,
ANNUITY OPTIONS and LOAN.
Contributions in any one Contract Year, which exceed twice the amount of
Contributions made in the first Contract Year may be made only with our
permission. If Contributions are stopped, the Account Value will remain in force
as paid-up. Contributions may resume at any time until the Annuity Commencement
Date, a request to withdraw the entire Account Value or payment of any death
benefit, whichever comes first.
FIXED ACCOUNT
- -------------
Interest will be credited daily on the Account Value in the Fixed Account. The
rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Value in the Fixed Account at an effective annual rate not
less than the rate shown in the CERTIFICATE SPECIFICATIONS, during all years.
Interest rates for each quarter will be declared and made available reasonably
in advance of that quarter.
Contributions received in any quarter will earn interest at the declared rate
for that quarter [plus [1.00%]] and the next three quarters. When Contributions
are beyond the initial four-quarter period, they will earn interest at the
portfolio rate. The portfolio rate is declared for the coming quarter and is in
effect only for that quarter. Interest rates applicable to contract loan
principal are declared for the coming quarter and are in effect only for that
quarter.
VARIABLE ACCOUNT
- ----------------
Contributions may be allocated to a maximum of [10] Subaccounts, or to a maximum
of [9] Subaccounts and the Fixed Account. The Contributions allocated to each
Subaccount will be applied to purchase Accumulation Units at the Accumulation
Unit value next calculated after receipt at our Home Office.
We reserve the right to eliminate the availability of the shares of any Fund or
Series and substitute the securities of a different investment company if the
shares of a Fund or Series are no longer available for investment, or, if in our
judgement, any Fund or Series should become inappropriate in view of the
purposes of the Contract. We may add a Subaccount investing in a new Fund or
Series. We will give the Contractowner written notice of the elimination or
substitution of any Fund or Series no later than 15 days after the substitution
occurs. Any such eliminations, substitutions or additions will be subject to
compliance with any applicable regulatory requirements.
We will use each Contribution allocated to the Variable Account to buy
Accumulation Units in the Subaccount(s) selected by you. The number of
Accumulation Units bought will be determined by dividing the amount directed to
the Subaccount by the dollar value of an Accumulation Unit in that Subaccount as
of the end of the Valuation Period during which the Contribution is received at
our Home Office. The number of Accumulation Units held for the Variable Account
will not be changed by any change in the dollar value of Accumulation Units in
any Subaccount.
7
<PAGE>
The value of a Subaccount on any Valuation Date is the number of Accumulation
Units in the Subaccount multiplied by the value of an Accumulation Unit of the
Subaccount at the end of the Valuation Period.
Contributions allocated to the Variable Account are converted into Accumulation
Units. The number of Accumulation Units resulting from each Contribution is
equal to the Contribution divided by the value of an Accumulation Unit for the
Valuation Period during which the Contribution is allocated to the Variable
Account. The Accumulation Unit value for each Subaccount was or will be
arbitrarily established at the inception of the Subaccount. It may increase or
decrease from Valuation Period to Valuation Period. The Accumulation Unit value
for a Subaccount for any later Valuation Period is determined as follows.
1. The total value of Fund or Series shares held in the Subaccount is calculated
by multiplying the number of Fund or Series shares owned by the Subaccount at
the beginning of the Valuation Period by the Net Asset Value Per Share of the
Fund or Series at the end of the Valuation Period, and adding any dividend or
other distribution of the Fund or Series if an ex-dividend date occurs during
the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period; such
liabilities include daily charges imposed on the Subaccount, and may include
a charge or credit with respect to any taxes paid or reserved for by us that
we determine result from the operations of the Variable Account; and
3. The result of 2. is divided by the outstanding number of Accumulation Units
in the Subaccount at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to
the mortality and expense risk charge for the number of calendar days in the
Valuation Period.
The assets of the Variable Account equal to its reserves and other liabilities
will not be charged with the liabilities arising from any other part of our
business.
The Accumulation Unit value may increase or decrease the dollar value of
benefits under the Contract.
TRANSFERS
- ---------
A transfer of Account Value will be subject to the provisions outlined under the
LIMITATIONS ON TRANSFERS AND WITHDRAWALS in the CERTIFICATE SPECIFICATIONS of
this certificate.
A transfer request may be in writing, or by telephone provided we have received
the appropriate authorization from the Contractowner. Amounts transferred to the
Subaccount(s) will purchase Accumulation Units as described in the VARIABLE
ACCOUNT provision of this certificate.
There may not be more than one transfer in any 30 day period. We reserve the
right to further limit the number of transfers.
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
A transfer among Subaccounts will result in the purchase of Accumulation Units
in one Subaccount and the redemption of Accumulation Units in the other
Subaccount. Such a transfer will be effected at Accumulation Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of Accumulation Units is described
8
<PAGE>
in the VARIABLE ACCOUNT provision of this certificate.
WITHDRAWALS
- -----------
A withdrawal of Account Value will be subject to the provisions outlined under
LIMITATIONS ON TRANSFERS AND WITHDRAWALS in the CERTIFICATE SPECIFICATIONS of
this certificate.
All withdrawal requests must be submitted in writing to us. A withdrawal request
must be authorized by the Contractowner. If you are a Participant under a 403(b)
plan that is not subject to ERISA you may authorize a withdrawal request.
Withdrawals will be effected at Accumulation Unit values calculated at the end
of the Valuation Period during which we receive written request at our Home
Office. We reserve the right to require proof of the event giving rise to any
withdrawal under this certificate.
Any cash payment will be mailed from our Home Office within 7 days after the
date of withdrawal; however, we may be permitted to defer payments from the
Variable Account under the Investment Company Act of 1940, as amended, as in
effect at the time a request for withdrawal is received. We reserve the right to
defer any payment from the Fixed Account for a period not to exceed 6 months
after a request is received.
ANNUITY OPTIONS
- ---------------
Upon request, we will quote for you the amounts of Annuity Payouts under the
various annuity options available under the Contract. You may select either a
variable Annuity Payout, a fixed Annuity Payout or a combination fixed and
variable Annuity Payout.
A fixed Annuity Payout is an annuity option which we guarantee the amount of
each Annuity Payout as long as the annuity is payable. A minimum fixed Annuity
Payout will be purchased using the 1983 'a' Individual Annuity Mortality Table,
modified, with an assumed interest rate of return of 3.00% per year and a 2.00%
expense load.
A variable Annuity Payout is an annuity option with Annuity Payouts that
increase, decrease or remain the same in accordance with the investment results
of the applicable Subaccount. A minimum variable Annuity Payout will be
purchased using the 1983 'a' Individual Annuity Mortality Table, modified, with
an assumed interest rate of return of 5.00% per year and a 2.50% expense load.
We will require satisfactory proof of your age. If it is later proven to us that
your age has been misstated, the Annuity Payouts will be adjusted. Any
underpayouts already made by us will be made up immediately and any overpayouts
already made by us will be charged against the Annuity Payouts falling due after
the adjustment.
We will provide you with a retirement certificate when Annuity Payouts begin.
The certificate will be issued showing the amount and terms of the purchased
annuity.
LOAN
- ----
Prior to your Annuity Commencement Date, if permitted by the Plan and the
Contractowner, you may apply for a loan under the Contract. We will loan, upon
written application and assignment of the Account Value equal to the loan amount
as security for the loan, a sum which will not be less than $1,000.00. The
Account Value which is assigned to us as security for the loan must be allocated
to the Fixed Account. For purposes of applying the transfer and withdrawal
provisions of LIMITATIONS ON TRANSFERS AND WITHDRAWALS in the CERTIFICATE
SPECIFICATIONS of this certificate, any amount allocated to the Fixed Account as
security for a loan will be included in the calculation of Fixed Account Value.
However, neither withdrawals nor transfers from the Fixed
9
<PAGE>
Account are allowed to the extent that such a withdrawal or transfer would cause
the Fixed Account to be less than any outstanding loan.
Unless otherwise restricted by the Plan, the maximum loan amount is generally
equal to 50% of the vested Account Value, not to exceed a total of $50,000.00 on
all outstanding loans you may have under all plans. If there has been a loan in
the preceding 12 month period, the $50,000.00 maximum loan limit is reduced by
the excess of the highest outstanding balance of loans during the preceding 12
month period over the outstanding current loan balance. You may have only one
loan outstanding at any time under the Contract.
The loan rate is adjustable, which means that it may change from time to time. A
loan's initial interest rate will be based on the declared interest rate in
effect at the time a loan is established. The declared interest rate will be
determined quarterly and will be equal to Moody's Corporate Bond Yield monthly
average for the calendar month two months prior to the fist day of each calendar
quarter, rounded down to the next 0.25%. If the average is no longer made
available, then the declared interest rate will be a comparable rate acceptable
to the regulatory authorities.
At the beginning of each calendar quarter, we will compare each loan's interest
rate to the then current declared interest rate. If the then current declared
interest rate is less than the loan's interest rate by .50% or more, the loan's
interest rate will be decreased to equal the then current declared interest
rate. The loan's interest rate will remain unchanged if the then current
declared interest rate differs from the loan's interest rate by less than .50%.
The loan rate for an existing loan may decrease, but it will never increase.
During the existence of a contract loan, the amount of the contract loan
principal in the Fixed Account will earn interest at an effective annual rate of
not less than [3.00%]. The interest rates applicable to contract loan principal
will be declared quarterly, in advance of each quarter, and will be in effect
only for that quarter.
Loan payments of principal and interest must be paid in level amortized
payments, either monthly or quarterly. The loan must be repaid within 5 years
unless it is being used to purchase a principal residence for you in which case
the loan must be repaid within 20 years or less. The contract loan may be repaid
in full at any time while the Contract in force and prior to the Annuity
Commencement Date.
If the required loan payment is not paid in full within 90 days after the date
the payment is due, the total outstanding loan balance will be determined to be
in default. Following the 90-day grace period the defaulted amount will first be
deducted from the Account Value equal to your December 31, 1988 Grandfathered
Balance. In addition, if allowed by the Plan, any amounts equal to employer
Contributions and earnings on those Contributions will be deducted from the
Account Value following the 90-day period. Any remaining defaulted amount will
be deducted from the Account Value when one of the following events occur:
termination of service with the employer, attainment of age 59 1/2, disability,
or death.
The amounts and terms of a loan may be subject to the restrictions imposed under
72(p) of the tax code, Title 1 of ERISA, and any applicable plan.
We will charge a loan set-up charge as specified in the CERTIFICATE
SPECIFICATIONS, each time a loan is established. The amount will be withdrawn
from the Account Value.
DEATH BENEFIT
- -------------
If you are a Participant under a Plan that is subject to ERISA and die prior to
the Annuity Commencement Date, a death benefit may be paid by the Contractowner.
10
<PAGE>
If you are a Participant under a 403(b) Plan that is not subject to ERISA and
you die prior to the Annuity Commencement Date, the following provisions will
apply to you.
Upon receipt of due proof of death and required claim forms we will pay the
Beneficiary, if one is living, a death benefit equal to the Account Value less
any outstanding loan balance.
You may designate a Beneficiary. Unless otherwise state in the Beneficiary
designation, if there is more than one Beneficiary, they are presumed to share
equally.
You may change any Beneficiary unless otherwise provided in the previous
designation. A change of Beneficiary will revoke any previous designation. A
change may be made by filing a written request, in a form acceptable to us, at
our Home Office. The change will become effective upon receipt of the written
request by us at our Home Office.
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before you, that Beneficiary's interest will go to any other Beneficiaries
named, according to their respective interest. If there are no Beneficiaries,
the Beneficiary's interest will pass to a contingent Beneficiary(s), if any. If
no Beneficiary or contingent Beneficiary survives you, the death benefit will be
paid in one sum to your estate.
We will calculate the death benefit as of the end of the Valuation Period during
which we receive due proof of death and the election of a form of benefit.
Due proof of death will be a certificate of death, a copy of a certified decree
of a court of competent jurisdiction as to the finding of death, or any other
proof satisfactory to us.
All death benefit payments will be subject to the laws and regulations governing
death benefits.
Notwithstanding any provision of the Contract to the contrary, no payment of
death benefit provided upon your death will be allowed that does not satisfy the
requirements of section 401(a)(9) of the Code. All such requirements are herein
incorporated by reference.
The death benefit may be paid in a lump sum or under a settlement option then
available. If a lump sum settlement is elected, the proceeds will be paid within
7 days of approval by us of the claim. This payment may be postponed as
permitted by the Investment Company Act of 1940, as amended.
[Deleted last paragraph. Moved language to 6th paragraph.]
GENERAL PROVISIONS
- ------------------
The Contract between us and the Contractowner may be changed or amended in
accordance with its terms. Such changes do not require you or your Beneficiary's
consent. Any change will not adversely affect Contributions received before the
effective date of the change unless such change was required by law.
Nothing in the Contract impairs any right granted to you by this certificate or
the applicable state insurance code. You may review the Contract by contacting
the Contractowner.
A failure by us to insist upon the strict performance of any provision of the
Contract will not be construed a waiver of any of our rights for future actions.
The Contract, together with the Contractowner's application and any riders or
endorsements,
11
<PAGE>
constitutes the entire Contract between the Contractowner and us.
Except as allowed by the Plan or applicable law, the Contract or your interest
in the Contract may not be transferred, sold, assigned, discounted or pledged,
either as collateral for a loan or as security for the performance of an
obligation or for any other purpose.
Federal, state and local government premium tax, if applicable, will be deducted
from either the Contribution when received or at time of withdrawal or
annuitization.
If you have any questions concerning this certificate, please contact your
Lincoln Life representative or our Servicing Office at [800-341-0441].
Any notice required by this certificate must be delivered to us at our Servicing
Office: [The Lincoln National Life Insurance Company, P.O. Box 9740, Portland
Maine 04104-5001]; and notices to you will be delivered to you at the address
shown on our records.
12
<PAGE>
Exhibit 4(i)
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
GROUP ANNUITY CONTRACT
This Contract is issued in consideration of the application of the Contractowner
and of the payment of Purchase Payments as provided in the Contract.
This Contract is delivered in the jurisdiction of and is governed by the laws of
[State of Contractowner].
Signed for The Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
An A. Boscia, President
Calvin King, Second Vice President
Allocated
Group Deferred Variable Annuity or Variable and Fixed Annuity
Periodic Premium
Nonparticipating
ALL 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.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Article Page
<C> <S> <C>
1 Special Terms........................................... 4
2 Purpose of Contract..................................... 6
3 Funding................................................. 7
4 Transfers and Withdrawals............................... 9
5 Death Benefits.......................................... 11
6 Annuity Options......................................... 12
7 Contract Loan........................................... 15
8 Contract Discontinuance................................. 16
9 General Provisions...................................... 17
10 Annuity Purchase Rates Under a Variable Payment Option.. 19
11 Annuity Purchase Rates Under a Fixed Payment Option..... 20
</TABLE>
Form 28883 8/98
<PAGE>
Contract Specifications
Contract Number: [Specimen]
Contractowner: [The Trustees of A.B.C. Company Pension Trust]
Effective Date: [August 1, 1998]
Employer: [A.B.C. Company]
Plan: [A.B.C. Company Pension Plan]
VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account Q. There are currently
14 Subaccounts in the Variable Account. Purchase Payments may be directed to any
of the available Subaccounts, subject to limitations. The amounts allocated to
each Subaccount will be invested at net asset value in the shares of one of the
regulated investment companies. The Funds and Series are:
1. [Lincoln National Aggressive Growth Fund]
2. [Lincoln National Bond Fund]
3. [Lincoln National Capital Appreciation Fund]
4. [Lincoln National Equity-income Fund]
5. (Lincoln National Global Asset Allocation Fund]
6. [Lincoln National Growth and Income Fund]
7. [Lincoln National International Fund]
8. [Lincoln National Managed Fund]
9. [Lincoln National Money Market Fund]
10. [Lincoln National Social Awareness Fund]
11. [Lincoln National Special Opportunities Fund]
12. [Trend Series]
13. [Decatur Total Return Series]
14. [Global Bond Series]
See Article 3 for provisions governing any substitution or elimination of Funds
or Series.
FIXED ACCOUNT GUARANTEED INTEREST RATE: [3.00%] during all years.
LIMITATIONS ON TRANSFERS AND WITHDRAWALS: See Article 4 for provisions governing
the limitations on transfers and withdrawals.
ANNUAL ACCOUNT CHARGE: [$25.00] per account maintained on behalf of a
Participant or Contractowner.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE: [1.002%] [This Contract will be
eligible for a lower annual Mortality and Expense Risk Charge of [0.75%] if on
the last calendar day of any calendar quarter the sum of all Account Value under
this Contract equals or exceeds $5 million. The lower charge will be implemented
on the calendar quarter-end Valuation Date following the end of the calendar
quarter in which the Contract became eligible for the lower charge.]
[OR]
[This Contract will be eligible for a lower annual Mortality and Expense Risk
Charge of [0.75%] if on the last calendar day of any calendar quarter the sum of
all Account Value under all Contracts issued to [group name] equals or exceeds
$5 million. The lower charge will be implemented on all Contracts issued to
[group name] on the calendar quarter-end Valuation Date following the end of the
calendar quarter in which the Contracts became eligible for the lower charge.]
CONTINGENT DEFERRED SALES CHARGE (CDSC):
Withdrawal During
Contract Year 1 2 3 4 5 6 7 8 9 10+
CDSC (as a [6]% [6]% [6]% [6]% [5]% [4]% [3]% [2]% [1]% [0]%
percentage of
withdrawal amount)
There will be no other CDSC after the Contract has been in force for [9]
complete Contract Years.
LOAN SET-UP CHARGE: [$35.00]
Form 28883 8/98
Page 3
<PAGE>
ARTICLE I
Special Terms
Section
1.01 Account Value - Value held under this Contract. The value may be
maintained in either the Fixed Account, the Variable Account or both, depending
on allocations.
1.02 Accumulation Unit - A unit of measure used to calculate the variable
Account Value during the accumulation period.
1.03 Annuitant and Contingent Annuitant - The persons upon whose lives the
Annuity Payouts made after the Annuity Commencement Date will be based.
1.04 Annuity Commencement Date - The Valuation Date when money is withdrawn
for payment of Annuity Payouts under the annuity option selected.
1.05 Annuity Payout - An amount paid at regular intervals under one of
several options available to the Annuitant and/or any other payee. This amount
may be paid on a variable or fixed basis, or a combination of both.
1.06 Annuity Unit - A unit of measure used after the Annuity Commencement
Date to calculate the amount of variable Annuity Payout.
1.07 Beneficiary - The person or entity designated by a Participant under a
403(b) plan that is not subject to ERISA or an Annuitant to receive a death
benefit, if any, payable upon the death of the Participant or the Annuitant.
1.08 Code - This is the Internal Revenue Code (IRC) of 1986, as amended.
1.09 Contingent Deferred Sales Charge (CDSC) - This charge is assessed on
certain premature withdrawals of Account Value, calculated according to the
Contract provisions.
1.10 Contract - The agreement between the Contractowner and Lincoln Life
providing a variable annuity to fund the Plan.
1.11 Contractowner (you, your) - The Contractowner named in the Contract
Specifications.
1.12 Contract Year - This is the 12 month period which begins on the
effective date as set forth in the Contract Specifications or on the anniversary
of the effective date.
1.13 December 31, 1988 Grandfathered Balance - This is the balance that is
available for withdrawal, under a 403(b) plan, without meeting an otherwise
distributable event such as death, disability, termination of employment or
attainment of age 59 1/2.
1.14 ERISA - This is the Employee Retirement Income Security Act of 1974.
1.15 Fixed Account - An account established for this Contract by Lincoln Life
which is a part of the general assets of Lincoln Life.
1.16 Funds - Any of the mutual funds into which Purchase Payments allocated
to the Variable Account are indirectly invested.
1.17 Home Office - The Lincoln National Life Insurance Co., 1300 South
Clinton Street, Fort Wayne, Indiana 46802 or an institution designated by us.
1.18 Lincoln Life (we, us, our) - The Lincoln National Life Insurance Co.
1.19 Net Asset Value Per Share - The value of a Fund or Series share
calculated in accordance with the Fund's or Series' prospectus.
1.20 Participant - A person defined as a Participant in the Plan, who has
enrolled under this Contract and on whose behalf Lincoln Life maintains an
Account Value.
Form 28883 8/98
Page 4
<PAGE>
1.21 Participant Year - This is a 12 month period which begins on the
Participant effective date as set forth in the Active Life Certificate or on the
anniversary of the Participant effective date.
1.22 Pending Allocation Account - This is an account established under the
Variable Account that invests Purchase Payments received without allocation
instructions in shares of a money market mutual fund.
1.23 Plan - The Plan or arrangement named in the Contract Specifications,
which includes any employer based arrangement whether or not considered a plan
under State or Federal law.
1.24 Purchase Payments - Amounts paid into the Contract to purchase an
annuity.
1.25 Series - Any of the underlying portfolios of a Fund in which Purchase
Payments allocated to the Variable Account are indirectly invested.
1.26 Subaccount - That portion of the Variable Account which invests in
shares of a particular Fund or Series. There is a separate Subaccount that
corresponds to each Fund and Series.
1.27 Valuation Date - Each day the New York Stock Exchange (NYSE) is open for
trading and we are open for business.
1.28 Valuation Period - The period commencing at the close of trading on the
NYSE on a Valuation Date and ending at the close of trading on the NYSE on the
next succeeding Valuation Date.
1.29 Variable Account - The segregated investment account into which Lincoln
Life sets aside and invests the variable assets attributable to this variable
annuity Contract.
Form 28883 8/98
Page 5
<PAGE>
ARTICLE 2
Purpose of Contract
Section
2.01 This is a group annuity Contract. This Contract may be used to fund all
or part of the Plan's obligation to the Participants.
2.02 The provisions of the Plan control the operation of the Plan. The
provisions of the Contract control the operation of the Contract.
2.03 We are not a party to the Plan. The Plan is mentioned merely for
reference purposes. Except for the obligations provided under this
Contract, we have no liability under the Plan. We are under no
obligation under or by reason of issuance of this Contract either (a) to
determine whether any payment, distribution or transfer under this
Contract complies with the provisions, terms and conditions of the Plan
or with applicable law, or (b) to administer the Plan, including without
limitation, any provisions required by the Retirement Equity Act of
1984.
2.04 This Contract can be issued in connection with a Plan which meets the
requirements of Sections 401(a), 403(a), 403(b), 414(d) or 457 of the
Code. We may require evidence of qualification of the Plan.
Form 28883 8/98
Page 6
<PAGE>
ARTICLE 3
Funding
Section
3.01 Account Value will be maintained by us on behalf of each Participant. At
your request, Account Value will also be maintained by us for your use
under this Contract.
3.02 Purchase Payments must be made to us at our Home Office.
3.03 Purchase Payments under this Contract may be allocated to the Variable
Account and/or to the Fixed Account of this Contract in 1% increments.
If complete allocation instructions have not been received by us in order for us
to perform our duties under this Contract, we will direct such Purchase Payment
to the Pending Allocation Account as described in Section 1.22.
We will follow up with you monthly for a period of 90 days for allocation
instructions for Account Values in the Pending Allocation Account.
Within 2 business days of receipt of complete allocation instructions, the
Account Value in the Pending Allocation Account will be transferred to the
accounts as instructed.
If allocation instructions are not received after the 90 day notice, we will
refund the Purchase Payments in the Pending Allocation Account, together with
earnings thereon (unless applicable ERISA requirements preclude return on
earnings) within 105 days of the date of receipt of the initial Purchase
Payment.
The Pending Allocation Account will only be used for the purpose mentioned in
this Section 3.03; you or Participants may not direct a portion of Purchase
Payments to this Subaccount. Purchase Payments directed to the Pending
Allocation Account will not be afforded the same rights as Purchase Payments
under this Contract. The following Articles and/or Sections under this Contract
will not be applicable: Section 3.13 of this Article 3-Funding, Article 4-
Transfers and Withdrawals, Article 6-Annuity Options and Article 7-Contract
Loan.
3.04 Purchase Payments in any one Contract Year which exceed twice the amount
of Purchase Payments made in the first Contract Year may be made only
with our permission. If Purchase Payments are stopped, the Account
Values will remain in force as paid-up. Purchase Payments may resume at
any time until the Participant's Annuity Commencement Date, a request to
withdraw the entire Account Value or payment of any death benefit,
whichever comes first.
3.05 We will credit interest daily on the Account Value in the Fixed Account.
The rate of interest credited each day, if compounded for 365 days,
yields the annual interest rate in effect for the day. We guarantee that
we will credit interest on Account Values in the Fixed Account at an
effective annual rate not less than [3.00%] during all years. We may
credit interest at rates in excess of the guaranteed rate at any time.
Periodically, we will declare an interest rate and the time period for which
that interest rate will apply to Purchase Payments received. [This Contract will
credit an interest rate for this time period, which will equal the declared
interest rate plus 1.00%.] [OR] [This Contract will credit an interest rate for
this time period which will equal the declared interest rate plus 0.50%.] After
the expiration of this time period, this Contract will credit an interest rate,
not to be less than [3.00]
All Account Values maintained in the Fixed Account will be guaranteed against
loss of principal.
3.06 Purchase Payments may be directed to any of the available Subaccounts.
The Purchase Payments allocated to each Subaccount will be applied to
purchase Accumulation Units at the Accumulation Unit value next
calculated after receipt at our Home Office.
3.07 We reserve the right to eliminate the availability of the shares of any
Fund or Series and substitute the securities of a different investment
company if the shares of a Fund or Series are no longer available for
investment, or, if in our judgement, any Fund or Series should become
inappropriate in view of the purposes of this Contract. We may add a
Subaccount investing in a new Fund or Series.
Form 28883 8/98
Page 7
<PAGE>
We will, give you written notice of the elimination or substitution of any Fund
or Series no later than 15 days after the substitution occurs. Any such
eliminations, substitutions or additions will be subject to compliance with any
applicable regulatory requirements.
3.08 We will use each Purchase Payment allocated to the Variable Account to
buy Accumulation Units in the Subaccount(s) selected by you. The number
of Accumulation Units bought will be determined by dividing the amount
directed to the Subaccount by the dollar value of an Accumulation Unit
in that Subaccount as of the end of the Valuation Period during which
the Purchase Payment is received at our Home Office. The number of
Accumulation Units held for the Variable Account by you will not be
changed by any change in the dollar value of Accumulation Units in any
Subaccount.
3.09 The value of a Subaccount on any Valuation Date is the number of
Accumulation Units in the Subaccount multiplied by the value of an
Accumulation Unit of the Subaccount at the end of the Valuation Period.
3.10 Purchase Payments allocated to the Variable Account are converted into
Accumulation Units. The number of Accumulation Units resulting from each
Purchase Payment is equal to the Purchase Payment divided by the value
of an Accumulation Unit for the Valuation Period during which the
Purchase Payment is allocated to the Variable Account. The Accumulation
Unit value for each Subaccount was or will be arbitrarily established at
the inception of the Subaccount. It may increase or decrease from
Valuation Period to Valuation Period. The Accumulation Unit value for a
Subaccount for any later Valuation Period is determined as follows:
1. The total value of Fund or Series shares held in the Subaccount is
calculated by multiplying the number of Fund or Series shares owned by the
Subaccount at the beginning of the Valuation Period by the Net Asset Value
Per Share of the Fund or Series at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund or Series if an ex-
dividend date occurs during the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period; such
liabilities include daily charges imposed on the Subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine as a result of the operations of the Variable
Account; and
3. The result of 2. is divided by the outstanding number of Accumulation Units
in the Subaccount at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to
the daily mortality and expense risk charge multiplied by the number of calendar
days in the Valuation Period.
3.11 The assets of the Variable Account equal to its reserves and other
liabilities will not be charged with the liabilities arising from any
other part of our business.
3.12 The Accumulation Unit value may increase or decrease the dollar value of
benefits under the Contract.
3.13 On the last Valuation Date of each Participant Year, we will deduct the
Account Charge, specified in the Contract Specifications. Such amount
will be deducted from the Account Value maintained on behalf of each
Participant and on behalf of the Contractowner on a pro rata basis based
on the balances of such Account Values on such date in the Fixed Account
and Variable Account. The full Account Charge will be deducted upon
withdrawal of the entire Account Value. If you choose to pay the Account
Charge, we will bill you at the end of each Contract Year for an amount
equal to the Account Charge times the number of Participants and
Contractowner on whose behalf Account Values are maintained as of the
last day of the Contract Year plus the number of Participants and
Contractowner that have withdrawn their entire Account Values within the
last 6 months of the Contract Year. If the Account Charge is not paid
within 30 days of receipt of the bill, the amount will be deducted from
the Account Value as described in this Section.
3.14 At least once during each Contract Year, we will provide a report of the
value of each Account Value, including Account Value maintained on
behalf of each Participant and on behalf of the Contractowner.
Form 28883 8/98
Page 8
<PAGE>
ARTICLE 4
Transfers and Withdrawals
Section.
4.01 A transfer of funds may be directed from one Subaccount to another
Subaccount or to the Fixed Account. A transfer of Account Value may be
directed from the Fixed Account to one or more Subaccounts of the
Variable Account, subject to the limitations described in Section 4.03.
A transfer request may be in writing, or by telephone provided we have
received the appropriate authorization from you. Amounts transferred to
the Subaccount(s) will purchase Accumulation Units as described in
Section 3.08.
There may not be more than one transfer in any 30 day period. We reserve the
right to further limit the number of transfers.
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
Transfers after the Annuity Commencement Date will be subject to the provisions
of Section 6.10.
4.02 A transfer among Subaccounts will result in the purchase of Accumulation
Units in one Subaccount and the redemption of Accumulation Units in the
other Subaccount. Such a transfer will be effected at Accumulation Unit
values calculated at the end of the Valuation Period during which the
transfer request is received at our Home Office. The valuation of the
Accumulation Units is described in Section 3.10.
4.03 Subject to the following limitations, Account Value held in the Fixed
Account may be transferred to any Subaccount or may be withdrawn from
this Contract. A withdrawal for any reason not stated in Section 4.05
will be subject to this Section.
Periodic elective transfers or withdrawals - The cumulative percentage limit
available under this paragraph for a transfer or withdrawal is 20% in any 365
day period. The cumulative percentage is the sum of all transfers and
withdrawals under this Section in the preceding 364 day period plus the amount
to be transferred or withdrawn under this Section, divided by the then current
Account Value in the Fixed Account. A cumulative percentage exceeding 20% in any
365 day period will not be allowed.
Systematic transfers or withdrawals - A scheduled transfer or withdrawal of the
entire Account Value in the Fixed Account may be elected over a 5 year period.
The timing and percentage of each transfer or withdrawal is indicated in the
following schedule.
Transaction dates Percentage eligible for transfer or withdrawal
Initial date 20% of the balance on such date
First anniversary 20% of the balance on such date
Second anniversary 20% of the balance on such date
Third anniversary 20% of the balance on such date
Fourth anniversary 50% of the balance on such date
Fifth anniversary 100% of the balance on such date
If systematic transfers or withdrawals are elected, periodic elective transfers
or withdrawals will not be available during the period of scheduled payments.
This election may at any time after the initial date be rescinded. In this
event, periodic elective transfers or withdrawals will not be available until
the I year anniversary of the last systematic transfer or withdrawal made before
rescinding the election.
If systematic transfers or withdrawals are elected and a periodic elective
transfer or withdrawal was made within the last 364 day period, the payment due
on the initial date will be reduced by the sum of any periodic elective
transfers or withdrawals made within the last 364 day period.
If systematic transfers or withdrawals are elected, no further Purchase Payments
may be allocated to the Fixed Account unless the election is rescinded.
Form 28883 8/98
Page 9
<PAGE>
4.04 All withdrawal requests must be submitted in writing to us. A withdrawal
request for a Participant must be authorized by you. A withdrawal
request for a Participant under a 403(b) plan that is not subject to
ERISA must be authorized by the Participant. Withdrawals will be
effected at Accumulation Unit values calculated at the end of the
Valuation Period during which we receive written request at our Home
Office. We reserve the right to require proof of the event giving rise
to any withdrawal under this Contract.
4.05 Withdrawals of Account Value will be allowed during the life of this
Contract without being subject to CDSC, if the withdrawal is for one of
the following reasons:
To make a payment due to the Participant's death, disability, retirement
or termination of employ ment, excluding termination of employment due
to Plan termination, plant shutdown or any other program instituted by
the Participant's employer which would reduce the work force by more
than 20%;
To make a payment for a Participant hardship situation as allowed by the
Plan;
To make a payment pursuant to a Qualified Domestic Relations Order
(QDRO);
To purchase an annuity option under Article 6.
A withdrawal from the Account Value, for any reason outlined in this
Section, will not be subject to the provisions of Sections 4.03, 4.06 or
4.07.
4.06 Subject to the following limitations and the limitations set forth in
Section 4.03, a partial withdrawal, without being subject to CDSC, of
Account Value may be requested during the Contract Year for any reason
other than those specified in Section 4.05.
The cumulative percentage limit available under this Section for partial
withdrawal, without being subject to the CDSC, is 20% in any Contract Year. The
cumulative percentage is the sum of all withdrawals under this Section during
the Contract Year plus the amount to be withdrawn under this Section divided by
the then current Account Value.
Partial withdrawals under this Section exceeding the 20% cumulative percentage
will be subject to the CDSC.
4.07 If we receive a request for a withdrawal of 100% of the Account Value
for any reason other than those specified in Section 4.05, the Account
Value will be distributed as follows:
0 100% of the Account Value in the Variable Account will be
subject to the CDSC and will be paid in a cash payment as
provided in Section 4.08.
The Account Value in the Fixed Account will be paid in
accordance with the systematic withdrawal schedule over a 5
year period as provided in Section 4.03. 100% of each scheduled
withdrawal will be subject to the CDSC.
4.08 Any cash payment will be mailed from our Home Office within 7 days after
the date of withdrawal; however, we may be permitted to defer payments
from the Variable Account under the Investment Company Act of 1940, as
in effect at the time a request for withdrawal is received. We reserve
the right to defer any payment from the Fixed Account for a period not
to exceed 6 months after a request is received.
Form 28883 8/98
Page 10
<PAGE>
ARTICLE 5
Death Benefits
Section
5.01 Article 5 only applies to a Participant under a 403(b) plan that is not
subject to ERISA.
5.02 If a Participant dies prior to the Annuity Commencement Date, upon
receipt of due proof of death we will pay the Beneficiary, if one is
living, a death benefit equal to the Account Value less any outstanding
loan balance.
5.03 We will calculate the death benefit as of the end of the Valuation
Period during which we receive due proof of death, pursuant to Section
5.04, and the election of a form of benefit.
5.04 Due proof of death will be a certificate of death, a copy of the
certified statement of death from the attending physician, a copy of a
certified decree of a court of competent jurisdiction as to the finding
of death, or any other proof satisfactory to us.
5.05 All death benefit payments will be subject to the laws and regulations
governing death benefits.
Notwithstanding any provision of this Contract to the contrary, no payment of
death benefit provided upon the death of the Participant will be allowed that
does not satisfy the requirements of Section 401(a)(9) of the Code. All such
requirements are herein incorporated by reference.
5.06 The death benefit may be paid in a lump sum or under a settlement option
then available. If a lump sum settlement is elected, the proceeds will
be paid within 7 days of approval by us of the claim. This payment may
be postponed as permitted by the Investment Company Act of 1940, as
amended.
5.07 Unless otherwise provided in the Beneficiary designation, if no
Beneficiary survives the Participant, the death benefit will be paid in
one sum to the Participant's estate.
Form 28883 8/98
Page 11
<PAGE>
ARTICLE 6
Annuity Options
Section
6.01 You may purchase an annuity option for any Participant or Beneficiary.
The annuity option will be purchased using the rates in Article 10 or
11.
6.02 The following annuity options are available:
0 Life annuity/life annuity with fixed period - Annuity Payouts will be
made for the life of the Annuitant with no certain period, or with a 10
years certain period, or with a 20 years certain period. Upon the death
of the Annuitant, Annuity Payouts will continue to the Beneficiary for
the remainder, if any, of the certain period.
0 Joint life annuity/joint life annuity with fixed period - Annuity
Payouts will be made for the joint lives of the Annuitant and a
Contingent Annuitant of the Annuitant's choice with no certain period,
or with 10 years certain period, or with a 20 years certain period.
Annuity Payouts continue for the life of the survivor at the death of
the Annuitant or Contingent Annuitant. Upon the death of both
Annuitants, Annuity Payouts will continue to a Beneficiary for the
remainder, if any, of the certain period.
0 Unit refund life annuity - Annuity Payouts will be made for the life of
the Annuitant with the guarantee that upon the death of the Annuitant a
payout to the Beneficiary will be made of the value of the number of
Annuity Units equal to the excess, if any, of (a) over (b) where (a) is
the total amount applied under the option divided by the Annuity Unit
value at the Annuity Commencement Date and (b) is the product of the
number of Annuity Units represented by each Annuity Payout and the
number of Annuity Payouts paid before death.
0 Other options may be available as agreed upon in writing by us.
6.03 At the time an annuity option is selected under the provisions of this
Contract, you may specify anAnnuity Commencement Date and elect, on
behalf of the Participant, to have the total Account Value applied to
provide a variable Annuity Payout, a fixed Annuity Payout or a
combination fixed and variable Annuity Payout.
The amount of Annuity Payout will depend on the age and sex (except in
cases where unisex rates are required) of the Annuitant as of the
Annuity Commencement Date. A choice may be made to receive payouts once
each month, four times each year, twice each year or once each year. The
Account Value and Annuity Unit value used to effect Annuity Payouts will
be calculated as of the Annuity Commencement Date or the monthly,
quarterly, semi-annual or annual anniversary of the Annuity Commencement
Date.
For a 100% fixed Annuity Payout, the Annuity Commencement Date must be
at least 30 days before the first Annuity Payout date. For a combination
fixed and variable Annuity Payout or a 100% variable
Annuity Payout, the Annuity Commencement Date will be 14 days before the
first Annuity Payout date.
After the Annuity Commencement Date, the Annuity Payout option can not
be changed.
6.04 Article 10 of this Contract illustrates the minimum Annuity Payout
amounts and the age adjustments which will be used to determine the
monthly Annuity Payouts under a fixed Annuity Payout option. The tables
show the dollar amount of the guaranteed monthly Annuity Payout which
can be purchased with each $1,000.00 of Account Value, after deduction
of any applicable premium tax. Amounts shown use the 1983 'a' Individual
Annuity Mortality Table, modified, with an assumed interest rate of
return of 3.00% per year and a 2.00% expense load.
6.05 Article 11 of this Contract illustrates the minimum Annuity Payout
amounts and the age adjustments which will be used to determine the
first monthly Annuity Payout under a variable Annuity Payout option. The
tables show the dollar amount of the first monthly Annuity Payout which
can be purchased with each $1,000.00 of Account Value, after deduction
of any applicable premium taxes. Amounts shown use the 1983 'a'
Individual Annuity Mortality Table, modified, with an assumed interest
rate of return of 5.00% per year and a 2.50% expense load.
Form 28883 8/98
Page 12
<PAGE>
6.06 To determine the amount of the variable Annuity Payouts after the first
payout, the first variable Annuity Payout is subdivided into components
each of which represents the product of. (a) the percentage elected by
you on behalf of the Participant of a specific Subaccount, the
performance of which will determine future variable Annuity Payouts, and
(b) the entire first variable Annuity Payout. Each variable Annuity
Payout after the first payout attributable to a specific Subaccount will
be determined by multiplying the Annuity Unit value for that Subaccount
on the monthly, quarterly, semi-annual or annual anniversary of the
Annuity Commencement Date by the number of Annuity Units attributable to
that Subaccount. The number of Annuity Units for each specific
Subaccount is determined by dividing the component of the first payout
attributable to that Subaccount as described previously by the Annuity
Unit value for that Subaccount on the Annuity Commencement Date. The
total variable Annuity Payout will be the sum of the payouts
attributable to each Subaccount.
6.07 The Annuity Unit value for any Valuation Period for any Subaccount is
determined by multiplying the Annuity Unit value for the immediately
preceding Valuation Period by the product of (a) 0.999866337 raised to a
power equal to the number of days in the current Valuation Period and
(b) is the Accumulation Unit value of the same Subaccount for this
Valuation Period divided by the Accumulation Unit value of the same
Subaccount for the immediately preceding Valuation Period.
6.08 The valuation of all assets in the Subaccount will be determined in
accordance with the provisions of applicable laws, rules and
regulations. The method of determination by us of the value of an
Accumulation Unit and of an Annuity Unit will be conclusive upon the
Participant and any recipient of a death benefit, if any.
6.09 We guarantee that the dollar amount of each installment after the first
will not be affected by variations in mortality experience from
mortality assumptions on which the first installment is based.
6.10
After the Annuity Commencement Date, if any portion of the Annuity Payout is a
variable Annuity Payout, the Participant may direct a transfer of assets from
one Subaccount to another Subaccount or to a fixed Annuity Payout. These
transfers will be limited to 3 times per Contract Year. A fixed Annuity Payout
may not be changed to a variable Annuity Payout.
A transfer from one Subaccount to another Subaccount will result in the purchase
of Annuity Units in one Subaccount, and the redemption of Annuity Units in the
other Subaccount. Such a transfer will be effected at Annuity Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of Annuity Units is described in
Section 3.09. A transfer from one Subaccount to a fixed Annuity Payout will
result in the redemption of Annuity Units in one Subaccount and the purchase of
a fixed Annuity Payout.
6.11 If the annuity option chosen results in Annuity Payouts of less than
$50.00 per month, the frequency will be changed so that Annuity Payouts
will be at least $50-00.
6.12 A certificate will be issued to the Annuitant showing the amount and
terms of the purchased annuity.
6.13 No annuity option may be assigned or attached, except, if applicable,
those benefits assigned or attached by a Qualified Domestic Relations
Order under Section 414(p) of the Code, or pursuant to a Federal Tax
Levy under Section 6331 of the Code.
6.14 If we receive proof that a person receiving Annuity Payouts under this
Contract is legally or mentally incompetent, the Annuity Payouts may be
made to any person deemed a legal representative by a court of competent
jurisdiction.
6.15 We will require satisfactory proof of each Annuitant's age. If it is
later proven to us that the Annuitant's age has been misstated, the
Annuity Payouts will be adjusted. Any underpayouts already made by us
will be made up immediately and any overpayouts already made by us will
be charged against the Annuity Payouts failing due after the adjustment.
6.16 The Annuitant may name the Beneficiary or Contingent Annuitant for any
purchased annuity option. The Annuitant may change the Beneficiary at
any time without the consent of the previous Beneficiary unless the
previous designation provides otherwise. However, if the Annuitant is
married, the Annuitant's spouse must agree in writing to another person
being named Beneficiary or Contingent Annuitant. The change is effective
when written notice is received by us. The annuity option or the
Contingent Annuitant may not be changed. The Beneficiary or the
Contingent Annuitant does not have the right to name the Beneficiary.
Form 28883 8/98
Page 13
<PAGE>
6.17 If the Annuitant dies and there is no named Beneficiary living at the time
of the Annuitant's death, the Annuitant's estate will be paid any remaining
guaranteed Annuity Payouts, under a period certain annuity option, in one lump
sum. If the named Beneficiary is receiving guaranteed Annuity Payouts and dies,
the remaining Annuity Payouts will be paid in one lump sum to the contingent
Beneficiary if living at the time of the Beneficiary's death. Payment will
otherwise be made to the Beneficiary's estate. Lump sum Annuity Payouts will
equal the discounted guaranteed payouts at the interest rate then being credited
under Section 3.05, compounded annually.
6.18 We may, at any time, require proof that any payee under this Contract is
living when payout is contingent upon survival of that payee.
Form 28883 8/98
Page 14
<PAGE>
ARTICLE 7
Contract Loan
Section
7.01 Prior to a Participant's Annuity Commencement Date, if permitted by the
Plan, a Participant may apply for a loan under this Contract. We will
loan, upon written application and assignment of the Account Value equal
to the loan amount as security for the loan, a sum which will not be less
than $1,000.00. The Account Value which is assigned to us as security for
the loan must be allocated to the Fixed Account.
7.02 The maximum loan amount is generally equal to 50% of the Account Value,
not to exceed a total of $50,000.00 on all outstanding loans to the
Participant under all plans. For all plans not subject to ERISA, if 50%
of the total Account Value is less than $10,000.00, the Participant can
borrow the Account minus restricted dollars, provided however, if the
Plan is governed by ERISA, the maximum loan amount is equal to 50% of the
Account Value in addition to other restrictions contained in this Section
7.02. The restricted dollars are a minimum of $300.00 plus any
Federal/State tax to be withheld, one year's contract loan interest and
CDSC on loan principal and loan interest. If there has been a loan in the
preceding 12 month period, the $50,000.00 maximum loan limit is reduced
by the excess of the highest outstanding balance of loans during the
preceding 12 month period over the outstanding current loan balance.
7.03 The loan rate is adjustable, which means that it may change from time to
time. A loan's initial interest rate will be based on the declared
interest rate in effect at the time a loan is established and will apply
for that contract loan year. The declared interest rate will be
determined monthly and will be equal to Moody's Corporate Bond Yield
monthly average for the calendar month two months prior to the date the
loan rate is declared, rounded down to the next 0.25%. The loan interest
rate at any time will not exceed the maximum interest rate allowed in the
state where this Contract is issued. If the average is no longer made
available, then the declared interest rate will be a comparable rate
acceptable to the regulatory authorities.
Once each year, upon the anniversary of the loan, we will compare each loan's
interest rate to the then current declared interest rate. If the then current
declared interest rate differs from the loan's interest rate by 0.50% or more,
the loan's interest rate will be adjusted to equal the then current declared
interest rate. The loan's interest rate will remain unchanged if the then
current declared interest rate differs from the loan's interest rate by less
than 0.50%. The loan's interest rate may increase or decrease, but the loan's
interest rate will not be adjusted by less than 0.50%.
During the existence of a contract loan, the amount of the contract loan
principal will continue to earn interest as specified in Section 3.05.
Minimum loan payments of principal and interest must be paid in level amortized
payments and must be no less often than quarterly. The minimum payment is
$80.00. The contract loan may be repaid in full at any time while this Contract
is in force and prior to the Annuity Commencement Date.
7.04 If the required loan payment is not paid in full within 90 days after the
date the payment is due, the total outstanding loan balance will be
determined to be in default and no additional loan payments will be
accepted. If the Participant's December 31, 1988 Grandfathered Balance is
sufficient, the defaulted amount will be deducted from the Account Value
following the 90-day grace period. In addition, if allowed by the Plan,
any amounts equal to employer Purchase Payments and earnings on those
Purchase Payments will be deducted from the Account Value following the
90-day grace period. Any remaining defaulted amount will be deducted from
the Account Value when one of the following events occur: the
Participant's termination of service with the employer, attainment of age
59 1/2, disability, or death.
7.05 If we receive a request to withdraw the entire Account Value while there
is an outstanding loan, the Account Value will be reduced by the amount
of the outstanding loan plus loan interest due. Upon the death of the
Participant, we will pay the Beneficiary the Account Value less the
outstanding loan and loan interest due.
7.06 We will charge an amount as specified in the Contract Specifications,
each time a loan is established. The amount will be withdrawn from the
Account Value.
Form 28883 8/98
Page 15
<PAGE>
ARTICLE 8
Contract Discontinuance
Section
8.01 You may discontinue this Contract at any time by giving written notice to
us at our Home Office. The Contract will be deemed discontinued on the
later of the Valuation Date you specify or the Valuation Date that the
written notice is received by us.
8.02 We may give you written notice that this Contract is to be discontinued
if the Plan does not qualify for special tax treatment under Sections
401(a), 403(a), 403(b), 414(d) or 457 of the Code. Discontinuance
pursuant to this Section 8.02 will be effective as of a Valuation Date
specified by us, provided you are given at least 15 days advance written
notice in which to cure any remediable defaults. Discontinuance by us
supercedes any date established under Section 8.01.
8.03 As of the date this Contract is discontinued under Section 8.01, no
further Purchase Payments will be accepted. However, transfers,
withdrawals and loans will continue to be permitted, in accordance with
the terms of this Contract.
As of the date this Contract is discontinued under Section 8.02, no further
Purchase Payments, transfers, withdrawals or loans will be permitted. Subject to
applicable regulatory requirements, as of the discontinuance date established
under Section 8.02 the Account Value will be paid in accordance with the
provisions of Section 4.07.
We will send written notice to each Participant's last known address stating
that the Contract is discontinued.
8.04 The Contract will terminate when there is no Account Value remaining
under this Contract.
Form 28883 8/98
Page 16
<PAGE>
ARTICLE 9
General Provisions
Section
9.01 This Contract, together with your attached application and any riders or
endorsements, constitutes the entire Contract between you and us.
9.02 We may rely on any action or information provided by you under the terms
of this Contract and will 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.
9.03 Except as allowed by the Plan or applicable law, neither this Contract
nor the Participant's interest in this Contract may be transferred, sold,
assigned, discounted or pledged, either as collateral for a loan or as
security for the performance of an obligation or for any other purpose.
9.04 We may prohibit new Participants under this Contract if we discontinue
offering this Contract form to the public. This is termed deactivation.
If we deactivate this Contract, we will deactivate all contracts of this
class issued to other contractowners. The date of deactivation will be
effective as of a Valuation Date specified by us, provided you are given
at least 90 days advanced written notice. Deactivation will not affect
our Account Values established for Participants under this Contract prior
to our notice of deactivation and we will continue to accept Purchase
Payments under this Contract on behalf of those Participants.
9.05 We have the right to amend this Contract to maintain this Contract under
applicable local, State or Federal laws or regulations.
9.06 We and you may also mutually agree to amend this Contract. The consent of
any Participant, Annuitant or Beneficiary is not -required.
9.07 Any change to this Contract must be in writing and signed by the
President, Vice President, Secretary or an Assistant Secretary of Lincoln
Life.
9.08 This Contract is subject to the incontestability laws of the state in
which it is delivered.
9.09 We are not liable to provide sufficient funds to provide the Plan's
benefits.
9.10 No suit may be brought in relationship to this Contract unless it is
brought within 3 years after the date on which the suit could have first
been brought. If this limitation is prohibited by the laws of the state
by which the Contract is governed, this limitation shall be deemed to be
amended to agree with the minimum period of limitation permitted by those
laws.
9.11 The failure on our part to perform or insist upon the strict performance
of any provision or condition of the Contract will neither constitute a
waiver of our rights to perform or require performance of such provision
or condition, nor stop us from exercising any other rights it may have in
such provision, condition, or otherwise in this Contract or any Plan.
9.12 If any provision of this Contract is determined to be invalid, the
remainder of the provisions shall remain in full force and effect.
9.13 Federal, state or local government premium tax, if applicable, will be
deducted from either the Purchase Payment when received or at time of
withdrawal or annuitization.
9.14 A Participant will receive an Active Life Certificate upon our receipt of
a duly completed participation enrollment form, except if this Contract
is used to fund a 457 plan. If the Participant chooses not to participate
under this Contract, he/she may exercise a free-look right by sending a
written notice to us that he/she does not wish to participate under this
Contract within 20 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/her free-look right in accordance with the
foregoing procedure, we will refund the value of any Purchase Payments allocated
to the Variable Account and/or any Purchase Payment allocated to the Fixed
Account.
9.15 Any notice required by this Contract must be delivered to us at: The
Lincoln National Life Insurance Company, 1300 South Clinton Street, Fort
Wayne, IN 46802; and notices to you will be delivered to you at the
address shown on our records.
Form 28883 8/98
Page 17
<PAGE>
ARTICLE 10
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
- --------------------------------------------------------------------------------
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- --------------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
55 $5.15 $5.12 $5.02 $5.04
56 5.22 5.19 5.07 5.10
57 5.29 5.25 5.12 5.16
58 5.37 5.32 5.18 5.22
59 5.45 5.40 5.24 5.29
60 5.54 5.48 5.29 5.36
61 5.63 5.56 5.35 5.43
62 5.73 5.65 5.42 5.51
63 5.84 5.75 5.48 5.59
64 5.95 5.85 5.54 5.68
65 6.07 5.96 5.60 5.78
66 6.21 6.07 5.67 5.88
67 6.35 6.19 5.73 5.98
68 6.50 6.32 5.79 6.09
69 6.66 6.45 5.85 6.21
70 6.84 6.60 5.91 6.34
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- --------------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Thirds Survivor
- --------------------------------------------------------------------------------
Certain Period Certain Period
- --------------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$4.82 $4.82 $4.81 55 $5.16 $5.13 $5.03
4.87 4.87 4.85 56 5.23 5.19 5.08
4.92 4.92 4.90 57 5.30 5.26 5.13
4.98 4.98 4.96 58 5.38 5.33 5.18
5.04 5.04 5.01 59 5.46 5.41 5.24
5.11 5.10 5.07 60 5.54 5.49 5.30
5.18 5.17 5.13 61 5.64 5.57 5.36
5.25 5.25 5.19 62 5.74 5.66 5.42
5.33 5.32 5.26 63 5.84 5.75 5.48
5.42 5.41 5.32 64 5.96 5.86 5.54
5.51 5.50 5.39 65 6.08 5.96 5.61
5.60 5.59 5.46 66 6.21 6.07 5.67
5.71 5.70 5.54 67 6.35 6.19 5.73
5.82 5.80 5.61 68 6.50 6.32 5.79
5.95 5.92 5.68 69 6.66 6.45 5.85
6.08 6.05 5.75 70 6.83 6.59 5.91
- --------------------------------------------------------------------------------
Age Adjust Table
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ------------- ----------------- ------------- -----------------
Before 1920 +2 1960-1969 -3
1920-1929 +1 1970-1979 -4
1930-1939 0 1980-1989 -5
1940-1949 -1 1990-1999 -6
1950-1959 -2 ETC. ETC.
</TABLE>
Form 28883 8/98 Page 19
<PAGE>
ARTICLE 11
ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION
- --------------------------------------------------------------------------------
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
- --------------------------------------------------------------------------------
SINGLE LIFE ANNUITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
55 $4.01 $3.99 $3.91 $3.89
56 4.08 4.06 3.97 3.95
57 4.16 4.13 4.03 4.01
58 4.24 4.21 4.09 4.08
59 4.33 4.29 4.15 4.15
60 4.42 4.38 4.22 4.18
61 4.52 4.47 4.29 4.26
62 4.62 4.56 4.36 4.34
63 4.73 4.66 4.43 4.42
64 4.85 4.77 4.50 4.51
65 4.97 4.89 4.57 4.60
66 5.11 5.01 4.64 4.69
67 5.25 5.13 4.71 4.79
68 5.41 5.27 4.78 4.90
69 5.57 5.41 4.85 5.01
70 5.75 5.56 4.91 5.13
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
JOINT AND SURVIVOR ANNUITIES
- -----------------------------------------------------------------------------
Joint and Full to Survivor Joint and Two-Third Survivor
- -----------------------------------------------------------------------------
Certain Period Certain Period
- -----------------------------------------------------------------------------
120 240 Joint 120 240
None Months Months Age None Months Months
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$3.69 $3.69 $3.68 55 $4.02 $4.00 $3.91
3.75 3.75 3.73 56 4.09 4.07 3.97
3.81 3.81 3.79 57 4.17 4.14 4.03
3.87 3.87 3.85 58 4.25 4.22 4.09
3.94 3.94 3.91 59 4.33 4.30 4.16
4.01 4.01 3.98 60 4.43 4.38 4.22
4.09 4.08 4.05 61 4.52 4.47 4.29
4.17 4.16 4.12 62 4.63 4.57 4.36
4.25 4.25 4.19 63 4.74 4.67 4.43
4.34 4.34 4.26 64 4.85 4.78 4.50
4.44 4.43 4.34 65 4.98 4.89 4.57
4.54 4.54 4.42 66 5.11 5.01 4.64
4.66 4.64 4.50 67 5.26 5.13 4.71
4.77 4.76 4.58 68 5.41 5.27 4.78
4.90 4.88 4.66 69 5.57 5.41 4.85
5.04 5.01 4.74 70 5.75 5.55 4.91
- -----------------------------------------------------------------------------
Age Adjustment Table
Year of Birth Adjustment to Age Year of Birth Adjustment to Age
- ------------- ----------------- ------------- -----------------
Before 1920 + 2 1960-1969 -3
1920-1929 + 1 1970-1979 -4
1930-1939 0 1980-1989 -5
1940-1949 - 1 1990-1999 -6
1950-1959 - 2 ETC. ETC.
Form 28883 8/98 Page 20
</TABLE>
<PAGE>
GROUP
ANNUITY
CONTRACT
Allocated
Group Deferred Variable Annuity or Variable and Fixed Annuity
Periodic Premium
Nonparticipating
If you have any questions concerning
this Contract, please contact your
Lincoln Life representative
or the Home Office of LL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 South Clinton Street
Fort Wayne, Indiana 46802
800-248-0838
Form 28883 5/98
<PAGE>
Exhibit 4(j)
Group Annuity Amendment
Made a part of the contract to which it is attached
The provision of this Group Annuity Amendment will be effective on January 1,
1999.
Section 3.05 of Article 3 will be amended to read as follows:
"We will credit interest daily on the Account Value in the Fixed Account. The
rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Values in the Fixed Account at an effective annual rate not
less than 3.00% during all years. We may credit interest at rates in excess of
the guaranteed rate at any time.
Interest rates for each quarter will be declared and made available reasonably
in advance of that quarter.
Purchase Payments received in any quarter will earn interest at the declared
rate for that quarter and the next three quarters. When Purchase Payments are
beyond the initial four-quarter period, they will earn interest at the portfolio
rate. The portfolio rate is declared for the coming quarter and is in effect
only for that quarter. Interest rates applicable to contract loan principal are
declared for the coming quarter and are in effect only for that quarter."
The Systematic transfers or withdrawals schedule in Section 4.03 of Article 4
will be amended to read as follows:
"Transaction dates
Initial date
First Anniversary
Second Anniversary
Third Anniversary
Fourth Anniversary
Fifth Anniversary
Percentage eligible for transfer or withdrawal
20% of the balance on such date. 20% of the balance on such date.
25% of the balance on such date.
33% of the balance on such date. 50% of the balance on such date.
100% of the balance on such date
Section 8.03 of Article 8 will be amended to read as follows:
"8.03 As of the date this Contract is discontinued under Section 8.01 and if the
Plan is not subject to ERISA, no further Purchase Payments will be accepted.
However, transfers, withdrawals and loans will continue to be permitted, in
accordance with the terms of this Contract."
Section 8.031 will be added to Article 8 and will read as follows:
"8.031 As of the date this contract is discontinued under Section 8.01 and if
the Plan is subject to ERISA, you may elect to have the Participant's Account
Value remain in this Contract as provided in Section 8.03 or you may elect to
have the Account Value of the Contract paid as follows:
<PAGE>
As of the date this Contract is discontinued, no further Purchase Payments,
transfers, withdrawals or loans will be permitted.
100% of the Account Value in the Variable Account will be subject to the CDSC
and will be paid in a cash payment as provided in Section 4.08.
The Account Value in the Fixed Account may be paid in either of the following
payment options:
a. The Account Value in the Fixed Account will be paid in accordance with the
Systematic transfers or withdrawals schedule over a 5-year period as provided
in Section 4.03. 100% of each scheduled withdrawal will be subject to the
CDSC. After the initial date, assets remaining in the Fixed Account will
continue to receive interest in the same manner as before systematic
withdrawals began, but at no less than the rate the Fixed Account is earning
on the initial date of the first systematic withdrawal less 1.50%.
b. The Account Value in the Fixed Account will be paid in a lump sum. Lincoln
Life will determine the amount payable in the Fixed Account as follows:
The amount payable will be the market value factor times the Account Value in
the Fixed Account reduced by the sum of CDSC and Account Charge times the number
of Participants. The market value factor is the lesser of 1.00 or the ratio of:
Current Bond Price
------------------
Par Value of that Bond
Lincoln Life calculates at the time of contract discontinuance the Current Bond
Price to equal the price of a bond:
issued with a maturity of 6.5 years;
2. bearing interest at the weighted average of the declared interest rates in
effect as of the discontinuance date;
3. calculated to yield the Merrill Lynch Baa Intermediate Industrial Average for
the week in which the notice of discontinuance is received. If such average
ceases to be published, Lincoln Life will select a comparable survey.
If the amount payable, as determined above, is less than the principal in the
Fixed Account, then the amount payable will be changed to equal the principal.
For purposes of this paragraph, principal is defined as Purchase Payments
allocated to the Fixed Account plus transfers to the Fixed Account minus
withdrawals and transfers from the Fixed Account and minus any applicable CDSC
and Account Charge times the number of Participants, but no less than zero.
Your election to receive the Fixed Account in a lump sum must be done for the
primary benefit of the Participants. If, subsequent to such lump sum payment, we
are ordered by any court of competent jurisdiction to refund all or any portion
of a loss to Participants, you will reimburse such amounts to us."
Section 8.032 will be added to Article 8 and will read as follows:
"8.032 As of the date this Contract is discontinued under Section 8.02, no
further Purchase Payments, transfers, withdrawals or loans will be permitted.
Subject to applicable regulatory
<PAGE>
requirements, as of the discontinuance date established under Section 8.02 the
Account Value will be paid in accordance with the provisions of Section 4.07."
Section 8.033 will be added to Article 8 and will read as follows:
"8.033 If the Contract is discontinued under Section 8.01 or Section 8.02, we
will send written notice to each Participant's last known address stating that
the Contract is discontinued."
The Lincoln National Life Insurance Company
Gabriel L. Shaheen, President
<PAGE>
Exhibit 4(k)
LINCOLN NATIONAL
LIFE INSURANCE CON
- ------------------
A part of LINCOLN NATIONAL CORPORATION
1300 South Clinton Street, Fort Wayne, Indiana 46802
ACTIVE LIFE CERTIFICATE
Participant (you, your): [John Doe]
Certificate Number: [xxxxxx]
Participant Year: [August 1, 1998]
Contractowner: [The Trustees of A.B.C. Company Pension Trust)
Group Annuity Contract Number: [Specimen)
Contract Effective Date: [August 1, 1998]
Employer: [A.B.C. Company]
Plan: [A.B.C. Company Pension Plan]
Lincoln Life will provide you with the benefits described in this certificate,
under the terms of the Group Annuity Contract. Your benefits described in this
certificate may be subject to Contractowner 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 Contractowner and Lincoln Life. This certificate
replaces any certificates previously issued to you as a Participant regarding
this Contract.
20 DAY RIGHT TO EXAMINE THIS CERTIFICATE - You may choose not to participate in
this Contract within 20 days of receiving this certificate. You must return this
certificate to Lincoln Life and state in writing that you do 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 the value of any Purchase Payments allocated to the Variable
Account and/or the Fixed Account.
ALL VALUES PROVIDED BY THIS CERTIFICATE, WHEN BASED ON THE INVESTMENT EXPERIENCE
OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
<PAGE>
Table of Contents
Provision Page
Certificate Specifications..............................3
Special Terms...........................................4
Purchase Payments.......................................5
Fixed Account...........................................5
Variable Account........................................6
Transfers...............................................6
Withdrawals.............................................7
Annuity Options.........................................7
Loan....................................................7
Death Benefit...........................................8
General Provisions......................................9
<PAGE>
CERTIFICATE SPECIFICATIONS
- --------------------------
VARIABLE ACCOUNT:
Lincoln Life Variable Annuity Account Q. There are currently 14 Subaccounts in
the Variable Account. Purchase Payments may be directed to any of the available
Subaccounts, subject to limitations. The amounts allocated to each Subaccount
will be invested at net asset value in the shares of one of the regulated
investment companies. The Funds and Series are:
1. [Lincoln National Aggressive Growth Fund]
2. [Lincoln National Bond Fund]
3. [Lincoln National Capital Appreciation Fund]
4. [Lincoln National Equity-income Fund]
5. [Lincoln National Global Asset Allocation Fund]
6. [Lincoln National Growth and Income Fund]
7. [Lincoln National International Fund]
8. [Lincoln National Managed Fund]
9. [Lincoln National Money Market Fund]
10. [Lincoln National Social Awareness Fund]
11. (Lincoln National Special Opportunities Fund]
12. [Trend Series]
13. [Decatur Total Return Series]
14. [Global Bond Series]
See the VARIABLE ACCOUNT provision of this certificate for provisions governing
any substitution or elimination of Funds or Series.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE: [1.002%] This charge is applicable to
the Subaccounts under the Variable Account.
FIXED ACCOUNT GUARANTEED INTEREST RATE: [3.00%]
ANNUAL ACCOUNT CHARGE: [$25.00]
On the last day of the Participant Year, the account charge will be deducted
from the Account Value. Such amount will be deducted from the Account Value on a
pro rata basis based on the balances held on such date in the Fixed Account and
Variable Account. The full account charge will be deducted upon withdrawal of
the entire Account Value.
CONTINGENT DEFERRED SALES CHARGE (CDSC):
Withdrawal During
Contract Year 1 2 3 4 5 6 7 8 9 10+
CDSC (as a [6] % [61 % [6] % [6] % [5) % [4] % [3] % [2] % [1] % [0] %
percentage of
withdrawal amount)
There will be no CDSC after the Contract has been in force for [9] complete
Contract Years.
LIMITATIONS ON TRANSFERS AND WITHDRAWALS:
a) A transfer of funds may be directed from one Subaccount to another
Subaccount or to the Fixed Account. A transfer of Account Value may be
directed from the Fixed Account to one or more Subaccounts of the Variable
Account, subject to the limitations described in paragraph (b).
b) A transfer from the Fixed Account or a withdrawal from the Fixed Account
for any reason not specified in (e) will be subject to the following
limitations:
Page 3
<PAGE>
Periodic Elective Transfers or Withdrawals - The cumulative percentage limit
available under this paragraph (b) for a transfer or withdrawal is 20% in any
365 day period. The cumulative percentage is the sum of all transfers and
withdrawals under this paragraph (b), in the preceding 364 day period plus the
amount to be transferred or withdrawn under this paragraph (b), divided by the
then current Account Value in the Fixed Account. A cumulative percentage
exceeding 20% in any 365 day period will not be allowed.
Systematic Transfers or Withdrawals - A scheduled transfer or withdrawal of the
entire Account Value in the Fixed Account may be elected over a 5 year period.
The timing and percentage of each transfer or withdrawal is indicated in the
following schedule.
TRANSACTION DATES PERCENT ELIGIBLE FOR TRANSFER OR WITHDRAWAL
Initial date 20% of the balance on such date
First anniversary 20% of the balance on such date
Second anniversary 20% of the balance on such date
Third anniversary 20% of the balance on such date
Fourth anniversary 50% of the balance on such date
Fifth anniversary 100% of the balance on such date.
If Systematic Transfers or Withdrawals are elected, Periodic Elective Transfers
or Withdrawals will not be available during the period of scheduled payments.
This election may at any time after the initial date be rescinded. In this
event, Periodic Elective Transfers or Withdrawals will not be available until
the 1 year anniversary of the last Systematic Transfer or Withdrawal made before
rescinding the election.
If Systematic Transfers or Withdrawals are elected and a Periodic Elective
Transfer or Withdrawal was made within the last 364 day period, the payment due
on the initial date will be reduced by the sum of any Periodic Elective Transfer
or Withdrawal made within the last 364 day period.
If Systematic Transfers or Withdrawals are elected, no further Purchase Payments
may be allocated to the Account Value in the Fixed Account unless the election
is rescinded.
c) Subject to the following provisions and the limitations set forth in
paragraph (b), a partial withdrawal, without being subject to CDSC, of the
Account Value may be requested during the Contract Year for any reason
other than those specified in paragraph (e).
The cumulative percentage limit available under this paragraph (c) for partial
withdrawal, without being subject to the CDSC, is 20% in any Contract Year. The
cumulative percentage is the sum of all withdrawals under this paragraph (c)
during the Contract Year plus the amount to be withdrawn under this paragraph
(c) divided by the then current Account Value.
Partial withdrawals under this paragraph (c) exceeding the 20% cumulative
percentage will be subject to the CDSC.
d) If you request 100% of the Account Value for any reason other than those
specified in paragraph (e), the Account Value will be distributed as
follows:
100% of the Account Value in the Variable Account will be subject to the CDSC
and will be paid in a cash payment as provided in the WITHDRAWAL provision of
this certificate.
The Account Value in the Fixed Account will be paid in accordance with the
Systematic Withdrawal Schedule over a 5 year period as provided in paragraph (b)
of this certificate. 100% of each scheduled withdrawal will be subject to the
CDSC.
e) Withdrawals of Account Value will be allowed during the life of the
Contract without being subject to CDSC, if the withdrawal is for one of the
following reasons:
. Participant's death, disability, retirement or termination of employment,
excluding termination of employment due to Plan termination, plant
shutdown, or any other program instituted by the Participant's employer
which would reduce the work force by more than 20%.
. Participant hardship situation as allowed by the Plan.
. To purchase an annuity option under the Contract on behalf of the
Participant or their Beneficiary.
Page 4
<PAGE>
. Pursuant to a Qualified Domestic Relations Order (QDRO).
A withdrawal from the Account Value for any reason outlined in this paragraph
(e) is not subject to the provisions of paragraph (b), (c) or (d).
LOAN SET-UP CHARGE: [$35.00]
Page 5
<PAGE>
SPECIAL TERMS
Account Value - Value maintained under the Contract on your behalf. The value
may be maintained in either the Fixed Account, the Variable Account or both,
depending on allocations.
Accumulation Unit - A unit of measure used to calculate the variable Account
Value during the accumulation period.
Annuitant and Contingent Annuitant - The persons upon whose lives the Annuity
Payouts made after the Annuity Commencement Date will be based.
Annuity Commencement Date - The Valuation Date when money is withdrawn for
payment of Annuity Payouts under the annuity option selected.
Annuity Payout - An amount paid at regular intervals under one of several
options available to the Annuitant and/or any other payee. This amount may be
paid on a variable or fixed basis, or a combination of both.
Beneficiary - The person or entity designated by a Participant under a 403(b)
Plan that is not subject to ERISA or an Annuitant to receive a death benefit, if
any, payable upon the death of the Participant or the Annuitant.
Code - This is the Internal Revenue Code of 1986, as amended.
Contingent Deferred Sales Charge (CDSC) - This charge is assessed on certain
premature withdrawals of the Account Value, calculated according to the Contract
provisions.
Contract - The agreement between the Contractowner and Lincoln Life providing a
variable annuity to fund the Plan.
Contractowner - The Contractowner named on the cover of this certificate.
Contract Year - This is the 12 month period which begins on the Contract
effective date or on the anniversary of the effective date.
December 31, 1988 Grandfathered Balance - This is the balance that is available
for withdrawal, under a 403(b) plan, without meeting an otherwise distributable
event such as death, disability, termination of employment or attainment of age
59 1/2.
ERISA - This is the Employee Retirement Income Security Act of 1974.
Fixed Account - An account established for the Contract by Lincoln Life which is
a part of the general assets of Lincoln Life.
Funds - Any of the mutual funds into which Purchase Payments allocated to the
Variable Account are indirectly invested.
Home Office - The Lincoln National Life Insurance Co., 1300 South Clinton
Street, Fort Wayne, Indiana 46802 or an institution designated by us.
Lincoln Life (we, us, our) - The Lincoln National Life Insurance Co.
Net Asset Value Per Share - The value of a Fund or Series share calculated in
accordance with the Fund's or Series' prospectus.
Participant (you, your) - A person defined as a Participant in the Plan, who has
enrolled under the Contract and Lincoln Life maintains an Account Value.
Participant Year - This is the 12 month period which begins on the Participant
effective date as set forth on the cover page of this certificate or on the
anniversary of the Participant effective date.
Pending Allocation Account - This is an account established under the Variable
Account that invests Purchase Payments received without allocation instructions
in shares of a money market mutual fund.
Plan - The Plan or arrangement named on the cover of this certificate, which
includes any employer based arrangement whether or not considered a plan under
State or Federal law.
Page 6
<PAGE>
Series - Any of the underlying portfolios of a Fund in which Purchase Payments
allocated to the Variable Account are indirectly invested.
Subaccount - That portion of the Variable Account which invests in shares of a
particular Fund or Series. There is a separate Subaccount that corresponds to
each Fund and Series.
Valuation Date - Each day the New York Stock Exchange (NYSE) is open for trading
and we are open for business.
Valuation Period - The period commencing at the close of trading on the NYSE on
a Valuation Date and ending at the close of trading on the NYSE on the next
succeeding Valuation Date.
Variable Account - The segregated investment account into which Lincoln Life
sets aside and invests the variable assets attributable to this variable annuity
Contract.
PURCHASE PAYMENTS
Purchase Payments under the Contract may be allocated to the Variable Account
and/or the Fixed Account in 1% increments.
If complete allocation instructions have not been received by us in order for us
to perform our duties under the Contract, we will direct such Purchase Payments
to the Pending Allocation Account as described in the SPECIAL TERMS.
We will follow up with the Contractowner monthly for a period of 90 days for
allocation instructions for Account Value in the Pending Allocation Account as
described in the SPECIAL TERMS.
Within 2 business days of receipt of complete allocation instructions, the
Account Value in the Pending Allocation Account will be transferred to the
accounts as instructed.
If allocation instructions are not received after the 90 days notice, we will
refund to the Contractowner, the Purchase Payments in the Pending Allocation
Account together with earnings thereon (unless applicable ERISA requirements
preclude return on earnings) within 105 days of the date of receipt of the
initial Purchase Payment.
The Pending Allocation Account will only be used for the purpose mentioned in
this section; you or the Contractowner may not direct a portion of Purchase
Payments to this Subaccount. Purchase Payments directed to the Pending
Allocation Account will not be afforded the same rights as Purchase Payments
under the Contract. The following provisions under this certificate will not be
applicable: the Account Charge described in the CERTIFICATE SPECIFICATIONS,
TRANSFERS, WITHDRAWALS, ANNUITY OPTIONS and LOAN.
Purchase Payments in any one Contract Year which exceed twice the amount of
Purchase Payments made in the first Contract Year may be made only with our
permission. If Purchase Payments are stopped, the Account Value will remain in
force as paid-up. Purchase Payments may resume at any time until the Annuity
Commencement Date, a request to withdraw the entire Account Value or payment of
any death benefit, whichever comes first.
FIXED ACCOUNT
Interest will be credited daily on the Account Value in the Fixed Account. The
rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Value in the Fixed Account at an effective annual rate not
less than the rate shown in the CERTIFICATE SPECIFICATIONS, during all years.
Periodically, we will declare an interest rate and the time period for which
that interest rate will apply to Purchase Payments received. [The Contract will
credit an interest rate for this time period, which will equal the declared
interest rate plus 1.00%.] [OR] [The Contract will credit an interest rate for
this time period which will equal the declared interest rate plus 0.50%.] After
the expiration of this time period, the Contract will credit an interest rate,
not to be less than the rate shown in the CERTIFICATE SPECIFICATIONS.
Page 7
<PAGE>
All Account Value maintained in the Fixed Account will be guaranteed against
loss of principal.
VARIABLE ACCOUNT
- ----------------
Purchase Payments may be directed to any of the available Subaccounts. The
Purchase Payments allocated to each Subaccount will be applied to purchase
Accumulation Units at the Accumulation Unit value next calculated after receipt
at our Home Office.
We reserve the right to eliminate the availability of the shares of any Fund or
Series and substitute the securities of a different investment company if the
shares of a Fund or Series are no longer available for investment, or, if in our
judgement, any Fund or Series should become inappropriate in view of the
purposes of the Contract. We may add a Subaccount investing in a new Fund or
Series. We will give the Contractowner written notice of the elimination or
substitution of any Fund or Series no later than 15 days after the substitution
occurs. Any such eliminations, substitutions or additions will be subject to
compliance with any applicable regulatory requirements.
We will use each Purchase Payment allocated to the Variable Account to buy
Accumulation Units in the Subaccount(s) selected by you. The number of
Accumulation Units bought will be determined by dividing the amount directed to
the Subaccount by the dollar value of an Accumulation Unit in that Subaccount as
of the end of the Valuation Period during which the Purchase Payment is received
at our Home Office. The number of Accumulation Units held for the Variable
Account will not be changed by any change in the dollar value of Accumulation
Units in any Subaccount.
The value of a Subaccount on any Valuation Date is the number of Accumulation
Units in the Subaccount multiplied by the value of an Accumulation Unit of the
Subaccount at the end of the Valuation Period.
Purchase Payments allocated to the Variable Account are converted into
Accumulation Units. The number of Accumulation Units resulting from each
Purchase Payment is equal to the Purchase Payment divided by the value of an
Accumulation Unit for the Valuation Period during which the Purchase Payment is
allocated to the Variable Account. The Accumulation Unit value for each
Subaccount was or will be arbitrarily established at the inception of the
Subaccount. It may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Subaccount for any later Valuation
Period is determined as follows.
1. The total value of Fund or Series shares held in the Subaccount is
calculated by multiplying the number of Fund or Series shares owned by the
Subaccount at the beginning of the Valuation Period by the Net Asset Value
Per Share of the Fund or Series at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund or Series if an ex-
dividend date occurs during the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period; such
liabilities include daily charges imposed on the Subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine as a result of the operations of the Variable
Account; and
3. The result of 2. is divided by the outstanding number of Accumulation Units
in the Subaccount at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to
the daily mortality and expense risk charge multiplied by the number of calendar
days in the Valuation Period.
The assets of the Variable Account equal to its reserves and other liabilities
will not be charged with the liabilities arising from any other part of our
business.
The Accumulation Unit value may increase or decrease the dollar value of
benefits under the Contract.
TRANSFERS
- ---------
A transfer of Account Value will be subject to the provisions outlined under the
LIMITATIONS ON TRANSFERS
AND WITHDRAWALS in the CERTIFICATE SPECIFICATIONS of this certificate.
A transfer request may be in writing, or by telephone provided we have received
the appropriate authorization from the Contractowner. Amounts transferred to the
Subaccount(s) will purchase Accumulation Units as described in the VARIABLE
ACCOUNT provision of this certificate.
There may not be more than one transfer in any 30 day period. We reserve the
right to further limit the number of transfers.
Page 8
<PAGE>
There is no charge for a transfer. However, we reserve the right to impose a
charge in the future for any transfers.
A transfer among Subaccounts will result in the purchase of Accumulation Units
in one Subaccount and the redemption of Accumulation Units in the other
Subaccount. Such a transfer will be effected at Accumulation Unit values
calculated at the end of the Valuation Period during which the transfer request
is received at our Home Office. The valuation of Accumulation Units is described
in the VARIABLE ACCOUNT provision of this certificate.
WITHDRAWALS
- -----------
A withdrawal of Account Value will be subject to the provisions outlined under
LIMITATIONS ON TRANSFERS AND WITHDRAWALS in the CERTIFICATE SPECIFICATIONS of
this certificate.
All withdrawal requests must be submitted in writing to us. A withdrawal request
must be authorized by the Contractowner. If you are a Participant under a 403(b)
plan that is not subject to ERISA you may authorize a withdrawal request.
Withdrawals will be effected at Accumulation Unit values calculated at the end
of the Valuation Period during which we receive written request at our Home
Office. We reserve the right to require proof of the event giving rise to any
withdrawal under this certificate.
Any cash payment will be mailed from our Home Office within 7 days after the
date of withdrawal; however, we may be permitted to defer payments from the
Variable Account under the Investment Company Act of 1940, as amended, as in
effect at the time a request for withdrawal is received. We reserve the right to
defer any payment from the Fixed Account for a period not to exceed 6 months
after a request is received.
ANNUITY OPTIONS
- ---------------
Upon request, we will quote for you the amounts of Annuity Payouts under the
various annuity options available under the Contract. You may select either a
variable Annuity Payout, a fixed Annuity Payout or a combination fixed and
variable Annuity Payout.
A fixed Annuity Payout is an annuity option which we guarantee the amount of
each Annuity Payout as long as the annuity is payable. A fixed Annuity Payout
will be purchased using the 1983 'a' Individual Annuity Mortality Table,
modified, with an assumed interest rate of return of 3.00% per year and a 2.00%
expense load.
A variable Annuity Payout is an annuity option with Annuity Payouts that
increase, decrease or remain the same in accordance with the investment results
of the applicable Subaccount. A variable Annuity Payout will be purchased using
the 1983 'a' Individual Annuity Mortality Table, modified, with an assumed
interest rate of return of 5.00% per year and a 2.50% expense load.
We will provide you with a retirement certificate when Annuity Payouts begin.
The certificate will be issued showing the amount and terms of the purchased
annuity.
LOAN
- ----
Prior to your Annuity Commencement Date, if permitted by the Plan and the
Contractowner, you may apply for a loan under the Contract. We will loan, upon
written application and assignment of the Account Value equal to the loan amount
as security for the loan, a sum which will not be less than $1,000.00. The
Account Value which is assigned to us as security for the loan must be allocated
to the Fixed Account.
The maximum loan amount is generally equal to 50% of the Account Value, not to
exceed a total of $50,000.00 on all outstanding loans you may have under all
plans. For plans not subject to ERISA, if 50% of the total Account Value is less
than $10,000.00, you can borrow the Account Value minus restricted dollars,
provided however, if the Plan is governed by ERISA, the maximum loan amount is
equal to 50% of the Account Value in addition to other restrictions contained in
this paragraph. The restricted dollars are a minimum of $300.00 plus any
Federal/State tax to be withheld, 1 year's contract loan interest and CDSC on
loan principal and loan interest. If there has been a loan in the preceding 12
month period, the $50,000.00 maximum loan limit is reduced by the excess of the
highest outstanding balance of loans during the preceding 12 month period over
the outstanding current loan balance.
The loan rate is adjustable, which means that it may change from time to time. A
loan's initial interest rate will be based on the declared interest rate in
effect at the time a loan is established and will apply for that contract loan
year. The declared interest rate will be determined monthly and will be equal to
Moody's Cor-
Page 9
<PAGE>
porate Bond Yield monthly average for the calendar month two months prior to the
date the loan rate is declared, rounded down to the next 0.25%. The loan
interest rate at any time will not exceed the maximum interest rate allowed in
the state where the Contract is issued. If the average is no longer made
available, then the declared interest rate will be a comparable rate acceptable
to the regulatory authorities.
Once each year, upon the anniversary of the loan, we will compare each loan's
interest rate to the then current declared interest rate. If the then current
declared interest rate differs from the loan's interest rate by 0.50% or more,
the loan's interest rate will be adjusted to equal the then current declared
interest rate. The loan's interest rate will remain unchanged if the then
current declared interest rate differs from the loan's interest rate by less
than 0.50%. The loan's interest rate may increase or decrease, but the loan's
interest rate will not be adjusted by less than 0.50%.
During the existence of a contract loan, the amount of the contract loan
principal will continue to earn interest as specified in the FIXED ACCOUNT
provision of this certificate.
Minimum loan payments of principal and interest must be paid in level amortized
payments and must be no less often than quarterly. The minimum payment is
$80.00. The contract loan may be repaid in full at any time while the Contract
is in force and prior to the Annuity Commencement Date.
If the required loan payment is not paid in full within 90 days after the date
the payment is due, the total outstanding loan balance will be determined to be
in default and no additional loan payments will be accepted. If your December
31, 1988 Grandfathered Balance is sufficient, the defaulted amount will be
deducted from the Account Value following the 90-day grace period. In addition,
if allowed by the Plan, any amounts equal to employer Purchase Payments and
earnings on those Purchase Payments will be deducted from the Account Value
following the 90-day period. Any remaining defaulted amount will be deducted
from the Account Value when one of the following events occur: termination of
service with the employer, attainment of age 59 1/2, disability, or death.
If we receive a request to withdraw the entire Account Value while there is an
outstanding loan, the Account Value will be reduced by the amount of the
outstanding loan plus loan interest due. Upon your death, we will pay the
Beneficiary the Account Value less the outstanding loan and loan interest due.
We will charge a loan set-up charge as specified in the CERTIFICATE
SPECIFICATIONS, each time a loan is established. The amount will be withdrawn
from the Account Value.
DEATH BENEFIT
- -------------
If you are a Participant under a Plan that is subject to ERISA and die prior to
the Annuity Commencement Date, a death benefit may be paid by the Contractowner.
If you are a Participant under a 403(b) Plan that is not subject to ERISA and
you die prior to the Annuity Commencement Date, the following provisions will
apply to you.
Upon receipt of due proof of death we will pay the Beneficiary, if one is
living, a death benefit equal to the Account Value less any outstanding loan
balance.
We will calculate the death benefit as of the end of the Valuation Period during
which we receive due proof of death and the election of a form of benefit.
Due proof of death will be a certificate of death, a copy of the certified
statement of death from the attending physician, a copy of a certified decree of
a court of competent jurisdiction as to the finding of death, or any other proof
satisfactory to us.
All death benefit payments will be subject to the laws and regulations governing
death benefits.
Notwithstanding any provision of the Contract to the contrary, no payment of
death benefit provided upon your death will be allowed that does not satisfy the
requirements of section 401(a)(9) of the Code. All such requirements are herein
incorporated by reference.
The death benefit may be paid in a lump sum or under a settlement option then
available. If a lump sum settlement is elected, the proceeds will be paid within
7 days of approval by us of the claim. This payment may be postponed as
permitted by the Investment Company Act of 1940, as amended.
Page 10
<PAGE>
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives you, the death benefit will be paid in one sum to your estate.
GENERAL PROVISIONS
- ------------------
The Contract between us and the Contractowner may be changed or amended in
accordance with its terms Such changes do not require you or your Beneficiary's
consent. Any change will not adversely affect Purchase Payments received before
the effective date of the change unless such change was required by law.
Nothing in the Contract impairs any right granted to you by this certificate or
the applicable state insurance code. You may review the Contract by contacting
the Contractowner.
A failure by us to insist upon the strict performance of any provision of the
Contract will not be construed a waiver of any of our rights for future actions.
The Contract, together with the Contractowner's application and any riders or
endorsements, constitutes the entire Contract between the Contractowner and us.
Except as allowed by the Plan or applicable law, the Contract or your interest
in the Contract may not be transferred, sold, assigned, discounted or pledged,
either as collateral for a loan or as security for the performance of an
obligation or for any other purpose.
Federal, state and local government premium tax, if applicable, will be deducted
from either the Purchase Payment when received or at time of withdrawal or
annuitization.
Any notice required by this certificate must be delivered to us at: The Lincoln
National Life Insurance Company, 1300 South Clinton Street, Fort Wayne, IN
46802; and notices to you will be delivered to you at the address shown on our
records.
Page 11
<PAGE>
ACTIVE
LIFE
CERTIFICATE
If you have any questions concerning
this certificate, please contact your
Lincoln Life representative
or the Home Office of LL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 South Clinton Street
Fort Wayne, Indiana 46802
800-248-0838
<PAGE>
Exhibit 4(L)
Group Annuity Amendment
Made a part of the certificate to which it is attached
The provisions of this Group Annuity Amendment will be effective on January 1,
1999.
The FIXED ACCOUNT provisions of this certificate will be amended to read as
follows:
"Interest will be credited daily on the Account Value in the Fixed Account. The
rate of interest credited each day, if compounded for 365 days, yields the
annual interest rate in effect for the day. We guarantee that we will credit
interest on Account Value in the Fixed Account at an effective annual rate not
less than the rate shown in the CERTIFICATE SPECIFICATIONS, during all years.
Interest rates for each quarter will be declared and made available reasonably
in advance of that quarter.
Purchase Payments received in any quarter will earn interest at the declared
rate for that quarter and the next three quarters. When Purchase Payments are
beyond the initial four-quarter period, they will earn interest at the portfolio
rate. The portfolio rate is declared for the coming quarter and is in effect
only for that quarter. Interest rates applicable to contract loan principal are
declared for the coming quarter and are in effect only for that quarter."
The Systematic Transfers or Withdrawals schedule shown in paragraph (b) of
LIMITATIONS ON TRANSFERS AND WITHDRAWALS shown in the CERTIFICATE SPECIFICATIONS
will be amended to read as follows:
"Transaction dates Percentage eligible for transfer or withdrawal
Initial date 20% of the balance on such date.
First Anniversary 20% of the balance on such date.
Second Anniversary 25% of the balance on such date.
Third Anniversary 33% of the balance on such date.
Fourth Anniversary 50% of the balance on such date.
Fifth Anniversary 100% of the balance on such date."
The Lincoln National Life Insurance Company
Gabriel L. Shaheen, President
<PAGE>
Account Q
Exhibit 10
Consent of Ernst & Young LLP,
Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" in the Post Effective Amendment No. 1 to the Registration Statement
(Form N-4 No. 333-43373) and the related Statement of Additional Information
appearing therein and pertaining to Lincoln Life Variable Annuity Account Q,
and to the use therein of our reports dated (a) February 1, 1999, with respect
to the statutory-basis financial statements of The Lincoln National Life
Insurance Company, and (b) March 30, 1999, with respect to the financial
statements of Lincoln Life Variable Annuity Account Q.
Fort Wayne, Indiana
April 19, 1999
<PAGE>
<TABLE>
<CAPTION>
<S><C>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ---------------------------------------------
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
| ---------------------------------------------
| ---------------------------------------------
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life |
| | assurance & pension products |
| ---------------------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| |100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -----------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | --------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | --------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
--------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| |100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
| | ----------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
| -------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
| ----------------------------------------------
| | Lincoln Life and Annuity Distributors, Inc. |
|--| (formerly Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | |Inc. ("LLAD")has subsidiaries of which LLAD owns from |
| | |80%-100% of the common stock (see Attachment #1). These |
| | |subsidiaries serve as the corporate agency offices for the |
| | |marketing and servicing of products of The Lincoln National |
| | |Life Insurance Company. Each subsidiary's assets are less |
| | |than 1% of the total assets of the ultimate controlling |
| | |person. |
| | -------------------------------------------------------------
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
|
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| |
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
--------------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | ------------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | ------------------------------------
| | | | ----------------------------------------
| | | ---| Delaware International Advisers Ltd. |
| | | | 81.1% - England - Investment Advisor |
| | | ----------------------------------------
| | | --------------------------------------
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service |
| | | --------------------------------------
| | | | -------------------------------------------------
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | -------------------------------------------------
| | | | | --------------------------------------
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | | --------------------------------------
| | | | -------------------------------------------------
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | | ---------------------------------------
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | ---------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | ------------------------------------------------------
| | | | | | ------------------------------------
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General Partner |
| | | | | | ------------------------------------
| | | | | | | -----------------------------------------
| | | | | | |--| Founders CBO, L.P. |
| | | | | | | 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | |--|Founders CBO Corporation |
| | | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
| | | | | | | ------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | | -----------------------------------
| | | | -------------------------------------------------
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | | ------------------------------------
| | | | |--| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | -------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -----------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | -----------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |--| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -------------------------------------------------
| | | | |__| Delaware Investment & Retirement Services, Inc. |
| | | | | | 100% - Delaware - Registered Transfer Agent |
| | | | | -------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | ---------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ---------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
----------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--|AnnuityNet, Inc. |
| | |100% - Indiana - Distribution of annuity products |
| | --------------------------------------------------
| | | -------------------------------------
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| | -------------------------------------
| | -------------------------------------------
| |--|Lincoln National Insurance Associates, Inc.|
| | |(fka Cigna Associates, Inc.) |
| | |100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | --------------------------------------------------------
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | |100% - Alabama - Insurance Agency |
| | | --------------------------------------------------------
| | | -------------------------------------------------------------
| | | | Lincoln National Insurance Associates of Massachusetts, Inc.|
| | | | (formerly Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| | -------------------------------------------------------------
| | -------------------------------------------
| |--| Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| | --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| | -----------------------------------------------
| | -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
----------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | --------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
| --------------------------------------------------------
| ---------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| ---------------------------------------------
| ------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| ------------------------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | -------------------------------------------------------
| |--| Allied Westminster & Company Limited |
| | | (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | -------------------------------------------------------
| | --------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ---------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| | --------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Financial Advisers Limited |
| | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| | ------------------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln ISA Management Limited |
| | | | (formerly Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
----------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | | (formerly: Laurentian Milldon Limited)|
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--|Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | |100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | |100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | -----------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
-------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | |----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | | -----------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| | -----------------------------------------------------------
| |--| Lincoln Independent Limited |
| | | (formerly: Laurentian Independent Financial Planning Ltd.)|
| | | 100% - England/Wales - Independent Financial Adviser |
| | -----------------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln Investment Management Limited |
| | | (formerly: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| | --------------------------------------------
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Independent (Jersey) Limited |
| | | (formerly Lincoln National (Jersey) Limited) |
| | | 100% - England/Wales - Dormat |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National(Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln SBP Trustee Limited |
| | | 100% - England/Wales |
------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| | --------------------------------------------------------
| | ---------------------------------------------------
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | ---------------------------------------------------
| | | -----------------------------------------
| | |--|Solutions Reinsurance Limited |
| | | |100% - Bermuda - Class III Insurance Co |
| -----------------------------------------
| ----------------------------------------------------------
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
| ----------------------------------------------------------
| ----------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ----------------------------------------------------------
| --------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
--------------------------------------------
</TABLE>
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act as Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (formerly Laurentian
Financial Group PLC); Lincoln Milldon Limited (formerly Laurentian Milldon
Limited); Lincoln Management Services Limited (formerly Laurentian
Management Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was
dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved effective
March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company
then changed its name to Delvoy, Inc. The acquisition included the mutual
fund group of companies as part of the Voyager acquisition. The following
companies all then were moved under the newly formed holding company,
Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors,
Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager
Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund
Distributors, Inc. is to merge into Delaware Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros,
Grupo Financiero InverMexico. Stock was sold to Grupo Financiero
InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National Financial
Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc.
effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc.
surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a
newly formed company Voyager Fund Distributors (Delaware), Inc.,
incorporated as a Delaware corporation on May 23, 1997. Voyager Fund
Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P.
effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Soutwest Financial Group, Inc. -- company's term of existence
expired July 18, 1998.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT Q
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having Transactions with
Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's reports
relating thereto.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- ------------------------- ----------------------------- ----------------- -----------------------------
<S> <C> <C> <C>
Annual Reports Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance Eric Jones Permanently, the first two
years in an easily accessible
place
</TABLE>
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Daily reports CSRM Nancy Alford Permanently, the first two
of securities Finance Eric Jones years in an easily accessible
transactions CSRM (Portland) Kathleen Adamson place
Portfolio Securities
- --------------------
C-Port Purchase/ Finance Eric Jones Permanently, the first two
Sales Reports years in an easily accessible
place
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
</TABLE>
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Not Applicable.
<TABLE>
<CAPTION>
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
<S> <C> <C> <C>
Daily Journals CSRM Nancy Alford Permanently, the first two
Finance Eric Jones years in an easily accessible
CSRM (Portland) Kathleen Adamson place
</TABLE>
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of the
collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
<TABLE>
<CAPTION>
General Ledger
- --------------
<S> <C> <C> <C>
LNL trial Finance Eric Jones Permanently, the first
Balance (5000 series) two years in an easily
accessible place
</TABLE>
Securities in Transfer
- ----------------------
Not Applicable.
Securities in Physical Possession
- ---------------------------------
Not Applicable.
Securities Borrowed and Loaned
- ------------------------------
Not Applicable.
Monies Borrowed and Loaned
- --------------------------
<PAGE>
Not Applicable.
<TABLE>
<CAPTION>
Dividends and Interest Received
- -------------------------------
<S> <C> <C> <C>
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Dividends Receivable and Interest Accrued
- -----------------------------------------
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
</TABLE>
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
<TABLE>
<CAPTION>
Ledger Account for each portfolio Security
- ------------------------------------------
<S> <C> <C> <C>
Daily Report Finance Eric Jones Permanently, the first two
Of Securities years in an easily accessible
Transactions (Daily place
Trade File)
</TABLE>
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the
<PAGE>
company held. in respect of share accumulation accounts (arising from periodic
investment plans, dividend reinvestment plans, deposit of issued shares by the
owner thereof, etc.), details shall be available as to the dates and number of
shares of each accumulation, and except with respect to already issued shares
deposited by the owner thereof, prices of each such accumulation.
<TABLE>
<CAPTION>
Shareholder Accounts
- ----------------------
<S> <C> <C> <C>
Master file Finance Eric Jones Permanently, the first two
Record (Daily CSRM Nancy Alford years in an easily accessible
Trade File & Leg CSRM (Portland) Kathleen Adamson place
Syst Client Rpt)
</TABLE>
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Not Applicable
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
Corporate Documents
- -------------------
Memorandum Legal Janet Lindenberg Permanently, the first two
Establishing SA years in an easily accessible
place
</TABLE>
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
<TABLE>
<CAPTION>
Order Tickets
- ---------------
<S> <C> <C> <C>
UIT applica- CSRM Nancy Alford Six years, the first two
tions and Finance Eric Jones years in an easily accessible
daily reports CSRM (Portland) Kathleen Adamson place
of securities
transactions
</TABLE>
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
Commercial Paper
- ----------------
Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Trial Balance
- -------------
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
</TABLE>
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Not Applicable.
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
<TABLE>
<S> <C> <C> <C>
Advisory Legal Janet Lindenberg Six years, the first two
Agreements years in an easily accessible
place
</TABLE>
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
<TABLE>
<S> <C> <C> <C>
Correspondence CSRM Nancy Alford Six years, the first two
CSRM (Portland) Kathleen Adamson years in an easily accessible
place
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Proxy State- CSRM Nancy Alford Six years, the first two
ments and CSRM (Portland) Kathleen Adamson years in an easily accessible
Proxy Cards place
Pricing Sheets Finance Eric Jones Permanently, the first two
years in an easily accessible
place
Bank State- Treasurers Rusty Summers Six years, the first two years
ments in an easily accessible place
</TABLE>
March 24, 1999
<PAGE>
Exhibit 16(a)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
/s/Gabriel L. Shaheen President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
Director
- -----------------------------
H. Thomas McMeekin
Director
- -----------------------------
Richard C. Vaughan
Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
Exhibit 16(b)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
/s/Lawrence T. Rowland Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
Director
- -----------------------------
H. Thomas McMeekin
Director
- -----------------------------
Richard C. Vaughan
Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
Exhibit 16(c)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
/s/Keith J. Ryan Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
Director
- -----------------------------
H. Thomas McMeekin
Director
- -----------------------------
Richard C. Vaughan
Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
Exhibit 16(d)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
/s/H. Thomas McMeekin Director
- -----------------------------
H. Thomas McMeekin
Director
- -----------------------------
Richard C. Vaughan
Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
Exhibit 16(e)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
Director
- -----------------------------
H. Thomas McMeekin
/s/Richard C. Vaughan Director
- -----------------------------
Richard C. Vaughan
Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
Exhibit 16(f)
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
Q (Group Multi-Fund), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-43373 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be signed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
President, Chief Executive Officer and Director
- ----------------------------- (Principal Executive Officer)
Gabriel L. Shaheen
Executive Vice President and Director
- -----------------------------
Lawrence T. Rowland
Senior Vice President, Assistant Treasurer and
- ----------------------------- Chief Financial Officer
Keith J. Ryan (Principal Financial Officer and Principal
Accounting Officer)
Director
- -----------------------------
H. Thomas McMeekin
Director
- -----------------------------
Richard C. Vaughan
/s/Jon A. Boscia Director
- -----------------------------
Jon A. Boscia
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
----------------------
Notary public
Commission Expires: 7-10-2001
---------
