<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1998
1933 Act Registration No. 333-
1940 Act Registration No. 811-08517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. / /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 2 /X/
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
(EXACT NAME OF REGISTRANT)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Indiana 46802
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE
(219) 455-2000
<TABLE>
<S> <C>
COPY TO:
Jack D. Hunter, Esquire Kimberly J. Smith, Esquire
200 East Berry Street Sutherland, Asbill & Brennan LLP
P.O. Box 1110 1275 Pennsylvania Ave., N.W.
Fort Wayne, Indiana 46802 Washington, D.C. 20004
(NAME AND ADDRESS OF
AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration Statement.
Title of Securities: Interests in a separate account under individual flexible
payment deferred variable annuity contracts.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND
PART B (STATEMENT OF ADDITIONAL INFORMATION)
OF REGISTRATION STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ----------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Cover Page...................................... Cover Page
2. Definitions..................................... Definitions
3. Synopsis........................................ Highlights; Fees and Expenses
4. Condensed Financial Information................. Condensed Financial Information
5. General.........................................
(a) Depositor................................... Lincoln Life and the Variable Account
(b) Registrant.................................. Lincoln Life and the Variable Account
(c) Portfolio Company The Funds
(d) Fund Prospectus The Funds
(e) Voting Rights............................... The Funds -- Voting Rights
6. Deductions and Expenses
(a) General..................................... Charges and Deductions
(b) Sales Load %................................ Charges and Deductions -- Contingent Deferred Sales
Charge (Sales Load)
(c) Special Purchase Plan....................... N/A
(d) Commissions................................. Distribution of the Contracts
(e) Fund Expenses............................... Fees and Expenses -- Fund Portfolio Annual Expenses
(f) Organizational Expenses..................... N/A
7. Contracts
(a) Persons with Rights......................... Other Contract Features (Ownership, Assignment,
Beneficiary, Change of Beneficiary, Annuitant,
Surrenders and Partial Withdrawals, Death of Owner,
Death of Annuitant); Annuity Provisions; Voting Rights
(b) (i) Allocation of Premium Payments.......... Premium Payments and Contract Value -- Allocation of
Premium Payments
(ii) Transfers.................................. Transfer of Contract Values Between Sub-Accounts
(iii) Exchanges................................. N/A
(c) Changes..................................... Modification; Substitution of Securities; Change in
Operation of Variable Account
(d) Inquiries................................... Cover Page; Highlights
8. Annuity Period.................................. Annuity Provisions
9. Death Benefit................................... Death of the Owner; Death of the Annuitant
10. Purchase and Contract Values
(a) Purchases................................... Premium Payments
(b) Valuation................................... Contract Value; Accumulation Unit;
(c) Daily Calculation........................... Accumulation Unit; Allocation of Premium Payments
(d) Underwriter................................. Distribution of the Contracts
11. Redemptions
(a) By Owners................................... Surrenders
By Annuitant.................................... Annuity Provisions -- Variable Options
(b) Texas ORP................................... Other Contract Features
(c) Check Delay................................. Delay of Payments and Transfers
(d) Lapse....................................... Premium Payments
(e) Free Look................................... Highlights
12. Taxes........................................... Tax Matters
13. Legal Proceedings............................... Legal Proceedings
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ----------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
14. Table of Contents for the Statement of
Additional Information......................... Table of Contents of the Statement of Additional
Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
15. Cover Page...................................... Cover Page
16. Table of Contents............................... Table of Contents
17. General Information and History................. a) N/A
b) N/A
c) (Prospectus) Lincoln Life and the Variable Account;
the Fixed Account
18. Services
(a) Fees and Expenses of Registrant............. N/A
(b) Management Contracts........................ N/A
(c) Custodian................................... Custody of Assets
Independent Accountant.......................... Experts
(d) Assets of Registrant........................ N/A
(e) Affiliated Person........................... N/A
(f) Principal Underwriter....................... Distribution of the Contracts
19. Purchase of Securities Being Offered............ Distribution of the Contracts
Offering Sales Load............................. Distribution of the Contracts; (Prospectus) Charges and
Deductions -- Contingent Deferred Sales Charge (Sales
Load)
20. Underwriters.................................... Distribution of the Contracts; (Prospectus) Distribution
of the Contracts
21. Calculation of Performance Data................. Investment Experience; Historical Performance Data
22. Annuity Payments................................ (Prospectus) Annuity Provisions
23. Financial Statements............................ Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
- ----------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
24. Financial Statements and Exhibits............... Financial Statements and Exhibits
(a) Financial Statements........................ Financial Statements
(b) Exhibits.................................... Exhibits
25. Directors and Officers of the Depositor......... Directors and Officers of the Depositor
26. Persons Controlled By or Under Common Control
with the Depositor or Registrant............... Persons Controlled By or Under Common Control with the
Depositor or Registrant
27. Number of Owners................................ Number of Owners
28. Indemnification................................. Indemnification
29. Principal Underwriters.......................... Principal Underwriter
30. Location of Accounts and Records................ Location of Accounts and Records
31. Management Services............................. Management Services
32. Undertakings.................................... Undertakings
Signature Page.................................. Signatures
</TABLE>
ii
<PAGE>
DELAWARE-LINCOLN CHOICEPLUS XL
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
HOME OFFICE:
1300 S. CLINTON STREET
FORT WAYNE, IN 46802
(888) 868-2583
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
The Flexible Payment Deferred Variable Annuity Contracts (the "Contracts")
described in this prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments on a fixed or variable basis. The
Contracts are designed to aid individuals in long term planning for retirement
or other long term purposes. The Contracts are available for retirement plans
which do not qualify for the special federal tax advantages available under the
Internal Revenue Code ("Non-Qualified Plans") and for retirement plans which do
qualify for the federal tax advantages available under the Internal Revenue Code
("Qualified Plans"). (See "Tax Matters -- Qualified Plans.") Premium payments
for the Contracts will be allocated to a segregated investment account of The
Lincoln National Life Insurance Company ("Lincoln Life"), designated Lincoln
Life Variable Annuity Account N (the "Variable Account"), or to the Fixed
Account, or some combination of them, as selected by the owner of the Contract.
The following funding options are available under a Contract: Through the
Variable Account, Lincoln Life offers thirty diversified open-end management
investment companies (commonly called mutual funds), each with a different
investment objective: AIM Variable Insurance Funds -- AIM V.I. Growth Fund, AIM
V.I. Value Fund and AIM V.I. International Equity Fund; BT Insurance Funds Trust
- -- Equity 500 Index Fund; Delaware Group Premium Fund -- Decatur Total Return
Series, Devon Series, Delchester Series, Emerging Markets Series, International
Equity Series, REIT Series, Small Cap Value Series, Social Awareness Series, and
Trend Series; Dreyfus Variable Investment Fund -- Small Cap Portfolio; Fidelity
Variable Insurance Products Fund -- Equity-Income Portfolio, Growth Portfolio
and Overseas Portfolio; Fidelity Variable Insurance Products Fund III -- Growth
Opportunities Portfolio; Investors Fund Series -- Kemper Government Securities
and Kemper Small Cap Growth Portfolio; Liberty Variable Investment Trust --
Colonial U.S. Stock Fund and Newport Tiger Fund; Lincoln National Bond Fund;
Lincoln National Money Market Fund; MFS-Registered Trademark- Variable Insurance
Trust -- MFS Total Return Series, MFS Utilities Series, MFS Emerging Growth
Series, MFS Research Series and OCC Accumulation Trust -- Global Equity
Portfolio, Managed Portfolio. The fixed interest option offered under a Contract
is the Fixed Account. Premium payments or transfers allocated to the Fixed
Account, and 3% interest per year thereon, are guaranteed, and additional
interest may be credited, with certain withdrawals subject to a Market Value
Adjustment and withdrawal charges. Unless specifically mentioned, this
prospectus only describes the variable investment options.
This entire prospectus, and those of the Funds, should be read carefully before
investing to understand the Contracts being offered. The "Statement of
Additional Information" dated September , 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference to this
Prospectus. It is available at no charge by calling or writing Lincoln Life's
Home Office as shown above, provides further information. Its Table of Contents
is at the end of this prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE CONTRACTS OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED: SEPTEMBER , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
DEFINITIONS.................................... 3
HIGHLIGHTS..................................... 5
FEES AND EXPENSES.............................. 7
CONDENSED FINANCIAL INFORMATION................ 12
LINCOLN LIFE AND THE VARIABLE ACCOUNT.......... 13
THE FUNDS...................................... 13
General...................................... 18
Substitution of Securities................... 19
Voting Rights................................ 19
PREMIUM PAYMENTS AND CONTRACT VALUE............ 19
Premium Payments............................. 19
Allocation of Premium Payments............... 20
Optional Variable Account Sub-Account
Allocation Programs......................... 21
Dollar Cost Averaging...................... 21
Automatic Rebalancing...................... 21
Contract Value............................... 22
Accumulation Unit............................ 22
CHARGES AND DEDUCTIONS......................... 23
Mortality and Expense Risk Charge............ 23
Administrative Expense Charge................ 23
Account Fee.................................. 23
Premium Tax Equivalents...................... 24
Income Taxes................................. 24
Fund Expenses................................ 24
Transfer Fee................................. 24
Rider Charges................................ 24
DEATH BENEFITS................................. 24
Death Benefits Provided by the Contracts..... 24
Amount of Death Benefit...................... 25
Election and Effective Date of Election...... 25
Death of the Annuitant before the Annuity
Date........................................ 26
Death of the Annuitant after the Annuity
Date........................................ 26
OTHER CONTRACT FEATURES........................ 26
Ownership.................................... 26
Assignment................................... 27
Beneficiary.................................. 27
Change of Beneficiary........................ 27
Annuitant.................................... 27
Transfer of Contract Values between
Sub-Accounts................................ 27
Procedures for Telephone Transfers........... 29
Surrenders and Partial Withdrawals........... 29
Restrictions Under the Texas Optional
Retirement Program.......................... 29
<CAPTION>
CONTENTS PAGE
<S> <C>
Delay of Payments and Transfers.............. 29
Change in Operation of Variable Account...... 30
Modification................................. 30
Discontinuance............................... 31
ANNUITY PROVISIONS............................. 31
Annuity Date; Change in Annuity Date and
Annuity Option.............................. 31
Penalty-Free Annuitization................... 31
Annuity Options.............................. 31
Guaranteed Minimum Income Payment Rider...... 32
Fixed Options................................ 32
Variable Options............................. 33
Evidence of Survival......................... 34
Endorsement of Annuity Payments.............. 34
THE FIXED ACCOUNT.............................. 35
Market Value Adjustment...................... 37
DISTRIBUTION OF THE CONTRACTS.................. 38
PERFORMANCE DATA............................... 38
Money Market Sub-Account..................... 38
Other Variable Account Sub-Accounts.......... 38
Performance Ranking or Rating................ 39
TAX MATTERS.................................... 39
General...................................... 39
Diversification.............................. 40
Distribution Requirements.................... 41
Multiple Contracts........................... 41
Tax Treatment of Assignments................. 41
Withholding.................................. 41
Section 1035 Exchanges....................... 41
Tax Treatment of Withdrawals -- Non-Qualified
Contracts................................... 42
Qualified Plans.............................. 42
Section 403(b) Plans......................... 43
Individual Retirement Annuities.............. 43
Roth IRA..................................... 43
Corporate Pension and Profit-Sharing Plans
and H.R. 10 Plans........................... 43
Deferred Compensation Plans.................. 43
Tax Treatment of Withdrawals -- Qualified
Contracts................................... 44
OTHER CONTRACTS................................ 44
FINANCIAL STATEMENTS........................... 44
PREPARING FOR THE YEAR 2000.................... 45
LEGAL PROCEEDINGS.............................. 46
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION........................ 47
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD: The period from the Effective Date to
the Annuity Date, the date on which the Death Benefit
becomes payable or the date on which the Contract is
surrendered or annuitized, whichever is earliest.
ACCUMULATION UNIT: A measuring unit used to calculate the
value of the Owner's interest in each funding option used in
the variable portion of the Contract prior to the Annuity
Date.
ANNUITANT: A person designated by the Owner in writing upon
whose continuation of life any series of payments for a
definite period or involving life contingencies depends. If
the Annuitant dies before the Annuity Date, the Owner
becomes the Annuitant until naming a new Annuitant.
ANNUITY ACCOUNT VALUE: The value of the Contract at any
point in time.
ANNUITY DATE: The date on which the contract is Annuitized.
ANNUITY OPTION: The arrangement under which annuity payments
are made.
ANNUITY PERIOD: The period starting on the Annuity Date.
ANNUITY UNIT: A measuring unit used to calculate the portion
of annuity payments attributable to each funding option used
in the fixed and variable portion of the Contract on and
after the Annuity Date.
BENEFICIARY: The person entitled to the Death Benefit, who
must also be the "Designated Beneficiary", for purposes of
Section 72(s) of the Code, upon the Owner's death.
CERTIFICATE: The document which evidences the participation
of an Owner in a group contract.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT: The Variable Annuity Contract described in this
prospectus (or the certificate evidencing the Owner's
participation in a group contract).
CONTRACT ANNIVERSARY, CONTRACT YEAR, EFFECTIVE DATE: The
Contract's Effective Date is the date it is issued. It is
also the date on which the first Contract Year, a 12-month
period, begins. Subsequent Contract Years begin on each
Contract Anniversary, which is the anniversary of the
Effective Date.
CONTRACT MONTH: The period from one Monthly Anniversary Date
to the next.
CONTRACT OWNER (OR OWNER): The person(s) initially
designated in the application or order to purchase or
otherwise, unless later changed, as having all ownership
rights under the Contract; is the Certificate Owner under a
group contract.
FIXED ACCOUNT: Those Sub-Accounts associated with Guaranteed
Periods and Guaranteed Rates. Fixed Account Assets are
maintained in Lincoln Life's General Account and not
allocated to the Variable Account.
FIXED ANNUITY: An annuity with payments which do not vary as
to dollar amount.
FUND(S): One or more of AIM Variable Insurance Funds, Inc.
-- AIM V.I. Growth Fund, AIM V.I. Value Fund, and AIM V.I.
International Equity Fund; BT Insurance Funds Trust -- BT
Equity Index Fund; Delaware Group Premium Fund -- Decatur
Total Return Series, Devon Series, Social Awareness Series,
REIT Series, Small Cap Value Series, Trend Series,
International Equity Series, Emerging Markets Series, and
Delchester Series; Dreyfus Variable Investment Fund -- Small
Cap Portfolio; Fidelity Variable Insurance
3
<PAGE>
Products Fund -- Growth Portfolio, Equity-Income Portfolio,
and Overseas Portfolio: Fidelity Variable Insurance Products
Fund III -- Growth Opportunities Portfolio; Investors Fund
Series -- Kemper Government Securities Portfolio, and Kemper
Small Cap Growth Portfolio; Liberty Variable Investment
Trust -- Colonial U.S. Stock Fund and Newport Tiger Fund;
Lincoln National Bond Fund; Lincoln National Money Market
Fund; MFS-Registered Trademark- Variable Insurance Trust --
MFS Total Return Series, MFS Utilities Series, MFS Emerging
Growth Series, and MFS Research Series; OCC Accumulation
Trust -- Global Equity Portfolio, and Managed Portfolio.
Each is an open-end management investment company (mutual
fund) whose shares are available to fund the benefits
provided by the Contract.
GUARANTEED INTEREST RATE: The rate of interest credited by
Lincoln Life on a compound annual basis during a Guaranteed
Period.
GUARANTEED PERIOD: The period for which interest, at either
an initial or subsequent Guaranteed Interest Rate, will be
credited to any amounts which an Owner allocates to a Fixed
Account Sub-Account. In most states in which these Contracts
are issued, this period may generally be 1, 3, 5, 7, or 10
years, as elected by the Owner.
GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's
Annuity Account Value allocated to a specific Guaranteed
Period with a specified Expiration Date (including credited
interest thereon).
HOME OFFICE: The headquarters of Lincoln National Life
Insurance Co., located at 1300 South Clinton Street, Fort
Wayne, Indiana 46802.
INCOME PAYMENT DATE: Shall be the date on which the owner is
entitled to the Income Payment.
INDEX RATE: An index rate based on the Treasury Constant
Maturity Series published by the Federal Reserve Board.
IN WRITING: In a written form satisfactory to Lincoln Life
and received by Lincoln Life at its Administrative Office.
LINCOLN LIFE: Lincoln National Life Insurance Company.
MONTHLY ANNIVERSARY DATE: The monthly anniversary of the
Effective Date, as shown on the specifications page of the
Contract.
NON-QUALIFIED CONTRACTS: A Contract used in connection with
a retirement plan which does not receive favorable federal
income tax treatment under Code Section 401, 403, 408, or
457. The owner of a Non-Qualified Contract must be a natural
person or an agent for a natural person in order for the
Contract to receive favorable income tax treatment as an
annuity.
PAYEE: A recipient of payments under the Contract.
PREMIUM PAYMENT: Any amount paid to Lincoln Life cleared in
good funds as consideration for the benefits provided by the
Contract. Includes the initial Premium Payment and
subsequent Premium Payments.
QUALIFIED CONTRACT: A Contract used in connection with a
retirement plan which receives favorable federal income tax
treatment under Code Section 401, 403, 408 or 457.
SHARES: Shares of a Fund.
SUB-ACCOUNT: That portion of the Fixed Account associated
with specific Guaranteed Period(s) and Guaranteed Interest
Rate(s) and that portion of the Variable Account which
invests in shares of a specific Fund.
4
<PAGE>
SURRENDER (OR WITHDRAWAL): When a lump sum amount
representing all or part of the Annuity Account Value (minus
any applicable contract fees and premium tax equivalents and
adjusted by any Market Value Adjustment) is paid to the
Owner. After a full surrender, all of the Owner's rights
under the Contract are terminated. In this prospectus, the
terms "surrender" and "withdrawal" are used interchangeably.
SURRENDER DATE: The date Lincoln Life processes the Owner's
election to surrender the Contract or to receive a partial
withdrawal.
VALUATION DATE: Every day on which Accumulation Units are
valued, which is each day on which the New York Stock
Exchange ("NYSE") is open for business, except any day on
which trading on the NYSE is restricted, or on which an
emergency exists, as determined by the Securities and
Exchange Commission ("Commission"), so that valuation or
disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day
following the Valuation Date and ending at the close of
business on the next Valuation Date. A Valuation Period may
be more than one day in length.
VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account N, a
separate account of Lincoln Life under Indiana law, in which
the assets of the Sub-Account(s) funded through shares of
one or more of the Funds are maintained. Assets of the
Variable Account attributable to the Contracts are not
chargeable with the general liabilities of Lincoln Life.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account Value during the Accumulation
Period.
VARIABLE ANNUITY UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account Value during the Annuity Period, to
determine the amount of each variable annuity payment.
HIGHLIGHTS
Premium Payments attributable to the variable portion of the
Contracts will be allocated to a segregated asset account of
Lincoln Life which has been designated Lincoln Life Variable
Annuity Account N (the "Variable Account"). The Variable
Account invests in shares of one or more of the Funds
available to fund the Contract as selected by the Owner.
Contract Owners bear the investment risk for all amounts
allocated to the Variable Account. The Contract's provisions
may vary in some states. Inquiries about the Contracts may
be made to Lincoln Life's Home Office.
Procedures for purchasing a Contract are described at
"Premium Payments and Contract Value -- Premium Payments."
The Contract may be returned within 10 days after it is
received, longer in some states. It can be mailed or
delivered to either Lincoln Life or the agent who sold it.
Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. Lincoln
Life will promptly refund the Contract Value in states where
permitted. This may be more or less than the Premium
Payment. In states where required, Lincoln Life will
promptly refund the Premium Payment, less any partial
surrenders. Lincoln Life has the right to allocate initial
Premium Payments to the Money Market Sub-Account until the
expiration of the right-to-examine period. If Lincoln Life
does so allocate an initial Premium Payment, it will refund
the greater of the Premium Payment, less any partial
surrenders, or the Contract Value. It is Lincoln Life's
current practice to directly allocate the initial Premium
Payment to the Fund(s) designated in the application or
order to purchase, unless state law requires a refund of
Premium Payments rather than of Annuity Account Value.
5
<PAGE>
Procedures for making surrenders and partial withdrawals are
described at "Other Contract Features -- Surrenders and
Partial Withdrawals."
A Market Value Adjustment may apply to surrenders,
withdrawals or transfers from the Fixed Account portion of
the Contract.
There is a Mortality and Expense Risk Charge which is equal,
on an annual basis, to 1.40% of the average daily net assets
of the Variable Account. This Charge compensates Lincoln
Life for assuming the mortality and expense risks under the
Contract (See "Charges and Deductions -- Mortality and
Expense Risk Charge").
There is an Administrative Expense Charge which is equal, on
an annual basis, to 0.15% of the average daily net assets of
the Variable Account (See "Charges and Deductions --
Administrative Expense Charge").
There is an annual Account Fee of $35 which is waived if the
Annuity Account Value equals or exceeds $100,000 at the end
of the Contract Year or at annuitization (See "Charges and
Deductions -- Account Fee").
Premium tax equivalents or other taxes payable to a state or
other governmental entity will be charged against Annuity
Account Value (See "Charges and Deductions -- Premium Tax
Equivalents").
Under certain circumstances there may be assessed a $10
transfer fee when a Contract Owner transfers Annuity Account
Values from one Sub-Account to another (See "Charges and
Deductions -- Transfer Fee").
There is a ten percent (10%) federal income tax penalty
applied to the income portion of any premature distribution
from Non-Qualified Contracts. However, the penalty is not
imposed on amounts distributed:
(a) after the Payee reaches age 59 1/2; (b) after the death
of the Contract Owner (or, if the Contract Owner is not a
natural person, the Annuitant); (c) if the Payee is totally
disabled (for this purpose, disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his or her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982. For federal
income tax purposes, distributions are deemed to be on a
last-in, first-out basis. Different tax withdrawal penalties
and restrictions apply to Qualified Contracts issued
pursuant to plans qualified under Code Section 401, 403(b),
408 or 457. (See "Tax Matters -- Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further
discussion of the taxation of the Contracts, see "Tax
Matters."
MARKET VALUE ADJUSTMENT. In certain situations, a surrender
or transfer of amounts from the Fixed Account will be
subject to a Market Value Adjustment. The Market Value
Adjustment will reflect the relationship between a rate
based on an index published by the Federal Reserve Board as
to current yields on U.S. government securities of various
maturities at the time a surrender or transfer is made
("Index Rate"), and the Index Rate at the time that the
Premium Payments being surrendered or transferred were made.
Generally, if the Index Rate at the time of surrender or
transfer is lower than the Index Rate at the time the
Premium Payment was allocated, then the application of the
Market Value Adjustment will result in a higher payment upon
surrender or transfer. Similarly, if the Index Rate at the
time of surrender or transfer is higher than the Index Rate
at the time the Premium Payment was allocated, the
application of the Market Value Adjustment will generally
result in a lower payment upon surrender or transfer. It is
not applied against a surrender or transfer taking place at
the end of the Guaranteed Period.
6
<PAGE>
FEES AND EXPENSES
CONTRACT OWNER TRANSACTION FEES
<TABLE>
<S> <C> <C>
Transfer Fee........ $10
- Not imposed on the first twelve transfers during a Contract
Year. Pre-scheduled automatic dollar cost averaging or
automatic rebalancing transfers are not counted.
Account Fee......... $35 per Contract Year
- Waived if Annuity Account Value at the end of the Contract
Year is $100,000 or more.
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge......... 1.40%
Administrative Expense Charge............. 0.15%
---
Total Variable Account Annual Expenses.... 1.55%
</TABLE>
7
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Premium Payments are allocated to
the Variable Account. The table reflects expenses of the Variable Account as
well as of the individual Funds underlying the Variable Sub-Accounts. The table
does not reflect the deductions for the annual $35 Account Fee or premium tax
equivalents. The information set forth should be considered together with the
information provided in this Prospectus under the heading "Fees and Expenses",
and in each Fund's Prospectus. All expenses are expressed as a percentage of
average account value.
FEE TABLE
<TABLE>
<CAPTION>
BT
AIM VARIABLE INSURANCE FUNDS(1) INSURANCE
--------------------------------- FUNDS
AIM TRUST
AIM AIM V.I. ---------
V.I. V.I. INTERNATIONAL EQUITY
GROWTH VALUE EQUITY 500 INDEX
FUND FUND FUND FUND
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge....... 1.40% 1.40% 1.40% 1.40%
Administrative Expense Charge........... 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual
Expenses............................... 1.55% 1.55% 1.55% 1.55%
FUND PORTFOLIO ANNUAL EXPENSES
(AFTER ANY APPLICABLE
REIMBURSEMENT/WAIVER)
Management Fees......................... 0.65% 0.62% 0.75% 0.20%
Other Expenses.......................... 0.08% 0.08% 0.18% 0.10%
Total Fund
Portfolio Annual Expenses.............. 0.73% 0.70% 0.93% 0.30%(2)
</TABLE>
- ------------------------------
(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998, and AIM will not
seek reimbursement of the cost of any service in excess of the amount
charged by a participating insurance company for providing the services
above. The amount of reimbursements that will be paid by each Fund under
this arrangement for the year ending December 31, 1998 cannot be predicted.
(2) Under the Advisory Agreement with the Advisor, the Funds will pay advisory
fees at the annual percentage rate of .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 the fees and to reimburse
the Fund for certain expenses so that the Equity 500 Index Fund total
operating expenses will not exceed .30%. Such expense reimbursements may be
terminated at the discretion of the Advisor. If this reimbursement were not
in place, the total operating expenses for the year ended December 31, 1997,
would have been 2.78%.
8
<PAGE>
<TABLE>
<CAPTION>
DELAWARE GROUP PREMIUM FUND
- -----------------------------------------------------------------------------------------------------------------------------
DECATUR SOCIAL SMALL CAP EMERGING
TOTAL RETURN DEVON AWARENESS VALUE INTERNATIONAL MARKETS DELCHESTER
SERIES SERIES SERIES REIT SERIES SERIES TREND SERIES EQUITY SERIES SERIES SERIES
- ------------ ----------- ------------- ----------- ----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
1.55% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55%
0.65% 0.65% 0.75% 0.75% 0.75% 0.75% 0.75% 1.25% 0.65%
0.11% 0.26% 0.65% 0.10% 0.25% 0.23% 0.20% 1.20% 0.10%
0.76% 0.91% 1.40% 0.85% 1.00% 0.98% 0.95%(3) 2.45% 0.75%
</TABLE>
- ------------------------------
(3) Effective July 1, 1997, the Total Fund Expenses of the International Equity
Series were voluntarily limited to a rate of 0.95% of the average daily net
assets. In 1997, the total annual expenses of the International Equity
Series was 0.90%.
9
<PAGE>
<TABLE>
<CAPTION>
FIDELITY VARIABLE INSURANCE INVESTORS FUND
PRODUCTS FUNDS SERIES
DREYFUS VARIABLE (INITIAL CLASS) --------------
INVESTMENT FUND ------------------------------------------------------------- KEMPER
------------------ VIP EQUITY VIP VIP III GROWTH GOVERNMENT
SMALL CAP INCOME GROWTH VIP OVERSEAS OPPORTUNITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ---------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............ 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
Administrative
Expense Charge.... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Separate
Account Annual
Expenses.......... 1.55% 1.55% 1.55% 1.55% 1.55% 1.55%
FUND PORTFOLIO
ANNUAL EXPENSES
(AFTER ANY
APPLICABLE
REIMBURSEMENT/
WAIVER)
Management Fees.... 0.75% 0.50% 0.60% 0.75% 0.60% 0.55%
Other Expenses..... 0.03% 0.08% 0.09% 0.17% 0.14% 0.09%
Total Fund
Portfolio Annual
Expenses.......... 0.78% 0.58%(4) 0.69%(4) 0.92%(4) 0.74%(4) 0.64%
<CAPTION>
LIBERTY VARIABLE
INVESTMENT TRUST
KEMPER SMALL -------------------------------
CAP GROWTH COLONIAL U.S. NEWPORT TIGER
PORTFOLIO STOCK FUND FUND
------------- ------------- ----------------
<S> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............ 1.40% 1.40% 1.40%
Administrative
Expense Charge.... 0.15% 0.15% 0.15%
Total Separate
Account Annual
Expenses.......... 1.55% 1.55% 1.55%
FUND PORTFOLIO
ANNUAL EXPENSES
(AFTER ANY
APPLICABLE
REIMBURSEMENT/
WAIVER)
Management Fees.... 0.65% 0.80% 0.90%
Other Expenses..... 0.06% 0.14% 0.35%
Total Fund
Portfolio Annual
Expenses.......... 0.71% 0.94% 1.25%
</TABLE>
- ------------------------------
(4) A portion of the brokerage commissions the certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian expenses. With
these reductions reflected, Total Fund Portfolio Annual Expenses would have
been .57% for the VIP Equity-Income Portfolio, .67% for the VIP Growth
Portfolio, .90% for the VIP Overseas Portfolio, and .73% for the VIP III
Growth Opportunities Portfolio.
10
<PAGE>
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
LINCOLN NATIONAL FUNDS ------------------------------------------------------- OCC ACCUMULATION TRUST
- ---------------------------- MFS --------------------------
LN MFS MFS EMERGING MFS GLOBAL
MONEY MARKET LN BOND TOTAL RETURN UTILITIES GROWTH RESEARCH EQUITY MANAGED
FUND FUND SERIES SERIES SERIES SERIES PORTFOLIO PORTFOLIO
- ---------------- ----- -------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
1.55% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55%
0.48% 0.46% 0.75% 0.75% 0.75% 0.75% 0.79% 0.80%
0.11% 0.07% 0.25%(5) 0.25%(5) 0.12%(5) 0.13%(5) 0.40% 0.07%
0.59% 0.53% 1.00%(6) 1.00%(6) 0.87% 0.88% 1.19%(7) 0.87%(7)
</TABLE>
- ------------------------------
(5) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(6) Massachusetts Financial Services Company has agreed to bear expenses for
each Series, subject to reimbursement by each Series, such that the MFS
Total Return Series and the MFS Utilities Series "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the MFS Total Return
Series and Utilities Series would be 0.27% and 0.45% respectively and "Total
Fund Portfolio Annual Expenses" would have been 1.02% and 1.20% respectively
for these Series. See "Information Concerning Shares of Each
Series--Expenses."
(7) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses. Total portfolio expenses
for the Managed Portfolio are limited by OpCap advisors so that its
annualized other expenses (net of any expense offsets) do not exceed 1.00%
of average daily net assets. Total portfolio expenses for the Global Equity
Portfolio are limited to 1.25% of average daily net assets. Without such a
limitation and without giving effect to any expense offsets, the management
fees, other expenses, and total portfolio expenses incurred for the fiscal
year ended December 31, 1997 would have been .80%, .40%, and 1.20%
respectively for the Global Equity Portfolio and .80%, .07%, and .87%
respectively for the Managed Portfolio.
11
<PAGE>
EXAMPLES
The Contract Owner would pay the following expenses on a
$1,000 investment, assuming a 5% annual return on assets,
and assuming all Premium Payments are allocated to the
Variable Account:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------- -----------
<S> <C> <C>
AT THE END OF THE APPLICABLE TIME PERIOD:
AIM V.I. Growth Fund........................................................ $ 23 $ 71
AIM V.I. Value Fund......................................................... $ 23 $ 70
AIM V.I. International Equity Fund.......................................... $ 25 $ 77
BT Insurance Trust Equity 500 Index Fund.................................... $ 19 $ 57
Delaware Group Decatur Total Return Series.................................. $ 23 $ 72
Delaware Group Devon Series................................................. $ 25 $ 76
Delaware Group Social Awareness Series...................................... $ 30 $ 91
Delaware Group REIT Series.................................................. $ 24 $ 75
Delaware Group Small Cap Value Series....................................... $ 26 $ 79
Delaware Group Trend Series................................................. $ 26 $ 78
Delaware Group International Equity Series.................................. $ 25 $ 78
Delaware Group Emerging Markets Series...................................... $ 41 $ 123
Delaware Group Delchester Series............................................ $ 23 $ 71
Dreyfus Variable Fund Small Cap Portfolio................................... $ 23 $ 72
Fidelity VIP Equity-Income Portfolio........................................ $ 23 $ 71
Fidelity VIP Growth Portfolio............................................... $ 24 $ 74
Fidelity VIP Overseas Portfolio............................................. $ 26 $ 81
Fidelity VIP III Growth Opportunities Portfolio............................. $ 25 $ 76
Investors Fund Kemper Government Securities Portfolio....................... $ 22 $ 68
Investors Fund Kemper Small Cap Growth Portfolio............................ $ 23 $ 70
Liberty Variable Trust Colonial U.S. Stock Fund............................. $ 25 $ 78
Liberty Variable Trust Newport Tiger Fund................................... $ 28 $ 87
Lincoln National Bond Fund.................................................. $ 21 $ 65
Lincoln National Money Market Fund.......................................... $ 22 $ 66
MFS Variable Trust Total Return Series...................................... $ 26 $ 79
MFS Variable Trust Utilities Series......................................... $ 26 $ 79
MFS Variable Trust Emerging Growth Series................................... $ 24 $ 75
MFS Variable Trust Research Series.......................................... $ 25 $ 75
OCC Trust Global Equity Portfolio........................................... $ 28 $ 85
OCC Trust Managed Portfolio................................................. $ 24 $ 75
</TABLE>
The preceding tables are intended to assist the Owner in
understanding the costs and expenses borne, directly or
indirectly, by Premium Payments allocated to the Variable
Account. These include the expenses of the Funds, certain of
which are subject to expense reimbursement arrangements
which may be subject to change. See the Funds' Prospectuses.
In addition to the expenses listed above, charges for
premium tax equivalents may be applicable.
These examples reflect the annual $35 Account Fee as an
annual charge of .07% of assets, based upon an anticipated
average Annuity Account Value of $50,000.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
Because the Sub-Accounts which are available under the
Contracts did not begin operation before the date of this
Prospectus, financial information for the Sub-Accounts is
not included in this prospectus or the Statement of
Additional Information.
12
<PAGE>
LINCOLN LIFE AND THE VARIABLE ACCOUNT
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY. Lincoln Life is
a stock life insurance company incorporated under the laws
of Indiana on June 12, 1905. Lincoln Life is principally
engaged in offering life insurance policies and annuity
policies, and ranks among the largest United States stock
life insurance companies in terms of assets and life
insurance in force. Lincoln Life is also one of the leading
life reinsurers in the United States. Lincoln Life is
licensed in all states (except New York) and the District of
Columbia, Guam, and the Virgin Islands.
Lincoln Life is 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. Lincoln Life is the issuer of the variable annuity
Contracts. The obligations set forth in the Contracts, other
than those of the Contractowner, are our obligations. We
also serve as principal underwriter for the Contracts.
On May 21, 1998, The Lincoln National Life Insurance Company
announced its intentions to acquire certain domestic
individual life insurance business from Aetna, Inc. via a
100% indemnity reinsurance transaction. The transaction is
expected to close in the fall of 1998.
THE VARIABLE ACCOUNT. The Variable Account was established
by Lincoln Life as a separate account on November 3, 1997
pursuant to a resolution of its Board of Directors. Under
Indiana insurance law, the income, gains or losses of the
Variable Account are credited to or charged against the
assets of the Variable Account without regard to the other
income, gains, or losses of Lincoln Life. These assets are
held in relation to the Contracts described in this
Prospectus, to the extent necessary to meet Lincoln Life's
obligations thereunder. Although that portion of the assets
maintained in the Variable Account equal to the reserves and
other contract liabilities with respect to the Variable
Account will not be charged with any liabilities arising out
of any other business conducted by Lincoln Life, all
obligations arising under the Contracts, including the
promise to make annuity payments, are general corporate
obligations of Lincoln Life.
The Variable Account is registered with the Commission as a
unit investment trust under the 1940 Act and meets the
definition of a separate account under the federal
securities laws. Registration with the Commission does not
involve supervision of the management or investment
practices or policies of the Variable Account or of Lincoln
Life by the Commission.
The assets of the Variable Account are divided into
Sub-Accounts. Each Sub-Account invests exclusively in shares
of a specific Fund. All amounts allocated to the Variable
Account will be used to purchase Fund shares as designated
by the Owner at their net asset value. Any and all
distributions made by the Fund with respect to the shares
held by the Variable Account will be reinvested to purchase
additional shares at their net asset value. Deductions from
the Variable Account for cash withdrawals, annuity payments,
death benefits, account fees, mortality and expense risk
charges, administrative expense charges and any applicable
taxes will, in effect, be made by redeeming the number of
Fund shares at their net asset value equal in total value to
the amount to be deducted. The Variable Account will
purchase and redeem Fund shares on an aggregate basis and
will be fully invested in Fund shares at all times.
THE FUNDS
Each of the thirty Sub-Accounts of the Variable Account is
invested solely in shares of one of the thirty Funds
available as funding vehicles under the Contracts. Each of
the Funds is a series of one of twelve Massachusetts or
Delaware business trusts or a
13
<PAGE>
Maryland corporation, collectively referred to herein as the
"Trusts", each of which is registered as an open-end
management investment company under the 1940 Act. All of the
Funds except for the Delaware Group REIT Series and Delaware
Group Emerging Market Series are diversified under the 1940
Act.
The investment objectives and policies of certain Funds are
similar to the investment objectives and policies of
portfolios, other than those Funds, that are advised by the
same adviser. The investment results of the Funds, however,
may be higher or lower than the other portfolios that are
advised 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 advised by the same adviser.
The Trusts and their investment advisers and distributors
are:
AIM Variable Insurance Funds, Inc., ("AIM V.I. Funds")
managed by A I M Advisors, Inc., and distributed by AIM
Distributors, Inc. 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173.
BT Insurance Funds Trust (the "BT Insurance Trust")
managed by Bankers Trust Company, 130 Liberty Street,
(One Bankers Trust Plaza), New York, NY 10006 and
distributed by First Data Distributors, Inc., 4400
Computer Drive, Westborough, MA 01581.
Delaware Group Premium Fund, Inc. ("Delaware Group")
managed by Delaware Management Company, One Commerce
Square, Philadelphia, PA 19103 and for International and
Emerging Markets, Delaware International Advisors, Ltd.,
80 Cheapside, London, England ECV2 6EE and distributed
by Delaware Distributors, L.P., 1818 Market Street,
Philadelphia, PA 19103.
Dreyfus Variable Investment Fund ("Dreyfus Variable
Fund") managed by The Dreyfus Corporation, 200 Park
Avenue, New York, NY 10166 and distributed by Premier
Mutual Fund Services, Inc., 60 State Street, Boston, MA
02109.
Variable Insurance Products Fund ("Fidelity VIP"), and
Variable Insurance Products Fund III ("Fidelity VIP
III"), managed by Fidelity Management & Research Company
and distributed by Fidelity Distribution Corporation, 82
Devonshire Street, Boston, MA 02103;
Investors Fund Series ("Investor Fund") managed by
Scudder Kemper Investments, Inc., 345 Park Avenue, New
York, NY 10166 and distributed by Kemper Distributors,
Inc., 222 South Riverside Plaza, Chicago, IL 60606.
Liberty Variable Investment Trust ("Liberty Variable
Trust") managed by Liberty Advisory Services Corp., 125
High Street, Boston, MA 02110 and sub-advised by
Colonial and distributed by Liberty Financial
Investments, Inc., One Financial Center, Boston, MA
02110.
Lincoln National Bond Fund, Inc. and Lincoln National
Money Market Fund, Inc., managed by Lincoln Investment
Management, Inc. 200 East Berry St., Fort Wayne, IN
46802;
MFS-Registered Trademark- Variable Insurance Trust ("MFS
Variable Trust"), managed by Massachusetts Financial
Services Company and distributed by MFS Fund
Distributors, Inc., 500 Boylston Street, Boston, MA
02116;
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
14
<PAGE>
Three AIM V.I. Funds are available under the Contracts:
AIM V.I. Growth Fund;
AIM V.I. Value Fund;
AIM V.I. International Equity Fund.
One Fund of BT INSURANCE is available under the Contracts:
Equity 500 Index Fund.
Nine Funds of DELAWARE GROUP are available under the
Contracts:
Decatur Total Return Series;
Devon Series;
Social Awareness Series;
REIT Series;
Small Cap Value Series;
Trend Series;
International Equity Series;
Emerging Markets Series;
Delchester Series.
One Fund of DREYFUS VARIABLE FUND is available under the
Contracts:
Dreyfus Small Cap Portfolio.
Three Funds of FIDELITY VIP are available under the
Contracts:
Fidelity VIP Equity-Income Portfolio;
Fidelity VIP Growth Portfolio;
Fidelity VIP Overseas Portfolio.
One Fund of FIDELITY VIP III is available under the
Contracts:
Fidelity VIP III Growth Opportunities Portfolio.
Two Funds of INVESTORS FUND are available under the
Contracts:
Kemper Government Securities Portfolio;
Kemper Small Cap Growth Portfolio.
Two Funds of LIBERTY VARIABLE TRUST are available under the
Contracts:
Colonial U.S. Stock Fund;
Newport Tiger Fund.
The Lincoln National Bond Fund is available under the
Contracts.
The Lincoln National Money Market Fund is available under
the Contracts.
Four Funds of MFS VARIABLE Trust are available under the
Contracts:
MFS Total Return Series;
MFS Utilities Series;
MFS Emerging Growth Series;
MFS Research Series.
Two Funds of OCC Trust are available under the Contracts:
Global Equity Portfolio;
Managed Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown in the Fee Table under Fees and Expenses
in this Prospectus.
15
<PAGE>
There follows a brief description of the investment
objective of each Fund which are described more fully in the
attached Fund prospectuses. There can be no assurance that
any Fund will achieve its stated investment objectives.
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks growth of
capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM
to have strong earnings momentum. Current income will not be
an important criterion of investment selection, and any such
income should be considered incidental.
AIM V.I. VALUE FUND (Large Cap Stocks): Seeks to achieve
long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the
current or projected earnings of the companies issuing the
securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to
the equity market generally. Income is a secondary objective
and would be satisfied principally from the income (interest
and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the
Fund's portfolio.
AIM V.I. INTERNATIONAL EQUITY FUND (International Equity):
Seeks to provide long-term growth of capital by investing in
a diversified portfolio of international equity securities
the issuers of which are considered by AIM to have strong
earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the
selection of portfolio securities.
BT INSURANCE TRUST EQUITY 500 INDEX FUND (Large Cap Stocks):
Seeks to replicate as closely as possible the performance of
the Standard & Poor's 500 Composite Stock Price Index before
the deduction of Fund expenses.
DELAWARE GROUP DECATUR TOTAL RETURN SERIES (Large Cap
Stocks): Seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital
appreciation while providing higher than average dividend
income. It invests generally, but not exclusively, in common
stocks and income-producing securities convertible into
common stocks, consistent with the Series' objective.
DELAWARE GROUP DEVON SERIES (Large Cap Stocks): Seeks
current income and capital appreciation. The Series will
seek to achieve its objective by investing primarily in
income-producing common stocks, with a focus on common
stocks that the investment manager believes have the
potential for above-average dividend increases over time.
Under normal circumstances, the Series will invest at least
65% of its total assets in dividend paying common stocks.
DELAWARE GROUP SOCIAL AWARENESS SERIES (Specialty): Seeks to
achieve long-term capital appreciation. The Series seeks to
achieve its objective by investing primarily in equity
securities of medium to large-sized companies expected to
grow over time that meet the Series' "Social Criteria"
strategy.
DELAWARE GROUP REIT SERIES (Specialty): Seeks to achieve
maximum long-term total return. Capital appreciation is a
secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in
the real estate industry.
DELAWARE GROUP SMALL CAP VALUE SERIES (Small Cap Stocks):
Seeks capital appreciation by investing primarily in small
cap common stocks whose market value appears low relative to
their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of
companies that may be temporarily out of favor or whose
value is not yet recognized by the market.
DELAWARE GROUP TREND SERIES (Small Cap Stocks): Seeks
long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of
16
<PAGE>
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.
DELAWARE GROUP INTERNATIONAL EQUITY SERIES (International
Equity): Seeks long-term growth without undue risk to
principal by investing primarily in equity securities of
foreign issuers providing the potential for capital
appreciation and income. It invests in a broad range of
equity securities of foreign issuers, including common
stocks, preferred stocks, convertible securities and
warrants, consistent with the Series' objective.
DELAWARE GROUP EMERGING MARKETS SERIES (Specialty): Seeks to
achieve long-term capital appreciation. The Series seeks to
achieve its objective by investing primarily in equity
securities of issuers located or operating in emerging
countries. The Series is an international fund. As such,
under normal market conditions, at least 65% of the Series'
assets will be invested in equity securities of issuers
organized or having a majority of their assets or deriving a
majority of their operating income in at least three
countries that are considered to be emerging or developing.
DELAWARE GROUP DELCHESTER SERIES (High Yield Bonds): Seeks
as high a current income as possible by investing in rated
and unrated corporate bonds (including high-yield bonds
commonly known as junk bonds), U.S. government securities
and commercial paper. An investment in this Series may
involve greater risks than an investment in a portfolio
comprised primarily of investment grade bonds.
DREYFUS VARIABLE FUND SMALL CAP PORTFOLIO (Small Cap
Stocks): Seeks to maximize capital appreciation.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (Large Cap Stocks):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP GROWTH PORTFOLIO: (Large Cap Stocks): Seeks to
achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation
may also be found in other types of securities, including
bonds and preferred stocks.
FIDELITY VIP OVERSEAS PORTFOLIO (International Equity):
Seeks long term growth of capital by investing mainly in
foreign securities.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO (Large Cap
Stocks): Seeks capital growth by investing primarily in
common stocks and securities convertible into common stocks.
KEMPER INVESTORS FUND GOVERNMENT SECURITIES PORTFOLIO
(Intermediate Term Bonds): Seeks high current return
consistent with preservation of capital from a portfolio
composed primarily of U.S. Government securities.
KEMPER INVESTORS FUND SMALL CAP GROWTH PORTFOLIO (Small Cap
Stocks): Seeks maximum appreciation of investors' capital
from a portfolio primarily of growth stocks of smaller
companies.
LIBERTY VARIABLE TRUST COLONIAL U.S. STOCK FUND (Large Cap
Stocks): Seeks long-term capital growth by investing
primarily in large-cap Equity Securities.
LIBERTY VARIABLE TRUST NEWPORT TIGER FUND (Specialty): Seeks
long-term capital growth by investing primarily in equity
securities of companies located in the nine Tigers of Asia
(Hong Kong, Singapore, South Korea, Taiwan, Malaysia,
Thailand, Indonesia, China and the Philippines).
17
<PAGE>
LINCOLN NATIONAL BOND FUND (Long Term Bonds): Seeks maximum
current income consistent with prudent investment strategy.
The fund invests primarily in medium- and long-term
corporate and government bonds.
LINCOLN NATIONAL MONEY MARKET FUND (Money Market): Seeks
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-charted banks and U.S. branches of foreign banks.
MFS VARIABLE TRUST EMERGING GROWTH SERIES (Large Cap
Stocks): Seeks long-term growth of capital by investing
primarily in common stocks of companies management believes
to be early in their life cycle but which have the potential
to become major enterprises.
MFS VARIABLE TRUST RESEARCH SERIES (Large Cap Stocks): Seeks
to provide long-term growth of capital and future income.
MFS VARIABLE TRUST TOTAL RETURN SERIES (Balanced or Total
Return): Seeks primarily to obtain above-average income,
(compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of
capital, and secondarily to provide a reasonable opportunity
for growth of capital and income.
MFS VARIABLE TRUST UTILITIES SERIES (Specialty): Seeks
capital growth and current income (income above that
available from a portfolio invested entirely in equity
securities) by investing, under normal circumstances, at
least 65% of its assets in equity and debt securities of
utility companies.
OCC TRUST GLOBAL EQUITY PORTFOLIO (International Stocks):
Seeks long-term capital appreciation through a global
investment strategy primarily involving equity securities.
OCC TRUST MANAGED PORTFOLIO (Balanced or Total Return):
Seeks growth of capital over time through investment in a
portfolio of common stocks, bonds and cash equivalents, the
percentage of which will vary based on management's
assessments of relative investment values.
The Delaware Group Delchester Series, Delaware Group
Emerging Market Series, Dreyfus Variable Fund Small Cap
Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity
VIP Overseas Portfolio, MFS Variable Trust Emerging Growth
Series, MFS Variable Trust Research Series, MFS Variable
Trust Total Return Series, MFS Variable Trust Utilities
Series, OCC Trust Global Equity Portfolio, and the OCC Trust
Managed Portfolio, Funds may invest in non-investment grade,
high yield, high-risk debt securities (commonly referred to
as "junk bonds"), as detailed in the individual Fund
prospectuses.
With respect to a Trust, the adviser and/or the distributor,
or an affiliate thereof, may compensate Lincoln Life (or an
affiliate) for administrative, distribution, or other
services. It is anticipated that such compensation would be
based on assets of the particular Trust attributable to the
Contracts along with certain other variable contracts issued
or administered by Lincoln Life (or an affiliate).
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. Contract Owners bear the complete
investment risk for Annuity Account Values allocated to a
Variable Account Sub-Account. Each such Sub-Account involves
inherent investment risk, and such risk varies significantly
among the Sub-Accounts. Contract Owners should read each
Fund's prospectus carefully and understand the Funds'
relative degrees of risk before making or changing
investment choices. Additional Funds may, from time to time,
be made available as investments to underlie the Contracts.
However,
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the right to make such selections will be limited by the
terms and conditions imposed on such transactions by Lincoln
Life (See "Premium Payments and Contract Value-Allocation of
Premium Payments").
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of Lincoln Life
and other life insurance companies. The Trusts do not
foresee any disadvantage to Contract Owners arising out of
the fact that shares may be made available to separate
accounts which are used in connection with both variable
annuity and variable life insurance products. Nevertheless,
the Trusts' Boards intend to monitor events in order to
identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to
occur, one of the separate accounts might withdraw its
investment in a Fund. This might force a Fund to sell
portfolio securities at disadvantageous prices.
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
Lincoln Life, further investment in such shares should
become inappropriate in view of the purpose of the Contracts
or in view of legal regulatory or federal income tax
restrictions, Lincoln Life may substitute shares of another
Fund. No substitution of securities in any Sub-Account may
take place without prior approval of the Commission and
under such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law,
Lincoln Life will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Trust in accordance with written instructions
received from persons having the voting interest in the
Variable Account. Lincoln Life will vote shares for which it
has not received instructions, as well as shares
attributable to it, in the same proportion as it votes
shares for which it has received instructions. The Trusts do
not hold regular meetings of shareholders. Shareholder votes
take place whenever state law or the 1940 Act so require,
for example on certain elections of Board of Trustees, the
initial approval of investment advisory contracts and
changes in investment objectives and fundamental investment
policies.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by Lincoln Life not
more than sixty (60) days prior to the meeting of the
particular Trust. Voting instructions will be solicited by
written communication at least fourteen (14) days prior to
the meeting.
PREMIUM PAYMENTS AND CONTRACT VALUE
PREMIUM PAYMENTS
The Contracts may be purchased under a flexible premium
payment plan. Premium Payments are payable in the frequency
and in the amount selected by the Contract Owner. The
initial Premium Payment is due on the Effective Date. It
must be at least $10,000 (for Qualified Contracts, $2,000).
Subsequent Premium Payments must be at
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least $100. Lincoln Life reserves the right to decline any
application or order to purchase or Premium Payment. A
Premium Payment in excess of $1 million requires preapproval
by the Lincoln Life.
Lincoln Life may, at its sole discretion, offer special
premium payment programs and/or waive the minimum payment
requirements.
The Contract Owner may elect to increase, decrease or change
the frequency of Premium Payments.
If no Premium Payments have been made for three consecutive
years and the Annuity Account Value decreases to less than
$1,000 during that period, or if any partial withdrawal
decreases the Annuity Account Value to less than $1,000,
Lincoln Life reserves the right to cancel the Contract and
pay the Owner an adjusted Annuity Account Value. Lincoln
Life will provide the Owner at least 30 days advance notice
of its intended action. During the notification period, the
Owner may make an additional Premium Payment to meet the
minimum value requirements and avoid cancellation of the
Contract.
ALLOCATION OF PREMIUM PAYMENTS
Premium Payments are allocated to one or more of the
appropriate Sub-Accounts within the Variable Account and
Fixed Account as selected by the Contract Owner. For each
Variable Account Sub-Account, the Premium Payments are
converted into Accumulation Units. The number of
Accumulation Units credited to the Contract is determined by
dividing the Premium Payment allocated to the Sub-Account by
the value of the Accumulation Unit for the Sub-Account.
Lincoln Life will allocate the initial Premium Payment
directly to the Sub-Account(s) selected by the Owner unless
state law requires, during the right-to-examine period, a
refund of Premium Payments rather than Annuity Account
Value.
In such cases, the initial Premium Payment will be allocated
to the money market account until the right-to-examine
period has expired.
Transfers do not necessarily affect the allocation
instructions for payments. Subsequent payments will be
allocated as directed by the Owner; if no direction is
given, the allocation will be that which has been most
recently directed for payments by the Owner. The Owner may
change the allocation of future payments without fee,
penalty or other charge upon written notice to Lincoln
Life's Home Office. A change will be effective for payments
received on or after receipt of the notice of change.
Any Premium Payment at the time of any allocation may be
allocated to a single or multiple sub-accounts in whole
percentages (e.g., 12%). No allocation can be made which
would result in a Variable Account Sub-Account of less than
$50 or a Fixed Account Sub-Account value of less than
$2,000.
Lincoln Life may, at its sole discretion, waive minimum
premium allocation requirements or minimum Variable Account
Sub-Account requirements.
For initial Premium Payments, if the application for or
order to purchase a Contract is in good order, Lincoln Life
will apply the Premium Payment to the Variable Account and
credit the Contract with Accumulation Units within two
business days of receipt at the Accumulation Unit Value for
the Valuation Period during which the Premium Payment is
accepted unless state law requires, during the
right-to-examine period, a refund of Premium Payments rather
than Annuity Account Value.
If the application or order to purchase for a Contract is
not in good order, Lincoln Life will attempt to get it in
good order or Lincoln Life will return the application or
order to
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purchase and the Premium Payment within five business days.
Lincoln Life will not retain a Premium Payment for more than
five business days while processing an incomplete
application or order to purchase unless it has been so
authorized by the purchaser.
For each subsequent Premium Payment, Lincoln Life will apply
such payment to the Variable Account and credit the Contract
with Accumulation Units at the Accumulation Unit Value for
the Valuation Period during which each such payment was
received in good order.
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Contract Owner may elect to enroll in either of the
following programs. However, both programs cannot be in
effect at the same time.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected by the
Contract Owner, systematically allocates specified dollar
amounts from the Money Market Sub-Account or the One-Year
Fixed Account Sub-Account to one or more of the Contract's
Variable Account Sub-Accounts at regular intervals as
selected by the Contract Owner. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at
one particular time, an Owner may be less susceptible to the
impact of market fluctuations.
Dollar Cost Averaging may be selected by establishing a
Money Market Sub-Account of at least $1,000 or a One-Year
Fixed Account Sub-Account with a value of at least $2,000.
The minimum amount per month to allocate is $50. Enrollment
in this program may occur at any time by calling or writing
Lincoln Life's Home Office or by providing the information
requested on the Dollar Cost Averaging election form to
Lincoln Life and ensuring that sufficient value is in the
Money Market Sub-Account or the One-year Fixed Account
Sub-Account. Transfers to any Fixed Account Sub-Account or
from a Fixed Account Sub-Account other than the One-Year
Fixed Account Sub-Account are not permitted under Dollar
Cost Averaging. Lincoln Life may, upon occasion, offer a
Fixed Account Sub-Account for periods of less than one year
solely for the purpose of Dollar Cost Averaging. Lincoln
Life may, at its sole discretion, waive Dollar Cost
Averaging minimum deposit and transfer requirements.
Dollar Cost Averaging will terminate when any of the
following occurs: (1) the number of designated transfers has
been completed; (2) the value of the Money Market Sub-
Account or the One-Year Fixed Sub-Account is insufficient to
complete the next transfer; (3) the Owner requests
termination by telephone or in writing and such request is
received at least one week prior to the next scheduled
transfer date to take effect that month; or (4) the Contract
is surrendered.
The Dollar Cost Averaging program is not available following
the Annuity Date. There is no current charge for Dollar Cost
Averaging but Lincoln Life reserves the right to charge for
this program.
Dollar Cost Averaging will not assure a profit or protect
against a declining market.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Contract Owner, periodically restores to a pre-determined
level the percentage of Contract Value allocated to each
Variable Account Sub-Account (e.g. 20% Money Market, 50%
Growth, 30% Utilities).
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This pre-determined level will be the allocation initially
selected when the Contract was purchased, unless
subsequently changed. The Automatic Rebalancing allocation
may be changed at any time by submitting a request to
Lincoln Life.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Variable Account Sub-Accounts must
be subject to Automatic Rebalancing. The Fixed Account
Sub-Account is not available for Automatic Rebalancing.
Automatic Rebalancing may take place on either a quarterly,
semi-annual or annual basis, as selected by the Owner. Once
the rebalancing option is activated, any Variable Account
Sub-Account transfers executed outside of the rebalancing
option will terminate the Automatic Rebalancing option. Any
subsequent premium payment or withdrawal that modifies the
net account balance within each Variable Account Sub-Account
may also cause termination of the Automatic Rebalancing
option. Any such termination will be confirmed to the Owner.
The Owner may terminate the Automatic Rebalancing option or
re-enroll at any time by calling or writing Lincoln Life's
Home Office.
The Automatic Rebalancing program is not available following
the Annuity Date. There is no current charge for Automatic
Rebalancing but Lincoln Life reserves the right to charge
for this program.
CONTRACT VALUE
The value of the Contract is the sum of the values
attributable to the Contract for each Fixed and Variable
Sub-Account. The value of each Variable Sub-Account is
determined by multiplying the number of Accumulation Units
attributable to the Contract in the Sub-Account by the value
of an Accumulation Unit for the Sub-Account.
ACCUMULATION UNIT
Premium Payments allocated to the Variable Account are
converted into Accumulation Units. This is done by dividing
each Premium Payment by the value of an Accumulation Unit
calculated at the end of the Valuation Period during which
the Premium Payment is allocated to the Variable Account.
The Accumulation Unit value for each Sub-Account was or will
be established by Lincoln Life at the inception of the
Sub-Account. It may increase or decrease from Valuation
Period to Valuation Period. The Accumulation Unit value for
a Sub-Account for any later Valuation Period is determined
as follows:
(1)The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account at the beginning of the
Valuation Period by the net asset value per share of
the Fund at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation
Period; minus
(2)The liabilities of the Sub-Account at the end of the
Valuation Period; such liabilities include daily
charges imposed on the Sub-Account, and may include a
charge or credit with respect to any taxes paid or
reserved for by Lincoln Life that Lincoln Life
determines result from the operations of the Variable
Account; and
(3)The result of (2) is divided by the number of
Sub-Account units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation
Period are equal to the daily mortality and expense risk
charge and the daily administrative charge multiplied by the
number of calendar days in the Valuation Period.
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CHARGES AND DEDUCTIONS
Various charges and deductions are made from Annuity Account
Values and the Variable Account. Lincoln Life may use any of
its corporate assets, including potential profit which may
arise from the Mortality and Expense Risk Charge, to cover
the actual cost of distribution of the Contracts. The
charges and deductions are:
MORTALITY AND EXPENSE RISK CHARGE
Lincoln Life deducts on each Valuation Date a Mortality and
Expense Risk Charge which is equal, on an annual basis, to
1.40% of the average daily net assets of the Variable
Account. The mortality risks assumed by Lincoln Life arise
from its contractual obligation to make annuity payments
after the Annuity Date for the life of the Annuitant in
accordance with annuity rates guaranteed in the Contract and
to pay death benefits that may exceed the Annuity Account
Value. The expense risk assumed by Lincoln Life is that all
actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs,
mailing costs, data processing costs, legal fees, accounting
fees, filing fees, and the costs of other services may
exceed the amount recovered from the Account Fee and the
Administrative Expense Charge, each of which is described
below.
If the Mortality and Expense Risk Charge is insufficient to
cover the actual costs, the loss will be borne by Lincoln
Life. Conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to Lincoln Life.
Lincoln Life expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by
Lincoln Life and cannot be increased.
ADMINISTRATIVE EXPENSE CHARGE
Lincoln Life deducts on each Valuation Date an
Administrative Expense Charge which is equal, on an annual
basis, to 0.15% of the average daily net assets of the
Variable Account. This charge is to reimburse Lincoln Life
for a portion of its expenses in administering the
Contracts. This charge is guaranteed by Lincoln Life and
cannot be increased.
ACCOUNT FEE
Lincoln Life deducts an annual Account Fee of $35 from the
Annuity Account Value on the last Valuation Date of each
Contract Year. This charge, like the Administrative Expense
Charge, is to reimburse Lincoln Life for its expenses in
administering the Contracts. Prior to the Annuity Date, this
charge is deducted by cancelling Accumulation Units from
each applicable Sub-Account in the ratio that the value of
each Sub-Account bears to the total Annuity Account Value.
When the Contract is annuitized or surrendered for its full
Surrender Value on other than a Contract Anniversary, the
Account Fee will be prorated at the time of surrender or
annuitization. On and after the Annuity Date, the Account
Fee will be collected proportionately from the
Sub-Account(s) on which the Variable Annuity payment is
based, prorated on a monthly basis and will result in a
reduction of the annuity payments. The Account Fee will be
waived for any Contract Year in which the Annuity Account
Value equals or exceeds $100,000 as of the last Valuation
Date of the Contract Year or at annuitization.
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PREMIUM TAX EQUIVALENTS
Premium tax equivalents or other taxes payable to a state,
municipality or other governmental entity will be charged
against Annuity Account Value. Premium taxes currently
imposed by certain states on the Contracts offered hereby
range from 0% to 4.0% of Premiums paid. Some states assess
premium taxes at the time Premium Payments are made; others
assess premium taxes at the time annuity payments begin.
Lincoln Life will, in its sole discretion, determine when
taxes have resulted from: the investment experience of the
Variable Account; receipt by Lincoln Life of the Premium
Payment(s); or commencement of annuity payments. Lincoln
Life may, at its sole discretion, pay taxes when due and
deduct an equivalent amount reflecting investment experience
from the Annuity Account Value at a later date. Payment at
an earlier date does not waive any right Lincoln Life may
have to deduct amounts at a later date.
INCOME TAXES
While Lincoln Life is not currently maintaining a provision
for federal income taxes, Lincoln Life has reserved the
right to establish a provision for income taxes if it
determines, in its sole discretion, that it will incur a tax
as a result of the operation of the Variable Account.
Lincoln Life will deduct for any income taxes incurred by it
as a result of the operation of the Variable Account whether
or not there was a provision for taxes and whether or not it
was sufficient.
FUND EXPENSES
There are other deductions from, and expenses paid out of,
the assets of the Funds which are described in the
accompanying Funds' prospectuses.
TRANSFER FEE
Prior to the Annuity Date, a Contract Owner may transfer all
or a part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any transfer
fee or charge if there have been no more than twelve
transfers made in the Contract Year. For additional
transfers, Lincoln Life reserves the right to deduct a
transfer fee of up to $10 per transfer. Prescheduled
automatic Dollar Cost Averaging or Automatic Rebalancing
transfers are not counted toward the twelve transfer limit.
Lincoln Life reserves the right to charge a fee of up to $10
for each transfer after the Annuity Date. The transfer fee
at any given time will not be set at a level greater than
its cost and will contain no element of profit.
RIDER CHARGES
A fee or expense may also be deducted in connection with any
benefits added to the Contract by rider or endorsement. See
the rider for any applicable fee or expense.
DEATH BENEFITS
DEATH BENEFITS PROVIDED BY THE CONTRACTS
In the event of death of the Contract Owner (or the
Annuitant, if the Owner is a non-natural person) prior to
the Annuity Date, a death benefit is payable to the
Beneficiary designated by the Owner upon due proof of death
(a certified copy of the Death Certificate) of the Owner. If
there is no designated Beneficiary, or contingent
Beneficiary,
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Lincoln Life will, within seven (7) days of receipt of due
proof of death of Owner, Beneficiary and contingent
Beneficiary, pay the death benefit in one lump sum to the
deceased Owner's estate.
If the death of any annuitant occurs on or after the Annuity
Date, no death benefit will be payable under the Contract
except as may be provided under the Annuity Option elected.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the
effective date or deemed effective date of the death benefit
election (see "Election and Effective Date of Election"),
and is equal to the greatest of --
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of all the Premium Payments made under the
Contract, less the sum of all partial withdrawals; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date occurring on or before the
Owner's 80th birthday, with adjustments for any
subsequent Premium Payments, partial withdrawals and
charges made since such Contract Anniversary Date.
On or after Owner's 90th birthday, the amount of the death
benefit is the greater of (a) and (b) above.
No Market Value Adjustment (see "Market Value Adjustment")
is assessed against amounts which are applied toward payment
of a death benefit.
Upon a transfer of ownership, the death benefit becomes the
greatest of --
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of Premium Payments made less the sum of
withdrawals made on or before the date of transfer,
adjusted for any subsequent Premium Payments and partial
withdrawals made under the Contract; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date subsequent to the date of
transfer occurring on or before the new Owner's 80th
birthday, with adjustments for any subsequent Premium
Payments, partial withdrawals and charges made since
such Contract Anniversary Date.
On or after the then current Owner's 90th birthday, the
amount of the death benefit is the greater of (a) and (b)
above.
ELECTION AND EFFECTIVE DATE OF ELECTION
Unless specified in writing by the Owner the Beneficiary
may, at any time before the end of the sixty (60) day period
immediately following receipt of due proof of death by
Lincoln Life, elect the death benefit to be paid as follows:
1. the payment of the entire death benefit on a specified
date, which must be within five years of the date of the
death of the Owner or Annuitant, whichever is
applicable; or
2. payment over the lifetime of the designated Beneficiary
or over a period not extending beyond the life
expectancy of the Beneficiary, with distribution
beginning within one year of the date of death of the
Owner or Annuitant, whichever is applicable (see
"Annuity Provisions -- Annuity Options"); or
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3. payment in accordance with one of the settlement options
under the Contract (see "Annuity Provisions -- Annuity
Options"); or
4. if the designated Beneficiary is the Owner's spouse,
he/she can continue the Contract in his/her own name.
Payment amounts may vary with their frequency and duration
(see "Annuity Provisions -- Annuity Options"). To the extent
that the Beneficiary elects a variable payment option, the
Beneficiary will bear the investment risk associated with
the performance of the underlying Fund(s) in which the
relevant Variable Sub-Account invest(s).
Such election may be made by filing with Lincoln Life a
statement in writing specifying the method by which the
death benefit shall be paid and such election shall become
effective on the later of (a) the date the election is
received by Lincoln Life, and (b) the date due proof of
death of the Owner is received by Lincoln Life. Payments
will begin thirty (30) days after the effective date of the
election.
If no payment option is elected, a single sum settlement
will be made by Lincoln Life within seven (7) days of the
end of the sixty (60) day period following receipt of due
proof of death of the Owner or Annuitant as applicable.
If the Owner is a non-natural person, then for purposes of
the death benefit, the Annuitant shall be treated as the
Owner, except that in such case a change of annuitant would
be treated as a death of the annuitant.
DEATH OF THE ANNUITANT BEFORE THE ANNUITY DATE
If the Annuitant dies prior to the Annuity Date and the
Annuitant is different from the Contract Owner, the Contract
Owner, if a natural person, may designate a new Annuitant.
Unless and until one is designated, the Contract Owner will
be the Annuitant. If the Contract Owner is not a natural
person, then the death benefit, valued as described in
"Amount of Death Benefit" but based on the Annuitant, is
paid on due proof of the Annuitant's death.
DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE
If the Annuitant dies after the Annuity Date, the death
benefit, if any, will be as specified in the Annuity Option
elected.
Lincoln Life will require due proof of the Annuitant's
death. Death benefits will be paid at least as rapidly as
under the method of distribution in effect at the
Annuitant's death.
OTHER CONTRACT FEATURES
OWNERSHIP
The Contract Owner has all rights and may receive all
benefits under the Contract. The Contract Owner may change
the Contract Owner at any time. If the Contract Owner dies,
a death benefit will be paid to the Beneficiary upon proof
of the Contract Owner's death. If the Owner is a
corporation, partnership or other non-natural person, the
death benefit is paid upon receipt of due proof of the
Annuitant's death. A change of Contract Owner will
automatically revoke any prior designation of Contract
Owner. A request for change must be: (1) made in writing;
and (2) received by Lincoln Life at its Home Office. The
change will become effective as of the date the written
request is signed. A new designation of Contract Owner will
not apply to any payment made or action taken by Lincoln
Life prior to the time it was received.
For non-qualified contracts, in accordance with Code Section
72(u), a deferred annuity contract held by a corporation or
other entity that is not a natural person is not treated
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as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner
during the taxable year. But in accordance with Code Section
72(u), an annuity contract held by a trust or other entity
as agent for a natural person is considered held by a
natural person.
ASSIGNMENT
The Contract Owner may assign the Contract at any time
during his or her lifetime. Unless provided otherwise, an
assignment will not affect the interest of any previously
indicated Beneficiary. Lincoln Life will not be bound by any
assignment until written notice is received by Lincoln Life
at its Home Office. Lincoln Life is not responsible for the
validity of any assignment. Lincoln Life will not be liable
as to any payment or other settlement made by Lincoln Life
before such assignment has been recorded at Lincoln Life's
Home Office.
If the Contract is issued pursuant to a Qualified Plan, it
may not be assigned, pledged or otherwise transferred except
as may be allowed under applicable law.
BENEFICIARY
The Beneficiary is named when the Contract is applied for
and, unless changed, is entitled to receive any death
benefits to be paid. Prior to the Annuity Date, death
benefits are paid to the Beneficiary on the death of the
Owner.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary by filing a
written request with Lincoln Life at its Home Office unless
an irrevocable Beneficiary designation was previously filed.
After the change is recorded, it will take effect as of the
date the request was signed. If the request reaches the
Lincoln Life's Home Office after the death of the Annuitant
or Contract Owner, as applicable, but before any payment is
made, the change will be valid. Lincoln Life will not be
liable for any payment made or action taken before it
records the change.
ANNUITANT
The Annuitant must be a natural person. The maximum age of
the Annuitant on the date the Contract is issued is 90 years
old. The Annuitant may be changed at any time prior to the
Annuity Date unless the Contract is owned by a non-natural
person. Joint Annuitants are allowed at the time of
annuitization only, if Lincoln Life chooses to make a joint
and survivor annuity payment option available in addition to
the options provided in the Contract. The Annuitant has no
rights or privileges prior to the Annuity Date. When an
Annuity Option is elected, the amount payable as of the
Annuity Date is based on the age and gender classification
(in accordance with state law) of the Annuitant, as well as
the Option selected and the Annuity Account Value.
TRANSFER OF CONTRACT VALUES BETWEEN SUB-ACCOUNTS
Prior to the Annuity Date, the Contract Owner may transfer
all or part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any fee or
charge if there have been no more than twelve transfers made
in the Contract Year. For additional transfers, Lincoln Life
reserves the right to deduct a transfer fee of up to $10
(See "Charges and Deductions -- Transfer Fee"). This
Contract is not designed for professional market timing
organizations or other entities using programmed and
frequent transfers.
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Repeated patterns of frequent transfers are disruptive to
the operation of the Sub-Accounts, and should Lincoln Life
become aware of such disruptive practices, Lincoln Life may
refuse to permit more than 12 transfers in any year and may
modify the transfer provisions of the Contract.
There may be limits on the amount that can be transferred
from each Fixed Account Sub-Account during a Contract Year.
After the Annuity Date, provided a variable annuity option
was selected, the Contract Owner may make up to three
transfers between Variable Sub-Accounts in any Contract
Year.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed.
The transfer fee will be deducted from the amount which
is transferred if the entire amount in the Sub-Account is
being transferred, otherwise from the Sub-Account from
which the transfer is made.
b. The minimum amount which may be transferred is the lesser
of (i) $2,000 per Fixed Account Sub-Account or $50 per
Variable Account Sub-Account; or (ii) the Contract
Owner's entire interest in the Sub-Account. Lincoln Life,
at its sole discretion may waive these minimum
requirements.
c. No partial transfer will be made if the Contract Owner's
remaining Contract Value in Fixed Account Sub-Account
will be less than $2,000 or in the Variable Sub-Account
will be less than $50.
d. Transfers involving Variable Account Sub-Accounts will
reflect the purchase or cancellation of Variable
Accumulation Units having an aggregate value equal to the
dollar amount being transferred to or from a particular
Variable Account Sub-Account. The purchase or
cancellation of units shall be made using Variable
Accumulation Unit Values of the applicable Variable
Account Sub-Account at the end of the Valuation Period
during which the transfer request is received in good
order at Lincoln Life's Home Office. However, no transfer
may be made effective within seven calendar days of the
date on which the first annuity payment is due. Transfers
are not permitted during the right-to-examine period.
e. Any transfer request must clearly specify the amount
which is to be transferred and the Sub-Accounts which are
to be affected.
f. Transfers of all or a portion of any Fixed Account
Sub-Account values (other than transfers pursuant to the
Dollar Cost Averaging program or at the end of a
Guaranteed Period) are subject to any applicable Market
Value Adjustment;
g. Lincoln Life reserves the right to defer transfers from
any Fixed Account Sub-Account for up to six months after
date of receipt of the transfer request;
h. Transfers involving the Variable Account Sub-Accounts are
subject to such restrictions as may be imposed by the
Funds;
i. Lincoln Life reserves the right at any time and without
prior notice to any party to terminate, suspend or modify
the transfer privileges described above.
j. After the Annuity Date, transfers may not take place
between a Fixed Annuity Option and a Variable Annuity
Option.
k. Lincoln Life reserves the right to reject any premium
allocation or transfer which would cause the Fixed
Account Sub-Account values in aggregate to exceed then
current Lincoln Life limits.
Transfers between Sub-Accounts may be made by calling or
writing Lincoln Life's Home Office. Transfer requests must
be received prior to 4:00 Eastern Time in order to be
effective that day.
Transfers between any Sub-Accounts may be suspended or
postponed during any period in which the New York Stock
Exchange is closed or has suspended trading.
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PROCEDURES FOR TELEPHONE TRANSFERS
Owners may effect telephone transfers by calling Lincoln
Life's Home Office.
Lincoln Life will take the following procedures to confirm
that instructions communicated by telephone are genuine.
Before a service representative accepts any request, the
caller will be asked for specific information to validate
the request. All calls will be recorded. All transactions
performed will be confirmed by Lincoln Life in writing.
Lincoln Life is not liable for any loss, cost or expense for
acting on telephone instructions which are believed to be
genuine in accordance with these procedures.
SURRENDERS AND PARTIAL WITHDRAWALS
While the Contract is in force and before the Annuity Date,
Lincoln Life will, upon written request to Lincoln Life by
the Contract Owner, allow the surrender or partial
withdrawal of all or a portion of the Contract for its
Surrender Value. Surrenders or partial withdrawals will
result in the cancellation of Accumulation Units from each
applicable Sub-Account in the ratio that the value of each
Sub-Account bears to the total Annuity Account Value, unless
the Contract Owner specifies in writing in advance which
units are to be cancelled. Lincoln Life will pay the amount
of any surrender or partial withdrawal within seven (7) days
of receipt of a valid request, unless the "Delay of
Payments" provision is in effect. (See "Delay of Payments
and Transfers")
Certain tax withdrawal penalties and restrictions may apply
to surrenders and partial withdrawals from Contracts. (See
"Tax Matters.") Contract Owners should consult their own tax
counsel or other tax adviser regarding any surrenders and
partial withdrawals.
The Surrender Value is the Annuity Account Value for the
Valuation Period next following the Valuation Period during
which the written request to Lincoln Life for surrender is
received, reduced, in the case of full surrender, by the sum
of any applicable premium tax equivalents not previously
deducted and any applicable Account Fee; and for any partial
withdrawals, by any applicable premium tax equivalents not
previously deducted.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Title 8, Section Section30.105 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, a participant in the ORP will be required to
obtain a certificate of termination from the participant's
employer before accounts can be redeemed.
DELAY OF PAYMENTS AND TRANSFERS
Lincoln Life reserves the right to suspend or postpone
payment of proceeds or transfers for any period when:
1. the New York Stock Exchange is closed (other than
customary weekend and holiday closings);
2. trading on the New York Stock Exchange is restricted;
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3. an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably
practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets;
or
4. during any other period when the Commission, by order, so
permits for the protection of Contract Owners.
The applicable rules and regulations of the Commission will
govern as to whether the conditions described in 2. and 3.
exist.
Lincoln Life reserves the right to defer the payment or
transfer of amounts withdrawn from any Fixed Account
Sub-Account for a period not to exceed six months from the
date written request for such withdrawal or transfer is
received by Lincoln Life. If payment or transfer is deferred
beyond thirty (30) days, Lincoln Life will pay interest of
not less than 3% per year on amounts so deferred.
In addition, payment of the amount of any withdrawal
derived, all or in part, from any Premium Payment paid to
Lincoln Life by check or draft may be postponed until
Lincoln Life determines the check or draft has been honored.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At Lincoln Life's election and subject to the approval of
persons having voting rights under the Contracts, the
Variable Account may be operated as a management company
under the 1940 Act or any other form permitted by law;
de-registered under the 1940 Act in the event registration
is no longer required (deregistration of the Variable
Account requires an order by the Commission); or combined
with one or more other separate accounts. To the extent
permitted by applicable law, Lincoln Life also may transfer
the assets of the Variable Account associated with the
Contracts to another account or accounts. In the event of
any change in the operation of the Variable Account pursuant
to this provision, Lincoln Life may make appropriate
endorsement to the Contracts to reflect the change and take
such other action as may be necessary and appropriate to
effect the change.
MODIFICATION
Upon notice to the Owner (or the Payee(s) during the Annuity
Period), the Contracts may be modified by Lincoln Life if
such modification: (i) is necessary to make the Contracts or
the Variable Account comply with, or take advantage of, any
law or regulation issued by a governmental agency to which
Lincoln Life or the Variable Account is subject; or (ii) is
necessary to attempt to assure continued qualification of
the Contracts under the Code or other federal or state laws
relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of
the Variable Account or its Sub-Account(s) (See "Change in
Operation of Variable Account"); or (iv) provides additional
Variable Account and/or fixed accumulation options. In the
event of any such modification, Lincoln Life may make
appropriate endorsement to the Contracts to reflect such
modification.
In addition, upon notice to the Owner, the Contracts may be
modified by Lincoln Life to change the Account Fees,
mortality and expense risk charges, administrative expense
charges, the tables used in determining the amount of the
first monthly fixed annuity payment, and the formula used to
calculate the Market Value Adjustment, provided that such
modification shall apply only to Contracts established after
the effective date of such modification. In order to
exercise its modification rights in these particular
instances, Lincoln Life must notify the Owner of such
modification in writing. All of the charges and the annuity
tables which are provided in the Contracts prior to any such
modification will remain in effect permanently, unless
improved by Lincoln Life, with respect to Contracts
established prior to the effective date of such
modification.
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DISCONTINUANCE
Lincoln Life reserves the right to limit or discontinue the
offer and issuance of new Contracts. Such limitation or
discontinuance shall have no effect on rights or benefits
with respect to any Contracts issued prior to the effective
date of such limitation or discontinuance.
ANNUITY PROVISIONS
ANNUITY DATE; CHANGE IN ANNUITY DATE AND ANNUITY OPTION
The Contract Owner selects an Annuity Date at the time of
application or order to purchase. The Contract Owner may,
upon at least forty-five (45) days prior written notice to
Lincoln Life, at any time prior to the Annuity Date, change
the Annuity Date. The new Annuity Date must be at least 30
days after the effective date of the change. If the Income
Payment is a 100% Fixed Income Payment, the First Income
Payment Date under the settlement option selected will be at
least 30 days after the Annuity Date as selected by the
owner. If the Income Payment is in any part a Variable
Income Payment, the first Income Payment under the
Settlement option selected will be 14 days after the
Valuation Period which ends immediately preceding the
Annuity Date as selected by the Owner. The Annuity Date may
not be later than the month following the Annuitant's 90th
birthday.
The Contract Owner may, upon at least forty-five (45) days
prior written notice to Lincoln Life, at any time prior to
the Annuity Date, select and/or change the Annuity Option.
The Annuity Date will then be automatically changed to the
date of such annuitization.
PENALTY-FREE ANNUITIZATION
At any time the Owner may request in writing payment of the
then current Annuity Account Value in accordance with any
one of the settlement options set forth in the Contract. In
such event, no Market Value Adjustment will be imposed at
the time such settlement is made. Such annuitization will
automatically result in a change in the Annuity Date to the
date payments commence under the settlement option elected.
ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, the Contract
Owner may select one of the Annuity Options. These may be on
a fixed or variable basis, or a combination thereof.
However, if the amount to be applied under any settlement
option is less than $5,000, or if the first income payment
payable in accordance with such option is less than $50,
Lincoln Life reserves the right to pay the adjusted value in
a single payment to the payee designated by the Owner. If
the Annuity Option elected results in a payment less than
the minimum payment required by the Contract, Lincoln Life
reserves the right to change the frequency of payments to an
interval that will provide the minimum payment amount. The
Annuity Option must be selected at least 30 days prior to
the Annuity Date. If no such selection is made, the adjusted
Annuity Account Value will be applied under a life Annuity
with 120 months guaranteed. In such situation, the adjusted
Annuity Account Value on the Annuity Date will be applied to
either a fixed option or a variable option in proportion to
the Annuity Account Value in the Fixed Account or the
Sub-Accounts, respectively, on the Annuity Date. Lincoln
Life also may make available other settlement options.
Lincoln Life uses sex distinct or unisex annuity rate tables
when determining appropriate annuity payments.
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GUARANTEED MINIMUM INCOME PAYMENT RIDER
Lincoln Life may offer in the future a rider benefit that
will allow a Contract Owner to receive a guaranteed minimum
income payment regardless of the investment results of the
Sub-Accounts in which the Contract Owner has allocated
Premium Payments. Where a Contract Owner elects the rider,
each annuity payment will be the greater of the annuity
payment under the settlement option elected by the Contract
Owner or the guaranteed minimum income payment provided by
the rider. It is anticipated an annual charge of up to 0.50%
will be deducted from the Contract's average daily net
assets while the rider is in effect. If Lincoln Life offers
the guaranteed minimum income payment rider, it is expected
to provide that a Contract Owner may request to annuitize
the Contract under the terms of the rider during certain
benefit option periods, as specified in the rider.
FIXED OPTIONS
Under a fixed option, once the selection has been made and
payments have begun, the amount of the payments will not
vary. The fixed options currently available are:
FIRST OPTION -- LIFE ANNUITY. An annuity which provides
annuity payments during the lifetime of the Annuitant,
ceasing with the last payable due prior to the death of the
Annuitant.
SECOND OPTION -- LIFE ANNUITY WITH CERTAIN PERIOD. An
annuity which provides annuity payments during the lifetime
of the Annuitant and further provides that if at the death
of the Annuitant payments have been made for less than the
elected certain period, which may be 120 or 240 months, the
annuity payments will continue for the remainder of elected
certain period.
THIRD OPTION -- CASH REFUND LIFE ANNUITY. An annuity which
provides annuity payments during the lifetime of the
Annuitant, ceasing with the last payment due prior to the
death of the Annuitant, with the guarantee that upon the
death of the Annuitant, if: (a) the total dollar amount
applied to purchase this Fixed Income Payment option is
greater than: (b) the Fixed Income Payment multiplied by the
number of Income Payments paid prior to death; then a refund
payment equal to the dollar amount of (a) minus (b) will be
made after the death claim is approved by the Company for
payment and the Company is in receipt of: (a) proof of death
acceptable to the Company; (b) written authorization for
payment; and (c) all claim forms, fully completed.
FOURTH OPTION -- JOINT LIFE ANNUITY. An annuity which
provides annuity payments during the joint lifetime of the
Annuitant and a Joint Annuitant, ceasing with the last
payment due prior to the last death of the joint annuitants.
FIFTH OPTION -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY. An annuity which provides annuity payments during
the joint lifetime of the Annuitant and a Joint Annuitant,
with two-thirds of such amount payable during the remaining
lifetime of the survivor and ceasing with the last payment
due prior to the last death of the joint annuitants.
SIXTH OPTION -- JOINT LIFE ANNUITY WITH CERTAIN PERIOD. An
annuity which provides annuity payments during the joint
lifetime of the Annuitant and a Joint Annuitant and further
provides that if after the death of both Annuitants payments
have been made for less than the elected certain period,
which may be 120 or 240 months, the annuity payments will
continue for the remainder of elected certain period.
SEVENTH OPTION -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY WITH CERTAIN PERIOD. An annuity which provides
annuity payments during the joint lifetime of the Annuitant
and a Joint Annuitant, with two-thirds of such amount
payable during the remaining
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lifetime of the survivor, further providing that should one
or both the Annuitants die during the elected certain
period, which may be 120 or 240 months, the full benefit
payment will continue for the remainder of the elected
certain period.
VARIABLE OPTIONS
The actual dollar amount of variable annuity payments is
dependent upon (i) the Annuity Account Value at the time of
annuitization, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the
investment performance of the Sub-Account selected. Each
annuity payment will be less if payments are to be made more
frequently or for longer periods of time. The mortality and
expense risk charge will be assessed on all variable annuity
payments, including options that do not have a life
contingency and therefore no mortality risk.
The dollar amount of the first monthly variable annuity
payment is determined by applying the available value (after
deduction of any premium tax equivalents not previously
deducted) to the table using the age and gender (in
accordance with state law) of the Annuitant. The number of
Annuity Units is then determined by dividing this dollar
amount by the then current Annuity Unit value. Thereafter,
the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made
separately for each Sub-Account of the Variable Account. The
number of Annuity Units is determined for each Sub-Account
and is based upon the available value in each Sub-Account at
the end of the Valuation Period immediately preceding the
Annuity Date.
The dollar amount determined for each Sub-Account will then
be aggregated for purposes of making payments.
The dollar amount of the second and later variable annuity
payments is equal to the number of Annuity Units determined
for each Sub-Account times the Annuity Unit value for that
Sub-Account at the end of the Valuation Period that is 14
days prior to the Variable Income Payment Date. This amount
may increase or decrease from month to month.
The annuity tables contained in the Contract are based on a
four percent (4%) assumed net investment rate. If the actual
net investment rate exceeds four percent (4%), payments will
increase. Conversely, if the actual rate is less than four
percent (4%), annuity payments will decrease.
The Annuitant receives the value of a fixed number of
Annuity Units each Income Payment Date. The value of a fixed
number of Annuity Units will reflect the investment
performance of the Sub-Account selected and the amount of
each annuity payment will vary accordingly.
The Annuity Unit Value for a Sub-Account is determined by
multiplying the Annuity Unit Value for that Sub-Account for
the preceding Valuation Period by the Net Investment Factor
for the current Valuation Period (calculated as described on
pages 19 and 20 of this Prospectus) and multiplying the
result by 0.9998926, the daily factor to neutralize the
assumed net investment rate, discussed above, of 4% per
annum which is built into the annuity rate table. It may
increase or decrease from Valuation Period to Valuation
Period.
The variable options currently available are:
OPTION I -- VARIABLE LIFE ANNUITY. A variable annuity which
provides annuity payments during the lifetime of the
Annuitant, ceasing with the last payment due prior to the
death of the Annuitant.
OPTION II -- VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A
variable annuity which provides annuity payments during the
lifetime of the Annuitant and further provides that
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if at the death of the Annuitant payments have been made for
less than the elected period certain, which may be 120 or
240 months, the annuity payments will continue for the
remainder of elected period certain.
OPTION III -- VARIABLE UNIT REFUND LIFE ANNUITY. A variable
annuity which provides annuity payments during the lifetime
of the Annuitant, ceasing with the last payment due prior to
the death of the Annuitant, with the guarantee that upon the
death of the Annuitant, if: (a) the number of Annuity Units
initially purchased (determined by dividing the total dollar
amount applied to purchase this Variable Income Payment
option by the Annuity Unit value on the Valuation Period
which ends immediately preceding the Annuity Date) is
greater than; (b) the number of Annuity Units paid as part
of each Variable Income Payment multiplied by the number of
Income Payments paid prior to death; then a refund payment
equal to the number of Annuity Units determined by (a) minus
(b) will be made. The refund payment value will be
determined using the Annuity Unit value on the Valuation
Date on which the death claim is approved by the Company for
payment after the Company is in receipt of: (a) proof of
death acceptable to the Company; (b) written authorization
for payment; and (c) all claims forms, fully completed.
OPTION IV -- VARIABLE JOINT LIFE ANNUITY. A variable annuity
which provides annuity payments during the joint lifetime of
the Annuitant and a Joint Annuitant, ceasing with the last
payment due prior to the last death of the joint annuitants.
OPTION V -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY. An annuity which provides annuity payments during
the joint lifetime of the Annuitant and a Joint Annuitant,
with two-thirds of such amount payable during the remaining
lifetime of the survivor and ceasing with the last payment
due prior to the last death of the joint annuitants.
OPTION VI -- VARIABLE JOINT LIFE ANNUITY WITH CERTAIN
PERIOD. A variable annuity which provides annuity payments
during the joint lifetime of the Annuitant and a Joint
Annuitant and further provides that if after the death of
both Annuitants payments have been made for less than the
elected period certain, which may be 60, 120, 180 or 240
months, the annuity payments will continue for the remainder
of elected period certain.
OPTION VII -- VARIABLE JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY WITH CERTAIN PERIOD. A variable annuity which
provides annuity payments during the joint lifetime of the
Annuitant and a Joint Annuitant, with two-thirds of such
amount payable during the remaining lifetime of the
survivor, further providing that should one or both the
Annuitants die during the elected certain period, which may
be 120 or 240 months, the full benefit payment will continue
for the remainder of the elected period.
After the Annuity Date, the payee may, by written request to
Lincoln Life's Administrative Office, exchange Annuity Units
of one Variable Sub-Account for Annuity Units of equivalent
value in another Variable Sub-Account up to three times each
Contract Year.
EVIDENCE OF SURVIVAL
Lincoln Life reserves the right to require evidence of the
survival of the Annuitant(s) upon each Income Payment Date.
ENDORSEMENT OF ANNUITY PAYMENTS
Lincoln Life will make each annuity payment at its Home
Office by check. Each check must be personally endorsed by
the Payee or Lincoln Life may require that proof of the
Annuitant's survival be furnished.
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THE FIXED ACCOUNT
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF
LINCOLN LIFE OTHER THAN THOSE ALLOCATED TO ANY SEPARATE
ACCOUNT. THE FIXED ACCOUNT IS PART OF LINCOLN LIFE'S GENERAL
ACCOUNT. BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY
PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933
ACT"), AND NEITHER THE FIXED ACCOUNT NOR LINCOLN LIFE'S
GENERAL ACCOUNT HAS BEEN REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940 (THE "1940 ACT"). THEREFORE, NEITHER THE
FIXED ACCOUNT NOR ANY INTEREST THEREIN IS GENERALLY SUBJECT
TO REGULATION UNDER THE PROVISIONS OF THE 1933 ACT OR THE
1940 ACT. ACCORDINGLY, LINCOLN LIFE HAS BEEN ADVISED THAT
THE STAFF OF THE COMMISSION HAS NOT REVIEWED THE DISCLOSURE
IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
The initial Premium Payment and any subsequent Premium
Payment(s) will be allocated to Sub-Accounts available in
connection with the Fixed Account to the extent elected by
the Owner at the time such Premium Payment is made. In
addition, all or part of the Owner's Annuity Account Value
may be transferred among Sub-Accounts available under the
Contract as described under "Transfer of Contract Values
between Sub-Accounts." Instead of the Owner's assuming all
of the investment risk as is the case for Premium Payments
allocated to the Variable Account, Lincoln Life guarantees
it will credit interest of at least 3% per year to amounts
allocated to the Fixed Account.
Assets supporting amounts allocated to Sub-Accounts within
the Fixed Account become part of Lincoln Life's general
account assets and are available to fund the claims of all
creditors of Lincoln Life. All of Lincoln Life's general
account assets will be available to fund benefits under the
Contracts. The Owner does not participate in the investment
performance of the assets of the Fixed Account or Lincoln
Life's general account.
Lincoln Life will invest the assets of the general account
in those assets chosen by Lincoln Life and allowed by
applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and
the percentage of their assets that may be committed to any
particular type of investment. In general, these laws permit
investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations,
corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
If the Account Value within a Fixed Account Sub-Account is
maintained for the duration of the Sub-Account's Guaranteed
Period, Lincoln Life guarantees that it will credit interest
to that amount at the guaranteed rate specified for the
Sub-Account which may but need not be more than 3% per year.
Any amount withdrawn from or transferred out of the
Sub-Account prior to the expiration of the Sub-Account's
Guaranteed Period is subject to a Market Value Adjustment
(see "Market Value Adjustment"). Lincoln Life guarantees,
however, that a Contract will be credited with interest at a
rate of not less than 3% per year, compounded annually, on
amounts allocated to any Fixed Account Sub-Account,
regardless of any application of the Market Value Adjustment
(that is, the Market Value Adjustment will not reduce the
amount available for surrender, withdrawal or transfer to an
amount less than the initial amount allocated or transferred
to the Fixed Account Sub-Account plus interest of 3% per
year). Lincoln Life reserves the right to defer the payment
or transfer of amounts withdrawn from the Fixed Account for
a period not to exceed six (6) months from the date a proper
request for surrender, withdrawal or transfer is received by
Lincoln Life.
FIXED ACCUMULATION VALUE. The fixed accumulation value of an
Annuity Account, if any, for any Valuation Period is equal
to the sum of the values of all Fixed Account Sub-Accounts
which are part of the Annuity Account for such Valuation
Period.
GUARANTEED PERIODS. The Owner may elect to allocate Premium
Payments to one or more Sub-Accounts within the Fixed
Account. Currently, each Sub-Account maintains a
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Guaranteed Period with a duration of 1, 3, 5, 7, or 10
years. Lincoln Life may, upon occasion, offer a Fixed
Account Sub-Account for periods of less than one year solely
for the purpose of Dollar Cost Averaging. Every Premium
Payment allocated to a Fixed Account Sub-Account starts a
new Sub-Account with its own duration and Guaranteed
Interest Rate. The duration of the Guaranteed Period will
affect the Guaranteed Interest Rate of the Sub-Account.
Initial Premium Payments and subsequent Premium Payments, or
portions thereof, and transferred amounts allocated to a
Fixed Account Sub-Account, less any amounts subsequently
withdrawn, will earn interest at the Guaranteed Interest
Rate during the particular Sub-Account's Guaranteed Period
unless prematurely withdrawn prior to the end of the
Guaranteed Period. Initial Sub-Account Guaranteed Periods
begin on the date a Premium Payment is accepted or, in the
case of a transfer, on the effective date of the transfer,
and end on the date after the number of calendar years in
the Sub-Account's Guaranteed Period elected from the date on
which the amount was allocated to the Sub-Account (the
"Expiration Date"). Any portion of Annuity Account Value
allocated to a specific Sub-Account with a specified
Expiration Date (including interest earned thereon) will be
referred to herein as a "Guaranteed Period Amount." Interest
will be credited daily at a rate equivalent to the compound
annual rate determined on the first day of the Sub-Account
Guaranteed Period. As a result of renewals and transfers of
portions of the Annuity Account Value described under
"Transfer of Contract Values between Sub-Accounts" above,
which will begin new Sub-Account Guaranteed Periods, amounts
allocated to Sub-Accounts of the same duration may have
different Expiration Dates. Thus each Guaranteed Period
Amount will be treated separately for purposes of
determining any applicable Market Value Adjustment (see
"Market Value Adjustment").
Lincoln Life will notify the Owner in writing at least 60
days prior to the Expiration Date for any Guaranteed Period
Amount. A new Sub-Account Guaranteed Period of the same
duration as the previous Sub-Account Guaranteed Period will
commence automatically at the end of the previous Guaranteed
Period unless Lincoln Life receives, following such
notification but prior to the end of such Guaranteed Period,
a written election by the Owner to transfer the Guaranteed
Period Amount to a different Fixed Account Sub-Account or to
a Variable Account Sub-Account from among those being
offered by Lincoln Life at such time. Transfers of any
Guaranteed Period Amount which become effective upon the
expiration of the applicable Guaranteed Period are not
subject to the twelve transfers per Contract Year
limitations or the additional Fixed Sub-Account transfer
restrictions (see "Transfer of Contract Values between
Sub-Accounts").
GUARANTEED INTEREST RATES. Lincoln Life periodically will
establish an applicable Guaranteed Interest Rate for each of
the Sub-Account Guaranteed Periods within the Fixed Account.
Current Guaranteed Interest Rates may be changed by Lincoln
Life frequently or infrequently depending on interest rates
on investments available to Lincoln Life and other factors
as described below, but once established, rates will be
guaranteed for the entire duration of the respective
Sub-Account's Guaranteed Period. However, any amount
withdrawn from the Sub-Account may be subject to any
applicable withdrawal charges, Account Fees, Market Value
Adjustment, premium taxes or other fees. Amounts transferred
out of a Fixed Account Sub-Account prior to the end of the
Guaranteed Period will be subject to the Market Value
Adjustment.
The Guaranteed Interest Rate will not be less than 3% per
year compounded annually, regardless of any application of
the Market Value Adjustment. Lincoln Life has no specific
formula for determining the rate of interest that it will
declare as a Guaranteed Interest Rate, as these rates will
be reflective of interest rates available on the types of
debt instruments in which Lincoln Life intends to invest
amounts allocated to the Fixed Account (see "The Fixed
Account"). In addition, Lincoln Life's management may
consider other factors in determining Guaranteed Interest
Rates for a particular Sub-
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Account including: regulatory and tax requirements; sales
commissions and administrative expenses borne by Lincoln
Life; general economic trends; and competitive factors.
THERE IS NO OBLIGATION TO DECLARE A RATE IN EXCESS OF 3% PER
YEAR; THE OWNER ASSUMES THE RISK THAT DECLARED RATES WILL
NOT EXCEED 3% PER YEAR. LINCOLN LIFE HAS COMPLETE DISCRETION
TO DECLARE ANY RATE, SO LONG AS THAT RATE IS AT LEAST 3% PER
YEAR.
MARKET VALUE ADJUSTMENT
Any surrender or transfer of a Fixed Account Guaranteed
Period Amount, other than a surrender or transfer pursuant
to an election which becomes effective upon the Expiration
Date of the Guaranteed Period, will be subject to a Market
Value Adjustment ("MVA"). The MVA will be applied to the
amount being surrendered or transferred after deduction of
any applicable Account Fee.
The MVA generally reflects the relationship between the
Index Rate (based upon the Treasury Constant Maturity Series
published by the Federal Reserve) in effect at the time a
Premium Payment is allocated to a Sub-Account's Guaranteed
Period under the Contract and the Index Rate in effect at
the time of the Premium Payment's surrender or transfer. It
also reflects the time remaining in the Sub-Account's
Guaranteed Period. Generally, if the Index Rate at the time
of surrender or transfer is lower than the Index Rate at the
time the Premium Payment was allocated, then the application
of the MVA will result in a higher payment upon surrender or
transfer. Similarly, if the Index Rate at the time of
surrender or transfer is higher than the Index Rate at the
time the Premium Payment was allocated, the application of
the MVA will generally result in a lower payment upon
surrender or transfer.
The MVA is computed by applying the following formula:
(1+A)to the power N
------------------
(1+B)to the power N
where:
A = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the beginning of the Guaranteed
Period.
B = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the time of surrender or transfer,
plus a 0.50% adjustment (unless otherwise limited by
applicable state law). If Index Rates "A" and "B" are within
.25% of each other when the index rate factor is determined,
no such percentage adjustment to "B" will be made, unless
otherwise required by state law. This adjustment builds into
the formula a factor representing direct and indirect costs
to Lincoln Life associated with liquidating general account
assets in order to satisfy surrender requests. This
adjustment of 0.50% has been added to the denominator of the
formula because it is anticipated that a substantial portion
of applicable general account portfolio assets will be in
relatively illiquid securities. Thus, in addition to direct
transaction costs, if such securities must be sold (E.G.,
because of surrenders), the market price may be lower.
Accordingly, even if interest rates decline, there will not
be a positive adjustment until this factor is overcome, and
then any adjustment will be lower than otherwise, to
compensate for this factor. Similarly, if interest rates
rise, any negative adjustment will be greater than
otherwise, to compensate for this factor. If interest rates
stay the same, this factor will result in a small but
negative Market Value Adjustment.
N = The number of years remaining in the Guaranteed Period
(E.G. 1 year and 73 days = 1 + (73 divided by 365) = 1.2
years)
Straight-Line interpolation is used for periods to maturity
not quoted.
See the Statement of Additional information for examples of
the application of the Market Value Adjustment.
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<PAGE>
DISTRIBUTION OF THE CONTRACTS
Lincoln Life is the distributor of the Contracts. The
Contracts will be sold by our registered representatives who
have been licensed by state insurance departments. The
Contracts may 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.
Lincoln Life is registered with the Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers
(NASD). We will offer the Contracts in all states where we
are licensed to do business and in which the Contracts are
approved.
Commissions of up to 1.00% of premiums plus 1.00% of annual
contract value will be paid to broker-dealers who sell the
Contracts, and Lincoln Life will incur other promotional or
distribution expenses associated with the marketing of the
Contracts.
PERFORMANCE DATA
MONEY MARKET SUB-ACCOUNT
From time to time, the Money Market Sub-Account may
advertise its "yield" and "effective yield." Both yield
figures will be based on historical earnings and are not
intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by
Annuity Account Values in the Money Market Sub-Account over
a seven-day period (which speriod will be stated in the
advertisement). This income is then "annualized." That is,
the amount of 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 Annuity Account
Values in the Money Market Sub-Account. The "effective
yield" is calculated similarly but, when annualized, the
income earned by Annuity Account Values in the Money Market
Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of
the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction
for the Mortality and Expense Risk Charge, the
Administrative Expense Charge, and the Account Fee.
OTHER VARIABLE ACCOUNT SUB-ACCOUNTS
From time to time, the other Variable Account Sub-Accounts
may publish their current yields and total returns in
advertisements and communications to Contract Owners. The
current yield for each Variable Account Sub-Account will be
calculated by dividing the annualization of the dividend and
interest income earned by the underlying Fund during a
recent 30-day period by the maximum Accumulation Unit value
at the end of such period. Total return information will
include the underlying Fund's average annual compounded rate
of return over the most recent four calendar quarters and
the period from the underlying Fund's inception of
operations, based upon the value of the Accumulation Units
acquired through a hypothetical $1,000 investment at the
Accumulation Unit value at the beginning of the specified
period and upon the value of the Accumulation Unit at the
end of such period, assuming reinvestment of all
distributions and the deduction of the Mortality and Expense
Risk Charge, the Administrative Expense Charge and the
Annuity Account Fee. Each Variable Account Sub-Account may
also advertise aggregate and average total return
information over different periods of time.
In each case, the yield and total return figures will
reflect all recurring charges against the Variable Account
Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge, the Administrative
Expense Charge and the Account Fee for the applicable time
period. Contract Owners should note that the investment
results of
38
<PAGE>
each Sub-Account will fluctuate over time, and any
presentation of a Variable Account Sub-Account's current
yield or total return for any prior period should not be
considered as a representation of what an investment may
earn or what a Contract Owner's yield or total return may be
in any future period. See "Historical Performance Data" in
the Statement of Additional Information.
PERFORMANCE RANKING OR RATING
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, 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 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. 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 Variable
Account, the funds, and their investment management.
TAX MATTERS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON LINCOLN LIFE'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE
TO ANNUITIES IN GENERAL. LINCOLN LIFE CANNOT PREDICT THE
PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
OWNERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING
THE POSSIBILITY OF SUCH CHANGES. LINCOLN LIFE DOES NOT
GUARANTEE THE TAX STATUS OF THE CONTRACTS. OWNERS BEAR THE
COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in
general. A Contract Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the
Settlement Option elected. For a lump sum payment received
as a total surrender (total redemption), the recipient is
taxed on the portion of the payment that exceeds the cost
basis of the Contract. For Non-Qualified Contracts, this
cost basis is generally the Premium Payments, while for
Qualified Contracts there may be no cost basis. The taxable
portion of the lump sum payment is taxed at ordinary income
tax rates.
For annuity payments, the taxable portion is determined by a
formula which establishes the ratio that the cost basis of
the Contract bears to the total value of annuity payments
for the term of the Contract. The taxable portion is taxed
at ordinary income rates. For certain types of Qualified
Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek
competent financial advice about the tax consequences of any
distributions.
Lincoln Life is taxed as a life insurance company under
Subchapter L of the Code. For federal income tax purposes,
the Variable Account is not a separate entity from Lincoln
Life, and its operations form a part of Lincoln Life.
Accordingly, the Variable Account
39
<PAGE>
will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. Lincoln Life does
not expect to incur any federal income tax liability with
respect to investment income and net capital gains arising
from the activities of the Variable Account retained as part
of the reserves under the Contract. Based on this
expectation, it is anticipated that no charges will be made
against the Variable Account for federal income taxes. If,
in future years, any federal income taxes or other economic
burden are incurred by Lincoln Life with respect to the
Variable Account or the Contracts, Lincoln Life may make a
charge for any such amounts that are attributable to the
Variable Account.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable annuity
contracts. The Code provides that a variable annuity
contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments
are not adequately diversified in accordance with
regulations prescribed by the United States Treasury
Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition
of federal income tax to the Contract Owner with respect to
earnings allocable to the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the
Contracts meet the diversification requirements if, as of
the end of each quarter, the underlying assets meet the
diversification standards for a regulated investment company
and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment
companies.
The Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for
the investment portfolios underlying variable contracts such
as the Contracts. The regulations amplify the
diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe
harbor provision described above. Under the regulations, an
investment portfolio will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of
the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more
than 80% of the value of the total assets of the portfolio
is represented by any three investments; and (4) no more
than 90% of the value of the total assets of the portfolio
is represented by any four investments.
The Code provides that for purposes of determining whether
or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of
the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate
issuer."
Lincoln Life intends, and the Trusts have undertaken, that
all Funds underlying the Contracts will be managed in such a
manner as to comply with these diversification requirements.
The Treasury Department has indicated that guidelines may be
forthcoming under which a variable annuity contract will not
be treated as an annuity contract for tax purposes if the
owner of the contract has excessive control over the
investments underlying the contract (i.e., by being able to
transfer values among sub-accounts with only limited
restrictions). The issuance of such guidelines may require
Lincoln Life to impose limitations on a Contract Owner's
right to control the investment. It is not known whether any
such guidelines would have a retroactive effect.
40
<PAGE>
DISTRIBUTION REQUIREMENTS
The Treasury Department has indicated that guidelines may be
forthcoming under which a variable annuity will not be
treated as an annuity for tax purposes if the owner of the
annuity has excessive control over the investments
underlying the contract. Should the Secretary of the
Treasury issue additional rules or regulations limiting the
number of underlying funds, transfers between underlying
funds, exchanges of underlying funds or changes in
investment objectives of underlying funds such that the
contract would no longer qualify as an annuity under Section
72 of the Code, Lincoln Life will take whatever steps are
available to remain in compliance. In addition, we do not
know what standards will be set forth in the regulations or
rulings which the Treasury Department has stated it expects
to issue. It is possible that Treasury Department's
position, when announced, may adversely affect the tax
treatment of existing contracts. It is not clear what this
additional guidance will provide nor whether it will be
applied on a prospective basis only. Lincoln Life,
therefore, reserves the right to modify the contract as
necessary to attempt to prevent the contract owner from
being considered the federal tax owner of the assets of the
Variable Account. However, Lincoln Life makes no guarantee
that such modification to the contract will be successful.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity
contracts which are issued during a calendar year to the
same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining
the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid
taxation of the distributed amounts from such combination of
contracts. Contract Owners should consult a tax adviser
prior to purchasing more than one nonqualified annuity
contract in any single calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable
event. Contract Owners should therefore consult competent
tax advisers should they wish to assign their Contracts.
WITHHOLDING
Withholding of federal income taxes on the taxable portion
of all distributions may be required unless the recipient
elects not to have any such amounts withheld and properly
notifies Lincoln Life of that election. Different rules may
apply to United States citizens or expatriates living
abroad. Withholding is mandatory for certain distributions
from Qualified Contracts. In addition, some states have
enacted legislation requiring withholding.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss
shall be recognized on the exchange of one annuity contract
for another. If the surrendered contract was issued prior to
August 14, 1982, the tax rules that formerly provided that
the surrender was taxable only to the extent the amount
received exceeds the owner's investment in the contract will
continue to apply to amounts allocable to investment in the
contract before August 14, 1982. Special rules and
procedures apply to Code Section 1035 transactions.
Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisers.
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<PAGE>
TAX TREATMENT OF WITHDRAWALS --
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs the treatment of
distributions from annuity contracts. It provides that if
the Annuity Account Value exceeds the aggregate Premium
Payments made, any amount withdrawn will be treated as
coming first from the earnings and then, only after the
income portion is exhausted, as coming from the principal.
Withdrawn earnings are includable in gross income. It
further provides that a ten percent (10%) penalty will apply
to the income portion of any premature distribution.
However, the penalty is not imposed on amounts received: (a)
after the Payee reaches age 59 1/2; (b) after the death of
the Contract Owner (or, if the Contract Owner is a
non-natural person, the Annuitant); (c) if the Payee is
totally disabled (for this purpose disability is as defined
in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his/her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982.
The above information does not apply, except where noted, to
Qualified Contracts. However, separate tax withdrawal
penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified
Contracts.")
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be
suitable for use under various types of Qualified Plans.
Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified
Plan varies with the type of plan and terms and conditions
of each specific plan. Contract Owners, Annuitants and
Beneficiaries are cautioned that benefits under a Qualified
Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts
issued pursuant to the plan. Although Lincoln Life provides
administration for the Contract, it does not provide
administrative support for Qualified Plans. Following are
general descriptions of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only.
The tax rules regarding Qualified Plans are very complex and
will have differing applications, depending on individual
facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued
in connection with a Qualified Plan.
Special favorable tax treatment may be available for certain
types of contributions and distributions (including special
rules for certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of
specified limits, distributions prior to age 59 1/2 (subject
to certain exceptions), distributions that do not conform to
specified minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in
certain other circumstances. Therefore, Lincoln Life makes
no attempt to provide more than general information about
use of the Contract with the various types of qualified
plans. Purchasers and participants under qualified plans as
well as Annuitants, Payees and Beneficiaries are cautioned
that the rights of any person to any benefits under
qualified plans may be subject to the terms and conditions
of the plan themselves, regardless of the terms and
conditions of the Contract issued in connection therewith.
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<PAGE>
SECTION 403(b) Plans
Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to
purchase annuity policies for their employees are excludable
from the gross income of the employee, subject to certain
limitations. However, such payments may be subject to FICA
(Social Security) taxes. Additionally, in accordance with
the requirements of the Code, Section 403(b) annuities
generally may not permit distribution of (i) elective
contributions made in years beginning after December 31,
1988, and (ii) earnings on those contributions and (iii)
earnings on amounts attributed to elective contributions
held as of the end of the last year beginning before January
1, 1989. Distributions of such amounts will be allowed only
upon the death of the employee, on or after attainment of
age 59 1/2, separation from service, disability, or
financial hardship, except that income attributable to
elective contributions may not be distributed in the case of
hardship.
INDIVIDUAL RETIREMENT ANNUITIES
Sections 219 and 408 of the Code permit individuals or their
employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA".
Individual Retirement Annuities are subject to limitation on
the amount which may be contributed and deducted and the
time when distributions may commence. In addition,
distributions from certain other types of qualified plans
may be placed into an Individual Retirement Annuity on a
tax-deferred basis.
ROTH IRA
Section 408A of the Code permits eligible individuals to
make nondeductible contributions to an individual retirement
program known as a Roth Individual Retirement Annuity (Roth
IRA). Roth IRAs are subject to limitations on the amount
that can be contributed and on the time when distributions
may be taken. Subject to certain limitations, a traditional
IRA may be converted or "rolled over" to a Roth IRA. The
taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10%
penalty tax on premature distributions.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Section 401(a) and 403(a) of the Code permit corporate
employers to establish various types of retirement plans for
employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contracts to
provide benefits under the plans.
DEFERRED COMPENSATION PLANS
Section 457 of the Code, while not actually providing for a
qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service
for state governments, local governments, political
sub-divisions, agencies, instrumentalities and certain
affiliates of such entities and tax exempt organizations
which enjoy special treatment. The Contracts can be used
with such plans. Under such plans a participant may specify
the form of investment in which his or her participation
will be made. All such investments of a nongovernmental
organization, however, are owned by, and are subject to, the
claims of the general creditors of the sponsoring employer.
Recent tax legislation provides that governmental plans, on
or after August 20, 1996, must hold the assets and income of
the plan for the exclusive benefit of participants and their
beneficiaries; preexisting plans have until January 1, 1999
to meet this requirement.
43
<PAGE>
The above description of federal income tax consequences
pertaining to the different types of Qualified Plans that
may be funded by the Contracts is only a brief summary and
is not intended as tax advice. The rules governing the
provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are
subject to change, may have significant adverse tax
consequences. A prospective purchaser considering the
purchase of a Contract in connection with a Qualified Plan
should first consult a qualified and competent tax adviser
with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
TAX TREATMENT OF WITHDRAWALS --
QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the
taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified
under Code Sections 401, 403(b) and 408. To the extent
amounts are not includable in gross income because they have
been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the
Payee reaches age 59 1/2; (b) distributions following the
death of the Contract Owner or Annuitant (as applicable) or
disability of the Payee (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or the joint lives (or joint life expectancies)
of such Payee and his/her designated beneficiary; (d)
distributions to a Payee who has separated from service
after attaining age 55; (e) distributions made to the extent
such distributions do not exceed the amount allowable as a
deduction under Code Section 213 to the Payee for amounts
paid during the taxable year for medical care: and (f)
distributions made to an alternate payee pursuant to a
qualified domestic relations order.
The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity.
Additional exceptions to the tax penalty are available for
the following distributions from an Individual Retirement
Annuity: (a) Payee is unemployed and uses the money to pay
health insurance premiums; and (b) for tax years after
December 31, 1997, Payee uses the distribution for higher
education expenses or a qualified first-time home purchase.
OTHER CONTRACTS
Lincoln Life and the Variable Account offer other flexible
payment deferred variable annuity contracts which invest in
the same Funds. These contracts may impose different charges
that could affect Sub-Account performance, and may offer
different benefits.
FINANCIAL STATEMENTS
The Statutory-basis financial statements and schedules of
Lincoln Life are located in the Statement of Additional
Information. You may obtain a free copy by writing Lincoln
National Life Insurance Co., P.O. Box 7866, Fort Wayne,
Indiana 46801 or calling 1-888-868-2583.
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PREPARING FOR THE YEAR 2000
Lincoln Life, as part of its year 2000 updating process, is
responsible for the updating of the Variable Account related
computer systems. Many existing computer programs use only
two digits to identify a year in the date field. These
programs were designed and developed without considering the
impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create
erroneous results by or at the year 2000. The year 2000
issue affects virtually all companies and organizations.
An affiliate of Lincoln Life, Delaware Services Company
("Delaware"), provides substantially all of the necessary
accounting and valuation services for the Variable Account.
Delaware, for its part, is responsible for updating all of
its internal computer systems, including those which service
Variable Account, to accommodate the year 2000.
The year 2000 issue is pervasive and complex and affects
virtually every aspect of the businesses of both Lincoln
Life and Delaware (the "Companies"). The computer systems of
the Companies and their interfaces with the computer systems
of vendors, suppliers, customers and other business partners
are particularly vulnerable. The inability to properly
recognize date-sensitive electronic information and to
transfer data between systems could cause errors or even
complete failure of systems, which would result in a
temporary inability to process transactions correctly and
engage in normal business activities for the Variable
Account. The Companies respectively are redirecting
significant portions of their internal information
technology efforts and are contracting, as needed, with
outside consultants to help update their systems to
accommodate the year 2000. The Companies have respectively
initiated formal discussions with other critical parties
that interface with their systems to gain an understanding
of the progress by those parties in addressing year 2000
issues. While the Companies are making substantial efforts
to address their own systems and the systems with which they
interface, it is not possible to provide assurance that
operational problems will not occur. The Companies presently
believe that, assuming the modification of existing computer
systems, updates by vendors and conversion to new software
and hardware, the year 2000 issue will not pose significant
operations problems for their respective computer systems.
In addition, the Companies are incorporating potential
issues surrounding year 2000 into their contingency planning
process, in the event that, despite these substantial
efforts, there are unresolved year 2000 problems. If the
remediation efforts noted above are not completed timely or
properly, the year 2000 issue could have a material adverse
impact on the operation of the businesses of Lincoln Life or
Delaware, or both.
The cost of addressing year 2000 issues and the timeliness
of completion will be closely monitored by management of the
respective Companies. Nevertheless, there can be no
guarantee either by Lincoln Life or by Delaware that the
estimated costs will be achieved, and actual results could
differ significantly from those anticipated. 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.
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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 these proceedings
include claims for unspecified or substantial 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 effect on the financial position of
Lincoln Life.
During the 1990's class action lawsuits alleging sales
practices fraud have been filed against many life insurance
companies, and Lincoln Life has not been immune. Several
suits involve alleged fraud in the sale of
interest-sensitive universal and whole life insurance
policies. Certain of these suits have been filed as class
actions against Lincoln Life, although as of the date of
this Prospectus the court had not certified a class in any
of them. 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 early stages of litigation, and it is premature
to make assessments about potential loss, if any. Management
denies the allegations and intends to defend these suits
vigorously. The amount of the liability, if any, which may
arise as a result of these suits (exclusive of any
indemnification from professional liability insurers) cannot
be reasonably estimated at this time.
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TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information which contains more details concerning
some subjects discussed in this Prospectus is available (at no cost) by calling
or writing Lincoln Life's Home Office. The following is the Table of Contents
for that Statement:
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
THE CONTRACTS-GENERAL PROVISIONS................ 3
The Contracts................................. 3
Loans......................................... 3
Non-Participating Contracts................... 3
Misstatement of Age........................... 3
CALCULATION OF VARIABLE ACCOUNT VALUES.......... 3
Variable Accumulation Unit Value.............. 3
SAMPLE CALCULATIONS AND TABLES.................. 4
Variable Account Unit Value Calculations...... 4
Cash Surrender Values, Surrender Value
Calculation, Annuity Calculation.............
Market Value Adjustment Tables................ 5
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
STATE REGULATION OF LINCOLN LIFE................ 6
ADMINISTRATION.................................. 6
ACCOUNT INFORMATION............................. 7
DISTRIBUTION OF THE CONTRACTS................... 7
CUSTODY OF ASSETS............................... 7
HISTORICAL PERFORMANCE DATA..................... 7
Money Market Sub-Account Yield................ 7
Total Returns................................. 7
Other Performance Data........................ 8
INDEPENDENT AUDITORS............................ 8
STATUTORY-BASIS FINANCIAL STATEMENTS AND
SCHEDULES...................................... 8
</TABLE>
47
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THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $18,560.7 $19,389.6
- ------------------------------------------------------------------------------------
Preferred stocks 257.3 239.7
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 436.0 358.3
- ------------------------------------------------------------------------------------
Affiliated common stocks 412.1 241.5
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,012.7 2,976.7
- ------------------------------------------------------------------------------------
Real estate 584.4 621.3
- ------------------------------------------------------------------------------------
Policy loans 660.5 626.5
- ------------------------------------------------------------------------------------
Other investments 335.5 282.7
- ------------------------------------------------------------------------------------
Cash and short-term investments 2,133.0 759.2
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 26,392.2 25,495.5
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 42.4 60.9
- ------------------------------------------------------------------------------------
Accrued investment income 343.5 343.6
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 44.1 25.8
- ------------------------------------------------------------------------------------
Other admitted assets 216.0 355.7
- ------------------------------------------------------------------------------------
Separate account assets 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 5,872.9 $ 5,954.0
- ------------------------------------------------------------------------------------
Other policyholder funds 16,360.1 17,262.4
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 878.2 250.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 720.4 564.6
- ------------------------------------------------------------------------------------
Asset valuation reserve 450.0 375.5
- ------------------------------------------------------------------------------------
Interest maintenance reserve 135.4 76.7
- ------------------------------------------------------------------------------------
Other liabilities 413.9 490.9
- ------------------------------------------------------------------------------------
Federal income taxes 0.8 4.3
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (761.9) (659.7)
- ------------------------------------------------------------------------------------
Separate account liabilities 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 55,400.7 48,054.0
- ------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------
Paid-in surplus 1,821.8 883.4
- ------------------------------------------------------------------------------------
Unassigned surplus 1,121.6 1,054.2
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,968.4 1,962.6
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF INCOME -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 5,589.0 $ 7,268.5 $ 4,899.1
- -----------------------------------------------------------------------------
Net investment income 1,847.1 1,756.3 1,772.2
- -----------------------------------------------------------------------------
Amortization of interest maintenance reserve 41.5 27.2 34.0
- -----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 99.7 90.9 98.3
- -----------------------------------------------------------------------------
Expense charges on deposit funds 119.3 100.7 83.2
- -----------------------------------------------------------------------------
Other income 21.3 16.8 14.5
- ----------------------------------------------------------------------------- --------- --------- ---------
Total revenues 7,717.9 9,260.4 6,901.3
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 4,522.1 5,989.9 4,184.0
- -----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,728.4 2,878.5 2,345.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 7,250.5 8,868.4 6,529.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before dividends to policyholders, income taxes and net
realized gain on investments 467.4 392.0 371.6
- -----------------------------------------------------------------------------
Dividends to policyholders 27.5 27.3 27.3
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before federal income taxes and net realized gain on
investments 439.9 364.7 344.3
- -----------------------------------------------------------------------------
Federal income taxes 78.3 83.6 103.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before net realized gain on investments 361.6 281.1 240.6
- -----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding net
transfers to the interest maintenance reserve 31.3 53.3 43.9
- ----------------------------------------------------------------------------- --------- --------- ---------
Net income $ 392.9 $ 334.4 $ 284.5
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</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
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 1,962.6 $ 1,732.9 $ 1,679.6
- -----------------------------------------------------------------------------
Correction of prior years' asset valuation reserve (Note 15) (37.6) -- --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets (Note 15) (57.0) -- --
- ----------------------------------------------------------------------------- --------- --------- ---------
1,868.0 1,732.9 1,679.6
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income 392.9 334.4 284.5
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (36.2) 38.6 143.2
- -----------------------------------------------------------------------------
Nonadmitted assets (0.4) (3.0) 2.9
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (3.9) 0.6 (2.0)
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.9) (0.4) 2.9
- -----------------------------------------------------------------------------
Asset valuation reserve (36.9) (105.5) (112.5)
- -----------------------------------------------------------------------------
Mortgage loan, real estate and other investment reserves -- -- 2.2
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 938.4 100.0 15.1
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation (2.6) -- 27.0
- -----------------------------------------------------------------------------
Dividends to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</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
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 6,364.3 $ 8,059.4 $ 5,430.9
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (649.2) (767.5) (383.6)
- -----------------------------------------------------------------------
Investment income received 1,798.8 1,700.6 1,713.2
- -----------------------------------------------------------------------
Benefits paid (5,345.2) (4,050.4) (3,239.6)
- -----------------------------------------------------------------------
Insurance expenses paid (2,867.5) (2,972.2) (2,513.5)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) (87.0) (72.3) 38.4
- -----------------------------------------------------------------------
Dividends to policyholders (28.4) (27.7) (16.5)
- -----------------------------------------------------------------------
Other income received and expenses paid, net (42.7) 6.3 14.4
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities (856.9) 1,876.2 1,043.7
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 12,142.6 12,542.0 13,183.9
- -----------------------------------------------------------------------
Purchase of investments (10,345.0) (14,175.4) (14,049.6)
- -----------------------------------------------------------------------
Other sources (uses) 563.1 (266.5) (64.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 2,360.7 (1,899.9) (929.7)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in -- 100.0 15.1
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 120.0 100.0 63.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (100.0) (63.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (130.0) 2.0 (294.9)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments 1,373.8 (21.7) (180.9)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 759.2 780.9 961.8
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 2,133.0 $ 759.2 $ 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</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, 1997, 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 ("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.
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 that 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 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
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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
Premiums and deposits with respect to universal life policies and 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 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.
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.
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.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
A reconciliation of the Company's net income and capital and surplus
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1995
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory basis $ 2,968.4 $ 1,962.6 $ 392.9 $ 334.4 $ 284.5
- ---------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs and
present value of future profits 958.3 1,119.1 (98.9) 66.7 (63.0)
------------------------------------------
Policy and contract reserves (1,672.9) (1,405.3) (48.6) (57.1) (55.3)
------------------------------------------
Interest maintenance reserve 135.4 76.7 58.7 (39.7) 60.9
------------------------------------------
Deferred income taxes (13.0) (27.4) 70.3 1.8 38.3
------------------------------------------
Policyholders' share of earnings and
surplus on participating business (79.8) (81.9) 5.3 (.3) .2
------------------------------------------
Asset valuation reserve 450.0 375.5 -- -- --
------------------------------------------
Net realized gain (loss) on investments (91.5) (72.0) (20.4) 78.7 30.0
------------------------------------------
Unrealized gain on investments 1,245.5 825.2 -- -- --
------------------------------------------
Nonadmitted assets, including nonadmitted
investments 61.0 (7.1) -- -- --
------------------------------------------
Investments in subsidiary companies 188.8 156.6 (80.5) 29.9 34.3
------------------------------------------
Other, net (162.5) (99.0) (35.0) (82.6) (7.3)
------------------------------------------ --------- --------- --------- --------- ---------
Net increase (decrease) 1,019.3 860.4 (149.1) (2.6) 38.1
- --------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 3,987.7 $ 2,823.0 $ 243.8 $ 331.8 $ 322.6
- --------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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
The discount or premium on bonds is amortized using the interest method. For
mortgage-backed bonds, the Company recognizes income 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 amount to be paid to reacquire the
security. It is the Company's policy to take possession of securities with a
market value at least equal to the value of 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 of the ceding commission over
statutory-basis net assets of business purchased under an assumption
reinsurance agreement, is amortized on a straight-line basis over ten years.
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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
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 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 funds
withheld are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans is
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. 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 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
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable
life and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's statements of income.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Department. "Prescribed" statutory accounting practices include state laws,
regulations and general administrative rules, as well as a variety of
publications of the NAIC. "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. The NAIC currently is in the process of
recodifying statutory accounting practices ("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, which is expected to be approved by the NAIC in 1998, 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 Department. At this time, it is unclear
whether Indiana will adopt Codification. However, based on the current draft
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 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
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,524.4 $ 1,442.2 $ 1,457.4
----------------------------------------------------------------
Preferred stocks 23.5 9.6 6.4
----------------------------------------------------------------
Unaffiliated common stocks 8.3 6.5 5.2
----------------------------------------------------------------
Affiliated common stocks 15.0 9.5 12.6
----------------------------------------------------------------
Mortgage loans on real estate 257.2 269.3 252.0
----------------------------------------------------------------
Real estate 92.2 114.4 110.0
----------------------------------------------------------------
Policy loans 37.5 35.0 32.1
----------------------------------------------------------------
Other investments 28.2 22.4 62.6
----------------------------------------------------------------
Cash and short-term investments 70.3 48.9 53.2
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,056.6 1,957.8 1,991.5
- -------------------------------------------------------------------
Expenses:
Depreciation 21.0 25.0 25.9
----------------------------------------------------------------
Other 188.5 176.5 193.4
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 209.5 201.5 219.3
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 1,847.1 $ 1,756.3 $ 1,772.2
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
and 1996 amounted to $2,600,000 and $2,500,000,
respectively, consisting principally of interest on bonds in
default and mortgage loans.
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, 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
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1996:
Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0
------------------------------------------------
U.S. government 1,088.7 43.2 18.0 1,113.9
------------------------------------------------
Foreign government 1,234.0 105.1 1.4 1,337.7
------------------------------------------------
Mortgage-backed 4,478.4 183.3 27.4 4,634.3
------------------------------------------------
State and municipal 40.4 .1 -- 40.5
------------------------------------------------ --------- ----------- ----------- ---------
$19,389.6 $ 918.2 $ 113.4 $20,194.4
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1997 and 1996 reflects NAIC adjustments of
$5,500,000 and $2,700,000, respectively, to decrease
amortized cost.
Fair values for 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 or, in the case of private placements, are
estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit
quality and maturity of the investments.
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1997, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1998 $ 490.1 $ 494.9
--------------------------------------------------------------------------
In 1999-2002 3,088.7 3,185.4
--------------------------------------------------------------------------
In 2003-2007 4,762.7 4,971.0
--------------------------------------------------------------------------
After 2007 6,344.9 7,084.9
--------------------------------------------------------------------------
Mortgage-backed securities 3,874.3 4,062.4
-------------------------------------------------------------------------- --------- ---------
Total $18,560.7 $19,798.6
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
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.
At December 31, 1997, the Company did not have a material
concentration of financial instruments in a single investee,
industry or geographic location.
Proceeds from sales of investments in bonds during 1997,
1996 and 1995 were $9,715,000,000, $10,996,900,000 and
$12,234,100,000, respectively. Gross gains during 1997, 1996
and 1995 of $218,100,000, $169,700,000 and $225,600,000,
respectively, and gross losses of $78,000,000, $177,000,000
and $83,100,000, respectively, were realized on those sales.
At December 31, 1997 and 1996, investments in bonds, with an
admitted asset value of $76,200,000 and $70,700,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
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, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
At December 31, 1996:
Preferred stocks $239.7 $10.5 $ 1.7 $248.5
- ----------------------------------------
Unaffiliated common stocks 289.9 84.6 16.2 358.3
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1997 and 1996 reflects NAIC
adjustments of $4,000,000 and $700,000, respectively, to
decrease amortized cost.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During 1997, the minimum and maximum lending rates for
mortgage loans were 7.09% and 9.25%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1997, 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.
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 209.3 $ 69.3 $ 186.8
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $54.0,
$(6.7) and $51.1 in 1997, 1996 and 1995, respectively) 100.2 (12.4) 94.8
- ------------------------------------------------------------------------ --------- --------- ---------
109.1 81.7 92.0
Less federal income taxes on realized gains 77.8 28.4 48.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 31.3 $ 53.3 $ 43.9
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly-owned subsidiaries is summarized as
follows (in millions):
<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>
<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 $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,090.7 $ 146.4 $ 406.7 $ 664.3
- -----------------------------------------------------------
Other assets 31.8 17.7 503.1 9.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,013.5 $ 72.7 $ 261.8 $ 601.1
- -----------------------------------------------------------
Other liabilities 41.3 18.7 597.2 22.1
- -----------------------------------------------------------
Capital and surplus 67.7 72.7 50.8 50.2
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 246.5 $ 104.9 $ 120.8 $ 642.7
- -------------------------------------------------------------
Expenses 247.1 97.1 114.1 661.3
- -------------------------------------------------------------
Net realized gains (losses) (.6) -- -- --
- ------------------------------------------------------------- --------- ----------- ----------- -----------
Net income (loss) $ (1.2) $ 7.8 $ 6.7 $ (18.6)
- ------------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The carrying value of affiliated common stocks, representing
their statutory-basis net equity, was $412,100,000 and
$241,500,000 at December 31, 1997 and 1996, respectively.
The cost basis of investments in subsidiaries as of December
31, 1997 and 1996 was $466,200,000 and $194,000,000,
respectively.
During 1997 and 1996, the Company's insurance subsidiaries
paid dividends of $15,000,000 and $10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate for financial
reporting purposes differs from the prevailing statutory tax
rate principally due to tax-exempt investment income,
dividends-received tax deductions, differences in policy
acquisition costs and policy and contract liabilities for
tax return and financial statement purposes.
Federal income taxes incurred of $78,300,000, $83,600,000
and $103,700,000 in 1997, 1996 and 1995, respectively, would
be subject to recovery in the event that the Company incurs
net operating losses within three years of the years for
which such taxes were paid.
Prior to 1984, a portion of the Company's current income was
not subject to current income tax, but was accumulated for
income tax purposes in a memorandum account designated as
"policyholders' surplus." The Company's balance in the
"policyholders' surplus" account at December 31, 1983 of
$187,000,000 was "frozen" by the Tax Reform Act of 1984 and,
accordingly, there have been no additions to the accounts
after that date. That portion of current income on which
income taxes have been paid will continue to be accumulated
in a memorandum account designated as "shareholder's
surplus," and is available for dividends to the shareholder
without additional payment of tax by the Company. The
December 31, 1997 memorandum account balance for
"shareholder's surplus"
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
was $1,905,000,000. Should dividends to the shareholder
exceed its respective "shareholder's surplus," amounts would
need to be transferred from the "policyholders' surplus" and
would be subject to federal income tax at that time. Under
existing or foreseeable circumstances, the Company neither
expects nor intends that distributions will be made that
will result in any such tax.
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
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 1,431.0 $ 1,154.5
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 35.9 16.0
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions included in the income statement
caption, "Premiums and Deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 727.2 $ 241.3 $ 667.7
- ------------------------------------------------------------------------
Insurance ceded 302.9 193.3 453.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net amount included in premiums $ 424.3 $ 48.0 $ 214.6
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and Settlement
Expenses," is net of reinsurance recoveries of
$1,240,500,000, $787,900,000 and $1,407,000,000 for 1997,
1996 and 1995, respectively.
S-16
<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, 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>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.9 $ 1.9 $ 2.0
- ------------------------------------------------------------------------
Ordinary renewal 35.1 3.0 32.1
- ------------------------------------------------------------------------
Group life 9.4 (.1) 9.5
- ------------------------------------------------------------------------ --------- --- -----
$ 48.4 $ 4.8 $ 43.6
--------- --- -----
--------- --- -----
</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 $2,000,000, $2,600,000 and $8,800,000 in 1997 and
$26,200,000, $3,800,000 and $8,600,000 in 1996,
respectively. During 1996, LNC Administrative Services
Corporation entered into a similar agreement with the
Company with direct premiums written amounting to $7,200,000
and 6,200,000 in 1997 and 1996, respectively. Authority
granted by the managing general agents agreements include
underwriting, claims adjustment and claims payment services.
7. ANNUITY RESERVES
At December 31, 1997, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES (CONTINUED)
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 $ 2,426.3 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 4,225.8 8
-----------------------------------------------------------------------------
At market value 30,064.7 59
----------------------------------------------------------------------------- --------- ---
36,716.8 72
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 11,657.7 23
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,531.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 50,905.6 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,797.5
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $49,108.1
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
8. CAPITAL AND SURPLUS
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,
1997, 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 1998, the Company can pay dividends of
$361,600,000 without prior approval of the Indiana Insurance Commissioner.
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, 1997, 716,211 shares of LNC common stock were subject to
options granted to Company employees and agents under the stock option
incentive plans of which 370,239 were exercisable on that date. The exercise
prices of the outstanding options range from $23.50 to $75.66. During 1997,
1996 and 1995, 170,789, 72,405 and
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
117,806 options were exercised, respectively, and 1,846, 10,950 and 11,473
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, 1997 and 1996 is a net
liability of $516,900,000 and $572,000,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves may be required in the future. Accordingly, this liability 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 reviews reserve levels on an ongoing basis.
During 1995, the Company completed an in-depth review of the experience of
its disability income business. As a result of this study, and based on the
assumption that recent experience will continue in the future, net income
decreased by $15,200,000 as a result of strengthening the disability income
reserve.
Because of continuing adverse experience and worsening projections of future
experience, the Company conducted an additional in-depth review of loss
experience on its disability income business during 1997. 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 reserve by $80,000,000 (pre-tax).
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 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 1997, 1996 and 1995 was
$29,300,000, $26,400,000 and
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
$22,500,000, respectively. Future minimum rental commitments are as follows
(in millions):
<TABLE>
<S> <C>
1998 $ 18.5
- --------------------------------------
1999 18.9
- --------------------------------------
2000 20.1
- --------------------------------------
2001 20.4
- --------------------------------------
2002 20.7
- --------------------------------------
Thereafter 152.2
- -------------------------------------- ---------
$ 250.8
---------
---------
</TABLE>
The future commitments include amounts for space and equipment to be used by
the personnel that were added on January 2, 1998 as a result of the purchase
of a block of individual life and annuity business (see NOTE 12).
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for providing information technology services for the Fort Wayne
operations. Annual costs are estimated to range from $33,600,000 to
$56,800,000.
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. Industry regulations prescribe the maximum
coverage that the Company can retain on an individual insured. 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 (including the addition of the block of business described
in NOTE 12), 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, 1997, the
reserves associated with these reinsurance arrangements totaled
$1,760,000,000. 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 Company
remains liable if its reinsurers are unable to meet their contractual
obligations under the applicable reinsurance agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1997, the Company has provided $12,400,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding
receivables from the ceding company, which are secured by future profits on
the reinsured business. However, the Company is subject to the risk that the
ceding company may become insolvent and the right of offset would not be
permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $8,200,000 and $4,300,000 at December 31, 1997
and 1996, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1997, 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 depends 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
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
not have a material adverse affect on the financial position or results of
operations of the Company.
Two lawsuits involve alleged fraud in the sale of interest sensitive
universal life and whole life insurance policies. These two suits have been
filed as class actions against the Company, although the court has not
certified a class in either case. Plaintiffs seek unspecified damages and
penalties for themselves and on behalf of the putative class while the
relief sought in these cases in substantial, the cases are in the early
stages of litigation, and it is premature to make assessments about
potential loss, if any. 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, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
NOTIONAL OR
CONTRACT AMOUNTS
--------------------
DECEMBER 31
--------------------
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Mortgage loan pass-through
certificates $ 41.6 $ 50.3
- ------------------------------
Real estate partnerships -- .5
- ------------------------------ --------- ---------
$ 41.6 $ 50.8
--------- ---------
--------- ---------
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans to finance their projects. In some cases, the terms of these
arrangements involve guarantees by each of the partners to indemnify the
mortgagor in the event a partner is unable to pay its principal and interest
payments. In addition, the Company has sold commercial mortgage loans
through grantor trusts which issued pass-through certificates. The Company
has agreed to repurchase any mortgage loans which remain delinquent for 90
days at a repurchase price substantially equal to the outstanding principal
balance plus accrued interest thereon to the date of repurchase. It is
management's opinion that the value of the properties underlying these
commitments is sufficient that in the event of default the impact would not
be material to the Company. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1997 and 1996.
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, 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 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:
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1997 1997 1996 1996
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,900.0 $5,500.0 $13.9 $ .9 $20.8 $ 8.2
---------------------------------
Swaptions 1,752.0 672.0 6.9 6.9 11.0 10.6
---------------------------------
Financial futures contracts -- 147.7 -- -- (2.4) (2.4)
---------------------------------
Interest rate swaps 10.0 -- -- (1.8) -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,662.0 6,319.7 20.8 6.0 29.4 16.4
Foreign currency derivatives:
Forward contracts 163.1 251.5 5.4 5.4 .2 (.2)
---------------------------------
Foreign currency options -- 43.9 -- -- .6 .4
---------------------------------
Foreign currency swaps 15.0 15.0 -- (2.1) -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
178.1 310.4 5.4 3.3 .8 (1.9)
-------- -------- -------- ----- -------- ------
$6,840.1 $6,630.1 $26.2 $ 9.3 $30.2 $ 14.5
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts at December
31 is a follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ --
- -----------------------------------
New contracts -- 390.0 50.0 15.0 1,080.0 672.0
- -----------------------------------
Terminations and maturities (600.0) -- (50.0) (615.0) -- --
- ----------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ----------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES INTEREST RATE SWAPS
CONTRACTS
------------------------------------------
1997 1996 1997 1996
------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 147.7 $ -- $ -- $ 5.0
- ------------------------------------------------------------
New contracts 88.3 7,918.8 10.0 --
- ------------------------------------------------------------
Terminations and maturities (236.0) (7,771.1) -- (5.0)
- ------------------------------------------------------------ --------- --------- --------- ---------
Balance at end of year $ -- $ 147.7 $ 10.0 $ --
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
----------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0
- --------------------------------------
New contracts 833.1 406.9 -- 1,168.8 -- --
- --------------------------------------
Terminations and maturities (921.6) (171.1) (43.9) (1,224.1) -- --
- -------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
INTEREST RATE CAPS
The interest rate cap agreements, which expire in 1998 through 2003, 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 ($13,900,000 as of December 31, 1997) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2002 and 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
fluctuating interest rates. The premium paid for the swaptions is included
in other assets ($6,900,000 as of December 31, 1997) and is being amortized
over the terms of the agreements. This amortization is included in net
investment income.
SPREAD LOCKS
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 FUTURES
The Company uses exchange-traded financial futures contracts to hedge
against interest rate risks and to manage duration of a portion of its fixed
maturity securities. Financial futures contracts obligate the Company to buy
or sell a financial instrument at a specified future date for a specified
price. 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 SWAPS
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
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts,
foreign currency options and foreign currency swaps, all of which are traded
over-the-counter, to hedge some of the foreign exchange risk of investments
in fixed maturity securities denominated in foreign currencies. The foreign
currency forward contracts obligate the Company to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give the Company the right, but not the obligation, to buy
or sell a foreign currency at a specific exchange rate during a specified
time period. A foreign currency swap is a contractual agreement to exchange
the currencies of two different countries pursuant to an agreement to
re-exchange the two currencies at the same rate of exchange at a specified
future date.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$7,000,000, $6,900,000 and $5,600,000 in 1997, 1996 and 1995, respectively.
Deferred losses of $2,600,000 as of December 31, 1997, were the result of:
1) terminated and expired spread-lock agreements and; 2) financial futures
contracts. 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, interest rate swaps, foreign exchange forward contracts, foreign
currency options and foreign currency swaps. However, the Company does not
anticipate nonperformance 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, 1997, the exposure was
$11,700,000.
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.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are 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.
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 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
Fair values of short-term debt approximates carrying values.
GUARANTEES
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on
historical performance where repurchases have been negligible and the
current status, which indicates none of the loans are delinquent, the fair
value liability for the guarantees related to the mortgage loan pass-through
certificates is insignificant.
DERIVATIVES
The Company's derivatives include interest rate cap agreements, swaptions,
spread-lock agreements, foreign currency exchange contracts, financial
futures contracts, interest rate swaps, foreign currency options and foreign
currency swaps. Fair values for these contracts are based on current
settlement values. These values are based on: 1) quoted market prices for
the foreign currency exchange contracts and financial future contracts and;
2) brokerage quotes that utilize pricing models or formulas using current
assumptions for all other swaps and agreements.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real
estate are based on the difference between the value of the committed
investments as of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
S-25
<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
----------------------------------------------
1997 1996
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 18,560.7 $ 19,798.6 $ 19,389.6 $ 20,194.4
- -----------------------------------------------
Preferred stock 257.3 268.7 239.7 248.5
- -----------------------------------------------
Unaffiliated common stock 436.0 436.0 358.3 358.3
- -----------------------------------------------
Mortgage loans on real estate 3,012.7 3,179.2 2,976.7 3,070.9
- -----------------------------------------------
Policy loans 660.5 648.3 626.5 612.7
- -----------------------------------------------
Other investments 335.5 335.5 282.7 282.7
- -----------------------------------------------
Cash and short-term investments 2,133.0 2,133.0 759.2 759.2
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,324.2) (16,887.6) (17,871.6) (17,333.0)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (1,267.0) (1,294.6) (1,799.7) (1,835.4)
--------------------------------------------
Short-term debt (120.0) (120.0) (100.0) (100.0)
- -----------------------------------------------
Derivatives 26.2 9.3 26.5 13.8
- -----------------------------------------------
Investment commitments -- (.5) -- (.6)
- -----------------------------------------------
</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's affiliate. The
transaction was completed in the form of a reinsurance transaction, which
resulted in a ceding commission of $71,800,000. The ceding commission has
been recorded as admissible goodwill of $62,300,000, which is to be
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 Financial Corporation ("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 such stock at fair
value.
On January 2, 1998, the Company issued a surplus note to LNC in return for
$500,000,000 in cash. The note calls for the Company to pay, on or before
March 31, 2028, the principal amount of the note and interest quarterly at a
6.56% annual rate. LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
12. ACQUISITIONS AND SALES OF SUBSIDIARIES (CONTINUED)
anniversary date of the note, but not before January 2, 2003. Any payment of
interest or repayment of principal may be paid only out of excess surplus
(as defined in the note) and is subject to the approval of the Commissioner
of the Indiana Department of Insurance.
Proceeds from the sale of the Company's American States common stock, as
well as proceeds from the surplus note, were used to finance an indemnity
reinsurance transaction whereby the Company reinsured 100% of a block of
individual life insurance and annuity business from CIGNA Corporation. The
Company paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of
the reinsurance agreement, which will result in a decrease to surplus in
1998 of approximately $1,000,000,000. Operating results generated by this
block of business after the closing date will be included in the Company
financial statements from the closing date. 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. During 1997, this
block produced premiums, fees and deposits of $1,051,000,000 and earnings of
$87,200,000 on a statutory basis. The Company also expects to pay
$30,000,000 to cover expenses associated with the reinsurance agreement and
to record a charge of approximately $12,000,000 during 1998 to cover certain
costs of integrating the existing operations with the new block of business.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"),
has a nearly exclusive general agents contract with the Company under which
it sells the Company's products and provides the service that otherwise
would be provided by a home office marketing department and regional
offices. For providing these selling and marketing services, the Company
paid LFGI override commissions and operating expense allowances of
$61,600,000, $56,300,000 and $43,300,000 in 1997, 1996 and 1995,
respectively. LFGI incurred expenses of $5,500,000, $15,700,000 and
$10,400,000 in 1997, 1996 and 1995, 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 LFGI agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1997 and 1996 include the
Company's participation in a short-term investment pool with LNC of
$325,600,000 and $175,100,000, respectively. Related investment income
amounted to $15,500,000, $15,300,000 and $21,100,000 in 1997, 1996 and 1995,
respectively. Other liabilities at December 31, 1997 and 1996 include
$120,000,000 and $100,000,000, respectively, of notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $48,500,000, $34,100,000 and
$24,900,000 in 1997, 1996 and 1995, 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
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 11.9 $ 17.9 $ 17.6
- ----------------------
Insurance ceded 100.3 302.8 214.4
- ----------------------
</TABLE>
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 245.5 $ 312.7
- ------------------------
Future policy benefits
and claims ceded 997.2 891.8
- ------------------------
Amounts recoverable on
paid and unpaid losses 30.4 31.2
- ------------------------
Reinsurance payable on
paid losses 5.3 2.7
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,115.4 1,062.4
- ------------------------
</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 $280,900,000 and $314,200,000 at December 31, 1997 and 1996,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1997 and 1996, LNC had guaranteed $229,100,000 and $239,200,000,
respectively, of these letters of credit. At December 31, 1997, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $130,700,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at fair value and consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds. The detailed
operations of the separate accounts are not included in the accompanying
financial statements. Fees charged on separate account policyholder deposits
are included in other income.
Separate account premiums, deposits and other considerations amounted to
$4,821,800,000, $4,148,700,000 and $3,068,200,000 in 1997, 1996 and 1995,
respectively. Reserves for separate accounts with assets at fair value were
$30,560,700,000 and $23,047,800,000 at December 31, 1997 and 1996,
respectively. All reserves are subject to discretionary withdrawal at market
value. Substantially all of the Company's separate accounts are
nonguaranteed.
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $ 4,824.0 $ 4,149.6
- ------------------------------------------------------------
Transfers from separate accounts (2,943.8) (2,058.5)
- ------------------------------------------------------------ --------- ---------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $ 1,880.2 $ 2,091.1
- ------------------------------------------------------------ --------- ---------
--------- ---------
</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 $ 1962.6
- ----------------------------------------
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>
16. IMPACT OF YEAR 2000 (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 inability to properly
recognize date sensitive electronic information and transfer data between
systems could cause errors or even a complete systems failure which would
result in a temporary inability to process transactions correctly and engage
in normal business
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
activities. The Company is redirecting a large portion of its internal
information technology efforts and contracting with outside consultants to
update its systems to accommodate the year 2000. Also, the Company has
initiated formal communications with critical parties that interface with
the Company's systems to gain an understanding of their progress in
addressing Year 2000 Issues. While the Company is making every effort to
address its own systems and the systems with which it interfaces, it is not
possible to provide assurance that operational problems will not occur. The
Company presently believes that with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
Year 2000 Issue will not pose significant operational problems for its
computer systems. In addition, the Company is developing contingency plans
in the event that, despite its best efforts, there are unresolved year 2000
problems. If the remediation efforts noted above are not completed timely or
properly, the Year 2000 Issue could have a material adverse impact on the
operation of the Company's business.
During 1997 and 1996, the Company incurred expenditures of approximately
$5,500,000 ($3,600,000 after-tax) to address this issue. The Company's
financial plans for 1998 through 2000 include expected expenditures of an
additional $20,000,000 ($13,000,000 after-tax) on this issue. The cost of
addressing Year 2000 Issues and the timeliness of completion will be closely
monitored by management and are based on managements'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. Nevertheless, there can be no
guarantee that these estimated costs will be achieved and actual results
could differ significantly from those anticipated. 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.
S-30
<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,
1997 and 1996, and the related statutory-basis statements of
income, changes in capital and surplus and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and
1996, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
February 5, 1998
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C> <C>
Investment income earned:
Government bonds $ 52.8
-----------------------------------------------------------------------------------------
Other bonds (unaffiliated) 1,471.6
-----------------------------------------------------------------------------------------
Preferred stocks (unaffiliated) 23.5
-----------------------------------------------------------------------------------------
Common stocks (unaffiliated) 8.3
-----------------------------------------------------------------------------------------
Common stocks of affiliates 15.0
-----------------------------------------------------------------------------------------
Mortgage loans 257.2
-----------------------------------------------------------------------------------------
Real estate 92.2
-----------------------------------------------------------------------------------------
Premium notes, policy loans and liens 37.5
-----------------------------------------------------------------------------------------
Cash on hand and on deposit 1.0
-----------------------------------------------------------------------------------------
Short-term investments 69.3
-----------------------------------------------------------------------------------------
Other invested assets 21.9
-----------------------------------------------------------------------------------------
Derivative instruments (10.0)
-----------------------------------------------------------------------------------------
Aggregate write-ins for investment income 16.3
----------------------------------------------------------------------------------------- ---------
Gross investment income $ 2,056.6
- ---------------------------------------------------------------------------------------------------- ---------
---------
Real estate owned (cost, less encumbrances) $ 585.2
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans (unpaid balance):
Farm mortgages $ 0.1
-----------------------------------------------------------------------------------------
Residential mortgages 3.1
-----------------------------------------------------------------------------------------
Commercial mortgages 3,009.5
----------------------------------------------------------------------------------------- ---------
Total mortgage loans $ 3,012.7
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans by standing (unpaid balance):
Good standing $ 2,974.1
----------------------------------------------------------------------------------------- ---------
---------
Good standing with restructured terms $ 38.5
----------------------------------------------------------------------------------------- ---------
---------
Interest overdue more than three months, not in foreclosure $ --
----------------------------------------------------------------------------------------- ---------
---------
Foreclosure in process $ 0.1
----------------------------------------------------------------------------------------- ---------
---------
Other long-term assets (statement value) $ 281.5
- ---------------------------------------------------------------------------------------------------- ---------
---------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Bonds and stocks of parent, subsidiaries and affiliates (cost):
Common stocks of subsidiaries $ 466.2
- ----------------------------------------------------------------------------------------------- ---------
---------
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 3,140.1
------------------------------------------------------------------------------------------
Over 1 year through 5 years 5,182.8
------------------------------------------------------------------------------------------
Over 5 years through 10 years 5,772.8
------------------------------------------------------------------------------------------
Over 10 years through 20 years 3,275.3
------------------------------------------------------------------------------------------
Over 20 years 3,270.6
------------------------------------------------------------------------------------------ ---------
Total by maturity $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Bonds by class (statement value):
Class 1 $13,879.0
------------------------------------------------------------------------------------------
Class 2 5,215.6
------------------------------------------------------------------------------------------
Class 3 848.0
------------------------------------------------------------------------------------------
Class 4 668.8
------------------------------------------------------------------------------------------
Class 5 23.6
------------------------------------------------------------------------------------------
Class 6 6.6
------------------------------------------------------------------------------------------ ---------
Total by class $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Total bonds publicly traded $16,457.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Total bonds privately placed $ 4,184.5
- ----------------------------------------------------------------------------------------------- ---------
---------
Preferred stocks (statement value) $ 257.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Unaffiliated common stocks (market value) $ 436.0
- ----------------------------------------------------------------------------------------------- ---------
---------
Short-term investments (cost or amortized cost) $ 2,080.9
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps owned (statement value) $ 20.8
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps written (statement value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Swap and forward agreements open (statement value) $ 5.4
- ----------------------------------------------------------------------------------------------- ---------
---------
Futures contracts open (current value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Cash on deposit $ 52.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance in-force:
Ordinary $ 108.6
------------------------------------------------------------------------------------------ ---------
---------
Group life $ 31.2
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Amount of accidental death insurance in-force under ordinary policies $ 5.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance policies with disability provisions in-force:
Ordinary $ 5.5
------------------------------------------------------------------------------------------ ---------
---------
Group life $ --
------------------------------------------------------------------------------------------ ---------
---------
Supplementary contracts in-force:
Ordinary -- not involving life contingencies:
Amount on deposit $ --
------------------------------------------------------------------------------------------ ---------
---------
Income payable $ 0.8
------------------------------------------------------------------------------------------ ---------
---------
Ordinary -- involving life contingencies:
Income payable $ 3.0
------------------------------------------------------------------------------------------ ---------
---------
Group -- not involving life contingencies:
Income payable $ 1.1
------------------------------------------------------------------------------------------ ---------
---------
Group -- involving life contingencies:
Income payable $ --
------------------------------------------------------------------------------------------ ---------
---------
Annuities:
Ordinary:
Immediate -- amount of income payable $ 71.8
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- fully paid account balance $ 0.7
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- not fully paid account balance $ 264.0
------------------------------------------------------------------------------------------ ---------
---------
Group:
Amount of income payable $ 0.3
------------------------------------------------------------------------------------------ ---------
---------
Fully paid account balance $ 0.1
------------------------------------------------------------------------------------------ ---------
---------
Not fully paid account balance $ 72.3
------------------------------------------------------------------------------------------ ---------
---------
Accident and health insurance -- premiums in-force:
Ordinary $ 166.0
------------------------------------------------------------------------------------------ ---------
---------
Group $ 77.7
------------------------------------------------------------------------------------------ ---------
---------
Deposit funds and dividend accumulations:
Deposit funds account balance $16,507.3
------------------------------------------------------------------------------------------ ---------
---------
Dividend accumulations -- account balance $ 114.4
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-34
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
NOTE -- BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis
financial data as of December 31, 1997 and for the year then
ended for purposes of complying with paragraph 9 of the Annual
Audited Financial Reports in the General Section of the National
Association of Insurance Commissioners' Annual Statement
Instructions and agrees to or is included in the amounts
reported in The Lincoln National Life Insurance Company's 1997
Statutory Annual Statement as filed with the Indiana Department
of Insurance.
S-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
The Lincoln National Life Insurance Company
Our audits were conducted for the purpose of forming an opinion
on the statutory-basis financial statements taken as a whole.
The accompanying supplemental schedule of selected statutory
basis financial data is presented to comply with the National
Association of Insurance Commissioners' Annual Statement
Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the statutory-basis
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the statutory-basis
financial statements taken as a whole.
February 5, 1998
S-36
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
Issued through
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
Offered by
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Telephone: (888) 868-2583
This Statement of Additional Information ("Statement") expands upon subjects
discussed in the current Prospectus for the Variable Annuity Contracts (the
"Contracts") offered by The Lincoln National Life Insurance Company through
Lincoln Life Variable Annuity Account N. You may obtain a copy of the Prospectus
dated September , 1998, by calling (888) 868-2583, or by writing to The
Lincoln National Life Insurance Company at P.O. Box 7866, Fort Wayne, Indiana
46802. Terms used in the current Prospectus for the Contracts are incorporated
in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS AND LINCOLN LIFE
VARIABLE ANNUITY ACCOUNT N.
Dated: September , 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE CONTRACTS -- GENERAL PROVISIONS........................................................................ 3
The Contracts............................................................................................ 3
Loans.................................................................................................... 3
Non-Participating Contracts.............................................................................. 3
Misstatement of Age...................................................................................... 3
CALCULATION OF VARIABLE ACCOUNT VALUES..................................................................... 3
Variable Accumulation Unit Value......................................................................... 3
SAMPLE CALCULATIONS AND TABLES............................................................................. 4
Variable Account Unit Value Calculations................................................................. 4
Market Value Adjustment Tables........................................................................... 5
STATE REGULATION OF LINCOLN LIFE........................................................................... 6
ADMINISTRATION............................................................................................. 6
ACCOUNT INFORMATION........................................................................................ 7
DISTRIBUTION OF THE CONTRACTS.............................................................................. 7
CUSTODY OF ASSETS.......................................................................................... 7
HISTORICAL PERFORMANCE DATA................................................................................ 7
Money Market Sub-Account Yield........................................................................... 7
Total Returns............................................................................................ 7
Other Performance Data................................................................................... 8
INDEPENDENT AUDITORS....................................................................................... 8
STATUTORY-BASIS FINANCIAL STATEMENTS AND SCHEDULES......................................................... 8
</TABLE>
2
<PAGE>
In order to supplement the description in the Prospectus, the following
provides additional information about The Lincoln National Life Insurance
Company ("Lincoln Life") and the Contracts which may be of interest to an Owner.
Terms have the same meaning as in the Prospectus, unless otherwise indicated.
THE CONTRACTS -- GENERAL PROVISIONS
THE CONTRACTS
A Contract, attached riders, amendments and any application, form the entire
contract. Only the President, a Vice President, a Secretary, a Director, or an
Assistant Director of Lincoln Life may change or waive any provision in a
Contract. Any changes or waivers must be in writing. Lincoln Life may change or
amend the Contracts if such change or amendment is necessary for the Contracts
to comply with or take advantage of any state or federal law, rule or
regulation.
LOANS
Under the Contracts, loans are not permitted.
NON-PARTICIPATING CONTRACTS
The Contracts do not participate or share in the profits or surplus earnings
of Lincoln Life.
MISSTATEMENT OF AGE
If the age of the Annuitant is misstated, any amounts payable by Lincoln
Life under the Contract will be adjusted to be those amounts which the Premium
Payments would have purchased for the correct age, according to Lincoln Life's
rates in effect on the Date of Issue. Any overpayment by Lincoln Life, with
interest at the rate of 6% per year, compounded annually, will be charged
against the payments to be made next succeeding the adjustment. Any underpayment
by Lincoln Life will be paid in a lump sum.
If the age or sex of the Owner is misstated, Lincoln Life will adjust the
charge associated with any Optional Death Benefits elected to the charges that
would have been assessed for the correct age and sex.
CALCULATION OF VARIABLE ACCOUNT VALUES
On any Valuation Date, the Variable Account value is equal to the totals of
the values allocated to the Contracts in each Sub-Account. The portion of an
Owner's Annuity Account Value held in any Variable Account Sub-Account is equal
to the number of Sub-Account units allocated to a Contract multiplied by the
Sub-Account accumulation unit value as described below.
VARIABLE ACCUMULATION UNIT VALUE
Upon receipt of a Premium Payment by Lincoln Life at its Home Office, all or
that portion, if any, of the Premium Payment to be allocated to the Variable
Account Sub-Accounts will be credited to the Variable Account in the form of
Variable Accumulation Units. The number of particular Variable Accumulation
Units to be credited is determined by dividing the dollar amount allocated to
the particular Variable Account Sub-Account by the Variable Accumulation Unit
Value for the particular Variable Account Sub-Account for the Valuation Period
during which the Premium Payment is received at Lincoln Life's Home Office (for
the initial Premium Payment, for the Valuation Period during which the Premium
Payment is accepted).
The Variable Accumulation Unit Value for each Variable Account Sub-Account
was set at an arbitrary amount for the first Valuation Period of the particular
Variable Account Sub-Account. The Variable Account commenced operations on
September 30, 1998. The Accumulation Unit value for a Sub-Account for any later
Valuation Period is determined as follows:
(1) The total value of Fund shares held in the Sub-Account is calculated by
multiplying the number of Fund shares owned by the Sub-Account at the
beginning of the Valuation Period
3
<PAGE>
by the net asset value per share of the Fund at the end of the Valuation
Period, and adding any dividend or other distribution of the Fund if an
ex-dividend date occurs during the Valuation Period; minus
(2) The liabilities of the Sub-Account at the end of the Valuation Period;
such liabilities include daily charges imposed on the Sub-Account, and
may include a charge or credit with respect to any taxes paid or reserved
for by Lincoln Life that Lincoln Life determines result from the
operations of the Variable Account; and
(3) The result of (2) is divided by the number of Sub-Account units
outstanding at the beginning of the Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation Period are
equal to the daily mortality and expense risk charge and the daily
administrative charge multiplied by the number of calendar days in the Valuation
Period.
The Variable Account portion of the Annuity Account Value, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units of each Variable Account Sub-Account credited to the Contract for such
Valuation Period. The value in a Contract of each Variable Account Sub-Account
is determined by multiplying the number of Variable Accumulation Units, if any,
credited to such Variable Account Sub-Account in a Contract by the Variable
Accumulation Unit Value of the particular Variable Account Sub-Account for such
Valuation Period.
SAMPLE CALCULATIONS AND TABLES
VARIABLE ACCOUNT UNIT VALUE CALCULATIONS
VARIABLE ACCUMULATION UNIT VALUE CALCULATION. Assume the net asset value of
a Fund share at the end of the current Valuation Period is $15.50; the total
number of shares owned by the sub-account at the start of the current Valuation
Period is 300,000 shares; and the number of outstanding units of the sub-account
at the start of the Valuation Period is 2,000,000 units. Also assume that the
Valuation Period is one day; no dividends or distributions caused Fund shares to
go "ex-dividend" during the current Valuation Period; and the net asset value of
the Fund share at the end of the immediately preceding Valuation Period is
$15.33.
Multiplying the one day mortality and expense risks and the administrative
expense charge of .00004246575 (the daily equivalent of the current charge of
1.55% on an annual basis) by the account asset value of the sub-account at the
start of the current Valuation Period derives a daily mortality expense of
$195.30 [.00004246575 X (15.33 X 300,000)]. Subtracting the daily mortality
expense from the sub-account assets at the end of the current Valuation Period
derives the sub-account net assets of $4,649,804.70 [($15.50 X 300,000) -
$195.30]. Dividing the sub-account net assets by the number of outstanding units
at the start of the current valuation period derives the Variable Accumulation
Unit Value of $2.324902 [4,649,804.70/2,000,000].
VARIABLE ANNUITY UNIT VALUE CALCULATION. Assume that the Accumulation Unit
Value at the end of the immediately preceding Valuation Period is $2.299413; and
the assumptions in the above example exist. Divide the current Accumulation Unit
Value by the previous days Accumulation Unit Value to derive the net investment
factor of 1.01108500299 [$2.324902/$2.299413]. Also, assume that the value of an
Annuity Unit for the immediately preceding Valuation Period had been $1.586895.
As the first variable annuity payment is determined by using an assumed interest
rate of 4% per year, the value of the Annuity Unit for the current Valuation
Period would be $1.604313 [$1.586895 X 1.01108500299 (NET INVESTMENT FACTOR) X
.9998926]. .9998926 is the factor, for a one day Valuation Period, that
neutralizes the assumed interest rate of four percent (4%) per year used to
establish the Annuity Purchase Rates found in the Contract.
VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a Participant's Variable
Annuity Account is credited with 30,000.000 Variable Accumulation Units of a
particular sub-account; that the Variable Accumulation Unit Value and the
Annuity Unit Value for the particular sub-account for the Valuation
4
<PAGE>
Period which ends immediately preceding the Annuity Date are $2.324902 and
$1.604313 respectively; that the Annuity PURCHASE Rate for the age and option
elected is $5.30 per $1,000; and that the Annuity Unit Value AT THE END OF THE
VALUATION PERIOD 14 DAYS prior to the second variable annuity payment date is
$1.620252. The first variable annuity payment would be $369.66 (30,000.000 X
$2.324902 X $5.30 divided by 1,000). The number of Annuity Units credited would
be 230.415 ($369.66 divided by $1.604313) and the second variable annuity
payment would be $373.33 (230.416 X $1.620252).
MARKET VALUE ADJUSTMENT TABLES
The following example illustrates the detailed calculations for a $50,000
deposit into the Fixed Account with a guaranteed rate of 4.5% for a duration of
five years. The intent of the example is to show the effect of the Market Value
Adjustment ("MVA") and the 3% minimum guarantee under various interest rates on
the calculation of the cash surrender (withdrawal) value. Any charges for
optional death benefit risks are not taken into account in the example. The
effect of the MVA is reflected in the index rate factor in column (2) and the
minimum 3% guarantee is shown under column (4) under the "Surrender Value
Calculation". The "Surrender Value Calculation" assumes there have been no prior
withdrawals. The "Market Value Adjustment Tables" and "Minimum Value
Calculation" contain the explicit calculation of the index factors and the 3%
minimum guarantee respectively. The "Annuity Value Calculation" and "Minimum
Value" calculations assume the imposition of the annual $35 Annuity Account Fee
charge, but that fee is waived if the Annuity Account Value at the end of a
Contract Year is $100,000 or more. The results would be slightly different for
New York Contracts which have a $30 annual Account Fee.
SAMPLE CALCULATIONS FOR MALE 35 ISSUE
CASH SURRENDER VALUES
<TABLE>
<S> <C>
Single premium............................... $50,000
Premium taxes................................ None
Withdrawals.................................. None
Guaranteed period............................ 5 years
Guaranteed interest rate..................... 4.5%
Annuity date................................. Age 70
Index rate A................................. 5.00%
Index rate B................................. 6.00% end of contract year 1
5.50% end of contract year 2
5.00% end of contract year 3
4.00% end of contract year 4
Percentage adjustment to B................... 0.50%
</TABLE>
SURRENDER VALUE CALCULATION
<TABLE>
<CAPTION>
(3)
(1) (2) ADJUSTED (4) (5) (6)
ANNUITY INDEX RATE ANNUITY MINIMUM GREATER OF SURRENDER
CONTRACT YEAR VALUE FACTOR VALUE VALUE (3)&(4) VALUE
- -------------------- --------- ---------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 52,215 0.944841 $ 49,335 $ 51,465 $ 51,465 $ 51,465
2................... $ 54,530 0.971964 $ 53,001 $ 52,974 $ 53,001 $ 53,001
3................... $ 56,949 0.990544 $ 56,410 $ 54,528 $ 56,410 $ 56,410
4................... $ 59,476 1.004785 $ 59,761 $ 56,129 $ 59,761 $ 59,761
5................... $ 62,118 NA $ 62,118 $ 57,778 $ 62,118 $ 62,118
</TABLE>
5
<PAGE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR ANNUITY VALUE
- -------------------- -----------------------------------------
<S> <C>
1................... $50,000 X 1.045 - $35 = $52,215
2................... $52,215 X 1.045 - $35 = $54,530
3................... $54,530 X 1.045 - $35 = $56,949
4................... $56,949 X 1.045 - $35 = $59,476
5................... $59,476 X 1.045 - $35 = $62,118
</TABLE>
MARKET VALUE ADJUSTMENT TABLES
INTEREST RATE FACTOR CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR INDEX A INDEX B ADJ INDEX B N RESULT
- -------------------- --------- --------- ----------- --- ----------
<S> <C> <C> <C> <C> <C>
1................... 5.00% 6.00% 6.50% 4 0.944841
2................... 5.00% 5.50% 6.00% 3 0.971964
3................... 5.00% 5.00% 5.50% 2 0.990544
4................... 5.00% 4.00% 4.50% 1 1.004785
5................... 5.00% NA NA NA NA
</TABLE>
MINIMUM VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR MINIMUM VALUE
- -------------------- -----------------------------------------
<S> <C>
1................... $50,000 X 1.03 - $35 = $51,465
2................... $51,465 X 1.03 - $35 = $52,974
3................... $52,974 X 1.03 - $35 = $54,528
4................... $54,528 X 1.03 - $35 = $56,129
5................... $56,129 X 1.03 - $35 = $57,778
</TABLE>
STATE REGULATION OF LINCOLN LIFE
Lincoln Life, an Indiana corporation, is subject to regulation by the
Indiana Department of Insurance. An annual statement is filed with the Indiana
Department of Insurance each year covering the operations and reporting on the
financial condition of Lincoln Life as of December 31 of the preceding year.
Periodically, the Indiana Department of Insurance or other authorities examine
the liabilities and reserves of Lincoln Life and the Variable Account, and a
full examination of Lincoln Life's operations is conducted periodically by the
Indiana Department of Insurance. In addition, Lincoln Life is subject to the
insurance laws and regulations of other states within which it is licensed to
operate. Generally, the Insurance Department of any other state applies the laws
of the state of domicile in determining permissible investments.
A Contract is governed by the laws of the state in which it is delivered.
The values and benefits of each Contract are at least equal to those required by
such state.
ADMINISTRATION
All accounts, books, records and other documents which are required to be
maintained for the Variable Account are maintained by Lincoln Life. No separate
charge against the assets of the Variable Account is made by Lincoln Life for
this service. We have entered into an agreement with Delaware Service Co., 2005
Market Street, Philadelphia, PA 19203, to provide accounting services to the
Variable Account.
6
<PAGE>
ACCOUNT INFORMATION
At least once during each Calendar Year, Lincoln Life will furnish the Owner
with a report showing the Annuity Account Value at the end of the preceding
Calendar Year, all transactions during the reporting period, the current Annuity
Account Value, the number of Accumulation Units in each Variable Account
Sub-Account Accumulation Account and the applicable Accumulation Unit Value as
of the date of the report. In addition, each person having voting rights in the
Variable Account and a Fund or Funds will receive each such reports or
prospectuses as may be required by the Investment Company Act of 1940 and the
Securities Act of 1933. Lincoln Life will also send each Owner such statements
reflecting transactions in the Owner's Annuity Account as may be required by
applicable laws, rules and regulations.
Upon request to its Administrative Office, Lincoln Life will provide an
Owner with information regarding fixed and variable accumulation values.
DISTRIBUTION OF THE CONTRACTS
Lincoln Life is the principal underwriter for the Contracts, which are
offered continuously.
Sales charges on and exchange privileges under the Contracts are described
in the Prospectus. There are no variations in the prices at which the Contracts
are offered for certain types of purchasers.
CUSTODY OF ASSETS
Lincoln Life is the custodian of the assets of the Variable Account. Lincoln
Life will purchase Fund shares at net asset value in connection with amounts
allocated to the Variable Account Sub-Accounts in accordance with the
instructions of the Purchasers and redeem Fund shares at net asset value for the
purpose of meeting the contractual obligations of the Variable Account, paying
charges relative to the Variable Account or making adjustments for annuity
reserves held in the Variable Account. The assets of the Sub-Accounts of the
Variable Account are held separate and apart from the assets of any other
segregated asset accounts of Lincoln Life and separate and apart from Lincoln
Life's general account assets. Lincoln Life maintains records of all purchases
and redemptions of shares of each Fund held by each of the Sub-Accounts of the
Variable Account.
HISTORICAL PERFORMANCE DATA
MONEY MARKET SUB-ACCOUNT YIELD
There currently is no yield for the Money Market Sub-Account, as it has not
commenced operations as of the date of this Statement of Additional Information.
TOTAL RETURNS
Lincoln Life may from time to time advertise or disclose annual average
total returns for one or more of the Sub-Accounts of the Variable Account for
various periods of time. When a Sub-Account has been in operation for 1, 5 and
10 years, respectively, the total return for these periods will be provided.
Total returns for other periods of time may from time to time also be disclosed.
Total returns represent the average annual compounded rates of return that would
equate the initial amount invested to the redemption value of that investment as
of the last day of each of the periods.
Total returns will be calculated using Sub-Account Unit Values which Lincoln
Life calculates on each Valuation Period based on the performance of the
Sub-Account's underlying Fund, and the deductions for the mortality and expense
risk charge, the administrative expense charge, and the Account Fee. The Account
Fee is reflected by dividing the total amount of such charges collected during
the year that are attributable to the Variable Account by the total average net
assets of all the Variable Sub-Accounts. The
7
<PAGE>
resulting percentage is deducted from the return in calculating the ending
redeemable value. These figures will not reflect any premium taxes. The total
return will then be calculated according to the following formula:
P(1+T)to the power of n = ERV
Where: P = A hypothetical initial Premium Payment of $1,000.
T = Average annual total return.
n = Number of years in the period.
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five or
ten-year period, at the end of the one, five or
ten-year period (or fractional portion thereof).
OTHER PERFORMANCE DATA
Lincoln Life may from time to time also disclose average annual total
returns in a non-standard format in conjunction with the standard format
described above. The non-standard format will be identical to the standard one
except that the deferred sales charge percentage will be assumed to be 0%.
Lincoln Life may from time to time disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the deferred sales
charge percentage will be 0%.
CTR = (ERV/P) - 1
Where: CTR = The cumulative total return net of Sub-Account
recurring charges for the period.
ERV = The ending redeemable value of the hypothetical
investment made at the beginning of the one, five
or ten-year period, at the end of the one, five or
ten-year period (or fractional portion thereof).
P = A hypothetical initial payment of $10,000
All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
Lincoln Life may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
INDEPENDENT AUDITORS
The Statutory-basis financial statements and schedules of Lincoln Life
appearing in this Statement of Additional Information and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report which also appears elsewhere in this document and in the
Registration Statement. The Statutory-basis financial statements and schedules
audited by Ernst & Young LLP have been included in this document in reliance on
their report given on their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
Statutory-basis Financial Statements and Schedules for Lincoln Life appear
on the following pages. The Variable Account has no Financial Statements, as it
has not commenced operations as of the date of this Statement of Additional
Information.
8
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements provided in the Statement of Additional Information.
The following statutory-basis financial statements and schedules of Lincoln
National Life Insurance Co. are included in the SAI:
Balance Sheets -- Statutory Basis -- Years ended December 31, 1997 and
1996
Statements of Income -- Statutory Basis -- Years ended December 31, 1997,
1996 and 1995
Statements of Capital and Surplus -- Statutory Basis -- Years ended
December 31, 1997, 1996 and 1995
Notes to Statutory-basis Financial Statements -- December 31, 1997
Supplemental Schedule of Selected Statutory Basis Financial Data--
December 31, 1997
Report of Ernst & Young LLP, Independent Auditors
(b) Exhibits
(1)
Resolution of Board of Directors and Memorandum from the President Of The
Lincoln National Life Insurance Company authorizing establishment of the
Variable Account are incorporated herein by reference to Registration
Statement on Form N-4 (333-40937) filed on November 24, 1997.
(2)
Not Applicable.
(3)
(a) Form of Selling Agreement.
(4)
The Lincoln National Life Insurance Company Variable Annuity Contract.
(a) Form of Contract Rider
(b) Form of Income Contract Rider
(5)
Form of Application for the Contract is incorporated herein by reference
to Registration Statement on Form N-4 (333-40937) filed on November 24,
1997.
(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 Registration Statement on Form
N-4 (33-27783) filed on December 5, 1996.
(7)
Not Applicable.
(8)
(a) Forms of Fund Participation Agreements.
(i) AIM Variable Insurance Funds, Inc.
(ii) BT Insurance Funds Trust
(iii) Delaware Group Premium Fund, Inc. is incorporated herein by
reference to Registration Statement on Form N-4 (File No.
33-25990) filed on April 22, 1998.
(iv) Dreyfus Variable Investment Fund is incorporated herein by
reference to Registration Statement on Form N-4 (File No.
333-05815) filed on September 26, 1996.
(v) Investors Fund Series
(a) Kemper Government Securities Fund
(b) Kemper Small Cap Growth Fund
C-1
<PAGE>
(vi) Liberty Variable Investment Trust
(a) Newport Tiger Fund
(b) U.S. Stock Fund
(vii) Lincoln National Bond Fund, Inc.
(viii) Lincoln National Money Market Fund, Inc.
(ix) Variable Insurance Products Fund is incorporated herein by
reference to Registration Statement on Form N-4 (File No.
333-04999) filed on September 26, 1996.
(x) Variable Insurance Products Fund III
(xi) MFS-Registered Trademark- Variable Insurance Trust
(xii) OCC Accumulation Trust
Agreements between The Lincoln National Life Insurance Company and:
(b) Service Agreement between Delaware Management Holdings, Inc.,
Delaware Services Company, Inc. and Lincoln National Life Insurance
Company is incorporated herein by reference to the Registration
Statement of Flexible Premium Variable Life Account F, Form S-6
(333-40745) filed November 21, 1997.
(9)
Opinion and Consent of Jeremy Sachs Senior Counsel of The Lincoln
National Life Insurance Company.
(10)
Consent of Ernst & Young LLP, Independent Auditors.
(11)
Not Applicable.
(12)
Not Applicable.
(13)
Schedule for Computation of Performance Results.
(14)
Not Applicable.
(15)
(a) Organizational Chart of The Lincoln National Insurance Holding
Company System.
(b) Books and Records Report.
C-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME POSITIONS AND OFFICES WITH DEPOSITOR
- ------------------------------ ---------------------------------------------
Gabriel L. Shaheen* President, Chief Executive Officer and
Director
Jon A. Boscia** Director
Carolyn P. Brody* Vice President
Thomas L. Clagg* Vice President and Associate General Counsel
Kelly D. Clevenger* Vice President
Jeffrey K. Dellinger* Vice President
John H. Gotta**** Senior Vice President
Donald E. Keller* Vice President
Stephen H. Lewis* Senior Vice President
H. Thomas McMeekin** Director
Reed P. Miller* Vice President
Lawrence T. Rowland*** Executive Vice President and Director
Keith J. Ryan* Senior Vice President, Chief Financial
Officer and Assistant Treasurer
Richard C. Vaughan** Director
Roy V. Washington* Vice President and Chief Compliance Officer
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary and Assistant Vice President
* Principal business address is 1300 South Clinton Street, Fort
Wayne, Indiana 46802.
** Principal business address is 200 East Berry Street, Fort Wayne,
Indiana 46802-2706.
*** Principal business address is 1700 Magnovox Way, One Reinsurance
Place, Fort Wayne, Indiana 46804.
**** Principal business address is 900 Cottage Grove Road, Bloomfield,
CT 06152-2321.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
See Exhibit 15(a): Organizational Chart of The Lincoln National Life
Insurance Holding Company System.
ITEM 27. NUMBER OF PURCHASERS
Not applicable, since this separate account had not yet commenced
operations.
ITEM 28. INDEMNIFICATION
(a) Brief description of indemnification provisions.
C-3
<PAGE>
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 right 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 National Variable Annuity Account C;
Lincoln National Flexible Premium Variable Life Account D; Lincoln National
Flexible Premium Variable Life Account F; Lincoln Life Flexible Premium
Variable Life Account J; Lincoln Life Flexible Premium Variable Life Account
K; Lincoln National Variable Annuity Account L; Lincoln Life Flexible
Premium Variable Life Account M; Lincoln Life Flexible Premium Variable Life
Account R; Lincoln Life Variable Annuity Account Q; Lincoln National
Variable Annuity Account 53.
(b) See Item 25.
(c) Lincoln Life received no commissions nor other compensation from the
Variable Account during the fiscal year which ended December 31, 1997
because the Variable Account had not yet commenced operations.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
See Exhibit 15(b): Books and Records Report.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
C-4
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post effective amendment to this
registration statement under the Securities Act of 1933 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 (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Contract application or order to purchase that an
applicant can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver promptly, upon written or oral request made
to The Lincoln National Life Insurance Company at the address or phone
number listed in the Prospectus, any Statement of Additional Information and
any financial statements required by Form N-4 to be made available to
applicants or owners.
(d) The Lincoln National Life Insurance Company hereby represents that the fees
and charges deducted under the Contracts, 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 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.
(f) For Contracts sold in connection with the Texas Optional Retirement Program,
Registrant is relying on Rule 6c-7 and represents that paragraphs (a)
through (d) of that rule have been complied with.
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement on Form N-4 to
be signed on its behalf, in the City of Fort Wayne and State of Indiana on the
3rd day of September, 1998.
LINCOLN LIFE VARIABLE ANNUITY
ACCOUNT N (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/ GABRIEL L. SHAHEEN
-----------------------------------
Gabriel L. Shaheen
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
(TITLE)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------------- --------------------
<C> <S> <C>
/s/ GABRIEL L. SHAHEEN Chief Executive Officer, September 3, 1998
------------------------------------ President and Director
Gabriel L. Shaheen (Principal Executive Officer)
------------------------------------
Lawrence T. Rowland Executive Vice President and Director September 3, 1998
/s/ H. THOMAS MCMEEKIN
------------------------------------
H. Thomas McMeekin Director September 3, 1998
/s/ RICHARD C. VAUGHAN
------------------------------------
Richard C. Vaughan Director September 3, 1998
Senior Vice President, Chief Financial
/s/ KEITH J. RYAN Officer and Assistant Treasurer September 3, 1998
------------------------------------ (Principal Accounting Officer and
Keith J. Ryan Principal Financial Officer)
/s/ JON A. BOSCIA
------------------------------------
Jon A. Boscia Director September 3, 1998
</TABLE>
<PAGE>
AGREEMENT
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, IN 46802
Effective__________________________________ 19___ The Lincoln National Life
Insurance Company, member NASD and/or Lincoln Financial Advisors Corp. (LFA)
member, NASD (hereinafter "Lincoln National") appoints
_______________________________ (NAME OF REPRESENTATIVE OR ENTITY) of (or
incorporated under the laws of________________________________(CITY, STATE OR
STATE) as a BROKER and/or REGISTERED REPRESENTATIVE and/or CORPORATE INSURANCE
BROKER and/or BROKERLDEALER (hereinafter "REPRESENTATIVE").
1. DEFINITIONS
a. BROKER. An individual appropriately licensed and appointed to sell the
fixed insurance products or non-registered variable products described
herein;
b. REGISTERED REPRESENTATIVE: An individual who, as a result of passing the
appropriate examinations of the National Association of Securities Dealers
(NASD) or other appropriate self-regulatory organizations (SRO), and also
appropriately licensed and appointed to sell insurance products may sell
the insurance products described herein;
c. CORPORATE INSURANCE BROKER. A corporation appropriately licensed to sell
the fixed insurance products or non registered variable products described
herein;
d. BROKER/DEATER. An individual, partnership, corporation or other legal
entity admitted to membership in the National Association of Securities
Dealers (NASD) and appropriately licensed and/or appointed to sell the
insurance products described herein; or an organization such as a bank,
which pursuant to statutory or regulatory authority, may act as a
broker/dealer without being a member of the NASD, but is appropriately
licensed and appointed to sell the insurance products as described herein.
2. LIMITATIONS ON APPOINTMENT ("NASD"). The REPRESENTATIVE IS authorized to
solicit applications for those contracts named in the compensation schedules
attached to this agreement only while properly licensed by and/or registered
with the appropriate governmental agency or authority for that specific type of
product. All fees for such licensing shall be borne by the REPRESENTATIVE along
with any administrative charges associated with such licensing.
a. Notwithstanding the above paragraph, the representative is NOT authorized
to sell contracts to (check applicable): El Sec. 403(b) periodic tax
sheltered annuity plan participants; El Section 457 plans
b. Solicitation and/or servicing is limited to the following duly licensed and
appointed agents of REPRESENTATIVE and/or territory (COMPLETE ONLY IF
APPLICABLE)
c. If the REPRESENTATIVE IS not authorized under paragraph 2(a) such
authorization may be given by Lincoln National in writing, at its exclusive
discretion.
d. In no event is the REPRESENTATIVE authorized to offer Lincoln National
contracts in the state of New York.
3. NASD MEMBERSHIP (IF APPLICABLE)
Each party to this agreement, if acting as a broker/dealer, represents that it
is a member of the National Association of Securities Dealers, Inc. Each party
further agrees to comply with all applicable state and federal laws, rules, and
regulations. Broker/dealer's expulsion from the NASD shall automatically
terminate this agreement without notice. Broker/dealer's suspension will
terminate this agreement immediately upon written or oral notice from Lincoln
National received by broker/dealer.
LINCOLN NATIONAL LIFE INSURANCE CO. IS A PART OF
LINCOLN NATIONAL CORP. PAGE 1 OF 4
<PAGE>
4. LIMITATIONS OF AUTHORITY SERVICE
The representative has no authority to incur any obligations or debts for or on
behalf of Lincoln National without its express written consent; to make, modify,
or discharge any contract on behalf of Lincoln National by any statement,
promise, or representation of transaction; to waive, alter, modify or change any
of the terms, rates, or conditions of the Lincoln National contracts.
5. RELATIONSHIP OF PARTIES
In the performance of all of his/her/its duties under this agreement, the
relationship of the representative to Lincoln National is that of an independent
contractor and none other. Neither party shall be deemed to be an employee or
partner of the other party for any purpose, and nothing herein shall be
construed to create the relationship of master and servant, employer and
employee, or joint venturers between the representative and Lincoln National.
6. COMPENSATION
Upon submission of applicants for Lincoln National contracts by the
representative, or appropriately licensed agents of the representative,
conforming to such rules and procedures for the conduct of the business of
Lincoln National as are now established and as may be reasonably established by
Lincoln National in the future, and upon issuance of contracts by Lincoln
National, the representative shall be entitled, subject to the terms and
conditions of the agreement, to the applicable service fees set forth in the
attached Compensation Schedule(s) or revisions of such Compensation Schedule(s)
and all amendments, changes, and replacements thereof, as may be made at the
exclusive discretion of Lincoln National. These Compensation Schedule(s) are
made a part of this agreement. Revised Compensation Schedules shall apply to
policies issued and service fees earned after the date that said schedules are
adopted by Lincoln National. In the case of any violation of any of the terms of
this agreement, Lincoln National shall be allowed to retain service fees earned
but not yet paid by Lincoln National. Lincoln National has the right to deduct
damages and expenses from such retained commissions. If representative sells in
an unauthorized market, or without pre-approval of Lincoln National where
necessary, such representative forfeits all compensation under this agreement
from such unauthorized sale.
7. EXCLUSIVE RIGHTS OF SOLICITATION AND
a. Where the representative establishes a relationship with an organization
for the purpose of selling Lincoln National contracts, no other entity with
authorization by Lincoln National may approach, solicit, or otherwise
contact such organization for the purpose of selling or servicing Lincoln
National contracts as long as the representative is actively and
effectively selling and servicing Lincoln National contracts, subject to
the terms of section 7(d).
b. The representative may not establish a relationship with an organization
for the purpose of selling or servicing Lincoln National contracts if
another entity with authorization from Lincoln National has already
established such relationship with said employer. Any exceptions to this
must be requested by the representative and reviewed and approved in
writing by an officer of Lincoln National.
c. Notwithstanding anything to the contrary contained in (a) or (b) above, the
parties expressly agree that the representative may represent any other
insurance carriers and offer any other insurance, lines, products, or
business, whether or not such carrier lines, products or business compete
directly or indirectly with Lincoln National.
d. Lincoln National shall be the sole arbitrator in these matters, and
further, reserves the right to withdraw the exclusive rights of any entity,
at the complete discretion of Lincoln National.
8. ADVERTISING AND MARKETING MATERIAL
a. The representative shall cooperate with Lincoln National in preparing
advertising, solicitation brochures, and other marketing materials to be
used by representative to sell Lincoln National contracts. No promotional
and marketing materials shall be used by representative to sell Lincoln
National contracts unless such material has received the prior written
approval of Lincoln National. No promotional and marketing material shall
be disseminated or used in any manner unless Lincoln National's express
written approval has been given hereto.
b. The representative agrees to indemnify and hold Lincoln National harmless
from any liability resulting from the negligent, improper, unauthorized, or
illegal use of sales, marketing, solicitation, or other materials.
PAGE 2 OF 4
<PAGE>
c. Upon termination of this agreement, all records, unused supplies, Lincoln
provided software, and all other materials furnished by Lincoln National in
the representative's possession shall be returned to Lincoln National upon
request.
9. PROSPECTUS (IF APPLICABLE)
a. Lincoln National agrees to deliver to the representative current Lincoln
National prospectuses. The representative agrees to destroy and dispose of
all prior prospectuses immediately upon receipt of the current
prospectuses.
b. Lincoln National shall be liable for all statements contained in the
current prospectus. The representative shall be liable for all statements
made by the representative, his/her/its agents, or employees, if
applicable, which are not contained in the current prospectus.
c. The representative, not Lincoln National, is solely responsible for all
statements, written or oral acts, or representations, whether expressed or
implied, made by his/her/its agents, or employees and is responsible for
notifying his/her/its agents or employees of the terms and conditions of
this agreement.
d. The representative, (unless acting for Lincoln National in its capacity as
a broker/dealer) not Lincoln National, is solely responsible as to the
suitability of sale of the Lincoln National contracts to individual
persons.
e. The representative is solely responsible for performing the Maximum
Exclusion Allowance calculations for any 403b sales.
f. The representative shall immediately notify Lincoln National of any and all
complaints about Lincoln National contracts received by the representative.
10. DEPOSITS
Any deposits received by the representative on behalf of Lincoln National shall
be forwarded promptly, but under no circumstances in more than two (2) business
days, in gross amount, to Lincoln National.
11. INDEMNIFICATION
a. The representative shall be responsible to Lincoln National for the
malicious, intentional, reckless, knowing, or negligent acts or omissions
of his/her/its employees, officers, agents, and sales agreement and shall
indemnify and hold harmless Lincoln National from any claims, demands,
actions, judgements, loss, cost or expense, including attorney fees, court
costs, and punitive damages incurred by Lincoln National by reason of such
acts or omissions.
b. Lincoln National shall be responsible to the representative for the
negligent acts or omissions of its employees, officers, agents, and sales
persons for the business covered under this agreement and shall indemnify
and hold harmless the representative from any claims, demands, actions,
judgements, loss, cost, or expense, including attorney fees and court costs
incurred by the representative which are caused by or arise out of any
negligent acts or omissions of Lincoln National, its employees, officers,
agents, or sales persons.
12. ASSIGNMENTS/MODIFICATIONS
a. Lincoln National and the representative shall make no assignment or
transfer of this agreement or of any benefits or obligations hereunder,
either in whole or in part, without the prior written consent of the other.
Any such assignee or transferee shall be properly licensed, including
pursuant to Section I of this agreement, to perform its function under this
agreement prior to the assignment or transfer. All terms and conditions of
this agreement are applicable to any assignment or transfer. persons for
the business covered under this
b. This agreement may only be modified by written consent of both parties.
This agreement embodies the entire agreement of the parties relative to the
matters with which it deals and is intended to be the entire and exclusive
embodiment thereof. Neither the representative nor Lincoln National shall
be bound by any promise, agreement, understanding, or representation
heretofore or hereafter made relative to the subject matter of this
agreement except a change, revision, or addition to the attached
Compensation Schedule(s) as provided in Section 6, unless the same is made
in writing and signed by an officer of the representative and Lincoln
National which expresses by its terms an intention to modify this
agreement.
13. INDEBTEDNESS OF REPRESENTATIVE
Lincoln National shall have first lien on all service fees and other
compensation payable hereunder for
PAGE 3 OF 4
<PAGE>
any debt due from the representative to Lincoln National or any of its
affiliates, including charges relating to certain cancellations, rejections, or
reissues of contracts, Lincoln National may at this time deduct or set off from
any moneys payable under this agreement, or from any other source, any such debt
or debts at the legal rate. This lien shall not be extinguished by the
termination of the representative's authority. This provision shall not be
construed in any way to limit any indebtedness of the representative to the
value of the service fees and other compensation payable under this agreement.
In the event of the termination of the representative's authority, the unpaid
balance of the representative's indebtedness shall be immediately due and
payable without demand or notice.
14. TERMINATION OF AGREEMENT
The representative or Lincoln National may terminate the representative's
appointment under this agreement, with or without cause, by notice sent by
ordinary mail to the last known address of the other party. Terminations of
appointment as used in this agreement shall mean termination of authority either
through cancellation of the appropriate license or registration as required by
this paragraph or through termination of this entire agreement.
However, Lincoln National reserves the right, rather than to completely
terminate this agreement, to suspend the right of the representative to sell new
business, including taking applications on existing contracts, but still allow
the representative to service existing business. This right shall exist provided
that it does not violate any applicable state or federal law or regulation.
Lincoln National will provide evidence of servicing relationship in writing to
representative. Lincoln National reserves the right to terminate the service
agreement pursuant to the terms of this agreement.
15. FORBEARANCE
Forbearance or neglect of Lincoln National to insist upon performance of this
agreement shall not constitute a waiver of its rights and privileges.
16. CHOICE OF LAW
The representative and Lincoln National expressly agree that in the case of any
disputes arising under this agreement, said agreement shall be construed under
Indiana Law.
SIGNATURES
LINCOLN NATIONAL
Assistant secretary's signature
REPRESENTATIVE
Corporation or broker/dealer
authorized officer's signature
Corporation or broker/dealer
authorized officer's name (print or type)
Tax ID number
INDIVIDUAL
Agent or registered representative's signature
Social Security number
PAGE 4 OF 4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
A STOCK COMPANY HOME OFFICE LOCATION: FORT WAYNE, INDIANA
ADMINISTRATOR MAILING ADDRESS: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ANNUITY & VARIABLE LIFE SERVICE CENTER -
ROUTING S249
HARTFORD, CT 06152-2249
The Company agrees with the Owner to provide the benefits in this contract.
RIGHT TO EXAMINE CONTRACT. The contract may be returned to the individual
through whom it was purchased or to the Company within 10 days after its receipt
(20 days after its receipt where required by law for a contract issued in
replacement of another contract). If the contract is so returned, it will be
deemed void from the Date of Issue, and the Company will refund the Premium
Payment(s) as provided plus or minus any investment gains or losses under the
contract as of the date the returned contract is received by the Company, unless
required otherwise by law.
The contract is issued and accepted subject to the terms set forth on this page
and on the following pages which are made a part of the contract. In
consideration of the Premium Payment(s) as provided, this contract is executed
by the Company as of its Date of Issue.
REGISTRAR
/s/ Jon A. Boscia
PRESIDENT
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUST MENTS IN AMOUNTS PAYABLE TO THE OWNER, INCLUDING WITHDRAWALS AND
TRANSFERS. PAYMENTS MADE FROM THE FIXED ACCOUNT PURSUANT TO AN ELECTION WHICH
BECOMES EFFECTIVE AT THE END OF A GUARANTEED PERIOD AND PAYMENTS MADE UNDER THE
"ANNUITY BENEFIT"PROVISIONS ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
PAYMENTS MADE UNDER THE "DEATH BENEFIT' PROVISIONS ARE NOT SUBJECT TO ANY MARKET
VALUE ADJUSTMENT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
USE OF CONTRACT. This contract is available for retirement and deferred
compensation plans some of which may qualify for special tax treatment under
various sections of the Internal Revenue Code.
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
WITH FIXED AND VARIABLE ACCOUNTS - NON-PARTICIPATING
THIS is A LEGAL CONTRACT BETWEEN THE OWNER AND THE COMPANY
READ YOUR CONTRACT CAREFULLY.
AN425 LL
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 5
SCHEDULE OF CHARGES, EXPENSES AND FEES.... . . . . . . . . . . . . . . . . 7
DEFINITIONS .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PREMIUM PAYMENT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 10
Premium Payments
Allocation of Premium Payments
Annuity Account Continuation
Minimum Value Requirements
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS . . . . . . . . . . . . . 11
Owner
Rights of Owner
Transfer of Ownership
Assignment
Beneficiary
Change of Beneficiary
FIXED AND VARIABLE ACCOUNTS PROVISIONS . . . . . . . . . . . . . . . . . . 12
Fixed Account and Sub-Accounts
Variable Account and Sub-Accounts
Investment Risk
Investments of the Variable Account Sub-Accounts
Substituted Securities
CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS. . . . . . . . . . . 13
Part A - Fixed Account Value
Guaranteed Periods
Guaranteed Interest Rates
Fixed Accumulation Value
Minimum Surrender Value
Part B - Variable Account Value
Acquisition and Redemption of Variable Accumulation Units
Variable Accumulation Unit Value
Variable Accumulation Value
Net Investment Factor
Part C - General
Annuity Account
Transfer Privilege
Annuity Account Fee
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE
ADJUSTMENT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cash Withdrawals
Withdrawal Charges
Market Value Adjustment
AN425
2
<PAGE>
TABLE OF CONTENTS (Continued)
PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS 18
Penalty-Free Partial Withdrawals or Transfers
Full or Partial Withdrawals and Transfers at the End of a Guaranteed Period
Waiver of Withdrawal Charge and Market Value Adjustment on
Death or Annuity Date
Penalty-Free Annuitization
BENEFIT PROVISIONS 18
Annuity Date
Election and Effective Date of Election with Respect to Annuity Benefit
Determination of Amount
Income Payment Benefits
Death Benefit
Election and Effective Date of Election with Respect to Death Benefit
Payment of Death Benefit
Amount of Death Benefit
GENERAL PROVISIONS 21
The Contract
Modification of Contract
No n- Participation
Loans
Determination of Values
Endorsement of Income Payments
Misstatement of Age
Claims of Creditors
Periodic Reports
Followed by Optional Methods of Settlement and any Riders
Note: Pages 4, 6 and 8 are intentionally "blank."
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<PAGE>
CONTRACT SPECIFICATIONS
SPECIMEN CONTRACT NUMBER
ANNUITANT(S) JOHN DOE
AGE AT ISSUE 35
DATE OF ISSUE JANUARY1,1998
ANNUITY DATE JANUARY 1, 2028
<TABLE>
<CAPTION>
LINCOLN NATIONAL ACCRU CHOICEPLUS VARIABLE ANNUITY
FORM BENEFIT INITIAL PREMIUM PAYMENT
<S><C>
AN425LL FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY $50,000
WITH FIXED AND VARIABLE ACCOUNTS
INITIAL PREMIUM PAYMENT ALLOCATION PERCENTAGE
FIXED ACCOUNT - SUB-ACCOUNTS
PERCENTAGE ADJUSTMENT TO INDEX RATE "B": .50%
INITIAL GUARANTEED PERIOD/INTEREST RATE 1 YEAR /4.55% 10%
INITIAL GUARANTEED PERIOD/INTEREST RATE 5 YEARS/6.40% 0%
INITIAL GUARANTEED PERIOD/INTEREST RATE 10 YEARS/6.90% 0%
VARIABLE ACCOUNT - SUB-ACCOUNTS (FUNDS)
AIM V.I. GROWTH FUND
AIM V.I. VALUE FUND
AIM V.I. INTERNATIONAL EQUITY FUND
EQUITY 500 INDEX FUND
DECATUR TOTAL RETURN SERIES
DEVON SERIES 10%
SOCIAL AWARENESS SERIES 30%
REIT SERIES
SMALL CAP VALUE SERIES 20%
TREND SERIES
INTERNATIONAL EQUITY SERIES
EMERGING MARKETS SERIES
DELCHESTER SERIES
SMALL CAP PORTFOLIO
KEMPER GOVERNMENT SERCURITIES PORTFOLIO
KEMPER SMALL CAP GROWTH PORTFOLIO
COLONIAL U. S. STOCK FUND
NEWPORT TIGER FUND
LINCOLN NATIONAL BOND FUND
LINCOLN NATIONAL MONEY MARKET FUND
FIDELITY VIP EQUITY-INCOME PORTFOLIO
FIDELITY VIP GROWTH PORTFOLIO
FIDELITY VIP OVERSEAS PORTFOLIO
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO
MFS EMERGING GROWTH SERIES
MFS RESEARCH SERIES
MFS TOTAL RETURN SERIES
MFS UTILITIES SERIES 10%
OCC GLOBAL EQUITY PORTFOLIO 10%
OCC MANAGED PORTFOLIO 10%
TOTAL 100%
</TABLE>
LIMITATIONS ON TRANSFERS FROM FIXED ACCOUNT: IN EACH CONTRACT YEAR, AN OWNER IS
ALLOWED TO MAKE ONE OR MORE TRANSFERS FROM EACH SUB-ACCOUNT, AND THE AMOUNT(S)
TRANSFERRED IN
AGGREGATE MAY NOT EXCEED MORE THAN [15%] OF THE THEN CURRENT VALUE OF THE
APPLICABLE SUB-ACCOUNT(S).
THIS CONTRACT IS FOR USE WITH "LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N".
OWNER: THE ANNUITANT
BENEFICIARY: THE PERSON(S) DESIGNATED BY THE OWNER AND RECORDED BY THE COMPANY
MINIMUM SUBSEQUENT PREMIUM PAYMENTS:
$2,000 PER FIXED ACCOUNT GUARANTEED PERIOD
$1,000 PER VARIABLE ACCOUNT SUB-ACCOUNT
AN425LL
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<PAGE>
SCHEDULE OF CHARGES, EXPENSES AND FEES
ANNUITY ACCOUNT FEE: The Annuity Account Fee is $35 per Contract Year and will
be deducted on the last Valuation Date of each Contract Year. The Annuity
Account Fee, however, will be waived for any Contract Year for which the Annuity
Account Value equals or exceeds $100,000 as of the last Valuation Date of such
Contract Year.
WITHDRAWAL CHARGES: The Withdrawal charges applicable under this contract are as
follows.
<TABLE>
<CAPTION>
Withdrawal Charge
Against Premium Year
Payment Withdrawn Applicable
<S> <C>
7.0% During 1 st year since Premium Payment Accepted
6.5% During 2nd year since Premium Payment Accepted
6.0% During 3rd year since Premium Payment Accepted
5.5% During 4th year since Premium Payment Accepted
5.0% During 5th year since Premium Payment Accepted
4.0% During 6th year since Premium Payment Accepted
3.0% During 7th year since Premium Payment Accepted
0% Thereafter
</TABLE>
Each Subsequent Premium Payment will be subject to its own 7-year period.
Any Withdrawal from the Fixed Account prior to the end of a Guaranteed Period
may also be subject to a Market Value Adjustment as described on page 17 which
may increase, decrease, or have no effect on the applicable account value(s). A
Market Value Adjustment would not apply to a withdrawal effective at the end of
a Guaranteed Period.
PENALTY-FREE PARTIAL WITHDRAWAL CHARGES: The Withdrawal charges are not
applicable to certain partial withdrawals of 100% or less of Premium Payments
annually (see page 18). Withdrawal charges and a Market Value Adjustment are not
applicable to annuitization of the contract at any time. Withdrawal charges and
a Market Value Adjustment are not applicable to payment of the Death Benefit.
(See "Penalty-Free Withdrawals, Transfers and Annuitization Provisions.")
ASSET CHARGES: The Company imposes a mortality and expense ("M&E") risk charge
and an administrative expense charge, each of which is calculated as a
percentage of asset value of each Variable Account Sub-Account, to cover
mortality and expense risk and other administrative costs. The percentages
applied to asset value to determine these charges are the Daily M&E Rate and the
Daily Administrative Rate. These charges are deducted from each Variable Account
Sub-Account by reducing the Variable Accumulation Unit Value at the end of each
Valuation Period. The Daily M&E Rate is equal to the daily rate equivalent of
the annual rate of 1.40% and the Daily Administrative Rate is equal to the daily
rate equivalent of the annual rate of 0. 15%.
In addition, Daily Fund Operating Expenses will be applied by each Fund as a
percent of the daily fund balance as set forth in the prospectus for the
applicable Fund(s).
TAXES: Premium tax equivalents (including any related retaliatory taxes), if
any, and any other taxes due under this contract will be deducted if applicable.
It is currently the Company's practice to deduct such taxes, if any, at the time
the Annuity Account Value, or any portion thereof, becomes payable. (Refer to
Definition of "Annuity Account Value".)
AN425LL
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<PAGE>
DEFINITIONS
ACCUMULATION PERIOD. The period from the Date of Issue to the Annuity Date, the
date on which the Death Benefit becomes payable, or the date on which the
contract is surrendered or annuitized, whichever is earliest.
ANNUITANT(s). The person or persons on whose life the first Income Payment is to
be made. The Annultant(s) on the Date of Issue is/are the person(s) designated
in the Contract Specifications and will remain the Annuftant(s) under the
contract unless the Owner exercises the right to change the Annuitant(s) as set
forth in the "Rights of Owner" provision. If prior to the Annuity Date, the
Annuitant predeceases the Owner, the Owner will then become the Annuitant until
such time as the Owner exercises the right to designate a new Annuitant as set
forth in the "Rights of Owner" provision. (Provided that the Contract Owner is a
natural person.) If joint Annuitants are named and if one of the Annuitants
predeceases the Owner prior to the Annuity Date, the contract will thereupon
become an annuity contract on the surviving Annuitant until such time that the
Owner exercises the right to designate another joint Annuitant as set forth in
the "Rights of Owner" provision.) A request for change of Annuitant(s) must be
in writing to the Company at its administrator mailing address located on the
front cover of this contract and will not take effect until recorded by the
Company.
ANNUITY ACCOUNT. The account which is comprised of the Fixed and Variable
Accounts with respect to this contract.
ANNUITY ACCOUNT VALUE. The account value which at any time equals the sum of all
the then current values of the Fixed and Variable Accounts with respect to this
contract. Applicable premium taxes, if any, will be deducted when the Annuity
Account Value amount to be applied under the Annuity Benefit, Death Benefit,
Cash Withdrawals or Penalty-Free Withdrawal and Annuitization provisions is
determined.
ANNUITY DATE. The date on which Income Payments begin upon annuitization of the
contract.
CONTRACT YEARS AND CONTRACT ANNIVERSARIES. All Contract Years and Contract
Anniversaries are 12-month periods measured from the Date of Issue.
DAILY ME RATE. The rate applied by the Company as a percentage of each Variable
Account SubAccount's asset value to determine the ME charge for its assumption
of mortality and expense risks for a 24- hour period.
DATE OF ISSUE. The date on which the contract becomes effective.
DUE PROOF OF DEATH. An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof of death satisfactory to the
Company.
EXPIRATION DATE(s). The date(s) on which Guaranteed Period(s), if any, end.
FIXED ACCOUNT. The term "Fixed Account" under this contract means all
Sub-Account(s) associated with Guaranteed Period(s) and Guaranteed Interest
Rate(s). Fixed Account assets are general assets of the Company and are
distinguishable from those allocated to a separate account of the Company.
FUND(s). The Variable Account Sub-Accounts in which Premium Payments, or
Transfers in accordance with the "Transfer Privilege" provision, may be
invested.
GUARANTEED PERIOD. The Guaranteed Period is the period for which interest, at
either an initial or subsequent Guaranteed Interest Rate will be credited to an
amount under a Fixed Account Sub-Account.
Home Office. The term "Home Office" means the Company indicated on the front
cover of this contract.
AN425
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<PAGE>
Definitions (Continued)
IN WRITING. The term "in writing" means in a written form satisfactory to the
Company and received by the Company's administrator mailing address.
INCOME PAYMENTS. Income Payments are the amounts payable under this contract as
determined by the settlement options provisions of the contract.
PAYOUT PERIOD. The period during which Income Payments are made under this
contract.
SEC. The Securities and Exchange Commission.
SUB-ACCOUNT. That portion of the Fixed Account associated with specific
Guaranteed Perlod(s) and Guaranteed Interest Rate(s) and that portion of the
Variable Account which invests in shares of a specific Fund.
VALUATION DATE. Any day on which the New York Stock Exchange ("NYSE") is open
for business, except a day during which trading on the NYSE is restricted or on
which an emergency exists as a result of which the valuation or disposal of
securities is not reasonably practicable.
VALUATION PERIOD. The period beginning immediately after the close of business
on a Valuation Date and ending at the close of business on the next Valuation
Date.
VARIABLE ACCOUNT. The term "Variable Account" under this contract means all
Sub-Account(s) associated with investments in the Fund(s). Variable Account
assets are separate account assets of the Company, the investment performance of
which is kept separate from that of the general assets of the Company and are
not chargeable with general liabilities of the Company.
VARIABLE ANNUITY UNITS. A unit of measure used in the calculation of the value
of the variable portion of the
Annuity Account during the Payout Period.
VARIABLE ACCUMULATION UNIT. A unit of measure used in the calculation of the
value of the variable portion of the Annuity Account before the Payout Period.
PREMIUM PAYMENT PROVISIONS
PREMIUM PAYMENTS. Premium Payments are payable to the Company at its
administrator mailing address located on the front cover of this contract (or
its lockbox address) or to an authorized agent of the Company. A Company receipt
will be furnished upon request. The Initial Premium Payment is the amount paid
to the Company as consideration for the benefits provided under the contract on
the Date of Issue. Subsequent Premium Payments may be paid to the Company from
time to time after the Date of Issue and prior to the Annuity Date. The Company
will not accept any Premium Payment which is less than the minimum amount
requirement then in effect as determined by the Company. In addition, the prior
approval of the Company is required before it will accept a Premium Payment in
excess of the maximum amount limit then in effect as determined by the Company.
All Premium Payments must meet the allocation requirements specified under the
"Allocation of Premium Payments" provision. The payment of any amount under the
contract which is derived, all or in part, from any Premium Payments made by
check or draft may be postponed until such check or draft has been honored by
the financial institution upon which it is drawn.
The Initial Premium Payment attributable to the contract is shown on the
Contract Specifications page.
ALLOCATION OF PREMIUM PAYMENTS. Upon receipt by the Company at its administrator
mailing address located on the front cover of this contract, each Premium
Payment will be added to the Annuity Account established under the contract. The
Annuity Account is described under the "Annuity Account" provision and is
comprised of Fixed Account Sub-Account(s) and Variable Account Sub- Account(s).
The initial Premium Payment will be allocated to one or more such Sub-Accounts
in accordance with the allocation percentages specified by the Owner and shown
in the Contract Specifications, provided such allocations to Fixed and/or
Variable Accounts conform to the Company's minimum deposit requirements in
effect as
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<PAGE>
PREMIUM PAYMENT PROVISIONS (CONTINUED)
of the Date of Issue. Subsequent Premium Payments will be allocated as directed
by the Owner. if no direction is given, the allocation percentages will be that
which has been most recently directed for payments by the Owner. If a portion of
the most recent previous Premium Payment was allocated to the Fixed Account and
the allocation percentages when applied to a Subsequent Premium Payment does not
produce an amount which meets the Fixed Account minimum requirements, the
Company will promptly seek further instructions from the Owner regarding
allocation of the premium or otherwise return the applicable portion of such
Premium Payment as provided by law.
ANNUITY ACCOUNT CONTINUATION. The Annuity Account shall be continued
automatically in full force from the Date of Issue until the Annuity Date or
until the contract is surrendered or annuitized, the Death Benefit is paid, or
the Annuity Account Value no longer meets the requirements specified in the
"Minimum Value Requirements" provision, whichever occurs first.
MINIMUM VALUE REQUIREMENTS. If no Premium Payments have been made for three
consecutive years and the Annuity Account Value decreases to less than $1,000
during that period, or if any partial withdrawal decreases the Annuity Account
Value to less than $1,000, the Company reserves the right to cancel the contract
and pay to the Owner an adjusted value of the Annuity Account as would be
calculated under the "Determination of Amount" provision. The Company will,
however, provide at least 30 days advance notice to the Owner of its intended
action. During the notification period an additional Premium Payment may be made
to meet the minimum value requirements.
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS
OWNER. The Owner on the Date of Issue will be the person designated in the
Contract Specifications. If no Owner is designated, the Annuitant(s) will be the
Owner.
RIGHTS OF OWNER. The Owner may exercise all rights and privileges under the
contract including the right to: (a) agree with the Company to any change in or
amendment to the contract, (b) transfer all rights and privileges to another
person, (c) change the Beneficiary, (d) change the Annultant(s) any time prior
to the Annuity Date or name a new Annuitant if the Annuitant, or one of the
Annuitants named under a joint life annuity, predeceases the Owner, (e) name the
payee to whom Income Payments are to be directed, and (f) assign the contract.
All rights and privileges of the Owner may be exercised without the consent of
any designated transferee, or any Beneficiary if the Owner has reserved the
right to change the Beneficiary. All such rights and privileges, however, may be
exercised only with the consent of any assignee on record with the Company.
TRANSFER OF OWNERSHIP. The Owner may transfer all rights and privileges of the
Owner. On the effective date of transfer, (a) the transferee will become the
Owner and will have all the rights and privileges of the Owner, and (b) the
amount of Death Benefit applicable under the contract will change as set forth
under the "Amount of Death Benefit" provision. The Owner may revoke any transfer
prior to its effective date.
Unless provided otherwise, a transfer will not affect the interest of any
Beneficiary designated prior to the effective date of the transfer.
A transfer of Ownership, or a revocation of transfer, must be in writing to the
Company at its administrator mailing address located on the front cover of this
contract. A transfer or a revocation will not take effect until recorded in
writing by the Company at its administrator mailing address located on the front
cover of this contract. When a transfer or revocation has been so recorded, it
will take effect as of the effective date specified by the Owner. Any payment
made or any action taken or allowed by the Company before the transfer or the
revocation is recorded will be without prejudice to the Company.
ASSIGNMENT. The Company will not be affected by any assignment of the contract
until the original assignment or a certified copy of the assignment is filed
with the Company at its administrator mailing address located on the front cover
of this contract.
AN425
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<PAGE>
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS (CONTINUED)
The Company does not assume responsibility for the validity or sufficiency of
any assignment. An assignment of the contract will operate so long as the
assignment remains in force.
To the extent provided under the terms of the assignment, an assignment will
transfer the interest of any designated transferee or of any Beneficiary if the
Owner has reserved the right to change the Beneficiary.
BENEFICIARY. The Beneficiary is the person who has the right to receive the
Death Benefit set forth in the contract and, for Non-Qualified Contracts, who is
the "designated beneficiary" for purposes of Section 72(s) of the Internal
Revenue Code in the event of the Owner's death. The Beneficiary on the Date of
Issue will be the person designated in the Contract Specifications.
Unless provided otherwise, the interest of any Beneficiary who dies before the
Owner will vest in the Owner or the Owner's administrators or assigns.
CHANGE OF BENEFICIARY. A new Beneficiary may be designated from time to time. A
request for change of Beneficiary must be in writing to the Company at its
administrator mailing address located on the front cover of this contract. The
request must be signed by the Owner. The request must also be signed by the
Beneficiary if the right to change the Beneficiary has not been reserved to the
Owner.
A change of Beneficiary will not take effect until recorded by the Company.
When a change of Beneficiary has been so recorded, whether or not the Owner
is then alive, it will take effect as of the date the request was signed. Any
payment made or any action taken or allowed by the Company before the change
of Beneficiary is recorded will be without prejudice to the Company.
Unless provided otherwise, the right to change any Beneficiary is reserved to
the Owner.
FIXED AND VARIABLE ACCOUNTS PROVISIONS
FIXED ACCOUNT AND SUB-ACCOUNTS. Fixed Account assets are general assets of the
Company and are distinguishable from those allocated to a separate account of
the Company. Any portion of Premium Payments allocated by the Owner to a Fixed
Account Sub-Account will become part of the Fixed Account.
VARIABLE ACCOUNT AND SUB-ACCOUNTS. The Variable Account to which the variable
accumulation values, if any, under this contract relate is shown in the Contract
Specifications.' It was established pursuant to a resolution of its Board of
Directors as a "separate account" under governing law of Indiana, the Company's
state of domicile, and registered as a unit investment trust under the 1940 Act.
Under Indiana law, the Variable Account assets (except assets in excess of its
reserves and other contract liabilities) cannot be charged with the general
liabilities from any other business of the Company and the income, gains or
losses from the Variable Account assets are credited or charged against the
Variable Account without regard to the income, gains or losses of the Company.
The Variable Account assets are owned and controlled exclusively by the Company,
and the Company is not a trustee with respect to those assets.
The Variable Account is divided into Sub-Accounts. Each Variable Account
Sub-Account's assets are invested in shares of a particular Fund made available
as afunding vehicle under this contract. For each Variable Account Sub- Account,
the Company maintains Variable Accumulation Units whose values reflect the
investment performance of the Fund whose shares are held in that Sub-Account.
Subject to any vote by persons having the right under the 1940 Act to vote
thereon, the Company may elect to operate the Variable Account as a management
company rather than a unit investment trust under the 1940 Act, or, if
registration is no longer required, to deregister the Variable Account. In such
event, the Company may endorse this contract to reflect such change and any
necessary or appropriate action taken to effect the change. Any changes in
Variable Account investment contract shall have been approved by the Indiana
Insurance Commissioner and approved or filed, as required, in the state or other
jurisdiction where this contract was issued.
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<PAGE>
FIXED AND VARIABLE ACCOUNTS PROVISIONS (CONTINUED)
INVESTMENT RISK. Each Variable Account Sub-Account's assets are always fully
invested in the shares of the particular Fund purchased for that Sub-Account.
Each Variable Account Sub-Account's investment performance reflects the
investment performance of the Fund. Fund share values fluctuate, reflecting the
risks of changing economic conditions and the ability of a Fund's investment
advisor or sub-adviser to manage that Fund and anticipate changes in economic
conditions. As to the Variable Account assets, the Owner bears the entire
investment risk of gain or loss.
INVESTMENTS OF THE VARIABLE ACCOUNT SUB-ACCOUNTS. All amounts allocated to a
Variable Account SubAccount will be used to purchase shares of a specific Fund.
The Funds available on the Date of Issue are shown in the Contract
Specifications; more may be subsequently added. The Fund is an open- end
management investment company registered under the Investment Company Act of
1940. Any and all distributions made by the Fund(s) will be reinvested to
purchase additional shares of that Fund at net asset value. Deductions from the
Variable Account Sub-Accounts will, in effect, be made by redeeming a number of
Fund shares at net asset value equal in total value to the amount to be
deducted. Assets of Variable Account Sub-Accounts will be fully invested in Fund
shares at all times.
SUBSTITUTED SECURITIES. Shares corresponding to a particular Fund may not always
be available for purchase or the Company may decide that further investment in
such Fund is no longer appropriate in view of the purposes of the Variable
Account, or in view of legal, regulatory or federal income tax restrictions. In
such event, shares of another registered open-end investment company or unit
investment trust may be substituted both for Fund shares already purchased
and/or as the securities to be purchased in the future, provided that these
substitutions meet applicable Internal Revenue Service diversification
guidelines and have been approved by the Securities and Exchange Commission and
such other regulatory authorities as may be necessary. In the event of any
substitution pursuant to this provision, the Company may make appropriate
endorsement(s) to this contract to reflect the substitution.
CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS
PART A - FIXED ACCOUNT VALUE
GUARANTEED PERIODS. The Initial Guaranteed Period(s), If any, are selected by
the Owner and are shown in the Contract Specifications. The duration of the
Initial Guaranteed Perlod(s) will affect the Initial Guaranteed Interest
Rate(s). Any Premium Payment or the portion thereof (or amount transferred in
accordance with the 'Transfer Privilege" provision described below) allocated to
a particular Guaranteed Period will earn interest at the specified Guaranteed
Interest Rate during the Guaranteed Period. Initial Guaranteed Periods begin on
the date a Premium Payment is accepted (or, in the case of a transfer, on the
effective date of the transfer) and end on the Expiration Date for each duration
selected.
Any portion of the Annuity Account Value comprising a particular Fixed Account
Sub-Account (including interest earned thereon) will be referred to in this
contract as the "Guaranteed Period Amount." As a result of renewals, Subsequent
Payments, and transfers of portions of the Annuity Account Value, Guaranteed
Amounts for Guaranteed Periods of the same duration may have different
Expiration Dates, and each Guaranteed Period Amount will be treated separately
for purposes of determining any Market Value Adjustment.
The Company will send written notice to the Owner by ordinary mail to the most
recent address in the Company's records about the upcoming expiration of a
Guaranteed Period with respect to a Fixed Account Sub-Account at least 60 days
prior to the Expiration Date of such Guaranteed Period. A subsequent Guaranteed
Period of the same duration will begin automatically at the end of the previous
Guaranteed Period unless the Company receives, in writing at its administrator
mailing address located on the front cover of this contract within the 60-day
period immediately preceding the end of such Guaranteed Period, an election by
the Owner of a different Guaranteed Period from among those being offered by the
Company at such time, or instructions to transfer all or a portion of the
applicable Guaranteed Period Amount to one or more Fixed Account or Variable
Account Sub-Accounts in accordance with the "Transfer Privilege" provision.
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GUARANTEED INTEREST RATES. The Company will establish the applicable Guaranteed
Interest Rate that will be used to determine the interest with respect to a
Fixed Account Sub-Account for each Guaranteed Period at the beginning of the
Guaranteed Period. This rate will be guaranteed for the duration of the
applicable Guaranteed Period. The Initial or Subsequent Guaranteed Interest Rate
will never be less than 3% per year, compounded annually. Subsequent Guaranteed
Interest Rate(s) will also be determined at the beginning of Guaranteed
Period(s) and may be higher or lower than the previous rate, but will never be
less than 3% per year, compounded annually. (See "Minimum Surrender Value"
provision.)
FIXED ACCUMULATION VALUE. Upon receipt of a Premium Payment by the Company at
its administrator mailing address located on the front cover of this contract,
all or that portion, if any, of the Premium Payment which is allocated to the
Fixed Account will be credited to the Fixed Account and allocated to the Fixed
Account Sub- Accounts selected by the Owner. The Fixed Accumulation Value, if
any, at any time, is equal to the sum of the then current values of all
Guaranteed Period Amounts with respect to this contract.
MINIMUM SURRENDER VALUE. The Minimum Surrender Value for the Fixed Account for a
given contract yonr is the Premium Payment(s), or portion thereof, and transfers
allocated to the Fixed Account accumulated at 3% per year, compounded annually,
less the deduction of the applicable withdrawal charge(s), any prior withdrawals
or transfers out of the Fixed Account, premium taxes, if any, and applicable
Annuity Account Fee(s).
PART B - VARIABLE ACCOUNT VALUE
ACQUISITION AND REDEMPTION OF VARIABLE ACCUMULATION UNITS. Any dollar amounts
allocated to a Variable Account Sub-Account shall be converted into Variable
Accumulation Units and credited to the Variable Account Sub-Account on a unit
basis. The number of Variable Accumulation Units into which a dollar amount
would be converted is calculated by dividing the dollar amount by the Variable
Accumulation Unit Value for the particular Sub-Account. Any redemption of units
from a Variable Account Sub-Account will be processed at the end of a Valuation
Period, including any units redeemed to fund a monthly deduction, and shall
result in the redemption and cancellation of Variable Accumulation Units having
an aggregate dollar value equal to the amount of such withdrawal.
VARIABLE ACCUMULATION UNIT VALUE. The Variable Accumulation Unit Value at the
beginning of the first Valuation Period of each Variable Account Sub-Account was
established at $10.00. The Variable Acc1imulation Unit value in any later
Valuation Period is equal to the net asset value per unit of the particular
Sub-Account as of the end of such Valuation Period.
Variable Accumulation Value. The Variable Accumulation Value of the Annuity
Account, if any, for any Valuation Period is equal to the sum of the value of
all Variable Accumulation Units of each Variable Account Sub-Account credited to
the Variable Account with respect to this contract at the end of such Valuation
Period. The Variable Accumulation Value of each Variable Account Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Variable Account Sub-Account with respect to this contract at
the end of a Valuation Period, by the Variable Accumulation Unit Value of the
particular Variable Account Sub-Account for such Valuation Period.
NET INVESTMENT FACTOR. An index, calculated as described below, that provides a
measure of the investment performance of a Variable Account Sub-Account for each
Valuation Period. The Net Investment Factor is equal to
A+ B-C - E where:
D
A is the net asset value per unit of the Fund held in the Variable Account
Sub-Account (such net asset value being determined as described in the
prospectus for the Fund) as of the end of the Valuation Period;
B is any dividend or other distribution payable with respect to units held
of record during the Valuation Period;
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CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED)
C is the per unit amount of any tax determined by the Company to be
attributable to the operation of the Variable Account Sub-Account during
such Valuation Period;
D is the net asset value of each unit of the Fund as of the close of
business on the Valuation Date immediately preceding the Valuation Period;
and
E is the sum of the Daily M&E Rate plus the Daily Administrative Rate,
multiplied by the number of 24-hour periods included in the Valuation
Period.
The Net Investment Factor may be 1.0 or may be greater or less than 1.0,
reflecting the possibility that the Variable Accumulation Unit Value of a
particular Variable Account Sub-Account may remain the same, increase or
decrease.
PART C - GENERAL
ANNUITY ACCOUNT. The Company will establish an Annuity Account under the
contract and will maintain the Annuity Account during the Accumulation Period.
The Annuity Account Value at any time equals the sum of all the then current
values of the Fixed and Variable Accounts with respect to this contract.
TRANSFER PRIVILEGE. At any time during the Accumulation Period, other than
during the "Right to Examine Contract" period, the Owner may transfer all or
part of the Annuity Account Value to one or more of the Fixed or Variable
Account Sub-Accounts then available under the contract, subject to the
provisions set forth below. Transfers may be made in writing or by telephone, if
telephone transfers have been previously authorized in writing. Transfer
requests must be received at the administrator mailing address located on the
front cover of this contract prior to the time of day set forth in the
prospectus, and provided the New York Stock Exchange is open for business, in
order to be processed as of the close of business on the date the request is
received; otherwise, the transfer will be processed on the next business day the
New York Stock Exchange is open for business. The Company will not be held
legally responsible for (a) any liability for acting in good faith upon any
transfer instructions given by telephone, or (b) the authenticity of such
instructions.
Transfers involving Variable Account Sub-Accounts will reflect the purchase or
cancellation of Variable Accumulation Units having an aggregate value equal to
the dollar amount being transferred to or from a particular Variable Account
Sub-Account. The purchase or cancellation of such units shall be made using
Variable Accumulation Unit Values of the applicable Variable Account Sub-Account
at the end of the Valuation Period for which the transfer is effective.
Transfers to a Fixed Account Sub-Account will result in a new Guaranteed Period
for the amount being transferred. Any such Guaranteed Period will begin on the
effective date of the transfer. The amount transferred into such Fixed Account
Sub-Account will earn interest at the Guaranteed Interest Rate declared by the
Company for that Guaranteed Period as of the effective date of the transfer.
Transfers shall be subject to the following conditions: (a) Not more than 12
transfers may be made per Contract Year (including the frequency limitation
shown in the Contract Specifications with respect to transfers from the Fixed
Account), unless otherwise authorized in writing by the Company; (b) No
withdrawal charge will be imposed on transferred amounts, however, transfers of
all or a portion out of a Fixed Account Sub-Account may be subject to the Market
Value Adjustment set forth below unless such transfer is made in accordance with
the "Full or Partial Withdrawals and Transfers at the End of a Guaranteed
Period" provision; (c) The amount being transferred may not be less than $100
unless the entire value of the Fixed or Variable Account Sub-Account is being
transferred; (d) The amount being transferred may not exceed the Company's
maximum amount limit then in effect; (e) The amount transferred to any Fixed
Account SubAccount may not be less than $2,000, or $100 to a Variable Sub-
Account; (f) Unless a transfer out of a Fixed Account Sub-Account is made in
accordance with the "Full or Partial Withdrawals and Transfers at the End of a
Guaranteed Period" provision, the amount transferred from each Fixed Account
Sub-Account during any contract year may not exceed the limits shown in the
Contract Specifications; (g) Any value remaining in a Fixed Account Sub-Account
may not be less than
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CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED)
$2,000, or a Variable Account Sub-Account may not be less than $50; (h) The
Company reserves the right to defer transfers of amounts from the Fixed Account
for a period not to exceed six months from the date the request for such
transfer is received by the Company in writing or by telephone, if such has been
previously authorized, at its administrator mailing address located on the front
cover of this contract; and (1) Transfers involving Variable Account
Sub-Account(s) shall be subject to such terms and conditions as may be imposed
by the Funds.
TRANSFER FEE. The Company reserves the right to charge a fee up to $10 for each
transfer prior to the Annuity Date if there have been more than twelve transfers
made in the Contract Year.
ANNUITY ACCOUNT FEE. Prior to the Annuity Date, on the anniversary date of each
Contract Year the Company will deduct from the value of the Annuity Account the
annual Annuity Account Fee, if any, shown in the Schedule of Charges, Expenses
and Fees to reimburse it for administrative expenses relating to the Annuity
Account. The Annuity Account Fee will be deducted on a pro rata basis from
amounts allocated to each Fixed and Variable Account Sub-Account in which the
Annuity Account values are invested at the time of such deduction. If the
Annuity Account Is surrendered for Its full value, the Annuity Account Fee will
be deducted in full at the time of such surrender. On the Annuity Date the value
of the Annuity Account will be reduced by a proportionate amount of the Annuity
Account Fee to reflect the time elapsed between the last valuation date of the
most recent Contract Year and the day before the Annuity Date.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET
VALUE ADJUSTMENT PROVISIONS
CASH WITHDRAWALS. At any time before the Annuity Date, the Owner may elect to
receive a cash withdrawal payment from the Company by filing with the Company at
its administrator mailing address located on the front cover of this contract a
written election in such form as the Company may require. Any such election
shall specify the amount of the withdrawal and will be effective on the date
that it is received at the Company's administrator mailing address located on
the front cover of this contract. Any cash withdrawal payment will be paid
within seven days of the Company's receipt of such request, except as the
Company may be permitted to defer the payment of amounts withdrawn from the
Variable Account in accordance with the Investment Company Act of 1940. The
Company reserves the right to defer the payment of amounts withdrawn from the
Fixed Account for a period not to exceed six months from the date written
request for such withdrawal is received by the Company at its administrator
mailing address located on the front cover of this contract.
The amount of the cash withdrawal payment may be for any amount not to exceed
the Annuity Account Value at the end of the Valuation Period during which the
election becomes effective, plus or minus any applicable Market Value
Adjustment, and less any applicable withdrawal charge and premium taxes. In the
case of a full surrender, the Annuity Account will be canceled and the contract
will terminate. A partial withdrawal will result in a decrease in the Annuity
Account Value by an amount with an aggregate dollar value equal to the dollar
amount of the cash withdrawal payment, plus or minus any applicable Market Value
Adjustment, any applicable withdrawal charge and premium taxes.
In the case of a partial withdrawal, the Owner must instruct the Company as
to the amounts to be withdrawn from each Fixed and/or Variable Account
Sub-Account. If not so instructed, the Company will effect such withdrawal
from each Fixed and/or Variable Sub-Account in proportion to the then current
Sub-Account values. Partial withdrawals cannot reduce any Fixed Account
Sub-Account below $2,000 or any Variable Account Sub-Account below $50. Such
partial withdrawals will be treated as a full surrender of that SubAccount
and the balance will be transferred to the largest Variable Account
Sub-Account, if any. Partial withdrawals may not reduce the total Annuity
Account Value below $1,000. (See "Minimum Value Requirements" provision.)
Such partial withdrawals may be treated as a full surrender.
Cash withdrawals from a Variable Account Sub-Account will result in the
cancellation of Variable Accumulation Units attributable to the Annuity Account
with an aggregate value on the effective date of the withdrawal equal to the
total amount by which the Variable Account Sub-Account is reduced. The
cancellation of such units will be based on the Variable Accumulation Unit
values of the Variable Account Sub-Account at the end of the Valuation Period
during which the cash withdrawal is effective.
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CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET
VALUE ADJUSTMENT PROVISIONS (CONTINUED)
All cash withdrawals or transfers of any portion of Fixed Account Sub-Accounts,
except those specified otherwise under "Penalty-Free Withdrawals, Transfers and
Annuitization Provisions," will be subject to the Market Value Adjustment
described below.
WITHDRAWAL CHARGES. if a cash withdrawal is made, a withdrawal charge may be
assessed by the Company. The length of time between the Company acceptance of
the Premium Payment(s) and the receipt of a withdrawal request determines the
withdrawal charge. For this purpose each withdrawal is deemed to represent a
withdrawal of a Premium Payment previously accepted (or a portion thereof).
Premium Payments will be deemed to have been withdrawn in the order in which the
Premium Payments were received by the Company (i.e., oldest premium first).
After all Premium Payments have been deemed withdrawn, the Company will deem
further withdrawals to be from net investment results attributable to such
Premium Payments, if any. The schedule of withdrawal charges is set forth in the
"Schedule of Charges, Expenses and Fees." On withdrawal, any applicable Annuity
Account Fee and Market Value Adjustment will be deducted before application of
any withdrawal charge.
Withdrawal charges are deducted proportionately from the Fixed and/or Variable
Account Sub- Account(s) from which the withdrawal is to be made, provided such
Sub-Account(s) have sufficient account value(s) for making such deduction(s). If
any of the account value(s) of such Sub-Account(s), however, are insufficient,
its remaining withdrawal charges will be deducted on a pro rata basis from all
Fixed and/or Variable Account Sub-Accounts in proportion to the then current
account value(s) of Such Sub-Account(s).
See "Penalty-Free Withdrawals, Transfers and Annuitization Provisions" for
situations in which a withdrawal charge is not imposed.
For the purpose of any qualified plan riders which may be attached to this
contract, the term "Surrender Charge" wherever referenced therein, shall mean
"withdrawal charge" as set forth above.
MARKET VALUE ADJUSTMENT. Any cash withdrawal or transfer from a Fixed Account
Sub-Account, except those specified otherwise under the "Penalty-Free
Withdrawals, Transfers and Annultization Provisions," will be subject to a
Market Value Adjustment.
The amount payable on such cash withdrawal or transfer may be adjusted up or
down by the application of the Market Value Adjustment. The Index Rate Factor
applicable to the amount of such cash withdrawal or transfer is:
where:(1 +A)N
-------
(1 + B)N
A = an Index Rate (based on the Treasury Constant Maturity Series published by
the Federal Reserve) for a security with time to maturity equal to the
applicable Guaranteed Period, determined at the beginning of the Guaranteed
Period.
B = an Index Rate (based on the Treasury Constant Maturity Series published by
the Federal Reserve) for a security with time to maturity equal to the
applicable Guaranteed Period, determined at the time of cash withdrawal or
transfer, plus the percentage adjustment to "B" as shown in the Contract
Specifications. If Index Rates "N' and "B" are within .25% of each other when
the Index Rate Factor is determined, no such percentage adjustment to "B" will
be made.
N = The number of years remaining in the applicable Guaranteed Period (e.g. 1
year and 73 days = 1 + (73 divided by 365) = 1.2 years)
Straight-line interpolation is used for periods to maturity not quoted.
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PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS
PENALTY-FREE PARTIAL WITHDRAWALS OR TRANSFERS. Upon request in writing, the
Owner may, during any Contract Year prior to the Annuity Date, withdraw up to
15% of the Premium Payment(s) or portion remaining thereof, without incurring a
withdrawal charge. For this purpose each withdrawal is deemed to represent a
withdrawal of a portion of a Premium Payment previously accepted. Premium
Payments will be deemed to be withdrawn in the order in which they were received
by the Company (i.e., the oldest premium first). Any such withdrawal from a
Fixed Account Sub-Account may be subject to a Market Va!ue Adjustment unless the
withdrawal is made at the end of a Guaranteed Period as set forth below. The
Owner must specify from which Fixed and/or Variable Account Sub-Accounts the
withdrawal is to be made, otherwise the Company may effect such withdrawal on a
proportionate basis from all Fixed and/or Variable Account Sub-Accounts in which
the Annuity Account is invested.
Such partial withdrawals may be either taken as a lump sum or, upon consent of
the Company, paid in equal installments.
No withdrawal charge will be imposed on any withdrawal with respect to a Premium
Payment after the end of the seventh year following the Company's acceptance of
that Premium Payment.
The Owner may also transfer amounts within the Annuity Account during the
Accumulation Period without the application of a withdrawal charge, however, any
transfers would be subject to any terms and conditions as may be imposed under
the "Transfer Privilege" provision.
FULL OR PARTIAL WITHDRAWALS AND TRANSFERS AT THE END OF A GUARANTEED PERIOD. No
Market Value Adjustment will be imposed on a full or partial withdrawal or
transfer made from a Fixed Account SubAccount which becomes effective at the end
of the applicable initial or subsequent Guaranteed Period. In such event, the
Owner's proper request for withdrawal or transfer must be received at the
Company's administrator mailing address located on the front cover of this
contract within a 45-day period immediately preceding the end of such Guaranteed
Period.
WAIVER OF WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT ON DEATH OR ANNUITY
DATE. No withdrawal charge or Market Value Adjustment will be imposed upon
payments made under the Annuity Benefit or Death Benefit provisions of this
contract.
PENALTY-FREE ANNUITIZATION. At any time the Owner may request in writing payment
of the then current Annuity Account Value in accordance with any one of the
settlement options set forth in this contract. In such event, no withdrawal
charge or Market Value Adjustment will be imposed at the time such settlement is
made. Such annuitization will automatically result in a change in the Annuity
Date to the date Income Payments commence under the settlement option elected.
BENEFIT PROVISIONS
ANNUITY BENEFIT. On the Annuity Date the Company will pay all or a part of the
adjusted value of the Annuity Account (as set forth below) in cash or apply ft
in accordance with the settlement option(s) elected by the Owner. However, if
the amount to be applied under any settlement option is less than $5,000, or if
the first Income Payment payable in accordance with such option is less than
$50, the Company will pay the adjusted value in a single payment to the payee
designated by the Owner.
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BENEFIT PROVISIONS (CONTINUED)
ANNUITY DATE. The Annuity Date selected by the Owner is shown in the Contract
Specifications. The Annuity Date may be changed from time to time by the Owner
by notifying the Company in writing. The notice must be received at the
Company's administrator mailing address located on the front cover of this
contract at least 45 days prior to the Annuity Date then in effect. The new
Annuity Date selected must be at least 30 days after the effective date of the
change and not later than the Annuitant's 90th birthday.
After the Annuity Date, no change of a settlement option is permitted, no
payments may be requested under the "Cash Withdrawals" provision of the
contract, and no Death Benefit is payable under the contract except as otherwise
specified under the settlement option selected.
ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO ANNUITY BENEFIT. During
the lifetime of the Owner and prior to the Annuity Date, the Owner may elect to
have the adjusted value of the Annuity Account applied on the Annuity Date under
one or more of the settlement options set forth in this contract, or under any
other settlement option as agreed to by the Company. The Owner may also change
any election, but any election or change of election must be received at the
Company's administrator mailing address located on the front cover of this
contract at least 45 days prior to the Annuity Date. The election or change of
election may be made by filing with the Company, at Its administrator mailing
address located on the front cover of this contract, written notice in such form
as the Company may require. If no such election is in effect on the 30th day
prior to the Annuity Date, the adjusted value of the Annuity Account will be
applied under a Life Annuity with 120 months guaranteed. In such situation, the
portion of the adjusted value of the Annuity Account to be applied for a Fixed
Life Annuity under the Second Option and/or a Variable Life Annuity under Option
H will be determined on a pro rata basis from the composition of the Annuity
Account on the Annuity Date.
DETERMINATION OF AMOUNT. On the Annuity Date the Annuity Account will be
canceled and the adjusted value of the Annuity Account to be applied under the
settlement options provisions shall be equal to the Annuity Account Value for
the Valuation Period which ends immediately preceding the Annuity Date, minus
any applicable premium or similar tax. For the purposes of any qualified plan
riders which may be attached to this contract, the term "Annuity Value,"
wherever referenced therein, shall mean the "adjusted value of the Annuity
Account" as defined above.
INCOME PAYMENT BENEFITS. On the Annuity Date, the adjusted value of the Annuity
Account as determined under the "Determination of Amount" provision may be
applied, as elected by the Owner, under one or more of the settlement options
set forth in the contract to effect: (a) a Fixed Income Payment Benefit ora
Variable Income Payment Benefit; or (b) a combination of the Fixed Income
Payment Benefit and the Variable Income Payment Benefit. If a combination Fixed
and Variable Income Payment Benefit is elected, the Owner may specify the amount
to be allocated to the Fixed Income Payment Benefit and the amount to be
allocated to the Variable Income Payment Benefit. Such election and allocation
may also be made by a Beneficiary to the extent provided in the "Election and
Effective Date of Election with Respect to Death Benefit Provision."
DEATH BENEFIT. If the Owner dies before the Annuity Date, the Company will pay
the Death Benefit to the Beneficiary upon receipt of due proof of the death of
the Owner In accordance with the "Payment of Death Benefit" provision. If there
is no designated Beneficiary living on the date of death of the Owner, the
Company will pay the Death Benefit, upon receipt of due proof of the death of
both the Owner and the designated Beneficiary, in one sum to the estate of the
Owner.
ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO DEATH BENEFIT. During
the lifetime of the Annuitant and prior to the Annuity Date, the Owner may elect
one or more of the settlement options set forth in this contract to effect an
annuity for the Beneficiary as payee after the death of the Owner. This election
may be made or subsequently revoked by filing with the Company at its
administrator mailing address located on the front cover of this contract a
written election or revocation of an election in such form as required by the
Company.
Any election or revocation of an election of a method of settlement of the Death
Benefit will become effective on the date it is received by the Company at Its
administrator mailing address located on the front cover of this contract.
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Unless otherwise specified in writing by the Owner, the Beneficiary may elect
(a) to receive the Death Benefit as a cash payment, in which event the Annuity
Account will be canceled, or (b) to have the Death Benefit applied under one or
more of the settlement options set forth under the contract. This election may
be made by filing with the Company a written request in a form as required by
the Company. Any written request for an election of a settlement option for the
Death Benefit by the Beneficiary will become effective on the later of (a) the
date the request is received by the Company at Its administrator mailing address
located on the front cover of this contract; or (b) the date due proof of the
death of the Owner is received by the Company at its administrator mailing
address located on the front cover of this contract. If a written request for a
settlement option by the Beneficiary is not received by the Company within 60
days following the date due proof of the death of the Owner is received by the
Company, the Beneficiary shall be deemed to have elected a cash payment as of
the last day of the 60-day period.
Notwithstanding the above, the Owner or Beneficiary may only elect a settlement
option which provides for the distribution of the entire Death Benefit to the
Beneficiary within five years of the Owner's death unless; (a) the entire
interest in the contract is distributed over the life of the Beneficiary, with
distributions beginning within one year of the Owner's death; (b) the entire
interest in the contract is distributed over a period not extending beyond the
life expectancy of the Beneficiary, with distributions beginning within one year
of the Owner's death; or (c) the Beneficiary is the deceased Owner's spouse and
elects to continue the contract and become the new Owner, but in no event may
such an election be made under this contract more than once.
For purposes of Section 72(s) of the Internal Revenue Code, if any Owner is not
an individual, the death or change of any Annuitant is treated as the death of
an Owner, and if the Owner is grantor trust within the meaning of the Internal
Revenue Code, the death of the grantor of such trust is also treated as the
death of an Owner.
PAYMENT OF DEATH BENEFIT. If the Death Benefit is to be paid in cash to the
Beneficiary, payment will be made within 7 days of the date the election becomes
effective or is deemed to become effective, provided due proof of the death of
the Owner is received by the Company at its administrator mailing address
located on the front cover of this contract, except as the Company may be
permitted to defer any such payment of amounts derived from the Variable Account
in accordance with the Investment Company Act of 1940. If the Death Benefit is
to be paid in one sum to the estate of the deceased Owner, payment will be made
within 7 days of the date due proof of the death of the Owner and/or Beneficiary
is received by the Company at its administrator mailing address'located on the
front cover of this contract, except as the Company may be permitted to defer
any such payment of amounts derived from the Variable Account in accordance with
the Investment Company Act of 1940. If settlement under the settlement option
provisions is elected, the Income Payments will commence 30 days following the
effective date or the deemed effective date of the election and the Annuity
Account will be maintained in effect until such Income Payments commence.
AMOUNT OF DEATH BENEFIT. The Death Benefit is determined as of the effective
date or deemed effective date of the Death Benefit election and is equal to the
greatest of (a) the Annuity Account Value for the Valuation Period during which
the Death Benefit election is effective or is deemed to become effective, (b)
the sum of all the Premium Payment(s) made under the contract less the sum of
all partial withdrawals, or (c) the highest Annuity Account Value ever attained
on a Contract Anniversary date, occurring on or before the Owner's 80th birthday
(or the Annuitant's 80th birthday in the case of a non-natural Owner), with
adjustments for any subsequent Premium Payments, partial withdrawals and charges
made since such Contract Anniversary Date. However, the Death Benefit on or
after the Owner's 90th birthday (if a natural person) will be the greater of the
sum of all the Premium Payment(s) with adjustments for any partial withdrawals
and charges made under the contract since the Date of Issue or the Annuity
Account Value for the Valuation Period during which the Death Benefit election
is effective or is deemed to become effective.
On and after the effective date of each transfer of Ownership, the Amount of
Death Benefit will be equal to the greatest of 1) the sum of Premium Payments
made prior to the date of such transfer of Ownership,
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BENEFIT PROVISIONS (CONTINUED)
less the sum of all withdrawals made on or before the effective date of such
transfer, plus the sum of all Premium Payments made on or after the effective
date of such transfer, less the sum of all partial withdrawals made on or after
the effective date of such transfer, 2) the Annuity Account Value for the
Valuation Period during which the Death Benefit election is effective or is
deemed to become effective, or 3) the highest Annuity Account Value ever
attained on a Contract Anniversary date occurring on or after the date of such
transfer of Ownership, with adjustments for any subsequent Premium Payments,
partial withdrawals and charges made since such Contract Anniversary Date.
SECTION 72(s). The provisions above will be interpreted so as to comply with the
requirements of Section 72(s) of the Internal Revenue Code.
GENERAL PROVISIONS
THE CONTRACT. The contract constitutes the entire contract between the parties.
Only the President, a Vice President, an Assistant Vice President, a Secretary,
a Director or an Assistant Director of the Company may make or modify this
contract.
The contract is executed at the administrator mailing address located on the
front cover of this contract.
MODIFICATION OF CONTRACT. The Company reserves the right to modify this contract
to meet the requirements of applicable state and federal laws or regulations.
The Company will notify the Owner in writing of any changes.
NON-PARTICIPATION. The contract is not entitled to share in surplus
distribution.
LOANS. Loans are not permitted under this contract.
Determination of Values. The method of determination by the Company of the Net
Investment Factor and the number and value of Accumulation Units and Annuity
Units shall be conclusive upon the Owner, and any Beneficiary or payee.
ENDORSEMENT OF INCOME PAYMENTS. The Company will make each Income Payment at the
administrator mailing address located on the front cover of this contract by
check. Each check must be personally endorsed by the payee/Annuitant, or the
Company may require that proof of the payee/Annuitant's survival be furnished.
MISSTATEMENT OF AGE. If the age of an Annuitant is misstated, the amount payable
under the contract will be adjusted to be the amount of Income which the actual
premium paid would have purchased for the correct age according to the Company's
rates in effect on the Date of Issue. Any overpayment by the Company, with
interest at the rate of 6% per year, compounded annually, will be charged
against the payments to be made next succeeding the adjustment. Any underpayment
by the Company will be paid in a lump sum, with interest at the rate of 6% per
year, compounded annually.
CLAIMS OF CREDITORS. To the extent permitted by law, no amounts payable under
this contract will be subject to the claims of creditors of any payee.
PERIODIC REPORTS. At least once each calendar year, the Company will furnish the
Owner a report as required by law showing the Annuity Account Value at the end
of the preceding year, all transactions during the year, the current Annuity
Account Value, the number of Accumulation Units in each Variable Accumulation
Account, the applicable Accumulation Unit Value as of the date of the report and
the interest rate credited to the Fixed Account Sub-Account(s). The Company will
also send such statements reflecting transactions in the Annuity Account as may
be required by applicable laws, rules and regulations.
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THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Flexible Payment Deferred Variable Annuity Contract
With Fixed and Variable Accounts - Non-Participating
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OPTIONAL METHODS OF SETTLEMENT
This rider is made part of the contract to which it is attached as of the Date
of Issue. Upon written request, the Company will agree to pay in accordance with
any one of the options shown below all or part of the net proceeds that may be
payable under the contract.
While the Owner is alive, the request, including the designation of the payee,
may be made by the Owner. At the time a Death Benefit becomes payable under the
contract, the request, including the designation of the payee, may then be made
by the Beneficiary. Once Income Payments have begun, no surrender of the Annuity
Account Value can be made and the Annuitant(s) cannot be changed, nor can the
settlement option be changed.
ANNUITY DATE. The Annuity Date is the date on which the contract is annuitized.
This definition replaces the definition of Annuity Date under the Definitions
section of the contract to which this rider is attached.
PAYMENT DATES. The Income Payment Date shall be the date on which the Owner is
entitled to the Income Payment. Income Payments may be received monthly,
quarterly, semi-annually, or annually. If the Income Payment is a 100% Fixed
Income Payment, the first Income Payment Date under the settlement option
selected will be at least 30 days after the Annuity Date as selected by the
Owner. If the Income Payment is in any part a Variable Income Payment, the first
Income Payment Date under the settlement option selected will be 14 days after
the Valuation Period which ends immediately preceding the Annuity Date as
selected by the Owner. Subsequent payments will be made on the same day of the
month as the first Income Payment Date in accordance with the manner of payment
selected (monthly, quarterly, semi-annually, annually). The valuation of all
subsequent Variable Income Payments will be made at the end of the Valuation
Period that is 14 days prior to the Variable Income Payment Date.
MINIMUM PAYMENT AMOUNT. The settlement option elected must result in an Income
Payment per Sub-Account of at least $50 and/or a Fixed Income Payment of at
least $50. If at any time this minimum is not met, the Company has the right to
change the frequency to an interval that will provide the minimum required. If
any amount due is less than the minimum per year, the Company may make other
arrangements that are equitable.
EVIDENCE OF SURVIVAL. The Company has the right to ask for proof that the
Annuitant(s) on whose life the Income Payment is based is alive on each Income
Payment Date.
PROOF OF AGE. Commencement of Income Payments will be subject to proof of age,
acceptable to the Company, such as a certified copy of a birth certificate.
FIXED INCOME OPTIONS
FIXED INCOME PAYMENTS. Fixed Income Payments will remain level pursuant to the
terms of the fixed settlement option(s) selected. The amount of the Fixed Income
Payment shall be determined in accordance with the terms of the settlement
option, the Annuitant(s) settlement age and gender, and the table of Annuity
Purchase Rates Under A Fixed Income Option set forth in this rider, as
applicable. The mortality table used is the 1983 'a' Individual Annuitant
Mortality Table, modified, with a 3% interest rate. In determining the Fixed
Income Payment, the Annuitant's settlement age will be adjusted according to the
Age Adjustment Table set forth in this rider.
FIRST OPTION: LIFE ANNUITY. An annuity which provides annuity payments during
the lifetime of the Annuitant, ceasing with the last payable due prior to the
death of the Annuitant.
SECOND OPTION: LIFE ANNUITY WITH CERTAIN PERIOD An annuity which provides
annuity payments during the lifetime of the Annuitant and further provides that
if at the death of the Annuitant payments have been made for less than the
elected certain period, which may be 120 or 240 months, the annuity payments
will continue for the remainder of elected certain period.
THIRD OPTION: CASH REFUND LIFE ANNUITY. An annuity which provides annuity
payments during the lifetime of the Annuitant, ceasing with the last payment
due prior to the death of the Annuitant, with the guarantee that upon the
death of the Annuitant, if: (a) the total dollar amount applied to purchase
this Fixed Income Payment option is greater than; (b) the Fixed Income
Payment multiplied by the number of Income Payments paid prior to death; then
a refund payment equal to the dollar amount of (a) minus (b) will be made
after the death claim is approved by the Company for payment and the Company
is in receipt of. (a) proof of death acceptable to the Company; (b) written
authorization for payment; and (c) all claim forms, fully completed.
OMS99
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FOURTH OPTION: JOINT LIFE ANNUITY. An annuity which provides annuity payments
during the joint lifetime of the Annuitant and a Joint Annuitant, ceasing with
the last payment due prior to the last death of the joint annuitants.
FIFTH OPTION: JOINT LIFE AND TWO-THIRDS TO SURVIVOR ANNUITY. An annuity which
provides annuity payments during the joint lifetime of the Annuitant and a Joint
Annuitant, with two-thirds of such amount payable during the remaining lifetime
of the survivor and ceasing with the last payment due prior to the last death of
the joint annuitants.
SIXTH OPTION: JOINT LIFE ANNUITY WITH CERTAIN PERIOD. An annuity which provides
annuity payments during the joint lifetime of the Annuitant and a Joint
Annuitant and further provides that if after the death of both Annuitants
payments have been made for less than the elected certain period, which may be
120 or 240 months, the annuity payments will continue for the remainder of
elected certain period.
SEVENTH OPTION: JOINT LIFE AND TWO-THIRDS TO SURVIVOR ANNUITY WITH CERTAIN
PERIOD. An annuity which provides annuity payments during the joint lifetime of
the Annuitant and a Joint Annuitant, with two-thirds of such amount payable
during the remaining lifetime of the survivor, further providing that should one
or both the Annuitants die during the elected certain period, which may be 120
or 240 months, the full benefit payment will continue for the remainder of the
elected certain period.
VARIABLE INCOME OPTIONS
VARIABLE INCOME PAYMENTS. The amount of the first Variable Income Payment shall
be determined in accordance with the terms of the settlement option, the
Annuitant(s) settlement age and gender, and the table of Annuity Purchase Rates
Under A Variable Income Option set forth in this rider, as applicable. The
mortality table used is the 1983 'a' Individual Annuitant Mortality Table,
modified, with a 4% assumed interest rate. In determining the first Variable
Income Payment, the Annuitant's settlement age will be adjusted according to the
age adjustment table set forth in this rider.
The first Variable Income Payment is sub-divided into components each of which
represents the product of'. (a) the percentage elected by the Owner of a
specific Sub-Account the performance of which will determine future Variable
Income Payments, and (b) the entire first Variable Income Payment. On the
Annuity Date, the Contract is credited with Annuity Units for each Sub-Account.
The number of Annuity Units credited is computed by dividing the component of
the first Variable Income Payment attributable to a specific Sub-Account by the
Annuity Unit value for that Sub-Account. Each Variable Income Payment after the
first attributable to a specific Sub-Account will be determined by multiplying
the Annuity Unit value at the end of the Valuation Period that is 14 days prior
to the Variable Income Payment Date for the Sub-Account by a constant number of
Annuity Units. The total Variable Income Payment will be the sum of the payments
attributable to each Sub-Account.
The number of Annuity Units of each Sub-Account remains fixed unless an exchange
of Annuity Units is made pursuant to the "Exchange of Variable Annuity Units"
section. The dollar amount of each Variable Income Payment after the first may
increase, decrease or remain level.
ANNUITY UNIT VALUE. The Annuity Unit Value for each Sub-Account was arbitrarily
established at the inception of the Sub-Account. The Annuity Unit Value for the
particular Sub-Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor for the
current Valuation Period and then multiplying that product by a factor to
neutralize the assumed interest rate of 4% per year to establish the Annuity
Purchase Rates Under A Variable Income Option set forth in this rider. The
factor is 0.9998926 for a one-day valuation period.
EXCHANGE OF VARIABLE ANNUITY UNITS. After the Annuity Date the Owner may, by
filing a written request with the Company at its Home Office, exchange the value
of a designated number of Annuity Units of particular Variable Sub-Accounts then
credited into other Annuity Units, the value of which would be such that the
dollar amount of an Income Payment made on the date of the exchange would be
unaffected by the exchange. Unless otherwise authorized by the Company in
writing, no more than three (3) exchanges may be made in any Contract Year.
Exchanges may only be made among the Variable Sub-Accounts or from the Variable
Sub-Accounts to a Fixed Income Payment. Exchanges shall be made using the
Annuity Unit Values for the Valuation Period during which the request for
exchange is received by the Company at its Home Office.
OPTION 1: VARIABLE LIFE ANNUITY. A variable annuity which provides annuity
payments during the lifetime of the Annuitant, ceasing with the last payment due
prior to the death of the Annuitant.
OMS99
<PAGE>
OPTION II: VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity which
provides annuity payments during the lifetime of the Annuitant and further
provides that if at the death of the Annuitant payments have been made for less
than the elected period certain, which may be 120 or 240 months, the annuity
payments will continue for the remainder of elected period certain.
OPTION III: VARIABLE UNIT REFUND LIFE ANNUITY. A variable annuity which provides
annuity payments during the lifetime of the Annuitant, ceasing with the last
payment due prior to the death of the Annuitant, with the guarantee that upon
the death of the Annuitant, if. (a) the number of Annuity Units initially
purchased (determined by dividing the total dollar amount applied to purchase
this Variable Income Payment option by the Annuity Unit value on the Valuation
Period which ends immediately preceding the Annuity Date) is greater than; (b)
the number of Annuity Units paid as part of each Variable Income Payment
multiplied by the number of Income Payments paid prior to death; then a refund
payment equal to the number of Annuity Units determined by (a) minus (b) will be
made. The refund payment value will be determined using the Annuity Unit value
on the Valuation Date on which the death claim is approved by the Company for
payment after the Company is in receipt of: (a) proof of death acceptable to the
Company; (b) written authorization for payment; and (c) all claim forms, fully
completed.
OPTION IV: VARIABLE JOINT LIFE ANNUITY. A variable annuity which provides
annuity payments during the joint lifetime of the Annuitant and a Joint
Annuitant, ceasing with the last payment due prior to the last death of the
joint annuitants.
OPTION V: JOINT LIFE AND TWO-THIRDS TO SURVIVOR ANNUITY. An annuity which
provides annuity payments during the joint lifetime of the Annuitant and a Joint
Annuitant, with two-thirds of such amount payable during the remaining lifetime
of the survivor and ceasing with the last payment due prior to the last death of
the joint annuitants.
OPTION VI: VARIABLE JOINT LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity
which provides annuity payments during the joint lifetime of the Annuitant and a
Joint Annuitant and further provides that if after the death of both Annuitants
payments have been made for less than the elected period certain, which may be
60, 120, 180 or 240 months, the annuity payments will continue for the remainder
of elected period certain.
OPTION VII: VARIABLE JOINT LIFE AND TWO-THIRDS TO SURVIVOR ANNUITY WITH CERTAIN
PERIOD. A variable annuity which provides annuity payments during the joint
lifetime of the Annuitant and a Joint Annuitant, with two-thirds of such amount
payable during the remaining lifetime of the survivor, further providing that
should one or both the Annuitants die during the elected certain period, which
may be 120 or 240 months, the full benefit payment will continue for the
remainder of the elected period.
ADDITIONAL FIXED AND VARIABLE BENEFIT OPTIONS. Any proceeds payable under the
contract may also be settled under any other method of settlement agreed upon by
the Company at the time of the request.
The Lincoln National Life Insurance Company
A. BOSCIA, PRESIDENT
OMS99
<PAGE>
ANNUITY PURCHASE RATES UNDER A FIXED INCOME OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
<TABLE>
<CAPTION>
SINGLE LIFE ANNUITIES
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
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
71 5.95 5.71 4.98 5.25
72 6.16 5.88 5.04 5.38
73 6.38 6.05 5.09 5.52
74 6.63 6.23 5.14 5.66
75 6.90 6.42 5.19 5.81
</TABLE>
<TABLE>
<CAPTION>
JOINT AND SURVIVOR ANNUITIES
Joint and Full to Survivor Joint and Two-Thirds Survivor
Certain Period Certain Period
Joint
None 120 240 Age None 120 240
<S> <C> <C> <C> <C> <C> <C>
$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
5.18 5.15 4.82 71 5.94 5.70 4.98
5.34 5.30 4.89 72 6.14 5.86 5.03
5.51 5.45 4.96 73 6.35 6.03 5.09
5.69 5.62 5.03 74 6.59 6.20 5.14
5.89 5.79 5.09 75 6.84 6.38 5.18
</TABLE>
Age Adjustment Table
<TABLE>
<CAPTION>
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>
<PAGE>
ANNUITY PURCHASE RATES UNDER A VARIABLE INCOME OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
<TABLE>
<CAPTION>
SINGLE LIFE ANNUITIES
No 120 240
Period Months Months
Age Certain Certain Certain
<S> <C> <C> <C>
60 $4.78 $4.73 $4.56
61 4.87 4.81 4.63
62 4.97 4.90 4.69
63 5.07 5.00 4.75
64 5.19 5.10 4.82
65 5.30 5.21 4.88
66 5.43 5.32 4.95
67 5.57 5.44 5.01
68 5.72 5.56 5.08
69 5.88 5.70 5.14
70 6.05 5.84 5.20
71 6.23 5.99 5.26
72 6.44 6.11 5.31
73 6.66 6.30 5.36
74 6.89 6.47 5.40
75 7.15 6.65 5.44
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
Joint and Full to Survivor Joint and Two-Thirds Survivor
Certain Period Certain Period
Joint
None 120 240 Age None 120
<S> <C> <C> <C> <C> <C>
$4.37 $4.37 $4.34 60 $4.78 $4.74
4.44 4.44 4.40 61 4.88 4.82
4.52 4.51 4.46 62 4.97 4.91
4.60 4.59 4.53 63 5.08 5.00
4.68 4.68 4.60 64 5.19 5.10
4.77 4.77 4.67 65 5.31 5.21
4.87 4.86 4.74 66 5.44 5.32
4.98 4.96 4.82 67 5.57 5.44
5.09 5.07 4.89 68 5.72 5.56
5.21 5.19 4.96 69 5.87 5.69
5.34 5.31 5.04 70 6.04 5.83
5.47 5.44 5.11 71 6.22 5.97
5.62 5.58 5.18 72 6.42 6.12
5.78 5.73 5.24 73 6.62 6.28
5.96 5.88 5.30 74 6.85 6.44
6.14 6.05 5.36 75 7.09 6.61
</TABLE>
<TABLE>
<CAPTION>
Unit
Refund
<S> <C>
$4.56 4.63
4.71
4.78
<PAGE>
4.87
4.95 5.04
5.14
5.24
5.34
5.46 5.57
5.69
5.82
5.96
6.10
240
$4.57
4.63
4.69
4.76
4.82
4.88 4.95
5.01
5.08
5.14
5.20 5.25
5.31
5.36
5.40
5.44
- ----
</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>
OMS99
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PURCHASE RATES UNDER A VARIABLE INCOME OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
<TABLE>
<CAPTION>
SINGLE LIFE ANNUITIES
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $4.78 $4.73 $4.56 $4.56
61 4.87 4.81 4.63 4.63
62 4.97 4.90 4.69 4.71
63 5.07 5.00 4.75 4.78
64 5.19 5.10 4.82 4.87
65 5.30 5.21 4.88 4.95
66 5.43 5.32 4.95 5.04
67 5.57 5.44 5.01 5.14
68 5.72 5.56 5.08 5.24
69 5.88 5.70 5.14 5.34
70 6.05 5.84 5.20 5.46
71 6.23 5.99 5.26 5.57
72 6.44 6.14 5.31 5.69
73 6.66 6.30 5.36 5.82
74 6.89 6.47 5.40 5.96
75 1 7.15 1 6.65 1 5.44 1 6.10
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
Joint and Full to Survivor Joint and Two-Thirds Survivor
Certain Period Certain Period
Joint
None 120 240 Age None 120 240
<S> <C> <C> <C> <C> <C> <C>
$4.37 $4.37 $4.34 60 $4.78 $4.74 $4.57
4.44 4.44 4.40 61 4.88 4.82 4.63
4.52 4.51 4.46 62 4.97 4.91 4.69
4.60 4.59 4.53 63 5.08 5.00 4.76
4.68 4.68 4.60 64 5.19 5.10 4.82
4.77 4.77 4.67 65 5.31 5.21 4.88
4.87 4.86 4.74 66 5.44 5.32 4.95
4.98 4.96 4.82 67 5.57 5.44 5.01
5.09 5.07 4.89 68 5.72 5.56 5.08
5.21 5.19 4.96 69 5.87 5.69 5.14
5.34 5.31 5.04 70 6.04 5.83 5.20
5.47 5.44 5.11 71 6.22 5.97 5.25
5.62 5.58 5.18 72 6.42 6.12 5.31
5.78 5.73 5.24 73 6.62 6.28 5.36
5.96 5.88 5.30 74 6.85 6.44 5.40
6.14 6.05 5.36 75 7.09 6.61 5.44
</TABLE>
Age Adjustment Table
<TABLE>
<CAPTION>
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>
OMS99
<PAGE>
GUARANTEED MINIMUM INCOME PAYMENT RIDER
This rider is attached to and is a part of the contract. Unless changed by this
rider, all definitions, provisions, exclusions, and limitations of the contract
will remain the same and apply to this rider.
GUARANTEED MINIMUM INCOME PAYMENT. If, during any Benefit Option Period
described below, the Annuity Account Value of the contract to which this rider
is attached is applied under a settlement option for a Life Annuity with Certain
Period guaranteed by the contract, this rider will provide a Guaranteed Minimum
Income Payment, regardless of the investment performance of the sub-accounts in
which the Annuity Account Value is invested. Each Income Payment will be the
greater of the Income Payment under the settlement option elected (adjusted for
the rider charge, as explained below) and the Guaranteed Minimum Income Payment
provided by this rider.
If the settlement option elected is a fixed benefit option, the Guaranteed
Minimum Income Payment is calculated by applying the annuity purchase rates in
the contract to the Minimum Calculation Value, which is equal to:
a. the sum of all premium payments accumulated at an annual rate of [6%] from
the date of each premium payment until the Benefit Election Date, minus
b. the sum of all cash withdrawals multiplied by the ratio of the Minimum
Calculation Value just prior to the cash withdrawal to the Annuity Account
Value just prior to the cash withdrawal, and accumulated at an annual rate
of [6%] from the date of each cash withdrawal until the Benefit Election
Date.
If the settlement option elected is a variable benefit option, the Guaranteed
Minimum Income Payment is [80%] of the Guaranteed Minimum Income Payment for the
corresponding fixed benefit option.
BENEFIT OPTION PERIOD. A Benefit Option Period is the 30 day period beginning on
each contract anniversary, except that the first Benefit Option Period begins on
the later of the [10th] contract anniversary after the date of issue of this
rider and the [5th] contract anniversary following the most recent premium
payment. The last Benefit Option Period begins on the contract anniversary
immediately preceding the annuitant's 90th birthday.
BENEFIT ELECTION DATE. The Benefit Election Date is the date we receive the
owner's written request to apply the Annuity Account Value under a settlement
option for a Life Annuity with Certain Period with a Guaranteed Minimum Income
Benefit. The written request must be on a form suitable to the Company and must
be received during a Benefit Option Period.
RIDER ISSUED AFTER CONTRACTS DATE OF ISSUE
If this rider is issued after the contract's Date of Issue, the Guaranteed
Minimum Income Payment will be calculated as though the contract's Date of issue
were the date of issue of this rider, which means:
a. the Annuity Account Value at the end of the valuation period during which
the rider is issued will be treated as the initial premium payment for the
contract on the date of issue of the rider, and
b. the contract anniversary immediately following the date of issue of the
rider will be considered the first contract anniversary for purposes of
determining when Benefit Option Periods will occur.
FRESH START OPTION. The owner may, during the periods described below, request a
Fresh Start for this rider. Under a Fresh Start, this rider will be given a new
date of issue and will be treated as a Rider Issued After Contract's Date of
Issue (see above). The Fresh Start may be requested once during the 30 day
period beginning on each contract anniversary, except that no request may be
made before the [5th] contract anniversary after the date of issue of this rider
nor after the contract anniversary immediately preceding the annuitant's [80th]
birthday. If a written request to exercise this option is received during an
eligible time period, the date of issue of this rider will be changed to the
date the request is received.
RIDER CHARGE. This rider is issued in consideration of payment of the Rider
Charge. During the Accumulation Period of the contract, the Rider Charge is
deducted daily at a rate of 1.00137%] of the Annuity Account Value (which is
equivalent to an annual rate of [.50%] of the contract's average
<PAGE>
Annuity Account Value) in the Variable Account. Similarly, during the Payout
Period of the contract, the daily Net Investment Factor is reduced by [.0000137]
each day. As a result, Income Payments under the settlement option elected will
be lower than what they would be without the rider charge.
GMIPS98
<PAGE>
RIDER TERMINATION. This rider will terminate upon the occurrence of any of the
following: a. termination of the contract for any reason, b. written request of
the owner to terminate the rider.
GMIPS98
<PAGE>
The Lincoln National Life Insurance Company
A. BOSCIA, PRESIDENT
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
AND
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
PA-linc.agr
061198 (6) rr
TABLE OF CONTENTS
DESCRIPTION
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . .2
1.3 No Sales to the General Public. . . . . . . . . . . . . . . . . . . . . .2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . .
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Applicable Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . .
2.5 Book Entry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 3. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . .
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Parties To Cooperate. . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 4. Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . . . .4
4.1 Tax Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.2 Insurance and Certain Other Laws. . . . . . . . . . . . . . . . . . . . .7
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . .8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF . . . . . . . .9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY . . . . . . . 10
Section 5. Mixed and Shared Funding. . . . . . . . . . . . . . . . . . . . . 11
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts. . . . . . . . . . . . 12
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to LIFE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . 14
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Other Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Notice Requirement for Termination. . . . . . . . . . . . . . . . . . .
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PA-IINC.AGR
061198 (6) RR
DESCRIPTION
Section 6.4 Survival of Warranties and Indemnifications. . . . . . . . . . . 16
Section 6.5 Continuance of Agreement for Certain Purposes. . . . . . . . . . 16
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . 17
Section 8. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 10. Voting Procedures. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 11. Foreign Tax Credits. . . . . . . . . . . . . . . . . . . . . . . 18
Section 12. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 12.1 Of AVIF and AIM by LIFE COMPANY. . . . . . . . . . . . . . 18
Section 12.2 Of LIFE COMPANY by AVIF and AIM. . . . . . . . . . . . . . 20
Section 12.3Effect of Notice. . . . . . . . . . . . . . . . . . . . . . 23
Section 12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 14. Execution in Counterparts. . . . . . . . . . . . . . . . . . . . 23
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 16. Rights Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 18. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 19 Trademarks and Fund Names. . . . . . . . . . . . . . . . . . . . 25
Section 20 Parties to Cooperate. . . . . . . . . . . . . . . . . . . . . . . 26
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the _______ day Of ___________ ,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a
Maryland corporation ("AVEF"), A I M Distributors, Inc., a Delaware
corporation ("AIM"), The Lincoln National Life Insurance Company, an Indiana
life insurance company ("LIFE COMPANY"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto
may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and the principal underwriter of the Accounts and the Contracts
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the " 1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the " 1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance policies; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts" or Policies") as
set forth on Schedule A hereto, as the Parties hereto may amend from time to
time, which Contracts, if required by applicable law, will be registered under
the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
PA-IINC.AGR
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Policies; and
WHEREAS, LIFE COMPANY is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
1.1 AVAILABILITY.
SECTION 1. AVAILABLE FUNDS
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund or Fund resulting from a
deletion or modification. Schedule A, as amended from time to time, is
incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
general public.
AVIF represents and warrants that no Shares of any Fund have been or will be
sold to the
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central
Time on each Business Day.
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As used herein, "Business Day" shall mean any day on which (i) the New York
Stock Exchange is open for regular trading and (ii) AVIF calculates the Fund's
net asset value.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; PROVIDED, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value information
(as determined under SEC guidelines), LIFE COMPANY shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting of
net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from purchase
payments, premium payments, surrenders and other transactions under Policies
(collectively, "Policy transactions") and that LIFE COMPANY receives prior to
the close of regular trading on the New York Stock Exchange on a Business Day
will be executed at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the orders. For purposes of
this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for
receipt of orders relating to Policy transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF; PROVIDED that
AVIF receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with Section
2. 1 (b) hereof.
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<PAGE>
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRV.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
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<PAGE>
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVEF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4. 1 (b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVEF or its affiliates as a result of such a failure or
alleged failure:
LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim
(subject to the Confidentiality provisions of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVEF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any liability of
AVEF or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVEF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any Participant or
any other claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a failure or
alleged failure; PROVIDED, however, that LIFE COMPANY will retain
control of the conduct of such conferences discussions, proceedings,
contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the IRS,
any Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation,
any such materials to be SUBMITTED TO THE IRS PURSUANT TO TREASURY
REGULATIONS SECTION 1.817 5(a)(2)), (a) shall be provided by LIFE
COMPANY TO AVIF (TOGETHER WITH ANY supporting information or
analysis); - subject to the confidentiality provisions of Section
18, at least ten (10) business days or such shorter period to which
the Parties hereto agree prior to the day on which such proposed
materials are to be submitted, and (b) shall not be submitted by
LIFE
PA-IINC.AGR
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<PAGE>
COMPANY to any such person without the express written consent of AVEF which
shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accountinc, and legal advisors with such cooperation as AVEF shall
reasonably request (including, without limitation, by permitting AVEF
and its accounting and legal advisors to review the relevant books and
records of LIFE COMPANY) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent of AVEF or its
affiliates, which shall not be unreasonably withheld, PROVIDED that
LIFE COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable basis exists for
taking such appeal; and PROVIDEDFURTHER that the costs of any such
appeal shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of such
failure or alleged failure if LIFE COMPANY fails to comply with any of
the foregoing clauses (i) through (vii), and such failure could be
shown to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVEF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; PROVIDED, that in no event shall LIFE COMPANY have any liability
resulting from AVEFs refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVER As used in this Agreement, the term
of affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY REPRESENTS AND WARRANTS THAT THE CONTRACTS currently are
and will be treated as annuity contracts or life insurance policies under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
PA-IINC.AGR
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<PAGE>
(e) LIFE COMPANY represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. LIFE COMPANY will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing under the laws of the State of Indiana
and has full corporate power, authority and legal right to execute, deliver and
perform its duties and comply with its obligations under this Agreement, (ii) it
has legally and validly established and maintains each Account as a segregated
asset account under Indiana Insurance Law and the regulations thereunder, and
(iii) the Contracts comply in all material respects with all other applicable
federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full power, authority and right to execute, deliver and perform its
duties and comply with its obligations under this agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Indiana law, (iii) each Account is and will remain REGISTERED UNDER THE 1940
ACT, TO THE EXTENT REQUIRED BY THE 1940 ACT, (iv) EACH ACCOUNT DOES AND WILL
COMPLY IN ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE 1940 ACT AND THE
RULES THEREUNDER, to the extent required; (v) each Account's 1933 Act
registration statement relating to the Contracts (to the extent required),
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, (vi)
LIFE COMPANY will amend any registration statement for its Contracts under the
1933 Act and for its Accounts under the 1940 Act from time to time to the
PA-IINC.AGR
061198 (6) RR
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<PAGE>
extent required in order to effect the continuous offering of its Policies or as
may otherwise be required by applicable law, and (vii) each Account Prospectus
will at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIFs 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12-b1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
l2b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(I) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will inunediately notify LIFE COMPANY of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings against AVIF, AIM OR THE
INVESTMENT ADVISER TO AVIF FOR THAT PURPOSE or for any other purpose relating to
the registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law, or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by LIFE COMPANY. AVIF will make every reasonable
effort to prevent the issuance, with respect to any Fund, of any such stop
PA-IINC.AGR
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<PAGE>
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Policies or each Account Prospectus, (ii) any
request by the SEC for any amendment to such registration statement or
Account Prospectus that may affect the offering of Shares of AVIF, (iii) the
initiation of any proceedings for that purpose or for any other purpose
relating to the registration or offering of each Account's interests pursuant
to the Policies, or (iv) any other action or circumstances that may prevent
the lawful offer or sale of said interests in any state orjurisdiction,
including, without limitation, any circumstances in which said interests are
not registered and, in all material respects, issued and sold in accordance
with applicable state and federal law. LIFE COMPANY will make every
reasonable effort to prevent the issuance of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS: INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts and to one (1)
or more Funds, within twenty (20) calendar days of the filing of such document
with the SEC or other regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least ten (10)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Policies other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF or AIM.
(d) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers
PA-FINC.AGR
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<PAGE>
or agents selling the Policies (I.E., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
AVIF nor any of its affiliates shall be liable for any losses, damages or
expenses relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to one (1) or more
Funds, within twenty (20) calendar days of the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY camera ready copies of all AVIF
prospectuses relating to the Funds and printed copies, in an amount specified by
LIFE COMPANY, of AVIF statements of additional information, proxy materials,
periodic reports to shareholders and other materials required by law to be sent
to Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE
COMPANY, as the case may be, to print and distribute such materials within the
time required by law to be furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Policies, at least ten (10) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon. No
such material shall be used if LIFE COMPANY or its designated agent objects to
such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY SHALL RECEIVE ALL such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement,
PA-IINC.AGR
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<PAGE>
including each Account Prospectus contained therein, relating to the Contracts,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in published reports for the Account or the Contracts that are
in the public domain and approved by LIFE COMPANY for distribution; or (iii) in
sales literature or other promotional material approved by LIFE COMPANY or its
affiliates, except with the express written permission of LIFE COMPANY.
(e) AIM shall adopt and implement procedures reasonably designed to ensure
that information concerning LIFE COMPANY, and its respective affiliates that is
intended for use only by brokers or agents selling the Policies (I.E.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither LIFE COMPANY, nor any of its respective
affiliates shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance policies,
separate accounts of insurance companies unaffiliated with LIFE COMPANY, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVER AVIF HEREBY NOTIFIES LIFE
COMPANY THAT AVIF HAS IMPLEMENTED MIXED and SHARED FUNDING AND IT MAY BE
APPROPRIATE to include in the prospectus pursuant to which a Contract is offered
disclosure regarding the potential risks of Mixed and Shared Funding.
PA-IINC.AGR
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<PAGE>
5.2 DISINTERTSTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) of Participants; or a decision by a Participating Insurance Company to
disregard the voting instructions
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SECs requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors, upon their request, with all information reasonably necessary for
the Board of Directors to consider any issue raised, including information as to
a decision by LIFE COMPANY to disregard voting instructions of Participants.
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LIFE COMPANY's responsibilities in connection with the foregoing shall be
carried out with a view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
withdrawing the assets allocable to some or all of the Accounts from AVEF or any
Fund and reinvesting such assets in a different investment medium, including,
but not limited to, another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any particular group (e.g.,
annuity Participants, life insurance Participants or all Participants) that
votes in favor of such segregation, or offering to the affected Participants the
option of making such a change; and
(ii) establishing a new registered investment company of the type defined
as a It management company" in Section 4(3) of the 1940 Act or a new separate
account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVEF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVEF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to LIFE COMPANY conflicts with the
majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVEF within six (6) months after AVIF's Board of
Directors infori-ris LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVEF shall
continue to accept AND IMPLEMENT ORDERS BY LIFE COMPANY FOR THE PURCHASE AND
REDEMPTION of Shares of AVER No charge or penalty will be imposed as a result of
such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
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(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 41(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
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<PAGE>
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the
Fund, upon six (6) months advance written notice to the other parties, or, if
later, upon receipt of any required exemptive relief (i.e., a substitution
order) from the SEC, unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, AIM or the Fund's investment adviser by the NASD, the SEC, or any
state insurance regulator or any other regulatory body regarding AVIF's
obligations under this Agreement or related to the operation or management of
AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to
which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Policies issued or to be issued
by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY REASONABLY BELIEVES that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Policies issued by LIFE COMPANY cease to
qualify as annuity contracts or life insurance policies under the Code (other
than by reason of the Fund's
PA-IINC.AGR
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<PAGE>
noncompliance with Section 817(h) or Subchapter M of the Code) or if
interests in an Account under the Contracts are not registered, where such
registration is required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or upon another
Party's material breach of any provision of this Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6. 1 (a) or 6. 1 (e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6. 1 (b) or 6. 1 (c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6. 1 (d), 6. 1 (f), 6. 1 (g), 6. 1 (h) or 6. 1 (i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the option
of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Policies in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Policies"). Specifically, without limitation, the
owners of the Existing Policies will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Policies. The parties agree that this Section 6.3 will not apply to any
terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6. 1 (b),
6. 1 (c), 6. 1 (d), 6. 1 (f), 6. 1 (g), 6. 1 (h) or 6. 1 (i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the
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<PAGE>
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial
Termination Date, except that LIFE COMPANY may, by written notice shorten
said six (6) month period in the case of a termination pursuant 6. 1 (h) or
6. 1 (0. to Sections 6. 1 (d), 6. 1 (f), 6. 1 (g),
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1 (a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminatincr participation by the Policies in such Fund.
SECTION 8. ASSIGNMENT
other Party.
This Agreement may not be assigned by any Party, except with the written consent
of each
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or pen-nitted by this Agreement will be given
to the following persons at the following addresses and facsimile numbers, or
such other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC. A I M DISTRIBUTORS, INC. 11 Greenway Plaza,
Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin,
Esq.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
1300 S. Clinton Street
Fort Wayne, IN 46802
Facsimile: (219) 455-1773
Attn: Kelly D. Clevenger
Vice President
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SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. Notwithstanding the foregoing, LIFE COMPANY
reserves the right to vote shares held in any Account in its own right, to the
extent permitted by law. LIFE COMPANY shall be responsible for assuring that
each of its Accounts holding Shares calculates voting privileges in a manner
consistent with that of other Participating Insurance Companies or in the manner
required by the Mixed and Shared Funding exemptive order obtained by AVIR AVIF
will notify LIFE COMPANY of any changes of interpretations or amendments to
Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with
all provisions of the 1940 Act requiring voting by shareholders, and in
particular, AVIF either will provide for annual meetings (except insofar as the
SEC may interpret Section 16 of the 1940 Act not to require such meetings) or
will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY LIFE COMPANY.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY agrees to indemnify and hold harmless AVIF, AIM, their affiliates,
and each person, if any, who controls AVIF, AIM, or their affiliates within the
meaning of Section 15 of the 1933 Act and each of their respective directors and
officers, (collectively, the "Indemnified Parties" for purposes of this Section
12.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of LIFE COMPANY or actions
in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified
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<PAGE>
Parties may become subject under any statute, regulation, at common law or
otherwise; PROVIDED, the Account owns shares of the Fund and insofar as such
losses, claims, damages, liabilities or actions:
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Account's 1933 Act registration statement,
any Account Prospectus, the Contracts, or sales literature or advertising for
the Contracts (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged ornission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; PROVIDED, that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on behalf of AVIF for use in
any Account's 1933 Act registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or supplement to any of
the foregoing); or
01) arise out of or as a result of any other statements or representations
(other than statements or representations contained in AVIFs 1933 Act
registration statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of LIFE COMPANY or its affiliates and on which
such persons have reasonably relied) or the negligent, illegal or fraudulent
conduct of LIFE COMPANY or its respective affiliates or persons under their
control (including, without limitation, their employees and "persons associated
with a member", as that term is defined in paragraph (q) of Article I of the
NASD's By-Laws), in connection with the sale or distribution of the Contracts or
Shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in AVIFs 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, or the omission or afleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a statement or
omission was made IN RELIANCE UPON AND IN CONFORMITY WITH INFORMATION FURNISHED
TO AVIF, AIM OR THEIR AFFILIATES BY OR on behalf of LIFE COMPANY OR ITS
AFFILIATES FOR USE IN AVEFS 1933 ACT REGISTRATION statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or supplement to any
of the foregoing; or
Ov) arise as a result of any failure by LIFE COMPANY to perform the
obligations, provide the services and furnish the materials required of it under
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the terms of this Agreement, or any material breach of any representation and/or
warranty made by LIFE COMPANY in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY; or
(v) arise as a result of failure by the Policies issued by LIFE COMPANY to
qualify as annuity contracts or life insurance policies under the Code,
otherwise than by reason of any Fund's failure to comply with Subchapter M
or Section 817(h) of the Code.
(b) LIFE COMPANY shall not be liable under this Section 12.1 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties (1) under this Agreement, or (ii) to AVIF or AIM.
(c) LIFE COMPANY shall not be liable under this Section 12.1 with respect
to any action against an Indemnified Party unless AVIF or AIM shall have
notified LIFE COMPANY in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the action shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify LIFE COMPANY of any such action shall not relieve LIFE COMPANY from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this Section 12. 1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, LIFE COMPANY shall be entitled to participate, at its own
expense, in the defense of such action and also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
LIFE COMPANY to such Indemnified Party of LIFE COMPANY's election to assume the
defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY
and shall bear the fees and expenses of any additional counsel retained by it,
and LIFE COMPANY will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
12.2 OF LIFE COMPANY BY AVIF AND AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e),
below, AVIF and AIM agree to indemnify and hold HARMLESS LIFE COMPANY, its
affiliates, and each person, if any, who controls LIFE COMPANY or its affiliates
WITHIN THE meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.2) against any and ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
(INCLUDING AMOUNTS paid in settlement with the written consent of AVIF and/or
AIM) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law, or otherwise; PROVIDED, the Account owns
shares of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
PA-IINC.AGR
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<PAGE>
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in AVEFs 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVEF (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
PROVIDED, that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to AVIF or
its affiliates by or on behalf of LIFE COMPANY or its affiliates for use in
AVEFs 1933 Act registration statement, AVIF Prospectus, or in sales literature
or advertising or otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use therein by or
on behalf of AVIF, AIM or their affiliates and on which such persons
have reasonably relied) or the negligent, illegal or fraudulent
conduct of AVEF, AIM or their affiliates or persons under its control
(including, without limitation, their employees and "persons
associated with a member" as that term is defined in Section (q) of
Article I of the NASD By-Laws), in connection with the sale or
distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished TO LIFE COMPANY OR ITS AFFILIATES by or on behalf of AVEF or
AIM for use in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVEF TO PERFORM THE OBLIGATIONS,
PROVIDE THE services and furnish the materials required of it under
the terms of this Agreement, or any material breach of any
representation and/or warranty made by AVEF in this Agreement or arise
out of or result from any other material breach of this Agreement by
AVER
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<PAGE>
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and a ' gainst any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code
and regulations thereunder, including, without limitation, any income taxes
and related penalties, rescission charges, liability under state law to
Participants asserting liability against LIFE COMPANY pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of
another investment company or portfolio for those of any adversely affected
Fund as a funding medium for each Account that LIFE COMPANY reasonably deems
necessary or appropriate as a result of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement, or
(ii) to LIFE COMPANY, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and/or AIM in writing within a reasonable time
after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify AVIF or AIM of any such action
shall not relieve AVEF or AIM from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this Section 12.2. Except as otherwise provided herein, in case
any such action is brought against an Indemnified Party, AVIF and/or AIM will
be entitled to participate, at its own expense, in the defense of such action
and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved
by the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified
Party of AVIF's or AIM's election to assume the defense thereof, the
Indemnified Party will COOPERATE FULLY WITH AVIF AND AIM SHALL BEAR THE fees
and expenses of any additional counsel retained by it, and AVIF and AIM will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable costs of
investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY or any other Participating Insurance Company or
any Participant, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any
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representation, warranty, and/or covenant made by LIFE COMPANY hereunder or by
any Participating Insurance Company under an agreement containing substantially
similar TtpTtstnmi~)ns, -warranties and covenants; (ii) the failure by LIFE
COMPANY or any Participating Insurance Company to maintain its segregated asset
account (which invests in any Fund) as a legally and validly established
segregated asset account under applicable state law and as a duly registered
unit investment trust under the provisions of the 1940 Act (unless exempt
therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its variable annuity contracts or life insurance policies
(with respect to which any Fund serves as an underlying funding vehicle) as
annuity contracts or life insurance policies under applicable provisions of the
Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
THIS Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
PA-IINC.AGR
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<PAGE>
SECTION 16. RIGHTS CUMULATIVE
The rights remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's perforinance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVEF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVEF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVrF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVEF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVEF's
performance of its duties under this Agreement are the valuable property of the
AVEF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVEF
Protected Parties' customers who also maintain accounts DIRECTLY WITH LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVEF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in- immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
PA-IINC.AGR
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<PAGE>
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVEF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other trade names, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIN4 licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance Policies
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request that a
licensee submit samples of any materials bearing any of the licensor's licensed
marks which were previously approved by the licensor but, due to changed
circumstances, the licensor may wish to reconsider. If, on reconsideration, or
on initial review, respectively, any such samples fail to meet with the written
approval of the licensor, then the licensee shall immediately cease distributing
such disapproved materials. The licensor's approval shall not be unreasonably
withheld, and the licensor, when requesting reconsideration of a prior approval,
shall assume the reasonable expenses of withdrawing and replacing such
disapproved materials. The licensee shall obtain the prior written approval of
the licensor for the use of any new materials developed to replace the
disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the
best of the knowledge of THE LICENSEE, THE LICENSOR'S LICENSED MARKS ARE VALID
and enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
PA-IINC.AGR
061198 (6) RR
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<PAGE>
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD, the IRS and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
PA-IINC.AGR
061198 (6) RR
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest:
Nancy L. Martin By: Robert H. Graham
Assistant Secretary Title: President
AIM DISTRIBUTORS
Attest: By:
Nancy L. Martin Name: Michael J. Cemo
Assistant Secretary Title: President
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, on behalf of itself and its
separate accounts and as principal underwriter for its separate accounts
Attest: By:
Name: Name:
Title: Assistant Vice President Title: Vice President
PA-IINC.AGR
061198 (6) RR
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<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund AIM V.I. Diversified Income Fund AIM V.I.
Growth Fund AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Lincoln Life Flexible Premium Variable Life Account M
Lincoln Life Flexible Premium Variable Life Account R
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
The Lincoln National Life Insurance Company:
Flexible Premium Variable Life Insurance Policy
LN605LULN615LLJLN617LL
and state variations thereof
The Lincoln National Life Insurance Company:
Flexible Premium Variable Life Insurance Policy On the Lives of Two Insureds
LN650LL
and state variations thereof
PA-LINC.AGR
061198 (6) RR
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<PAGE>
SCHEDULE B
AIM VARIABLE INSURANCE FUNDS, INC
AIM
AIM and Design
AIM
PA-linc.agr
061198 (6) rr
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<PAGE>
SCHEDULE C
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
DESCRIPTION LIFE COMPANY AIM/AVIF
<S> <C> <C>
REGISTRATION
Prepare and file Account registration Fund registration statements
registration statements' statements
Payment of fees Account fees Fund fees
PROSPECTUSES
Typesetting Account Prospectuses Fund Prospectuses
Account Prospectuses, and Fund Prospectuses distributed
Printing Fund Prospectuses (but not for to existing Participants'
existing Participants)
SAIS
Typesetting Account SAIs Fund SAIs
Printing Account SAIs Fund SAIs
SUPPLEMENTS (TO
PROSPECTUSES OR SAIS
Typesetting and Printing Account Supplements, and Fund Supplements to existing
Fund Supplements (but not for Participant(2)
existing Participants)
</TABLE>
I Includes all filings and costs necessary to keep registrations current
and effective; including, without limitation, filing Forms N-SAR and Rule 24F-2
Notices as required by law.
(2) With respect to any AVIF material printed in combination with any non-AVIF
materials, total costs of typesetting and printing shall be prorated as between
AIM/AVIF on the one hand and LIFE COMPANY on the other based on (a) the ratio of
the number of pages of the combined prospectus, report, or other document, for
each Fund listed on Schedule A hereto to the total number of pages in such
combined prospectus, report, or other document; and (b) the ratio of the number
of Participants who invest in all Funds of AVIF to the total number of
Participants.
PA-Iinc.agr
061198 (6) rr
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<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION LIFE COMPANY AIM/AVIF
<S> <C> <C>
Financial Reports
Typesetting Account Reports Fund Reports to existing
Participants(2)
Printing Account Reports, and Fund
Reports (not to existing
Participants)
MAILING AND DISTRIBUTION
To Contract owners Account and Fund
Prospectuses, SAIs,
Supplements and Reports
To Offerees Account and Fund
Prospectuses, SAIs,
Supplements & Reports
Proxies
Typesetting, printing and Account and Fund Proxies Fund Proxies where the
mailing of proxy where the matters submitted matters submitted are solely
solicitation materials and are solely Account-related Fund-related
voting instruction
solicitation materials and Account Proxies even where
tabulation of proxies to the matters submitted are
Participants solely Fund-related
OTHER (SALES-RELATED)
Contract owner Account-related items and\
communication Fund-related items
Distribution Policies
Administration Account (Policies)
</TABLE>
(2) With respect to any AVIF material printed in combination with any
non-AVIF materials, total costs of typesetting and printing shall be prorated as
between AIWAVIF on the one hand and LIFE COMPANY on the other based on (a) the
ratio of the number of pages of the combined prospectus, report, or other
document, for each Fund listed on Schedule A hereto to the total number of pages
in such combined prospectus, report, or other document; and (b) the ratio of the
number of Participants who invest in all Funds of AVIF to the total number of
Participants.
PA-finc.agr
061196 (6) rr
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<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 11th day of May, 1998, by and between BT
Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers Trust
Company ("ADVISER"), a New York banking corporation, and The Lincoln National
Life Insurance Company ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of Indiana.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the ... 40 Act"),
as an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"),
with those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3j)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the TRUST to be sold to and held by Variable Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
Separate Accounts to offer Variable Contracts and is desirous of having TRUST as
one of the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
l~PROXIrSYS2ZOCUGRPWUTFOS'SHDRSERVIPARTAGR\98%UNCPAI.DOC 7/30197
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<PAGE>
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares to
LIFE COMPANY at such shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article 1. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for investment
of purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section 1.2,
LIFE COMPANY shall be the designee of TRUST for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as TRUST and LIFE COMPANY may agree in writing) of such
order by 9:00 a.m. New York time on the next Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or its
designee of the request for redemption, in accordance with the provisions of
this Agreement and TRUST's Registration Statement. (in the event of a conflict
between the provisions of this Agreement and the Trust's Registration Statement,
the provisions of the Registration Statement shall govern.) For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests
for redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by TRUST; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and TRUST receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE
COMPANY may agree in
~'PROXYISYS2%DOCL)GRPWUTFDS%SHORSERVY-ARTAGR%98%LNCPAL.DOC 713ON7
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<PAGE>
writing) of such request for redemption by 9:00 a.m. New York time on the next
Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. LIFE COMPANY reserves
the right to change such election. TRUST shall notify LIFE COMPANY or its
designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed on each day for which such incorrect information was
provided to reflect the correct share net asset value. Any material error in the
calculation of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to TRUST by LIFE COMPANY by 9:00 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account by 2:00 pm on the day the order is transmitted by
LIFE COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by 2:00 pm that day, unless doing so would require
TRUST to dispose of Portfolio securities or otherwise incur additional costs. In
any event, proceeds shall be wired to LIFE COMPANY WITHIN the time period
permitted by the '40 Act or the rules, orders or regulations thereunder, and
TRUST shall notify the
\\PROXY\SYSZOOCUGRPWURFDS\SHDRSERVPARTAGR\D$\LINCPAL.DOC 7R-4D197
3
<PAGE>
person designated in writing by LIFE COMPANY as the recipient for such notice of
such delay by 3:00 p.m. New York Time on the same Business Day that LIFE COMPANY
transmits the redemption order to TRUST. If LIFE COMPANY's order requests the
application of redemption proceeds from the redemption of shares to the purchase
of shares of another Fund advised by ADVISER, TRUST shall so apply such proceeds
on the same Business Day that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
TRUST's Portfolios will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article 11. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and validly existing under the laws of Indiana and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that LIFE COMPANY, the principal underwriter for
the Variable Contracts, is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the ... 34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts, and that
VPROXY\SYS2\(MLPGRPWUTFDS%SHDRSERVY'AFZTAGRwuNr-PAl.DOC 7/30/97
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<PAGE>
the Variable CONTRACTS WILL BE ISSUED AND SOLD in compliance in all material
respects with all APPLICABLE FEDERAL AND STATE LAWS (INCLUDING ALL APPLICABLE
blue sky laws and further that the sale of the variable contracts shall comply
in all material respects with applicable state insurance law suitability
requirements).
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance
policies, endowment or annuity contracts under applicable provisions of the
Code, that it will maintain such treatment and that it will notify TRUST
immediately upon having a reasonable basis for believing that the Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the '33 Act and the '40 Act from time to time as required in order to
effect the continuous offering of its shares.
TRUST shall register and qualify its shares for sale in accordance with the laws
of the various states only if and to the extent deemed advisable by TRUST.
2.6 TRUST and ADVISER each represents and warrants that each Portfolio
will comply with the diversification requirements set forth in Section 817(h) of
the Code, and the rules and regulations thereunder, including without limitation
Treasury Regulation 1.817-5, and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing any Portfolio has ceased to comply and
will immediately take all reasonable steps to adequately diversify the Portfolio
to achieve compliance.
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with all applicable state and
federal laws.
2.9 TRUST and ADVISER each represents and warrants that all officers,
employees and agents of the TRUST having access to securities or funds of any
Portfolio shall be covered by a blanket fidelity bond in such minimum amount as
the SEC may prescribe under Section 17 (g) of the '40 act.
~PROXY%SYS200CUGRPWUrFDS%.SHMSERVIPARTAGR=UNCPAI.DOC MW
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<PAGE>
Article 111. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable Contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation [including
a "camera ready" copy of the current prospectus (or prospectuses) for the
Portfolios used in THE LIFE COMPANY'S Variable Contracts as set in type or, at
the request of LIFE COMPANY, as a diskette in the form sent to the financial
printer' and other assistance as is reasonably necessary in order for the
parties hereto once a year [or more frequently if the prospectus (or
prospectuses), for such Portfolios for the shares is supplemented or amended] to
have the prospectus for the Variable Contracts and the prospectus (or
prospectuses) for the TRUST shares printed together in one document. The
expenses of such printing will be apportioned between LIFE COMPANY and TRUST in
proportion to the number of pages of the Variable Contract and TRUST prospectus,
taking account of other relevant factors affecting the expense of printing, such
as covers, columns, graphs and charts; TRUST shall bear the cost of printing the
TRUST prospectus portion of such document for distribution only to owners of
existing Variable Contracts funded by the TRUST shares and LIFE COMPANY shall
bear the expense of printing the portion of such documents relating to the
Separate Account; provided, however, LIFE COMPANY shall bear all printing
expenses of such combined documents where used for distribution to prospective
purchasers or to owners of existing Variable Contracts not funded by the shares.
In the event that LIFE COMPANY requests that TRUST or its designee provide
TRUST's prospectus in a "camera ready" or diskette format, TRUST shall be
responsible for providing the prospectus (or prospectuses) in the format in
which it is accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus (or prospectuses) in such format (e.g. typesetting
expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
~'PROXY~SYS2'DOCUGRP%MUTFDS%.SHDRSERVPARTAGRMUNCPAI.DOC 7F3=7
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<PAGE>
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, proxy statements, exemptive
applications and all amendments or supplements to any of the above that relate
to the Portfolios and any other material constituting sales literature or
advertising under NASD rules, the 40 Act or the 33 Act within 20 days of the
date of such material and annual and semi-annual reports and any amendments or
supplements thereto within 80 days of the date of such report or amendment or
supplement thereto. LIFE COMPANY will provide TRUST with at least one complete
copy of all prospectuses, statements of additional information, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account and its investment in Trust and any
other material constituting sales literature or advertising under NASD rules,
the 40 Act or the 33 Act within 20 days of the date of such material and annual
and semi-annual reports and any amendments within 80 days of the date of such
report or amendment or supplement thereto.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least ten (10) Business Days prior to its intended
use. No such material will be used if TRUST or ADVISER objects to its use in
writing within seven (7) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least ten (10) Business Days
prior to its intended use. No such material will be used if LIFE COMPANY objects
to its use in writing within seven (7) Business Days after receipt of such
material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for
K\PROXY\SYS2\DOCUGRPVAUTFDS\SHDRSERV\PARTAGR\WJ-INCPAI.DOC W30197
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<PAGE>
TRUST, as such registration statement and prospectus may be amended or
supplemented from time to time, or in sales literature or other promotional
material approved by TRUST or its designee, except with the written permission
of TRUST or ADVISER.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The patties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company
l~PROXYISYS2WCUGRPWUTFDS%SKMSERVY-ARTAGRWSUNCPAI.DOC MM7
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<PAGE>
to disregard the voting instructions of Variable Contract owners and (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which
it becomes aware to the Board. LIFE COMPANY will be responsible for assisting
the Board in carrying out its duties in this regard by providing the Board with
all information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation by the
LIFE COMPANY to inform the Board whenever it has determined to disregard
Variable Contract owner voting instructions.
These responsibilities of LIFE COMPANY will be carried out with a view only to
the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
up to and including; (a) withdrawing the assets allocable to some or all of the
Separate Accounts from TRUST or any Portfolio thereof and reinvesting those
assets in a different investment medium, which may include another Portfolio of
TRUST, or another investment company; (b) submitting the question as to whether
such segregation should be implemented to a vote of all affected Variable
Contract owners and as appropriate, segregating the assets of any appropriate
group (i.e variable annuity or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw the Separate Account's investment in TRUST, and
no charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
TRUST or ADVISER (or any other investment adviser of TRUST) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
SHALL NOT BE REQUIRED BY this Section 5.4 to establish a new funding medium for
ANY VARIABLE CONTRACTS [IF ANY offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.]
k'PROXY\SYS200CUGRPWLrrFDSZMDRSERVIPARTAGRWB%UNC~'Al.DOC 7130/97
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<PAGE>
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 LIFE COMPANY shall from time to time submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out its obligations under this Article V.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as and to the extent the SEC continues to
interpret the '40 Act as requiring pass-through voting privileges for Variable
Contract owners. Accordingly, LIFE COMPANY, where applicable, will vote shares
of the Portfolio held in its 40 Act registered Separate Accounts in a manner
consistent with voting instructions timely received from its Variable Contract
owners. LIFE COMPANY will be responsible for assuring that each of its Separate
Accounts that participates in TRUST calculates voting privileges in a manner
consistent with other Participating Insurance Companies. LIFE COMPANY will vote
shares in a registered Separate Account for which it has not received timely
voting instructions in the same proportion as it votes those shares in that
Separate Account for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless TRUST, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls TRUST or
ADVISER within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation or threatened
litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of TRUST's shares or the Variable Contracts and:
VPROXYNSYS2COCL)GRPWUTFDSWHDRSERVIPARTAGRWWNCPAI.DOC 7/30/97
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<PAGE>
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus or sales literature for the Variable Contracts or contained in
the Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing to
LIFE COMPANY by or on behalf of TRUST for use in the registration statement
or prospectus for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement to any of the foregoing)
or otherwise for use in connection with the sale of the Variable Contracts
or TRUST shares; or arise out of or result from (i) untrue statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature of TRUST not
supplied by LIFE COMPANY, or persons under its control) or (ii) willful
misfeasance, bad faith or gross negligence of LIFE COMPANY or persons under
its control, with respect to the sale or distribution of the Variable
Contracts or TRUST shares; or arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of TRUST or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to TRUST by or on behalf of LIFE
COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide substantially
the services and furnish the materials under the terms of this Agreement;
or arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this AGREEMENT or arise out of or
result from any other material breach of this AGREEMENT BY LIFE COMPANY.
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<PAGE>
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST and ADVISER. TRUST and ADVISER each
agree to indemnify and hold harmless LIFE COMPANY and each of its directors,
officers, employees, and agents and each person, if any, who controls LIFE
COMPANY within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of TRUST or
ADVISER (which consent shall not be unreasonably withheld) or litigation or
threatened litigation (including reasonable legal and other expenses) to which
the Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of TRUST's shares for the Variable Contracts and:
(a) arise out of or ARE BASED UPON ANY UNTRUE STATEMENT OR ALLEGED untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of TRUST (or any amendment or supplement to
any of the foregoing), or arise out of
%~PROXY'L.SYS2ZOCUGRPVAURFDS%SHDRSERVIPARTAOR=%LINCPAI.DOC MOW
12
<PAGE>
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to ADVISER or TRUST by or on behalf of LIFE
COMPANY for use in the registration statement or prospectus for TRUST or in
sales literature (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Variable Contracts or TRUST
shares; or
(b) arise out of or result from (i) untrue statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by ADVISER or TRUST or persons under its control) or (ii) gross
negligence, bad faith or willful misfeasance of TRUST or ADVISER or persons
under its control, with respect to the sale or distribution of the Variable
Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished in writing to LIFE
COMPANY for inclusion therein by or on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST or ADVISER to provide
substantially the services and furnish the materials under the terms of
this Agreement; or (ii) a failure by a Portfolio(s) invested in by the
Separate Account to comply with the diversification requirements of Section
817(h) of the Code; or (iii) a failure by a Portfolio(s) invested in by the
Separate Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
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13
<PAGE>
(e) arise out of or result from any material breach of any representation
and/or warranty made by TRUST or ADVISER in this Agreement or arise out of
or result from any other material breach of this Agreement by TRUST or
ADVISER.
7.5 TRUST and ADVISER shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party to the extent that such
losses, claims, damages, liabilities or litigation are attributable to such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.6 TRUST and ADVISER shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified TRUST and ADVISER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify TRUST and ADVISER
of any such claim shall not relieve TRUST and ADVISER from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, TRUST and ADVISER shall be
entitled to participate at their own expense in the defense thereof. TRUST and
ADVISER also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from TRUST or
ADVISER to such party of TRUST's or ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and TRUST and/or ADVISER as the case may be
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
Article Vill. TERM, TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date hereof
upon 180 days' written notice, unless a shorter time is agreed to by the
parties;
IIPROXY%SYS200CUGRPWUTFDS%SHORSERVIPARTAGR%O$UNCPAI.DOC 7r3=7
14
<PAGE>
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably available
to meet the requirements of the Variable' Contracts as determined by LIFE
COMPANY. Prompt notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after receipt of notice
unless TRUST makes available a sufficient number of shares to reasonably
meet the requirements of the Variable Contracts within said ten-day
period-,
At the option of LIFE COMPANY, upon the institution of formal proceedings
against TRUST or ADVISER or any sub-adviser by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in LIFE COMPANY's reasonable judgment, after affording TRUST and
ADVISER reasonable opportunity for consultation with LIFE COMPANY, materially
impair TRUST's ability to meet and perform TRUST's obligations and duties
hereunder, or result in material harm to the Separate Accounts, LIFE COMPANY, or
owners of Variable Contracts. Prompt notice of election to terminate shall be
furnished by LIFE COMPANY with said termination to be effective upon receipt of
notice;
(d) At the option of TRUST or ADVISER, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in TRUST's or ADVISER's reasonable judgment, after affording
LIFE COMPANY reasonable opportunity for consultation with TRUST and
ADVISER, materially impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by TRUST with said termination to be effective upon
receipt of notice;
In the event TRUST's shares are not registered, issued or sold in accordance
with applicable state or federal law, or such law precludes the use of such
shares as the underlying investment medium of Variable Contracts issued or to be
issued by LIFE COMPANY. Termination shall be effective upon such occurrence
without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable,
~'PROXY\SYS2\DOCUGRPWLTTFDSIZHDRSERVIPARTAGR'98'LINCPAI.DDC MOW
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<PAGE>
under the Code, or if TRUST reasonably believes that the Variable Contracts may
fail to so qualify. Termination shall be effective upon receipt of notice by
LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's or ADVISER's breach of any
material provision of this Agreement, which breach has not been cured to
the reasonable satisfaction of LIFE COMPANY within ten days after written
notice of such breach is delivered to TRUST;
(h) At the option of TRUST or ADVISER, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been cured to
the satisfaction of TRUST within ten days after written notice of such
breach is delivered to LIFE COMPANY;
(i) At the option of TRUST or ADVISER, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon such occurrence
without notice;
At the option of LIFE COMPANY, upon 75 days written notice of a vote of Variable
Contract owners having an interest in a Portfolio and upon written approval of
LIFE COMPANY, to substitute the shares of another investment company for the
corresponding shares of a Portfolio in accordance with the terms of the Variable
Contracts;
(k) In the event this Agreement is assigned without the prior written consent
of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective
immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at LIFE COMPANY'S option shall continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if TRUST makes additional TRUST shares
available, the owners of the Existing Contracts or LIFE COMPANY, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
TRUST, redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. If TRUST shares continue to be
made
k'PROXY\SYS2ZOCUGRPWUTFDSI.SHDRSERVIPARTAGRW%UNCPAI.DOC M=7
16
<PAGE>
available after such termination, the provisions of this Agreement shall remain
in effect and thereafter either TRUST or LIFE COMPANY may terminate the
Agreement, as so continued pursuant to this Section 8.3, upon sixty (60) days
prior written notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST:
BT Insurance Funds Trust c/o First Data Investor Services Group, Inc. One
Exchange Place 53 State Street, Mail Stop BOS865 Boston, MA 02109
AND
c/o BT Alex Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Brian Wixted
If to ADVISER:
Bankers Trust Company
130 Liberty Street, Mail Stop 2355
New York, NY 10006
Attn.: Vinay Mendiratta
IIPROXR,SYS200CUGRPWUTFDS%SHDRSERVIPARTAGRWSUNCPAI.DOC M=7
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<PAGE>
If to LIFE COMPANY:
Lincoln National Life Insurance
Kelly D. Clevenger
1300 S. Clinton Street
Fort Wayne , IN 46802-3506
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
respectively, for enforcement of any claims against TRUST or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
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18
<PAGE>
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
ADVISER and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy under
this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By:
Name:
Title:
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19
<PAGE>
BANKERS TRUST COMPANY
By:
Name:
Title:
Irene S. Greenberg Vice President
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By:
Name: Kelly El. Clevenger
Title: vice President
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20
<PAGE>
Appendix A
BT Insurance Funds Trust Portfolios
Equity 500 Index Fund
Small Cap Index Fund
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<PAGE>
Appendix B
Separate Accounts
Lincoln Life Flexible Premium Variable Life Separate Account M
Lincoln Life Flexible Premium Variable Life Separate Account R
IY-ROXY%SYS2%DOCUGRPWUTFDSZHDRSERV%PARTAGRMUNCPAI.DOC 7/M7
<PAGE>
PARTICIPATION AGREEMENT
AMONG
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
SCUDDER KEMPER INVESTMENTS
THIS AGREEMENT, made and entered into this _______ of _________, 1998
by and between the Government Securities Fund, a corporation organized under the
laws of _______________ (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE CO.,
an Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and _____________________________ (the
Distributor).
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. _________) under the Investment Company Act of
1940, as amended (the "1940 Act"), and the Fund shares (File No. ________) under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts described in Schedule 2 to this Agreement as in effect at the time
this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time to
time in accordance with Article XI of this Agreement (such policies and
contracts shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule 2
being referred to as the "Contracts Registration Statement" and the prospectus
for each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contract Owners"); and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by resolution of the Board of Directors of the Company on the date set forth on
Schedule 1, sets aside and invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the 1934 Act), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the NASD); and
WHEREAS, the Distributor and the Fund have entered into an agreement (the
AFund Distribution Agreement) pursuant to which the Distributor will distribute
Fund shares; and
WHEREAS, Dimensional Fund Advisors (the "Investment Manager") is registered
as an investment adviser under the 1940 Act and any applicable state securities
laws and serves as an investment manager to the Fund pursuant to an agreement;
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
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1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 6:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares of any Series to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase request by
11:00 a.m., E.S.T. on the next following Business Day. For
purposes of this Agreement, "Business Day" shall mean any day on
which the New York Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Series shares for an
Account. Payment for Series shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by LL
via Fax or Email by 1:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
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(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. Neither the
Fund nor the Distributor shall bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds if
securities must be redeemed; the Company alone shall be responsible
for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 6 p.m., E.S.T. each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share is
calculated, and shall calculate such net asset value in accordance with the then
currently effective Fund Prospectus. Neither the Fund, any Series, the
Distributor, nor the Investment Manager nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund, the Distributor or the Investment Manager.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product
Owners or (y) the interests of the Participating Insurance
Companies investing in the Fund; (iii) upon requisite vote of the
Contractowners having an interest in the affected Fund to
substitute the shares of another investment company for shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the Company's sole
discretion, pursuant to an order of the SEC under Section 26(b) of
the 1940 Act.
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<PAGE>
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies. (NOTE: This segment
may be variable.)
(c) The Company shall not, without prior notice to the
Distributor (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company under
the 1940 Act.
1.9. The Fund and the Distributor agree that Fund shares will be sold only
to Participating Insurance Companies and their separate accounts. The Fund and
the Distributor will not sell Fund shares to any insurance company or separate
account unless an agreement complying with Article VII of this Agreement is in
effect to govern such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of _________________.
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<PAGE>
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of _____________, to the extent required
to perform this Agreement; and with any state- mandated investment restrictions
set forth on Schedule 3, as amended from time to time by the Company in
accordance with Section 6.6. The Fund, however, makes no representation as to
whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state. The Company alone shall be responsible for informing
the Fund of any investment restrictions imposed by state insurance law and
applicable to the Fund.
2.7. The Distributor represents and warrants that it is duly registered as
a broker-dealer under the 1934 Act, a member in good standing of the NASD, and
duly registered as a broker-dealer under applicable state securities laws; its
operations are in compliance with applicable law, and it will distribute the
Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents and
warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with applicable
federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
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<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such Statement
free of charge to the Company and to any outstanding or prospective Contract
owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the Company.
The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager is named to the
Fund or the Distributor prior to its use. No such material shall be used,
except with the prior written permission of the Fund or the Distributor. The
Fund and the Distributor agree to respond to any request for approval on a
prompt and timely basis. Failure of the Fund to respond within 10 days of the
request by the Company shall relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Distributor, except with the prior written permission of the Fund or the
Distributor. The Fund agrees to respond to any request for permission on a
prompt and timely basis. If neither the Fund nor the Distributor responds
within 10 days of a request by the Company, then the Company shall be relieved
of the obligation to obtain the prior written permission of the Fund.
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<PAGE>
3.6. The Fund and the Distributor shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
If the Company fails to respond within 10 days of a request by the Fund or the
Distributor, then the Fund and the Distributor are relieved of the obligation to
obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of all
Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of all
Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications
-8-
<PAGE>
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1. Subject to applicable law and the order referred to in Article
VII, the Fund shall: solicit voting instructions from Contract owners;
4.2. Subject to applicable law and the order referred to in Article VII,
the Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company may print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
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<PAGE>
and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contract owners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in order
to inform the Fund of any applicable state-mandated investment
restrictions with which the Fund must comply.
(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3, the
Company shall be informed immediately of the substance of those
restrictions.
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<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and Shared
Funding Order") dated ______________________ of the Securities and Exchange
Commission under Section 6c of the Act and, in particular, has reviewed the
conditions to the relief set forth in the related Notice. As set forth therein,
the Company agrees to report to the Board of Directors of the Fund (the "Board")
any potential or existing conflicts between the interests of Product Owners of
all separate accounts investing in the Fund, and to assist the Board in carrying
out its responsibilities under the conditions of the Mixed and Shared Funding
Order by providing all information reasonably necessary for the Board to
consider any issues raised, including information as to a decision to disregard
voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense,
take whatever steps are necessary to remedy the irreconcilable
material conflict. These steps could include: (a) withdrawing the
assets allocable to some or all of the affected Accounts from the
Fund and reinvesting such assets in a different investment vehicle,
or submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (b) establishing a new registered
mutual fund or management separate account, or taking such other
action as is necessary to remedy or eliminate the irreconcilable
material conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund. After reserving that right the Company, although
disagreeing with the Board that it (the Company) was responsible for
the conflict, shall take the necessary steps, under protest, to
remedy the conflict, substantially in accordance with paragraph (a)
just above, for the protection of Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the
If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to select
an arbitrator the parties cannot agree upon the arbitrator, then he
or she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in
excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall notify
the Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other insurer, as applicable,
shall, at its sole cost and expense, take whatever steps are necessary
to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. Subject to the terms of Section 7.2 above, the Company shall carry out
the responsibility to take remedial action in the event of a Board determination
of an irreconcilable material conflict.with a view only to the interests of
Contractowners.
7.5. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict, but in no event will the Fund be required
to establish a new funding medium for any variable contract, nor will the
Company be required to establish a new funding medium for any Contract if in
either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund, the Distributor and each person who controls or is
associated with the Fund (other than another Participating Insurance Company) or
the Distributor within the meaning of such terms under the federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund or the Distributor
(or a person authorized in writing to do so on behalf of the Fund
or the Distributor) for use in the Contracts Registration
Statement, Contracts Prospectus or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not
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<PAGE>
misleading in light of the circumstances in which they were made,
if such statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf
of the Company; or
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article 1; or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate its
Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made; provided that this obligation to indemnify shall not
apply if such statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund or the
Distributor for use in the Fund Registration Statement,
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<PAGE>
Fund Prospectus (or any amendment or supplement thereto) or sales
literature for the Fund or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Distributor
or the Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not supplied
by the Distributor or the Fund or persons under their control) or
wrongful conduct of the Distributor or persons under its control
with respect to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Distributor or the Fund to the Company (or a person
authorized in writing to do so on behalf of the Fund or the
Distributor); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Article VI of
this Agreement; and (ii) to provide the Company with accurate
information sufficient for it to calculate its accumulation and/or
annuity unit values in timely fashion as required by law and by the
Contracts Prospectuses); or
(e) arise out of any material breach by the Distributor or
the Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
-15-
<PAGE>
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
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<PAGE>
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares, or an expected or
anticipated ruling, judgment or outcome which would, in the Fund's
reasonable judgment, materially impair the Company's ability to
perform the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment
Manager or any Sub-Investment Manager, by the NASD, the SEC, or any
state securities or insurance commission or any other regulatory
body regarding the duties of the Fund or the Distributor under
this Agreement, or an expected or anticipated ruling, judgment Or
outcome which would, in the Company's reasonable judgment,
materially impair the Fund's or the Distributor's ability to
perform Fund's or Distributor's obligations and duties hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager
by the NASD, the SEC, or any state securities or insurance commission
or any other regulatory body which would, in the good faith opinion of
the Company, result in material harm to the Accounts, the Company, or
Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by
applicable law) and written approval of the Company, to substitute the
shares of another investment company for the corresponding shares of
the Fund in accordance with the terms of the Contracts; or
(g) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
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<PAGE>
(h) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(i) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail
to so qualify; or
(j) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(l) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or financial
condition; or (2) the Company shall have been the subject of material
adverse publicity which is likely to have a material adverse impact
upon the business and operations of either the Fund or the
Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that
either: (1) the Fund and the Distributor, or either of them, shall
have suffered a material adverse change in their respective
businesses or financial condition; or (2) the Fund or the
Distributor, or both of them, shall have been the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(n) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Accounts to another
insurance company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or unless this
Agreement is assigned to an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties to
this Agreement of its intent to terminate which notice shall set forth the basis
for such termination. Furthermore:
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<PAGE>
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) In the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination, or sooner if required by law or
regulation.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written
notice shall be given at least sixty (60) days before the date of any
proposed vote to replace the Fund's shares
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor will,
at the option of the Company, continue to make available additional
Fund shares for so long after the termination of this Agreement as the
Company desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, if the Company so elects to make additional Fund
shares available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall
promptly notify the Company whether the Distributor and the Fund will
continue to make Fund shares available after such termination. If
Fund shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect except for Section
10.1(a) and thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this Section 10.3, upon
prior written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given by the
Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect
of such Article VII termination shall be governed by the provisions
set forth or incorporated by reference therein.
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<PAGE>
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through a Separate Account investing in the Fund.
The provisions of this Agreement shall be equally applicable to each such class
of contracts or policies, unless the context otherwise requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Government Securities Fund
Scudder Kemper Investments
222 So. Riverside Plaza
33rd Floor
Chicago, IL 60606
Attn: Mike Sandow
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Distributor:
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
Government Securities Fund (Fund)
Date: Signature:
-----------------------------------------------
Name:
----------------------------------------------------
Title:
---------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Date: Signature:
-----------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------
Title: Vice President
---------------------------------------------------
[INSERT NAME] (Distributor)
Date: Signature:
-----------------------------------------------
Name:
----------------------------------------------------
Title:
---------------------------------------------------
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<PAGE>
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of August 10, 1998
LINCOLN NATIONAL LIFE INSURANCE VARIABLE ANNUITY ACCOUNT N
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<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of August 10, 1998
ACCRUE CHOICE PLUS VARIABLE ANNUITY (INDIVIDUAL ANNUITY)
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<PAGE>
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of August 10, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account
portfolio are (1) 10% of net asset value when borrowing for any general purpose;
and (2) 25% of net asset value when borrowing as a temporary measure to
facilitate redemptions. Net asset value of a portfolio is the market value of
all investments or assets owned less outstanding liabilities of the portfolio at
the time that any new or additional borrowing is undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign
countries at all times.
However, this minimum is reduced to four when foreign investments comprise less
than 80% of the portfolio's net asset value; to three when less than 60% of that
value; to two when less than 40%; and to one when less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
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<PAGE>
PARTICIPATION AGREEMENT
AMONG
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
SCUDDER KEMPER INVESTMENTS
THIS AGREEMENT, made and entered into this _______ of _________, 1998
by and between the Small Cap Growth Fund, a corporation organized under the laws
of _______________ (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE CO., an
Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and _____________________________ (the
Distributor).
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. _________) under the Investment Company Act of
1940, as amended (the "1940 Act"), and the Fund shares (File No. ________) under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts described in Schedule 2 to this Agreement as in effect at the time
this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time to
time in accordance with Article XI of this Agreement (such policies and
contracts shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule 2
being referred to as the "Contracts Registration Statement" and the prospectus
for each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contract Owners"); and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by resolution of the Board of Directors of the Company on the date set forth on
Schedule 1, sets aside and invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the 1934 Act), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the NASD); and
WHEREAS, the Distributor and the Fund have entered into an agreement (the
AFund Distribution Agreement) pursuant to which the Distributor will distribute
Fund shares; and
WHEREAS, Dimensional Fund Advisors (the "Investment Manager") is registered
as an investment adviser under the 1940 Act and any applicable state securities
laws and serves as an investment manager to the Fund pursuant to an agreement;
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
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<PAGE>
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 6:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares of any Series to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase request by 11:00
a.m., E.S.T. on the next following Business Day. For purposes of
this Agreement, "Business Day" shall mean any day on which the New
York Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Series shares for an
Account. Payment for Series shares will be made by the Account or
the Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by LL
via Fax or Email by 1:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
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<PAGE>
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of
shares, except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940
Act. Neither the Fund nor the Distributor shall bear any
responsibility whatsoever for the proper disbursement or crediting
of redemption proceeds if securities must be redeemed; the Company
alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 6 p.m., E.S.T. each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share is
calculated, and shall calculate such net asset value in accordance with the then
currently effective Fund Prospectus. Neither the Fund, any Series, the
Distributor, nor the Investment Manager nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund, the Distributor or the Investment Manager.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product
Owners or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the
Contractowners having an interest in the affected Fund to substitute
the shares of another investment company for shares in accordance
with the terms of the Contracts; (iv) as required by state and/or
federal laws or regulations or judicial or other legal precedent of
general application; or (v) at the Company's sole discretion,
pursuant to an order of the SEC under Section 26(b) of the 1940 Act.
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<PAGE>
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies. (NOTE: This segment may be variable.)
(c) The Company shall not, without prior notice to the
Distributor (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company
under the 1940 Act.
1.9. The Fund and the Distributor agree that Fund shares will be sold
only to Participating Insurance Companies and their separate accounts. The Fund
and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares will be sold to the
general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of _________________.
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2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of _____________, to the extent required
to perform this Agreement; and with any state- mandated investment restrictions
set forth on Schedule 3, as amended from time to time by the Company in
accordance with Section 6.6. The Fund, however, makes no representation as to
whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state. The Company alone shall be responsible for informing
the Fund of any investment restrictions imposed by state insurance law and
applicable to the Fund.
2.7. The Distributor represents and warrants that it is duly registered
as a broker-dealer under the 1934 Act, a member in good standing of the NASD,
and duly registered as a broker-dealer under applicable state securities laws;
its operations are in compliance with applicable law, and it will distribute the
Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents and
warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with applicable
federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
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ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such Statement
free of charge to the Company and to any outstanding or prospective Contract
owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager is named to the
Fund or the Distributor prior to its use. No such material shall be used,
except with the prior written permission of the Fund or the Distributor. The
Fund and the Distributor agree to respond to any request for approval on a
prompt and timely basis. Failure of the Fund to respond within 10 days of the
request by the Company shall relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund agrees to respond to any request for
permission on a prompt and timely basis. If neither the Fund nor the
Distributor responds within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
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<PAGE>
3.6. The Fund and the Distributor shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
If the Company fails to respond within 10 days of a request by the Fund or the
Distributor, then the Fund and the Distributor are relieved of the obligation to
obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party reasonably
needs such information for purposes of preparing a report or other filing to be
filed with or submitted to a regulatory agency. If a party requests any such
information before it has been filed, the other party will provide the requested
information if then available and in the version then available at the time of
such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications
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<PAGE>
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1 Subject to applicable law and the order referred to in Article VII,
the Fund shall: solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the order referred to in Article VII,
the Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely
fashion from such Contract owners;
(b) vote Fund shares attributable to Contract owners for
which no instructions have been received in the same proportion
as Fund shares of such Series for which instructions have been
received in timely fashion; and
(c) vote Fund shares held by the Company on its own behalf
or on behalf of the Account that are not attributable to Contract
owners in the same proportion as Fund shares of such Series for
which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company may print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
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and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contract owners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule
12b-1, the Fund undertakes to have a Fund Board of Directors, a majority of whom
are not interested persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in order
to inform the Fund of any applicable state-mandated investment
restrictions with which the Fund must comply.
(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3,
the Company shall be informed immediately of the substance of those
restrictions.
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ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and Shared
Funding Order") dated ______________________of the Securities and Exchange
Commission under Section 6c of the Act and, in particular, has reviewed the
conditions to the relief set forth in the related Notice. As set forth therein,
the Company agrees to report to the Board of Directors of the Fund (the "Board")
any potential or existing conflicts between the interests of Product Owners of
all separate accounts investing in the Fund, and to assist the Board in carrying
out its responsibilities under the conditions of the Mixed and Shared Funding
Order by providing all information reasonably necessary for the Board to
consider any issues raised, including information as to a decision to disregard
voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense, take
whatever steps are necessary to remedy the irreconcilable material
conflict. These steps could include: (a) withdrawing the assets
allocable to some or all of the affected Accounts from the Fund and
reinvesting such assets in a different investment vehicle, or
submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (b) establishing a new registered
mutual fund or management separate account, or taking such other
action as is necessary to remedy or eliminate the irreconcilable
material conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund. After reserving that right the Company, although
disagreeing with the Board that it (the Company) was responsible for
the conflict, shall take the necessary steps, under protest, to
remedy the conflict, substantially in accordance with paragraph (a)
just above, for the protection of Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute,
it shall so notify the Board in writing. The parties shall then
attempt to resolve the matter amicably through negotiation by
individuals from each party who are authorized to settle the
If the matter has not been amicably resolved within 60 days from
the date of the Company's notice of its intent to press the dispute,
then before either party shall undertake to litigate the dispute it
shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall
notify the Company immediately of that determination. The Fund
shall assure the Company that it (the Fund) or that other insurer,
as applicable, shall, at its sole cost and expense, take whatever
steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. Subject to the terms of Section 7.2 above, the Company shall carry
out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict.with a view only to the
interests of Contractowners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the Fund
be required to establish a new funding medium for any variable contract, nor
will the Company be required to establish a new funding medium for any Contract
if in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund, the Distributor and each person who controls or is
associated with the Fund (other than another Participating Insurance Company) or
the Distributor within the meaning of such terms under the federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund or the Distributor
(or a person authorized in writing to do so on behalf of the Fund or
the Distributor) for use in the Contracts Registration Statement,
Contracts Prospectus or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not
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<PAGE>
misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company; or
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article 1; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished
in writing by the Company to the Fund or the Distributor for use in
the Fund Registration Statement,
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Fund Prospectus (or any amendment or supplement thereto) or sales
literature for the Fund or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Distributor
or the Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales literature
or other promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control) or wrongful
conduct of the Distributor or persons under its control with respect
to the sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Distributor or the Fund to the Company (or a person authorized in
writing to do so on behalf of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Article VI of this
Agreement; and (ii) to provide the Company with accurate information
sufficient for it to calculate its accumulation and/or annuity unit
values in timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
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<PAGE>
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
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(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares, or an expected or
anticipated ruling, judgment or outcome which would, in the Fund's
reasonable judgment, materially impair the Company's ability to
perform the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment
Manager or any Sub-Investment Manager, by the NASD, the SEC, or any
state securities or insurance commission or any other regulatory
body regarding the duties of the Fund or the Distributor under this
Agreement, or an expected or anticipated ruling, judgment Or outcome
which would, in the Company's reasonable judgment, materially impair
the Fund's or the Distributor's ability to perform Fund's or
Distributor's obligations and duties hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager
by the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body which would, in the good
faith opinion of the Company, result in material harm to the
Accounts, the Company, or Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by
applicable law) and written approval of the Company, to substitute
the shares of another investment company for the corresponding
shares of the Fund in accordance with the terms of the Contracts; or
(g) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
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(h) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interestsof (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(i) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify; or
(l) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their
sole judgment exercised in good faith, that either (1) the Company
shall have suffered a material adverse change in its business or
financial condition; or (2) the Company shall have been the subject
of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of either the Fund
or the Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that
either: (1) the Fund and the Distributor, or either of them, shall
have suffered a material adverse change in their respective
businesses or financial condition; or (2) the Fund or the
Distributor, or both of them, shall have been the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company;
or
(n) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Accounts to another
insurance company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or unless this
Agreement is assigned to an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties to
this Agreement of its intent to terminate which notice shall set forth the basis
for such termination. Furthermore:
-18-
<PAGE>
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) In the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written
notice shall be given at least sixty (60) days before the date of
any proposed vote to replace the Fund's shares
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor
will, at the option of the Company, continue to make available
additional Fund shares for so long after the termination of this
Agreement as the Company desires, pursuant to the terms and
conditions of this Agreement as provided in paragraph (b) below, for
all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the Company so elects to make
additional Fund shares available, the owners of the Existing
Contracts or the Company, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall
promptly notify the Company whether the Distributor and the Fund
will continue to make Fund shares available after such termination.
If Fund shares continue to be made available after such termination,
the provisions of this Agreement shall remain in effect except for
Section 10.1(a) and thereafter either the Fund or the Company may
terminate the Agreement, as so continued pursuant to this Section
10.3, upon prior written notice to the other party, such notice to
be for a period that is reasonable under the circumstances but, if
given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the
effect of such Article VII termination shall be governed by the
provisions set forth or incorporated by reference therein.
-19-
<PAGE>
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through a Separate Account investing in the Fund.
The provisions of this Agreement shall be equally applicable to each such class
of contracts or policies, unless the context otherwise requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Small Cap Growth
Scudder Kemper Investments
222 So. Riverside Plaza
33rd Floor
Chicago, IL 60606
Attn: Mike Sandow
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Distributor:
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
Small Cap Growth
Date: Signature:
----------------------------------------------
Name:
---------------------------------------------------
Title:
--------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Date: Signature:
----------------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------------
Title: Vice President
--------------------------------------------------
[INSERT NAME] (Distributor)
Date: Signature:
----------------------------------------------
Name:
---------------------------------------------------
Title:
--------------------------------------------------
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<PAGE>
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of August 10, 1998
LINCOLN NATIONAL LIFE INSURANCE VARIABLE ANNUITY ACCOUNT N
-23-
<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of August 10, 1998
ACCRUE CHOICE PLUS VARIABLE ANNUITY (INDIVIDUAL ANNUITY)
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<PAGE>
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of August 10, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account
portfolio are (1) 10% of net asset value when borrowing for any general purpose;
and (2) 25% of net asset value when borrowing as a temporary measure to
facilitate redemptions. Net asset value of a portfolio is the market value of
all investments or assets owned less outstanding liabilities of the portfolio at
the time that any new or additional borrowing is undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
investments comprise less than 80% of the portfolio's net asset value; to three
when less than 60% of that value; to two when less than 40%; and to one when
less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
-25-
<PAGE>
PARTICIPATION AGREEMENT
AMONG
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
COLONIAL MANAGEMENT ASSOCIATES
THIS AGREEMENT, made and entered into this _______ of _________,
1998 by and between the Newport Tiger Fund, a corporation organized under the
laws of _______________ (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE
CO., an Indiana insurance corporation (the "Company"), on its own behalf and
on behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and _____________________________ (the
Distributor).
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-lA to register itself as an open-end
management investment company (File No. _________) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No.
________) under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC
to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts described in Schedule 2 to this Agreement as in effect at the
time this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time to
time in accordance with Article XI of this Agreement (such policies and
contracts shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule 2
being referred to as the "Contracts Registration Statement" and the prospectus
for each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contract Owners"); and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the 1934 Act), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the NASD); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the AFund Distribution Agreement) pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Dimensional Fund Advisors (the "Investment Manager") is
registered as an investment adviser under the 1940 Act and any applicable state
securities laws and serves as an investment manager to the Fund pursuant to an
agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
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<PAGE>
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 6:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares of any Series to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of
receiving redemption and purchase requests from the Account (but
not from the general account of the Company), and receipt on any
Business Day by the Company as such limited agent of the Fund
prior to the time prescribed in the current Fund Prospectus
(which as of the date of execution of this Agreement is 4 p.m.,
E.S.T.) shall constitute receipt by the Fund on that same
Business Day, provided that the Fund receives notice of such
redemption or purchase request by 11:00 a.m., E.S.T. on the next
following Business Day. For purposes of this Agreement,
"Business Day" shall mean any day on which the New York Stock
exchange is open for trading.
(b) The Company shall pay for the shares on the same day
that it places an order with the Fund to purchase those Series
shares for an Account. Payment for Series shares will be made by
the Account or the Company in Federal Funds transmitted to the
Fund by wire to be received by 11:00 a.m., E.S.T. on the day the
Fund is properly notified of the purchase order for shares. The
Fund will confirm receipt of each trade and these confirmations
will be received by LL via Fax or Email by 1:00 p.m. E.S.T. If
Federal Funds are not received on time, such funds will be
invested, and shares purchased thereby will be issued, as soon as
practicable.
-3-
<PAGE>
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company
by wire on the same day the Fund is notified of the redemption
order of shares, except that the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section
22(e) of the 1940 Act. Neither the Fund nor the Distributor
shall bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds if securities
must be redeemed; the Company alone shall be responsible for such
action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any shares. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
shares in the form of additional shares of that Fund. The Company reserves the
right, on its behalf and on behalf of the Account, to revoke this election and
to receive all such dividends in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share available to the Company by 6 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. Neither the Fund, any Series, the
Distributor, nor the Investment Manager nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund, the Distributor or the Investment Manager.
1.8. (a) The Company may withdraw the Account's investment in
the Fund only: (i) as necessary to facilitate Contract owner
requests; (ii) upon a determination by a majority of the Fund
Board, or a majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of
(x) any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the affected
Fund to substitute the shares of another investment company for
shares in accordance with the terms of the Contracts; (iv) as
required by state and/or federal laws or regulations or judicial
or other legal precedent of general application; or (v) at the
Company's sole discretion, pursuant to an order of the SEC under
Section 26(b) of the 1940 Act.
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<PAGE>
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies. (NOTE: This segment may
be variable.)
(c) The Company shall not, without prior notice to the
Distributor (unless otherwise required by applicable law), take
any action to operate the Account as a management investment
company under the 1940 Act.
1.9. The Fund and the Distributor agree that Fund shares will be
sold only to Participating Insurance Companies and their separate accounts.
The Fund and the Distributor will not sell Fund shares to any insurance
company or separate account unless an agreement complying with Article VII of
this Agreement is in effect to govern such sales. No Fund shares will be
sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of _________________.
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<PAGE>
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of _____________, to the extent
required to perform this Agreement; and with any state- mandated investment
restrictions set forth on Schedule 3, as amended from time to time by the
Company in accordance with Section 6.6. The Fund, however, makes no
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies
with the insurance laws or regulations of any state. The Company alone shall
be responsible for informing the Fund of any investment restrictions imposed
by state insurance law and applicable to the Fund.
2.7. The Distributor represents and warrants that it is duly
registered as a broker-dealer under the 1934 Act, a member in good standing of
the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents
and warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with applicable
federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
-6-
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies of
the current Fund Prospectus as the Company may reasonably request. If requested
by the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such Statement
free of charge to the Company and to any outstanding or prospective Contract
owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the
Company. The Fund shall be responsible for the costs of printing
and distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material. The
Company will provide the appropriate Contractowner names and
addresses to the Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager is named to the
Fund or the Distributor prior to its use. No such material shall be used,
except with the prior written permission of the Fund or the Distributor. The
Fund and the Distributor agree to respond to any request for approval on a
prompt and timely basis. Failure of the Fund to respond within 10 days of the
request by the Company shall relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund agrees to respond to any request for
permission on a prompt and timely basis. If neither the Fund nor the
Distributor responds within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
-7-
<PAGE>
3.6. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
If the Company fails to respond within 10 days of a request by the Fund or the
Distributor, then the Fund and the Distributor are relieved of the obligation to
obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy
of all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, computer net site, signs or billboards, motion
pictures or other public media), sales literature (I.E., any written
communication distributed or made generally available to customers or the
public, in print or electronically, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts
of any other advertisement, sales literature, or published article),
educational or training materials or other communications
-8-
<PAGE>
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1. Subject to applicable law and the order referred to in Article
VII, the Fund shall: solicit voting instructions from Contract owners;
4.2. Subject to applicable law and the order referred to in Article
VII, the Company shall:
(a) vote Fund shares attributable to Contract owners
in accordance with instructions or proxies received in timely
fashion from such Contract owners;
(b) vote Fund shares attributable to Contract owners
for which no instructions have been received in the same
proportion as Fund shares of such Series for which instructions
have been received in timely fashion; and
(c) vote Fund shares held by the Company on its own
behalf or on behalf of the Account that are not attributable to
Contract owners in the same proportion as Fund shares of such
Series for which instructions have been received in timely
fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company may print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
-9-
<PAGE>
and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contract owners.)
The Company is responsible for the cost of printing and distributing
Fund prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect for
so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by applicable
securities laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in
order to inform the Fund of any applicable state-mandated
investment restrictions with which the Fund must comply.
(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule
3, the Company shall be informed immediately of the substance of
those restrictions.
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ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and
Shared Funding Order") dated ______________________ of the Securities and
Exchange Commission under Section 6c of the Act and, in particular, has reviewed
the conditions to the relief set forth in the related Notice. As set forth
therein, the Company agrees to report to the Board of Directors of the Fund (the
"Board") any potential or existing conflicts between the interests of Product
Owners of all separate accounts investing in the Fund, and to assist the Board
in carrying out its responsibilities under the conditions of the Mixed and
Shared Funding Order by providing all information reasonably necessary for the
Board to consider any issues raised, including information as to a decision to
disregard voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with
that determination, the Company shall, at its sole cost and
expense, take whatever steps are necessary to remedy the
irreconcilable material conflict. These steps could include: (a)
withdrawing the assets allocable to some or all of the affected
Accounts from the Fund and reinvesting such assets in a different
investment vehicle, or submitting the question of whether such
segregation should be implemented to a vote of all affected
Contractowners and, as appropriate, segregating the assets of any
particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or
more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected Contractowners the
option of making such a change; and (b) establishing a new
registered mutual fund or management separate account, or taking
such other action as is necessary to remedy or eliminate the
irreconcilable material conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with the
Board, reserving its right to dispute the determination as
between just the Company and the Fund. After reserving that
right the Company, although disagreeing with the Board that it
(the Company) was responsible for the conflict, shall take the
necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for
the protection of Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the
If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration
conducted expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator; PROVIDED, HOWEVER, that if one party has requested
the other party to seek an amicable resolution and the other
party has failed to participate, the requesting party may
initiate arbitration before expiration of the 60-day period set
out just above.
If within 45 days of the commencement of the process to select
an arbitrator the parties cannot agree upon the arbitrator, then
he or she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort
Wayne, Indiana. The Arbitrator is not empowered to award damages
in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall
notify the Company immediately of that determination. The Fund
shall assure the Company that it (the Fund) or that other
insurer, as applicable, shall, at its sole cost and expense, take
whatever steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. Subject to the terms of Section 7.2 above, the Company shall
carry out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict.with a view only to the
interests of Contractowners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the Fund
be required to establish a new funding medium for any variable contract, nor
will the Company be required to establish a new funding medium for any Contract
if in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
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<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund, the Distributor and each person who controls or is
associated with the Fund (other than another Participating Insurance Company) or
the Distributor within the meaning of such terms under the federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if
such statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Fund or
the Distributor (or a person authorized in writing to do so on
behalf of the Fund or the Distributor) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts
or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of
the Company (other than statements or representations contained
in the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not supplied
by the Company or persons under its control) or wrongful conduct
of the Company or persons under its control with respect to the
sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not
-13-
<PAGE>
misleading in light of the circumstances in which they were made,
if such statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf
of the Company; or
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely
basis in accordance with the procedures set forth in Article 1;
or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate
its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Fund Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify shall
not apply if such statement or omission or alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund or
the Distributor for use in the Fund Registration Statement,
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<PAGE>
Fund Prospectus (or any amendment or supplement thereto) or sales
literature for the Fund or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the
Distributor or the Fund (other than statements or representations
contained in the Fund Registration Statement, Fund Prospectus or
sales literature or other promotional material of the Fund not
supplied by the Distributor or the Fund or persons under their
control) or wrongful conduct of the Distributor or persons under
its control with respect to the sale or distribution of the
Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment
or supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement
or omission was made in reliance upon information furnished in
writing by the Distributor or the Fund to the Company (or a
person authorized in writing to do so on behalf of the Fund or
the Distributor); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to
comply with the diversification requirements specified in Article
VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its
accumulation and/or annuity unit values in timely fashion as
required by law and by the Contracts Prospectuses); or
(e) arise out of any material breach by the Distributor or
the Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
-15-
<PAGE>
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties; or
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<PAGE>
(b) at the option of the Company if shares of the Fund are
not available to meet the requirements of the Contracts as
determined by the Company. Prompt notice of the election to
terminate for such cause shall be furnished by the Company.
Termination shall be effective ten days after the giving of
notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related to
the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Fund shares,
or an expected or anticipated ruling, judgment or outcome which
would, in the Fund's reasonable judgment, materially impair the
Company's ability to perform the Company's obligations and duties
hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment
Manager or any Sub-Investment Manager, by the NASD, the SEC, or
any state securities or insurance commission or any other
regulatory body regarding the duties of the Fund or the
Distributor under this Agreement, or an expected or anticipated
ruling, judgment Or outcome which would, in the Company's
reasonable judgment, materially impair the Fund's or the
Distributor's ability to perform Fund's or Distributor's
obligations and duties hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment
Manager by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body which would, in
the good faith opinion of the Company, result in material harm to
the Accounts, the Company, or Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by
applicable law) and written approval of the Company, to
substitute the shares of another investment company for the
corresponding shares of the Fund in accordance with the terms of
the Contracts; or
(g) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
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<PAGE>
(h) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(i) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if the
Company reasonably believes, based on an opinion of its counsel,
that the Fund may fail to so qualify; or
(j) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Section 817(h) of
the Code and any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes
that the Contracts may fail to so qualify; or
(l) at the option of either the Fund or the Distributor if
the Fund or the Distributor, respectively, shall determine, in
their sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have
been the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and operations
of either the Fund or the Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that
either: (1) the Fund and the Distributor, or either of them,
shall have suffered a material adverse change in their respective
businesses or financial condition; or (2) the Fund or the
Distributor, or both of them, shall have been the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company;
or
(n) upon the assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Accounts
to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of
the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate which notice shall set forth the
basis for such termination. Furthermore:
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<PAGE>
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions; and
(b) In the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required
by law or regulation.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior
written notice shall be given at least sixty (60) days before the
date of any proposed vote to replace the Fund's shares
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund and the
Distributor will, at the option of the Company, continue to make
available additional Fund shares for so long after the
termination of this Agreement as the Company desires, pursuant to
the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the
Company so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
(b) In the event of a termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund and the
Distributor shall promptly notify the Company whether the
Distributor and the Fund will continue to make Fund shares
available after such termination. If Fund shares continue to be
made available after such termination, the provisions of this
Agreement shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.3, upon
prior written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given
by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not
apply to any termination made pursuant to Article VII or any
conditions or undertakings incorporated by reference in Article
VII, and the effect of such Article VII termination shall be
governed by the provisions set forth or incorporated by reference
therein.
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ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the
Contracts and to add new classes of variable annuity contracts and variable
life insurance policies to be issued by the Company through a Separate
Account investing in the Fund. The provisions of this Agreement shall be
equally applicable to each such class of contracts or policies, unless the
context otherwise requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
Newport Tiger Fund
Colonial Management Associates
One Financial Center
Boston, MA 02111
Attn: Kevin O'Shea
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Distributor:
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ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of
this Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as applicable,
by such party, and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
Newport Tiger Fund
Date: Signature:
----------------------------------------------
Name:
---------------------------------------------------
Title:
--------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Date: Signature:
----------------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------------
Title: Vice President
--------------------------------------------------
[INSERT NAME] (Distributor)
Date: Signature:
----------------------------------------------
Name:
---------------------------------------------------
Title:
--------------------------------------------------
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SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 24, 1998
LINCOLN NATIONAL LIFE INSURANCE VARIABLE ANNUITY ACCOUNT N
- -------------------------------------------
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<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 24, 1998
ACCRUE CHOICE PLUS VARIABLE ANNUITY (INDIVIDUAL ANNUITY)
- ---------------------------------------------
- ---------------------------------------------
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<PAGE>
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of July 24, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account
portfolio are (1) 10% of net asset value when borrowing for any general
purpose; and (2) 25% of net asset value when borrowing as a temporary measure
to facilitate redemptions. Net asset value of a portfolio is the market value
of all investments or assets owned less outstanding liabilities of the
portfolio at the time that any new or additional borrowing is undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
investments comprise less than 80% of the portfolio's net asset value; to three
when less than 60% of that value; to two when less than 40%; and to one when
less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
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<PAGE>
Ex99.8(a)(vi)(b)
PARTICIPATION AGREEMENT
AMONG
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
COLONIAL MANAGEMENT ASSOCIATES
THIS AGREEMENT, made and entered into this _______ of _________, 1998
by and between the U.S. Stock Fund, a corporation organized under the laws of
_______________ (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE CO., an
Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and _____________________________ (the
Distributor).
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. _________) under the Investment Company Act of
1940, as amended (the "1940 Act"), and the Fund shares (File No. ________) under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts described in Schedule 2 to this Agreement as in effect at the time
this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time to
time in accordance with Article XI of this Agreement (such policies and
contracts shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule 2
being referred to as the "Contracts Registration Statement" and the prospectus
for each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contract Owners"); and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by resolution of the Board of Directors of the Company on the date set forth on
Schedule 1, sets aside and invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the 1934 Act), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the NASD); and
WHEREAS, the Distributor and the Fund have entered into an agreement (the
AFund Distribution Agreement) pursuant to which the Distributor will distribute
Fund shares; and
WHEREAS, Dimensional Fund Advisors (the "Investment Manager") is registered
as an investment adviser under the 1940 Act and any applicable state securities
laws and serves as an investment manager to the Fund pursuant to an agreement;
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
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<PAGE>
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 6:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares of any Series to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase request by
11:00 a.m., E.S.T. on the next following Business Day. For
purposes of this Agreement, "Business Day" shall mean any day on
which the New York Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day
that it places an order with the Fund to purchase those Series
shares for an Account. Payment for Series shares will be made by
the Account or the Company in Federal Funds transmitted to the Fund
by wire to be received by 11:00 a.m., E.S.T. on the day the Fund is
properly notified of the purchase order for shares. The Fund will
confirm receipt of each trade and these confirmations will be
received by LL via Fax or Email by 1:00 p.m. E.S.T. If Federal
Funds are not received on time, such funds will be invested, and
shares purchased thereby will be issued, as soon as practicable.
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<PAGE>
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by
wire on the same day the Fund is notified of the redemption order
of shares, except that the Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the
1940 Act. Neither the Fund nor the Distributor shall bear any
responsibility whatsoever for the proper disbursement or crediting
of redemption proceeds if securities must be redeemed; the Company
alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 6 p.m., E.S.T. each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share is
calculated, and shall calculate such net asset value in accordance with the then
currently effective Fund Prospectus. Neither the Fund, any Series, the
Distributor, nor the Investment Manager nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund, the Distributor or the Investment Manager.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (x)
any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the affected Fund
to substitute the shares of another investment company for shares
in accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the Company's sole
discretion, pursuant to an order of the SEC under Section 26(b) of
the 1940 Act.
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<PAGE>
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies. (NOTE: This segment may be variable.)
(c) The Company shall not, without prior notice to the
Distributor (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company
under the 1940 Act.
1.9. The Fund and the Distributor agree that Fund shares will be sold
only to Participating Insurance Companies and their separate accounts. The Fund
and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares will be sold to the
general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of _________________.
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<PAGE>
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of _____________, to the extent
required to perform this Agreement; and with any state- mandated investment
restrictions set forth on Schedule 3, as amended from time to time by the
Company in accordance with Section 6.6. The Fund, however, makes no
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies
with the insurance laws or regulations of any state. The Company alone shall
be responsible for informing the Fund of any investment restrictions imposed
by state insurance law and applicable to the Fund.
2.7. The Distributor represents and warrants that it is duly
registered as a broker-dealer under the 1934 Act, a member in good standing
of the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents
and warrants that the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940 and is in compliance with
applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
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<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies of
the current Fund Prospectus as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund at its expense shall
provide to the Company a camera-ready copy, and electronic version, of the
current Fund Prospectus suitable for printing and other assistance as is
reasonably necessary in order for the Company to have a new Contracts
Prospectus printed together with the Fund Prospectus in one document. See
Article V for a detailed explanation of the responsibility for the cost of
printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the Company.
The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material. The
Company will provide the appropriate Contractowner names and
addresses to the Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager is named to
the Fund or the Distributor prior to its use. No such material shall be
used, except with the prior written permission of the Fund or the
Distributor. The Fund and the Distributor agree to respond to any request
for approval on a prompt and timely basis. Failure of the Fund to respond
within 10 days of the request by the Company shall relieve the Company of the
obligation to obtain the prior written permission of the Fund or the
Distributor.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund
other than the information or representations contained in the Fund
Registration Statement or Fund Prospectus, as such Registration Statement and
Prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or by the Distributor, except with the prior
written permission of the Fund or the Distributor. The Fund agrees to
respond to any request for permission on a prompt and timely basis. If
neither the Fund nor the Distributor responds within 10 days of a request by
the Company, then the Company shall be relieved of the obligation to obtain
the prior written permission of the Fund.
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<PAGE>
3.6. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company,
the Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. If the Company fails to respond within 10 days
of a request by the Fund or the Distributor, then the Fund and the
Distributor are relieved of the obligation to obtain the prior written
permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of
Additional Information, annual and semi-annual reports and other reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Fund or
Fund shares, within 20 days after the filing of such document with the SEC or
other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy
of all Contracts Registration Statements, Contracts Prospectuses, Statements
of Additional Information, Annual and Semi-annual Reports, sales literature
and other promotional materials, and all amendments or supplements to any of
the above, that relate to the Contracts, within 20 days after the filing of
such document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a
party requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other
public media), sales literature (I.E., any written communication distributed
or made generally available to customers or the public, in print or
electronically, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications
-8-
<PAGE>
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, Statements of Additional Information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933
Act.
ARTICLE IV. VOTING
4.1 Subject to applicable law and the order referred to in Article
VII, the Fund shall: solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the order referred to in Article
VII, the Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for
which no instructions have been received in the same proportion as
Fund shares of such Series for which instructions have been
received in timely fashion; and
(c) vote Fund shares held by the Company on its own behalf
or on behalf of the Account that are not attributable to Contract
owners in the same proportion as Fund shares of such Series for
which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration
Statement, the preparation of all statements and notices required by any
Federal or state securities law, all taxes on the issuance or transfer of
Fund shares, and any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company may print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
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<PAGE>
and for underlying funds other than those of the Fund, then the Fund shall
pay only its proportionate share of the total cost to distribute the booklet
to existing Contract owners.)
The Company is responsible for the cost of printing and distributing
Fund prospectuses and SAIs for new sales; and Account Prospectuses and SAIs
for existing Contractowners. The Company shall have the final decision on
choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and the Account's Registration Statement under the 1940
Act from time to time as required in order to effect the continuous offering
of the Contracts or as may otherwise be required by applicable law. The
Company shall register and qualify the Contracts for sale to the extent
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by
applicable securities laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) The Company shall amend Schedule 3 when appropriate in
order to inform the Fund of any applicable state-mandated investment
restrictions with which the Fund must comply.
(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3,
the Company shall be informed immediately of the substance of those
restrictions.
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<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and
Shared Funding Order") dated ______________________ of the Securities and
Exchange Commission under Section 6c of the Act and, in particular, has
reviewed the conditions to the relief set forth in the related Notice. As
set forth therein, the Company agrees to report to the Board of Directors of
the Fund (the "Board") any potential or existing conflicts between the
interests of Product Owners of all separate accounts investing in the Fund,
and to assist the Board in carrying out its responsibilities under the
conditions of the Mixed and Shared Funding Order by providing all information
reasonably necessary for the Board to consider any issues raised, including
information as to a decision to disregard voting instructions of variable
contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense,
take whatever steps are necessary to remedy the irreconcilable
material conflict. These steps could include: (a) withdrawing the
assets allocable to some or all of the affected Accounts from the
Fund and reinvesting such assets in a different investment vehicle,
or submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (b) establishing a new registered
mutual fund or management separate account, or taking such other
action as is necessary to remedy or eliminate the irreconcilable
material conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with the
Board, reserving its right to dispute the determination as between
just the Company and the Fund. After reserving that right the
Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of
Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the
If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to select
an arbitrator the parties cannot agree upon the arbitrator, then he
or she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in
excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall
notify the Company immediately of that determination. The Fund
shall assure the Company that it (the Fund) or that other insurer,
as applicable, shall, at its sole cost and expense, take whatever
steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company shall withdraw (without charge or penalty) the Account's
investment in the Fund, if the Fund so elects.
7.4. Subject to the terms of Section 7.2 above, the Company shall
carry out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict.with a view only to the
interests of Contractowners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund, the Distributor and each person who controls or
is associated with the Fund (other than another Participating Insurance
Company) or the Distributor within the meaning of such terms under the
federal securities laws and any officer, trustee, director, employee or agent
of the foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement
of, any action, suit or proceeding or any claim asserted), to which they or
any of them may become subject under any statute or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund or the Distributor
(or a person authorized in writing to do so on behalf of the Fund
or the Distributor) for use in the Contracts Registration
Statement, Contracts Prospectus or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not
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<PAGE>
misleading in light of the circumstances in which they were made,
if such statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf
of the Company; or
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article 1; or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate its
Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the
federal securities laws and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they or any of
them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made; provided that this obligation to indemnify shall not
apply if such statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund or the
Distributor for use in the Fund Registration Statement,
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<PAGE>
Fund Prospectus (or any amendment or supplement thereto) or sales
literature for the Fund or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Distributor
or the Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not supplied
by the Distributor or the Fund or persons under their control) or
wrongful conduct of the Distributor or persons under its control
with respect to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Distributor or the Fund to the Company (or a person
authorized in writing to do so on behalf of the Fund or the
Distributor); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Article VI of
this Agreement; and (ii) to provide the Company with accurate
information sufficient for it to calculate its accumulation and/or
annuity unit values in timely fashion as required by law and by the
Contracts Prospectuses); or
(e) arise out of any material breach by the Distributor or
the Fund of this Agreement.
This indemnification will be in addition to any liability which the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is due
to the wilful misfeasance, bad faith, gross negligence or reckless disregard
of duty by the party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of
the commencement of any action, if a claim in respect thereof is to be made
by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable
-15-
<PAGE>
thereafter, provided that the omission to so notify the indemnifying party
will not relieve it from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result
of the failure to give such notice. The indemnifying party, upon the request
of the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason of
such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant, and the terms hereof shall be limited, interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
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<PAGE>
(b) at the option of the Company if shares of the Fund are
not available to meet the requirements of the Contracts as
determined by the Company. Prompt notice of the election to
terminate for such cause shall be furnished by the Company.
Termination shall be effective ten days after the giving of notice
by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares, or an expected or
anticipated ruling, judgment or outcome which would, in the Fund's
reasonable judgment, materially impair the Company's ability to
perform the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment
Manager or any Sub-Investment Manager, by the NASD, the SEC, or any
state securities or insurance commission or any other regulatory
body regarding the duties of the Fund or the Distributor under
this Agreement, or an expected or anticipated ruling, judgment or
outcome which would, in the Company's reasonable judgment,
materially impair the Fund's or the Distributor's ability to
perform Fund's or Distributor's obligations and duties hereunder;
or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment
Manager by the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body which would, in the good
faith opinion of the Company, result in material harm to the
Accounts, the Company, or Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by
applicable law) and written approval of the Company, to substitute
the shares of another investment company for the corresponding
shares of the Fund in accordance with the terms of the Contracts;
or
(g) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
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<PAGE>
(h) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(i) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the
Code, or under any successor or similar provision, or if the
Company reasonably believes, based on an opinion of its counsel,
that the Fund may fail to so qualify; or
(j) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes that
the Contracts may fail to so qualify; or
(l) at the option of either the Fund or the Distributor if
the Fund or the Distributor, respectively, shall determine, in
their sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of either
the Fund or the Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that
either: (1) the Fund and the Distributor, or either of them, shall
have suffered a material adverse change in their respective
businesses or financial condition; or (2) the Fund or the
Distributor, or both of them, shall have been the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(n) upon the assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Accounts
to another insurance company pursuant to an assumption reinsurance
agreement) unless the non-assigning party consents thereto or
unless this Agreement is assigned to an affiliate of the
Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate which notice shall set
forth the basis for such termination. Furthermore:
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<PAGE>
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such
provisions; and
(b) In the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required by
law or regulation.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written
notice shall be given at least sixty (60) days before the date of
any proposed vote to replace the Fund's shares
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund and the
Distributor will, at the option of the Company, continue to make
available additional Fund shares for so long after the termination
of this Agreement as the Company desires, pursuant to the terms and
conditions of this Agreement as provided in paragraph (b) below,
for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the Company so elects to make
additional Fund shares available, the owners of the Existing
Contracts or the Company, whichever shall have legal authority to
do so, shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing
Contracts.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor
shall promptly notify the Company whether the Distributor and the
Fund will continue to make Fund shares available after such
termination. If Fund shares continue to be made available after
such termination, the provisions of this Agreement shall remain in
effect except for Section 10.1(a) and thereafter either the Fund or
the Company may terminate the Agreement, as so continued pursuant
to this Section 10.3, upon prior written notice to the other party,
such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for more than
six months.
(c) The parties agree that this Section 10.3 shall not apply
to any termination made pursuant to Article VII or any conditions
or undertakings incorporated by reference in Article VII, and the
effect of such Article VII termination shall be governed by the
provisions set forth or incorporated by reference therein.
-19-
<PAGE>
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to
add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in
the Fund. The provisions of this Agreement shall be equally applicable to
each such class of contracts or policies, unless the context otherwise
requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
U.S. Stock Fund
Colonial Management Associates
One Financial Center
Boston, MA 02111
Attn: Kevin O'Shea
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Distributor:
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as
applicable, by such party, and when so executed and delivered this Agreement
will be the valid and binding obligation of such party enforceable in
accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized officer on the
date specified below.
U.S. Stock Fund
Date: Signature:
---------------------------------------------------------
Name:
--------------------------------------------------------------
Title:
-------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Date: Signature:
---------------------------------------------------------
Name: Kelly D. Clevenger
--------------------------------------------------------------
Title: Vice President
-------------------------------------------------------------
[INSERT NAME] (Distributor)
Date: Signature:
---------------------------------------------------------
Name:
--------------------------------------------------------------
Title:
-------------------------------------------------------------
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<PAGE>
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 24, 1998
LINCOLN NATIONAL LIFE INSURANCE VARIABLE ANNUITY ACCOUNT N
-23-
<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 24, 1998
ACCRUE CHOICE PLUS VARIABLE ANNUITY (INDIVIDUAL ANNUITY)
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<PAGE>
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of July 24, 1998
The California Department of Insurance has established the following
Guidelines for an underlying portfolio of a Separate Account:
BORROWING. Borrowing limits for any variable contract separate account
portfolio are (1) 10% of net asset value when borrowing for any general
purpose; and (2) 25% of net asset value when borrowing as a temporary
measure to facilitate redemptions. Net asset value of a portfolio is the
market value of all investments or assets owned less outstanding liabilities
of the portfolio at the time that any new or additional borrowing is
undertaken.
FOREIGN INVESTMENTS - DIVERSIFICATION.
1. A portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
investments comprise less than 80% of the portfolio's net asset value; to
three when less than 60% of that value; to two when less than 40%; and to one
when less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no
more than 20% of its net asset value invested in securities of issuers
located in any one country.
3. A Portfolio may have an additional 15% of its net asset value invested
in securities of issuers located in any one of the following countries:
Australia, Canada, France, Japan, the United Kingdom or Germany.
4. A Portfolio's investments in United States issuers are not subject to
the foreign country diversification guidelines.
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<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL BOND FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Bond Fund, Inc. a corporation organized under
the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE CO.,
an Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company in 1988,
the Company succeeded to all the legal rights and responsibilities of Lincoln
National Pension Insurance Company, the signatory to the original Agreement to
Purchase Shares, which this Agreement amends and restates.
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the
Company orders on behalf of the Account, executing such orders on a daily basis
in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase request by 9:00
a.m., E.S.T. on the next following Business Day. For purposes of
this Agreement, "Business Day" shall mean any day on which the New
York Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or
the Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by
the Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds
are not received on time, such funds will be invested, and shares
purchased thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of
shares, except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940
Act. The Fund shall not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds if
securities must be redeemed; the Company alone shall be responsible
for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions
3
<PAGE>
as are payable on any shares in the form of additional shares of that Fund. The
Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (x)
any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the Fund to
substitute the shares of another investment company for shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the Company's sole
discretion, pursuant to an order of the SEC under Section 26(b) of
the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be
4
<PAGE>
issued in compliance in all material respects with all applicable Federal and
state laws and (c) that the Company will require of every person distributing
the Contracts that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and validly existing under applicable law and that it has legally and validly
authorized each Account as a separate account under Section 27-1-5-1 of the
Indiana Insurance Code, and has registered or, prior to the issuance of any
Contracts, will register each Account (unless exempt therefrom) as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
separate account for its Contracts, and that it will maintain such registrations
for so long as any Contracts issued under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
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2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the Company.
The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece
of sales literature or other promotional material in which the Fund is named.
No such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond
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within 10 days of a request by the Company, then the Company shall be relieved
of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party reasonably
needs such information for purposes of preparing a report or other filing to be
filed with or submitted to a regulatory agency. If a party requests any such
information before it has been filed, the other party will provide the requested
information if then available and in the version then available at the time of
such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports,
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market letters, form letters, seminar texts, or reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners
in the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
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The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or
separate booklets containing disclosure for the Contracts and for underlying
funds other than those of the Fund, then the Fund shall pay only its
proportionate share of the total cost to distribute the booklet to existing
Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the
Fund must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
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(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense,
take whatever steps are necessary to remedy the material
irreconcilable conflict. These steps could include: (i) withdrawing
the assets allocable to some or all of the affected Accounts from
the Fund and reinvesting such assets in a different investment
vehicle, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractowners and,
as appropriate, segregating the assets of any particular group
(i.e., variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (ii) establishing a new registered
mutual fund or management separate account; or (iii) taking such
other action as is necessary to remedy or eliminate the material
irreconcilable conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict. After
reserving that right the Company, although disagreeing with the
Board that it (the Company) was responsible for the conflict, shall
take the necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for the
protection of Contractowners.
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(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute,
it shall so notify the Board in writing. The parties shall then
attempt to resolve the matter amicably through negotiation by
individuals from each party who are authorized to settle the
matter. If the matter has not been amicably resolved within 60
days from the date of the Company's notice of its intent to press
the dispute, then before either party shall undertake to litigate
the dispute it shall be submitted to non-binding arbitration
conducted expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator; PROVIDED, HOWEVER, that if one party has requested the
other party to seek an amicable resolution and the other party has
failed to participate, the requesting party may initiate
arbitration before expiration of the 60-day period set out just
above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in
excess of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the
Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other Participating
Insurance Company as applicable, shall, at its sole cost and
expense, take whatever steps are necessary to eliminate the
conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all or
part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict. However, in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract, if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund and each person who controls or is associated with
the Fund (other than another Participating Insurance Company) within the meaning
of such terms under the federal securities laws and any officer, trustee,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid with the prior written consent of the Company in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in
the Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances
in which they were made, if such statement or omission was made in
reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company; or
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(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments
under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made; provided that this obligation to indemnify shall not
apply if such statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund for use
in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the Fund
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
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(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control) or wrongful
conduct of the Fund or persons under its control with respect to
the sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Fund to the Company (or a person authorized in writing to do
so on behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Sections 2.4 and
6.1 in Article VI of this Agreement; and (ii) to provide the
Company with accurate information sufficient for it to calculate
its accumulation and/or annuity unit values in timely fashion as
required by law and by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
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indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for
such cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
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(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any
sub-investment advisor, by the NASD, the SEC, or any state
securities or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code,
or under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Fund; or
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(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or
the Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required by
law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, if the Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted
to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts.
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(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in
effect except for Section 10.1(a) and thereafter either the Fund or
the Company may terminate the Agreement, as so continued pursuant
to this Section 10.3, upon prior written notice to the other party,
such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for more than
six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of
such Article VII termination shall be governed by the provisions
set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Bond Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
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ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL BOND FUND, INC.
Signature:
------------------------------------------------------------
Name: Kelly D. Clevenger
-----------------------------------------------------------------
Title: President
----------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
------------------------------------------------------------
Name: Stephen H. Lewis
-----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
----------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Bond Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Bond Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
eANNUITY
EMANCIPATOR LIFE
MULTI FUND VARIABLE LIFE
ACCRU CHOICEPLUS
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
22
<PAGE>
SCHEDULE 3
Lincoln National Bond Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 33 1/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL MONEY MARKET FUND, INC.
THIS AGREEMENT, made and entered into this 7th day of June, 1998,
by and between Lincoln National Money Market Fund, Inc. a corporation organized
under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE
CO., an Indiana insurance corporation (the "Company"), on its own behalf and
on behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the
Company orders on behalf of the Account, executing such orders on a daily basis
in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
2
<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such redemption or purchase request by 9:00
a.m., E.S.T. on the next following Business Day. For purposes of
this Agreement, "Business Day" shall mean any day on which the New
York Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or
the Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by
the Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds
are not received on time, such funds will be invested, and shares
purchased thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of
shares, except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940
Act. The Fund shall not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds if
securities must be redeemed; the Company alone shall be responsible
for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
3
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (I) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (x)
any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contract owners having an interest in the Fund to
substitute the shares of another investment company for shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the Company's sole
discretion, pursuant to an order of the SEC under Section 26(b) of
the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
<PAGE>
a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the Company.
The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece
of sales literature or other promotional material in which the Fund is named.
No such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
6
<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements,
7
<PAGE>
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners
in the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
8
<PAGE>
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the
Fund must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
9
<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense,
take whatever steps are necessary to remedy the material
irreconcilable conflict. These steps could include: (i) withdrawing
the assets allocable to some or all of the affected Accounts from
the Fund and reinvesting such assets in a different investment
vehicle, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractowners and,
as appropriate, segregating the assets of any particular group
(i.e., variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (ii) establishing a new registered
mutual fund or management separate account; or (iii) taking such
other action as is necessary to remedy or eliminate the material
irreconcilable conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict . After
reserving that right the Company, although disagreeing with the
Board that it (the Company) was responsible for the conflict, shall
take the necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for the
protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute,
it shall so notify the Board in writing. The parties shall then
attempt to resolve the matter amicably through negotiation by
individuals from each party who are authorized to settle the
10
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matter. If the matter has not been amicably resolved within 60
days from the date of the Company's notice of its intent to press
the dispute, then before either party shall undertake to litigate
the dispute it shall be submitted to non-binding arbitration
conducted expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator; PROVIDED, HOWEVER, that if one party has requested the
other party to seek an amicable resolution and the other party has
failed to participate, the requesting party may initiate
arbitration before expiration of the 60-day period set out just
above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in
excess of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the
Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other Participating
Insurance Company as applicable, shall, at its sole cost and
expense, take whatever steps are necessary to eliminate the
conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all or
part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict. However, in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract, if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund and each person who controls or is associated with
the Fund (other than another Participating Insurance Company) within the meaning
of such terms under the federal securities laws and any officer, trustee,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid with the prior written consent of the Company in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in
the Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances
in which they were made, if such statement or omission was made in
reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company; or
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<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments
under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made; provided that this obligation to indemnify shall not
apply if such statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund for use
in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the Fund
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
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<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control) or wrongful
conduct of the Fund or persons under its control with respect to
the sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Fund to the Company (or a person authorized in writing to do
so on behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Sections 2.4 and
6.1 in Article VI of this Agreement; and (ii) to provide the
Company with accurate information sufficient for it to calculate
its accumulation and/or annuity unit values in timely fashion as
required by law and by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for
such cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any
sub-investment advisor, by the NASD, the SEC, or any state
securities or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing inthe Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code,
or under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations of the
Fund; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or
the Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required by
law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, if the Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted
to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in
effect except for Section 10.1(a) and thereafter either the Fund or
the Company may terminate the Agreement, as so continued pursuant
to this Section 10.3, upon prior written notice to the other party,
such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for more than
six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of
such Article VII termination shall be governed by the provisions
set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Money Market Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL MONEY MARKET FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Money Market Fund
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of June 7, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN LIFE FLEXIBLE VARIABLE LIFE ACCOUNT R
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Money Market Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of June 7, 1998
MULTI FUND VARIABLE ANNUITY
eANNUITY
EMANCIPATOR LIFE
VUL I
ACCRU CHOICEPLUS
GROUP MULTI FUND
SVUL I
MULTI FUND - NON-REGISTERED
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<PAGE>
SCHEDULE 3
Lincoln National Money Market Fund
State-mandated Investment Restrictions
Applicable to the Fund
As of June 7, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 33 1/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and not more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are
all countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
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<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III
FIDELITY DISTRIBUTORS CORPORATION
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the ___________ day of
March,1998 by and among THE LINCOLN NATIONAL LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Indiana corporation, on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the
1
<PAGE>
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b) (15)
and 6e-3 (T) (b) (15) thereunder, to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"), and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable life insurance and annuity contracts under the 1933 Act;
and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act, and
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life insurance and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE 1. Sale of Fund Shares
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<PAGE>
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1. 1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article 11
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable life insurance or
3
<PAGE>
variable annuity contracts with the form number(s) which are listed on Schedule
A attached hereto and incorporated herein by this reference, as such Schedule
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the Fund, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Compaq's general account, provided that such
amounts may also be invested in one or more investment companies other than the
Fund.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire. For purpose of Section 2.10 and 2.11, upon receipt by
the Fund of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company or its designee on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6 p.m.
Boston time.
ARTICLE 11. Representations and Warranties
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2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act unless an exemption from registration is
available and an opinion of counsel to the effect shall have been furnished the
Fund that the Contracts will be issued and sold-in-compliance in all material
respects with all applicable Federal and State laws. The Company further
represents and warrants that it is an insurance company duly organized and
validly existing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 27-1-5-1 of the Indiana Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts,
for Indiana: Section 27-1-5-1 of the Indiana's Insurance Code
for Connecticut: Section 38a-433 of the Connecticut General Statutes
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana,
Connecticut, New York, all appropriate and all applicable federal and state
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company presents that the Contracts are currently treated as
life insurance policies or annuity insurance contracts under applicable
provisions of the Code, that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
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<PAGE>
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance
with the laws of the State of and the Fund and the
Underwriter represent that their respective operations are and shall at all
times remain in material compliance with the laws of the State of to the
extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under the Investment
Advisers Act of 1940 and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or,
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued bv a
reputable bonding company. The Fund and the Underwriter agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agree to notify the Company immediately in
the event that such coverage no longer applies.
2.11. The Company represents and warrants that all of its directors,
offiicers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, and that said
bond is issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
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ARTICLE III. Prospectuses and Proxy Statements: Voting
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such information as
may be reasonably requested by the Fund to assure that the Fund's expenses do
not include the cost of printing any prospectuses or Statements of Additional
Information other than those actually distributed to existing owners of the
Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners,
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(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same proportion as Fund shares
of such portfolio for which instructions have been received in that separate
account, so long as and to the extent that the Securities and Exchange
Commission continues to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales
8
<PAGE>
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within ten Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, ??????? in published reports for each Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests within 30 days for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, days of the filing of such document with the Securities and Exchange
Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Accout and to their investment in the Fund within 30 days of
the filing of such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (ie., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all
9
<PAGE>
agents or employees, and registration statements, prospectuses, Statements of
Additional Information, shareholder reports. and proxy materials, and any other
material constituting sales literature or advertising under NASD rules, the 1940
Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6. 1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
917(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
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<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change; and
(2), establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account, provided, however that such withdrawal and termination shall be
limited
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<PAGE>
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable, and (b) Sections 3.4, 3.5, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
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<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1 (a). The Company agrees to indemnify hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of untrue statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not supplied
by the Company, or personsunder its control) or willful misfeasance, bad faith
or gross negligence of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
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<PAGE>
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1
(b) and 8.1 (c) hereof.
8.1 (b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from. such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Partys reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1 M. The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
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<PAGE>
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and: acts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration.
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement to any of the foregoing) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of untrue statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) willful misfeasance,
bad faith, or gross negligence of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund,
or
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<PAGE>
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Partys willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
*indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shalll have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
16
<PAGE>
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Fund; as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Parties willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the fund of
any such claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof The Fund also shall
be entitled to assume the defense thereof, with counsel satisfactory
17
<PAGE>
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX Applicable Law.
9. 1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by ninety (90)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the
18
<PAGE>
underlying investment media of the Contracts issued or to be issued by the
Company, or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision, or if
the Company reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shell determine, in their sole judgement exercised in
good faith after affording the Company reasonable opportunity for consultation
with the terminating party, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject or
material adverse publicity; or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its sole judgement
exercised in good faith, after affording the Fund and the Underwriter reasonable
opportunity for consultation with the Company, that either the Fund or the
Underwriter and/or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
(h) termination by the Company by written notice to the Fund
and the Underwriter upon the requisite vote of the Contract owners having an
interest in a Portfolio (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another investment
company for the corresponding shares of a Portfolio in accordance with terms of
the Contracts; or
(i) termination by written notice to the Company at the
option of the Fund, upon institution of formal proceedings against the Company
and by the NASD, and SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of the Account, the administration
of the Contracts or the purchase of Fund shares, or an expected or anticipated
ruling, judgment or outcome which would, in the Fund's reasonable judgment,
materially impair the Company's ability to perform the Company's obligations and
duties hereunder; or
(k) termination by written notice to the Fund and the
Underwriter, at the option of the Company, upon institution of formal
proceedings against the Fund, the Underwriter, the Fund's investment adviser or
any sub-adviser, by the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body regarding the duties of the Fund or the
Underwriter under this Agreement, or an expected or anticipated ruling, judgment
or outcome which would, in the Company's reasonable judgment, materially impair
the Fund's or the Underwriter's ability to perform the Fund's or the
Underwriter's obligations and duties hereunder; or
(1) termination by written notice to the Fund and the
Underwriter, at the option of the Company, upon institution of formal
proceedings against the Fund's investment adviser of any sub-adviser by the
NASD, the SEC, or any state securities or insurance commission or any other
regulatory body which would, in the good faith opinion of the Company, result in
material harm to the Accounts, the Company or Contract owners.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall
19
<PAGE>
not apply to any terminations under Article VII and the effect of such Article
VII terminations shall be governed by Article VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any other provision of this Agreement, was
party's obligation under Article VII to indemnify the other party shall survive
termination of this Agreement, to the extent that the events giving rise to the
obligation to indemnify the other party occurred prior to the date of
termination.
ARTICLE XI Notices
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund: 82 Devonshire Street Boston, Massachusetts 02109 Attention:
Treasurer
If to the Company:
The Lincoln National Life Insurance Company
1300 -S. Clinton Street
Fort Wayne, IN 46802
Attention: Kelly D. Clevenger
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
20
<PAGE>
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish any Insurance Commissioner with any information or reports in
connection with services provided under this Agreement which such Commissioner
may request in order to ascertain whether the insurance operations of the
Company are being conducted in a manner consistent with the Insurance
Regulations and any other applicable law or regulations of that state.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all fights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly
21
<PAGE>
licensed and registered to perform the obligations of the Underwriter under this
Agreement. The Company shall promptly notify the Fund and the Underwriter of any
change in control of the Company.
The Company shall furnish or shall cause to be furnished, to the Fund or its
designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45 days after the
end of each quarterly period;
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
________________ LIFE INSURANCE COMPANY
By:
Name:
22
<PAGE>
Title:
VARIABLE INSURANCE PRODUCTS FUND III
By:
--------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
--------------------
Kevin J. Kelly
Vice President
23
<PAGE>
Schedule-A
SeRarate Accounts and Associated Contracts
Name of Separate Account and
Date Established by Board of Directors
Policy Form Numbers of Contracts Funded
By Separate Account
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder meeting to
ficilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done in writing approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
d.
b. address
C. Fund or account number coding to state number of units
25
<PAGE>
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund) (This and related steps may occur
later in the chronological process due to possible uncertainties relating
to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company or
its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single sheet
of paper that requests Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by the Fund *)
e. cover letter - optional, supplied by Company and reviewed and approved in
advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund Must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not
been required by Fidelity in the past.
26
<PAGE>
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card
and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are and considered to be received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible) of
the procedure are "hand verified," i.e., examined as to why they did not
complete the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulatio format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may reasonably request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
28
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
I
THIS AGREEMENT. made and entered into tllis~V'day of May 1998. by and among
MTS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the "Trust"),
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY. an Indiana corporation (the
"Company") on its own behalf p ~ and oil behalf of each of the segregated
asset accounts of the Company set forth in Schedule A hereto, as mav be
amended from time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL
SERVICES COMPANY. a Delaware corporation ("MFS").
WHEREAS. the Trust is registered as an open-end management investment
company under the Investment Cornpan-N, Act of 1940, as amended (the "1940
Act"). and its shares are registered or will be re-istered under the Securities
Act of 19", as amended (the " 1933 Act"),
WHEREAS. shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, tile series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth oil Schedule A attached hereto (each, a
"Portfolio," and. collectively, the "Portfolios"):
WHEREAS. MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940. as amended and is the Trust's investment
adviser;
WHEREAS. the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, wi11 be realstered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to tile Accounts
(the Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS. the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt there from);
WHEREAS. MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (,hereinafter the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (tile "NASD"),
<PAGE>
WHEREAS. tile Company, the underwriter for the Policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD, and zl are as follows:
WHEREAS. to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies. and the Trust intends to sell such Shares to
the Accounts at net asset value:
NOW, THEREFORE, in consideration of their mutual promises, tile Trust, MFS,
and the Company
ARTICLE 1. SALE AND REDEMPTION OF TRUST SHARES
Tile Trust agrees to sell to the Company those Shares which the Accounts
order (based on orders placed by Policy holders on that Business Day, as
defined below) and which are available for purchase by such Accounts.
executina such orders on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the order for the Shares. For
purposes of this Section 1. 1. the Company shall be the designee of the Trust
for receipt of such orders from Policy owners and receipt by such designee
shall constitute receipt by the Trust, PROVIDED that the Trust receives
notice of such orders by 9:30 a.m. New York time on the next following
Business Day. "Business Dav" shall rnean any day on which the New York Stock
Exchange, Inc. (the "NYSE") is open for trading and oil which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Trust a-rees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset value
on each day which the NYSE is open for trading. Notwithstanding the foregoing,
the Board of Trustees of tile Trust (tile "Board") may refuse to sell any Shares
to the Company and the Accounts, or suspend or terminate the offering of the
Shares if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of tile Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to insurance
companies which have entered into participation agreements with the Trust and
MFS (the "Participating Insurance Companies") and their separate accounts,
qualified pension and retirement plans and MFS or its affiliates. The Trust and
MFS will not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Articles III
and VII of this Agreement is in effect to govern such sales. The Company will
not resell the Shares except to the Trust or its agents.
-2-
<PAGE>
#20320
The Trust agrees to redeem for cash, on the Company's request, any full or
fractional Shares held by the Accounts (based on orders placed by Policy owners
on that Business Day), executing such requests on a daily basis at tile net
asset value next computed after receipt by the Trust or its designee OF the
request for redemption. For purposes of this Section 1.4. the Company shall be
the designee of tile Trust for receipt of requests for redemption from Policy
owners and receipt b\ such designee shall constitute receipt by the Trust,
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business DaN.
Each purchase. redemption and exchange order placed by the Company shall be
placed separatek for each Portfolio and shall not be netted with respect to any
Portfolio. However, with respect to payment of the purchase price by the Company
and of redemption proceeds by the Trust, the Company and the Trust shall net
purchase and redemption orders with respect to each Portfolio and shall transmit
one net payment for all of the Portfolios in accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the Shares by
2:00 p.m. New York time on the next Business Da~ after an order to purchase the
Shares is made in accordance with the provisions OF Section 1. 1. hereof. In the
event of net redemptions, the Trust shall pay the redemption proceeds by 2:00
p.m. New York tirne on the next Business Day after an order to redeern the
shares is made in accordance with the provisions of Section 1.4. hereof. All
such payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer OF the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the Accounts
or the appropriate subaccounts of the Accounts.
The Trust shall furnish same day notice (by wire or telephone followed by
written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive all
such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares OF that Portfolio, but may revoke that election at any time by
iIFN M2 the Trust written, I ompany of the number of Shares so lot
The Trust shall notily the C issued as payment OF such dividends and
distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. In the event that the Trust is unable to meet the 6:30 p.m.
tirne stated herein, it shall provide additional time for the Company to place
orders for the purchase and redemption of Shares. Such additional time shall be
equal to the additional time which the Trust takes to make the net asset value
available to the Company. If the Trust provides materially incorrect share net
asset value information, the Trust shall make an adjustment to the number of
shares purchased or redeemed for the Accounts to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
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ARTICLE 11. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2 1 Tile Compan\ represents and warrants that the Policies are or will be
registered under the 19' )3 Act or are exerript from or not subject to
registration thereunder, and that the Policies will be issued. sold. and
distributed in compliance in all material respects with all applicable state and
federal laws. including without limitation the 1933 Act, the Securities Exchange
Act of 1934, as amended (the " 1934 Act"). and the 1940 Act. The Company further
represents and warrants that it is an insurance company duly organized and
validly existing under applicable law and that it has legal1N and validly
established the Account as a segregated asset account under applicable law and
has registered or. prior to any issuance or sale of the Policies, will register
the Accounts as unit investment trusts in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as segregated investment accounts
for the Policies, and that it will maintain such registration for so lonQ as
all\ Policies are outstanding. The Company shall amend the registration
statements under the 1933 Act for the Policies and the registration statements
under the 1940 Act for the Accounts from tirne to time as required in order to
effect the continuous offering of the Policies or as ma\ other~,vise be required
by applicable law. The Company shall register and qualif~, the Policies for
sales in accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2 The Company represents and warrants that the Policies are currently and
at the time of issuance will be treated as life insurance policies, endowment or
annuity contracts under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), that it will maintain such treatment and that it
WILL notlfV the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they might not
be so treated in the future.
2.3. The Company represents and warrants that it, as the underwriter for
the Policies, is a member in good standing of the NASD and is a registered
broker-dealer with the SEC. The Company represents and warrants that, to the
extent it sells the Policies directly, it will sell and distribute such policies
in accordance in all material respects with all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
The Trust and MFS represent and warrant that the Shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the la\,\;s of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Trust is and shall remain registered under the 1940 Act. The Trust shall amend
the recristration statement for its Shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Shares. The Trust shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed necessary
by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
DISTRIBUTE THE SHARES IN ACCORDANCE IN ALL MATERIAL RESPECTS with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
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<PAGE>
2.6. The Trust represents that it is lawfull\ organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and all\ applicable
regulations thereunder.
2.7 MFS represents and warrants that and shall remain duly registered under
all applicable federal securities laws and that it shall perform its obligations
for the Trust in compliance in all material respect~ \\ith all\ applicable
federal securities laws and with the securities laws of The Cornmormcalth ol
Massachusetts. MFS represents and warrants that it is not subject to state
securities iak\ s other than tile securities laws of The Commonwealth of
Massachusetts and that it is exempt from registration as all investment adviser
under the securities laws of The Commonwealth of Massachusetts.
18. Tile Cornpan\ shall submit to the Board such reports. material or data as
the Board may reasonably request from time to time so that it mav carrv out
ful1v the oblioations imposed upon it bN tile conditions contained in the
exemptive application pursuant to which the SEC has granted exemptive relief to
permit mixed and shared funding (the "Mixed and Shared Funding Exemptive
Order").
ARTICLE 111. PROSPECTUS AND PROXY STATEMENTS; VOTING
At least annual]. . . the Trust or its designee shall provide the Company,
free of charge, with as many copies of the current prospectus (describing only
the Portfolios listed in Schedule A hereto) for the Shares as tile Company may
reasonably request for distribution to existing Policy owners whose Policies are
funded by such Shares. The Trust or its designee shall provide the CornpanN. at
the Company's expense. with as many copies of the current prospectus for the
Shares as the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested b\ tile Company\ in lieu thereof. the Trust
or its designee shall provide such documentation, including, a "camera ready"
copy of the new prospectus as set in type or, at the request of the Cornpan\. as
a diskette in the form sent to tile financial printer) and other assistance as
is reasonabiv necessary in order for tile parties hereto once each year (or more
frequently if the prospectus for the Shares is supplernented or amended) to have
tile prospectus for tile Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to the
number of pages of the Pollcv and Shares' prospectuses, taking account of other
relevant factors affecting the expense of printing, such as covers, columns,
graphs and charts; the Trust or its designee to bear the cost of printing the
Shares' prospectus portion of such document for distribution to owners of
existing Policies funded'by the Shares and the Company to bear the expenses of
printing the portion of such document relating to the Accounts; provided,
however,, that the Company shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's prospectus in a
"camera ready" or diskette format, the Trust shall be responsible for providing
the prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (eg., typesetting EXPENSES), AND THE COMPANY SHALL BEAR the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.2. The prospectus for tile Shares shall state that the statement of
ADDITIONAL INFORMATION FOR the Shares is available frorn the Trust or its
designee. The Trust or its designee, at its expense,
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<PAGE>
420320
shall print and provide such statement OF additional information to the Company
(or a master OF such statement. suitable for duplication by the- Compamy for
distribution to any owner of a policy funded by the Shares. Tile Trust or its
designee, at the Company's expense, shall print and provide such statement to
tile Company (or a master of such statement suitable for duplication by the
Company) for distribution to a prospective purchaser who requests such statement
or to an owner OF a POLICY not funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to tile Shares, of the Trust's proxy
materials, reports to Shareholders and other cornm un ]cations to Shareholders
in such quantity as the Company shall reasonably require for distribution to
PolicN owners.
3.4. Notwithstanding the provisions of Sections 3. 1, 31.2, and 33.3 above,
or of Article V below, the CornpanN shall pay tile expense OF printing or
providing documents to tile extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but are not
limited to, the printing OF the Shares' prospectus or prospectuses for
distribution to prospective purchasers or to owners OF existing Policies not
funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding
3.6. If and to the extent required by law. the Company shall:
(a) solicit voting instructions from Policy owners-,
(b) vote the Shares in accordance with instructions received from Policy
owners; and
(c) vote tile Shares in each separate Account for which no instructions
have been
received in the same proportion as the Shares of such Portfolio in such Account
for which instructions have been received from Policy owners;
so loncy as and to the extent that the SEC continues to interpret the 1940 Act
to require pass through voting privileges for variable contract owners. The
Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such Policy
owners. Tile Company reserves the right to vote shares held in any segregated
asset account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts holding Shares calculates voting privileges in the manner
required by the Mixed and Shared Funding Exemptive Order. The Trust and MFS will
notify the Company of any changes of interpretations or amendments to the Mixed
and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the Trust, or
any affiliate of MFS are named, at least ten (10) Business Days
#20320
20
<PAGE>
prior to its use. No such material shall be used if the Trust, MFS, or their
respective designees reasonably objects to such use within five (5) Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statement on behalf of tile Trust. MFS, any other investment adviser to the
Trust, or any affiliate of MFS or concern i mu, the 'trust or anN other such
entity in connection with the sale of the Policies other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxv statements for tile
Trust, or in sales literature or other promotional material approved by the
Trust. MFS or their respective designees, except with the permission of the
Trust, MFS or their respective designees. The Trust. MFS or their respective
designees each agrees to respond to any request for approval oil a prompt and
timely basis. The Company shall adopt and implement procedures reasonably
designed to ensure that information concerning the Trust, MFS or any of their
affiliates which is intended for use only by brokers or agents selling the
Policies (I.E., information that is not intended for distribution to Policy
owners or prospective Policy owners) is so used, and neither the Trust, MFS nor
ariv of their affiliates shall be liable for any losses, damages or expenses
relating to tile improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee. each piece of sales literature or
other promotional material in which the Company and/or the Accounts is named. at
least ten H 0) Business Days prior to its use. No such material shall be used if
the Company or its designee reasonably objects to such use within five (5)
Business Days after receipt of such material.
The Trust and MFS shall not give. and agree that the Underwriter shall not
give, any informatioii or make aiiv representations oil behalf of the Company or
concerning the Company, the Accounts. or tile Policies in connection with the
sale of the Policies other than the information or representations contained in
a re-istration statement, prospectus, or statement of additional information for
the Policies, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company. The Company or its designee agrees to respond to any request for
approval on a prompt and timely basis. The parties hereto agree that this
Section 4.4. is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate (in the case of THE TRUST) TO THE
POLICIES, OR (IN THE case of the Company) to the Trust or its Shares, within
twenty (20) days after the filing of such docurnent with the SEC or other
regulatory authorities. The Company and the Trust shall also each promptly
inform the other of the results of any examination by the SEC (or other
regulatory authorities) that relates to the Policies, the Trust or its Shares,
and the party that was the subject of the examination shall provide the other
party with a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
420320
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<PAGE>
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxN solicitation for any Portfolio, and of any
material change in the Trust's recristration statement. particularly an), change
requiring change to the registration statement or prospectus or statement of
additional information for any Account. The Trust and MFS will cooperate with
the Company so as to enable the Company to solicit proxies from Policy owners or
to make chanues to its prospectus. statement of additional information or
registration statement, in an orderl\ manner The Trust and MFS will make
reasonable efforts to attempt to have changes affectim-, Pollc\ prospectuses
become effective simultaneously with the annual updates for such PI-OSPeCtLISCS
4.7. For purpose of this Article IV and Article VIII. the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in. a newspaper.
magazine, or other periodical. radio, television, telephone or tape recording,
videotape displa\. signs or billboards. motion pictures, or other public media),
and sales literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published articles), distributed or
made generall\ available to customers or the public, educational or trainina
materials or communications distributed or made aenerallv available to some or
all AUENTS or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pa\ no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to the
Trust, except that if the Trust or any Portfolio adopts and implements a plan
pursuant to Rule 12b- I under the 1940 Act to finance distribution and
Shareholder servicing expenses. then, subject to obtaining any required
exemptive orders or regulatory approvals. the Trust may make payments to the
Company or to the underwriter for the Policies if and in amounts AUREED to by
the Trust in writing. Each party, however, shall, in accordance xvith the
allocation of expenses specified in Articles III and V hereof, reimburse other
parties for expenses initial],,, paid by one party but allocated to another
party. In addition, nothing herein shall prevent the parties hereto frorn
otherwise agreeing to perform, and arranging for appropriate compensation for.
other services relating to the Trust and/or to the Accounts.
The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filino of the Trust's realstration
statement, and payment of film- fees and registration fees; preparation and
filincy of the Trust's proxy materials and reports to Shareholders, setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above),
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares-, all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b- I under the 1940 Act. The Trust shall not bear any expenses of
MARKETING THE POLICIES.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and of
DISTRIBUTING THE TRUST'S
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<PAGE>
Shareholder reports to Policy owners. The Company shall bear all expenses
associated with the registration, qualification, and filing of the Policies
under applicable federal securities and state Hisurance laws. the cost of
preparing. printing and distributing the Policy prospectus and statement
of additional information to other than existing Policy owners; and the cost of
preparing, printing L, and distributina annual individual account statements for
Policy owners as required by state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (I) of the
Code and Treas. Reg. 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, as the,. rna-, be
amended from time to tirne (and any revenue rulings, revenue procedures,
notices, and other published announcements of the Internal Revenue Service
interpreting these sections), as if those requirements applied directly to each
such Portfolio. The Trust and MFS represent that each Portfolio will elect to
be qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor or similar provision), and will notify the Company if it appears that
any Portfolio will not so qualify.
ARTICLE V11. POTENTIAL MATERIAL CONFLICTS
The Trust AAREES that the Board. constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of anv material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy oxvners
of the Company and/or affiliated companies ("contract owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board.
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
The Company agrees that it will be responsible for assisting the Board in
carrying out its responsibilities under the conditions set forth in the Trust's
exemptive application pursuant to which the SEC has granted the Mixed and Shared
Funding Exemptive Order by providing the Board, as it may reasonably request,
with all information necessary for the Board to consider any issues raised and
agrees that it will be responsible for promptly reporting any potential or
existing conflicts of which it is aware to the Board including, but not limited
to, an obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded. The Company also agrees that if it is
determined by a majority of the Trustees, or a majority of the disinterested
Trustees, that a material irreconcilable conflict exists, the Company shall, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees) take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict. which steps include:
(a) withdrawing the assets allocable to some or all of the Accounts froin the
Trust or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Trust, or
submitting to a vote of all affected contract owners whether to withdraw assets
from the Trust or any Portfolio and reinvesting such
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<PAGE>
assets in a different investment medium and. as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract owners
the option of segregating the assets attributable to their contracts or
policies. and (b) establishing a new registered management investment company
and segregating the assets underIvinu the Policies, unless a majority of Policy
owners materially adversely affected b\ the conflict have voted to decline the
offer to establish a new registered management investment compan\.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by tile Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
the Company will withdraw frorn investment in the Trust each of the Accounts
designated by the disinterested trustees and terminate this Agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, HOWEVER. that such withdrawal and termination shall be
limited to the extent required to remedy an\ such material irreconcilable
conflict as determined by a majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exerriptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate. shall take such steps as may be necessary to comply
with Rule 6e-2 and 6e-3(T). as amended, and Rule 6e-3, as adopted, to the extent
such rules are applicable; and (b) Sections 3.5. 3.6. 7.1, 7.2. 7.3 and 7.4 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust. MFS. any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which any Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a)arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Policies or contained
in the Policies or sales literature or other promotional material for the
Policies (or any amendment or
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#20320
<PAGE>
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reasonable reliance upon and in conformity with information furnished to
the Cornpaw, or its designee by or on behalf of the Trust or MFS for use in the
reEnstration statement. prospectus or statement of additional information for
the Policies or in the Policies or sales literature or other promotional
material (or any amendinent or supplement to any of the foregoing) or otherwise
for use in connection with the sale of the Policies or Shares; or
(b)arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust not supplied by the Company or its designee,
or persons under its control and on which the Company has reasonably relied) or
wrongful conduct of the Company or persons under its control, with respect to
the sale or distribution of the Policies or Shares: or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the reizistration staternent, prospectus, statement
of additional information. or sales literature or other promotional literature
of the Trust, or any amendment thereof or supplement thereto. or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Trust by or on behalf of the Company, or
(d)arise out of or result from any material breach of any representation
and/or warranty inade by the Company in this Agreement or arise out of or result
from anx; other material breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the services
and furnish the materials under the terms of this Agreement; as limited by and
in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust a-rees to indemnifv and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to WHICH
ANY INDEMNIFIED PARTY MAY become subject under any statute, at common law or
otherwise, insofar as such losses, claims,
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<PAGE>
#20320
20
darnaues. liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of an\ material fact contained in the registration statement,
prospectus. statement of additional information or sales literature or other
promotional material of the Trust (or an\ amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Partv if such
staternent or omission or such alleged statement or ornission was made in
reasonable reliance upon and in conformity with Information furnished to the
Trust. MFS, the Underwriter or their respective desianees B\ or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Trust or in sales literature or other promotional
material for the Trust (or any amendment or supplement to an\ of the foreooing)
or otherwise for use in connection with the sale of the
Policies or Shares-. or (b)
(C) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material for the Policies not supplied by the Trust. MFS, the
Underwriter or any of their respective designees or persons under their
respective control and on which any such entity Z~ -
has reasonably relied) or wrongful conduct of the Trust or persons under its
control. Nvith respect to the sale or distribution of the Policies or Shares, or
arise out of an\- untrue statement or alleged untrue statement of a material
fact contained in the rea'strat'I ion statement, prospectus. statement of
additional information, or sales literature or other promotional literature of
the Accounts or relating to the Policies. or any amendment thereof or supplement
thereto, or the omission or alleaed omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such staternent or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter-, or
(d) at-Ise out of or result from any inaterial breach of any
representation and/or warranty made by the Trust in this Agreement (including a
failure, whether Unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this Agreement) or arise
out of or result from anv other material breach of this Agreement by the Trust;
or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend or
capital gain distribution rate; or arise as a result of any failure by the Trust
to provide the SERVICES AND FURNISH THE materials under the terms of the
Agreement;
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<PAGE>
as limited by and in accordance with the provisions of tills Article VIII.
In no event sliall the Trust be liable under the indemnification provisions
contained in this Aureenient to anN individual or entity. includinc, without
limitation, the Company. or any Participatinu, Insurance Company or any Policy
holder, with respect to any losses, claims, datnaL,es. liabilities or expenses
that arise out of or result froin (1) a breach of any representation,
k,,,arrant\. and/or coxenani made b\ the Company hereunder or by any
Participating Insurance Conipan\ under an affeement containing substantially
similar representations. warranties and covenants: (11) the failure by the
Company or any Participating Insurance Company to maintain its seareuated asset
account (which invests in any Portfolio) as a legally and valldly established
segregated asset account under applicable state law and as a duly registered
unit i I I investment trust under the provisions of the 1940 Act (unless exempt
therefrom): or (Ili) the failure by the Company or anN Participating Insurance
Company to maintain its variable annuity and/or variable life insurance
contracts (with respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuit\ contracts under applicable
provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Aareernent \vIth respect to any
losses, claims. damages. liabilities or expenses to Z~ which all Indemnified
Part\ would otherwise be subject by reason of such Indemnified Party's \'llful
misfeasance. willful misconduct, or gross neglig, A, I I - igence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of oblioations and duties under this Aareenient.
Prornptl\ after receipt by all Indemnified Part\ under this Section 8.5. of
notice of commencement of anv action. such Indemnified Party will, if a claim in
respect thereof is to be made aaaInst the indernnifvino party under this
section, notify the indemnifying party of the 1101-11niencernent thereof. but
the ornission so to notify the indemnifying party will not relieve it from all,,
habilitN which it ma\ have to any Indemnified Party otherwise than under this
section. In case all\ such action is broualit auainst any Indemnified Party, and
it notified the indemnifying part\ of the commencement thereof, the Indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such Indemnified
Party. After notice from tile indemnifying party of its intention to assume the
defense of all action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litiuation or proceedino acrainst it or any of its
respective officers, directors, trustees, employees or 1933 Act control persons
in connection with tile Agreement, the issuance or sale of the Policies, the
operation of the Accounts, or the sale or acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
420320
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<PAGE>
9 1 This Agreement shall be construed and tile provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2 ~ This Aureernent shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and reuulations as tile SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust. MFS. and the Company agree that each such party shall promptly
notify the other parties to this Agreeinent~ in of the institution of all),
formal proceedings brought against such party or its designees b~ tile NASD.
tile SEC. or any insurance department or any other regulatory body regarding
such party's duties under this Agreement or related to the sale of the Policies,
the operation of the Accounts, or tile purchase of the Shares.
ARTICLE XI. TERMINATION
Portfolios:
420320
This Agreement shall terminate with respect to the Accounts, or one, sorne, or
all
(a) at the option of any party upon six (6) months' advance written notice
to the other parties: or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonablv available to meet the requirements of the Policies
or are not "appropriate funding vehicles" for the Policies, as reasonably
determined by the Company. Without limiting the generality of the foregoing, the
Shares of a Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other requirements
referred to in Article VI hereof: or if the Company would be permitted to
disregard Policy owner voting instructions pursuant to Rule 6e-2 or 6e-3(T)
under the 1940 Act. Prompt notice of tile election to terminate for such cause
and an explanation of such cause shall be furnished to the Trust by the Company;
or
(c) at tile option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any insurance
department or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Policies, the operation of the
Accounts, or the purchase of the Shares, or
(d) at the option of the Company upon institution of formal proceedings
against the Trust or MFS by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body regarding the Trust's or MFS'
duties under this Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners having an
interest in the
-14-
14
<PAGE>
Accounts (or any subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected to serve as the
underlying investment media. The Company will give thirty (30) days' prior
written notice to the Trust of the Date of any proposed vote or other action
taken to replace the Shares-. or
W) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively, shall
determine, in their sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement; or C~
(g) termination by the Company by written notice to the Trust and MFS, if
the Company shall determine. In its sole Judgment exercised in good faith, that
the Trust or MFS has suffered a material adverse change in this business,
operations, financial condition or prospects since the date of this Agreement.
or
(1.1) at the option of any partN to this Agreement, upon another party's
material breach of any provision of this Agreement-, or upon asslanment of this
A-reement, unless made with the written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section I ].I (a) may be exercised for
cause or for no cause. Termination by any party pursuant to any of Section 11. 1
(b) through Section 11. 1 (1) shall not take effect until the terminating party
shall have provided written notice to the other party.
11.4. Except as necessary to implement Policy owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem the Shares attributable to the Policies (as opposed to the Shares
attributable to the Company's assets held in the Accounts), and the Company
shall not prevent Policy owners from allocating payments to a Portfolio that was
otherwise available under the Policies. until thirty (30) days after the Company
shall have notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically. WITHOUT LIMITATION, THE OWNERS OF THE
EXISTING POLICIES SHALL be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the Trust
upon the making of additional purchase payments under the Existing Policies.
-15-
<PAGE>
#20320
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the other party at the address of such
party set forth below or at such other address as such party may frorn time to
time specify in writing to the other party, If to the Trust:
MFS VARIABLE INSURANCE TRUST 500 Boylston Street Boston. Massachusetts 02116
Facsimile No.: (617) 954-6624 Attn: Stephen E. Cavan, Secretary If to the
Cornpan-N:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 South Clinton Street Fort
Wayne. Indiana 46802-3506 FacsirnileNo.: (219)455-177') Attri: KellN D.Clevenger
If to MFS: MASSACHUSETTS FINANCIAL SERVICES COMPANY 500 BovIston Street Boston,
Massachusetts 02116 Facsimile No.: (617) 954-6624 Attn: Stephen E. Cavan,
General Counsel
ARTICLE XIII. MISCELLANEOUS
Subject to the requirement of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Policies and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement or
as otherwise required by applicable law or regulation, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
-16-
420320
<PAGE>
13.5. The Schedule attached hereto, as modified from tirne to time, is
incorporated herein by reference and is part of this Agreement.
13. 6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities (including
without limitation the SEC, the NASD, and state insurance regulators) relating
to this Agreement or the transactions contemplated hereby. L- L
13.7. The rights. remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. The
Company further acknowledges that the assets and liabilities of each Portfolio
are separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the Portfolio on
whose behalf the Trust has executed this instrument. The Company also agrees
that the obligations of each Portfolio hereunder shall be several and not joint,
in accordance with its proportionate interest hereunder, and the Company agrees
not to proceed against any Portfolio for the obligations of another Portfolio.
420320
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By its authorized officer,
By:
Title
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE
PORTFOLIOS
By its authorized officer and not individually,
lames R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY By its authorized officer.
man and Chief Executive Officer
-18-
<PAGE>
As of May _, 1998
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
NAME OF SEPARATE
W
Account and Date PO1I*S'F**DE,D,""'
ESTABLISHED BY BOARD OF DIRECTORS bySeparat4~A'c'tbiint""I",~,~-"""-"",
t"O",
Lincoln Life Flexible Flexible Premium Variable Life MFS Emerging Growth
Series
Premium Variable Life MFS Total Return
Series
Separate Account M MFS Utilities
Series
Lincoln Life Flexible Premium Variable Life
Separate Account
-19-
#20320
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
THE LINCOLN NATIONAL LIFE INSURANCE CONPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 15 day of May 1998 by and
among The Lincoln National Life Insurance Company, an Indiana Corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule I to this Agreement, as may be amended
from time to time (each account referred to as the "Account"), OCC ACCUMULATION
TRUST, an open-end diversified management investment company organized under the
laws of the State of Massachusetts (hereinafter the "Fund") and OCC
DISTRIBUTORS, a Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"), and
WHEREAS, THE FUND HAS OBTAINED AN ORDER FROM THE SECURITIES AND
EXCHANGE Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 22, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3j)(b)(15) thereunder,
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity separate accounts and variable life insurance separate accounts
of both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts and variable life insurance policies (the "Contracts") under
the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Indiana, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
2
<PAGE>
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Accounts named in Schedule 2 to fund the Contracts
and the Underwriter is authorized to sell such shares to unit investment trusts
such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE 1. SALE AND REDEMPTION OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of each Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund. For
purposes of this Section 1. 1, the Company shall be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC.
3
<PAGE>
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles 1, 111, V, and VII of this agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating
4
<PAGE>
Insurance Companies and (ii) a copy of the Participation Agreement executed by
any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company, except
that the Fund reserves the right to delay payment of redemption proceeds in the
event that portfolio holdings other than cash equivalents must be liquidated to
pay the redemption proceeds, but in no event may such payment be delayed longer
than the period permitted under Section 22(e) of the 1940 Act. Neither the Fund
nor the Underwriter shall bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds; the Company alone shall be
responsible for such action. If notification of redemption is received after
10:00 a.m. Eastern Time, payment for redeemed shares will be made on the next
following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders
5
<PAGE>
for Fund shares will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9. The Fund shall finish notice as soon as reasonably practicable to
the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this election
and to receive all such dividends and distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. Any material error in the calculation of net
asset value per share, dividend or capital gain information shall be reported
promptly to the Company upon discovery by the Fund and the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct net asset value.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and validly existing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has
6
<PAGE>
registered each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as segregated investment accounts for the
Contracts, and that it will maintain such registration for so long as the 1940
Act requires. The Company shall amend the registration statement under the 1933
Act for the Contracts and the registration statement under the 1940 Act for the
Account from time to time as required in order to effect the continuous offering
of the Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale in accordance with the
securities laws of the various states only if and to the extent deemed necessary
by the Company.
2.2. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts or
life insurance policies under applicable provisions of the Internal Revenue Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
7
<PAGE>
2.4. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any investment
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule l2b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
8
<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under federal securities
laws and that the Adviser will perform its obligations to the Fund in accordance
with the laws of Massachusetts and any applicable state and federal securities
laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) adopted pursuant to the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid Bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and
9
<PAGE>
embezzlement and is issued by a reputable bonding company. The Company agrees to
make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE M. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3. 1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus or, if
requested by the Company, a version of the Fund's prospectus that includes
only the Portfolios of the Fund that are used to fund the Company's
contracts, as the Company may reasonably request for use with prospective
contractowners and applicants. The Underwriter shall print and distribute, at
the Fund's or Underwriter's expense, as many copies of said prospectus as
necessary for distribution to existing contractowners or participants. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation including a final copy of a current prospectus set in type at
the Fund's expense and other assistance as is reasonably necessary in order
for the Company at least annually (or more frequently if the Fund prospectus
is amended more frequently) to have the new prospectus for the Contracts and
the Fund's new prospectus printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at
10
<PAGE>
the Company's expense, to any prospective contractowner and applicant who
requests such statement,
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, if any, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require and shall
bear the costs of distributing them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in an Account in accordance with
instructions received from contractowners or participants; and
(iii) vote Fund shares held in an Account for which no timely
instructions have been received, in the same proportion as
Fund shares of such Portfolio for which instructions have
been received from the Company's contractowners or
participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require passthrough voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC interpretation of the requirements
of
11
<PAGE>
Section 16(a) with respect to periodic elections of directors and with whatever
rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4. 1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least fifteen business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within ten
business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within ten
business days after receipt of such material.
12
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4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares, within 20
days after the filing of such document with the SEC or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Fund, within 20 days after the filing of such document with the SEC or other
regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or
13
<PAGE>
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), sales literature (I.E., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, statements of additional information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule l2b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to
14
<PAGE>
existing shareholders and contractowners, the preparation of all statements and
notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares, and any expenses permitted to be paid or assumed
by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will comply with Section
817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, relating to
the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations in accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. In the event of a
breach of this Article VI by the Fund, it will take all reasonable steps (a) to
notify the Company of such breach and (b) to adequately diversify the Fund so as
to achieve compliance with the grace period afforded by Treasury Regulation
1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7. 1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public
15
<PAGE>
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by Participating Insurance Companies or by variable
annuity contract and variable life insurance contractowners; or (0 a decision by
an insurer to disregard the voting instructions of contractowners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof. A majority of the Fund
Board shall consist of persons who are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding Exemptive
Order, the Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board upon its request with all information
reasonably necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the Fund
Board whenever contractowner voting instructions are disregarded. The Fund Board
shall record in its minutes or other appropriate records, all reports received
by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
16
<PAGE>
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
of any appropriate group (I.E., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to such
Account. Any such withdrawal and termination must take place within 90 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 90 day period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 90 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
90 day
17
<PAGE>
period the Underwriter and Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or the Underwriter be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
7.7. The Company shall from time to time submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall
<PAGE>
continue in effect only to the extent that terms and conditions substantially
identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the Underwriter,
and each of the Fund's or the Underwriter's directors, officers, employees or
agents and each person, if any, who controls or is associated with the Fund or
the Underwriter within the meaning of such terms under the federal securities
laws (collectively, the "indemnified parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
reasonable legal and other expenses), to which the indemnified parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or contained
in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the Contracts or in the
Contracts or sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
19
<PAGE>
arise out of or as a result of untrue statements or representations by or on
behalf of the Company (other than statements or representations contained in the
Fund registration statement, Fund prospectus, Fund statement of additional
information or sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or willful malfeasance,
bad faith or gross negligence of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund shares; or
arise out of any untrue statement or alleged untrue statement of a material fact
contained in the Fund registration statement, Fund prospectus, statement of
additional information or sales literature or other promotional material of the
Fund or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund by or
on behalf of the Company or persons under its control, or
(iv) arise as a result of any failure by the Company to provide the services and
furnish the materials or to make any payments under the terms of this Agreement;
or
arise out of any material breach of any representation and/or warranty made by
the Company in this Agreement or arise out of or result from any other material
breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have. (b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
20
<PAGE>
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter) or
litigation (including reasonable legal and other expenses) to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made; provided
that this agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of additional information
for the Fund or in sales literature or other promotional material of the
Fund (or any amendment or supplement to any of the foregoing) or otherwise
for use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of untrue statements or representations (other
than statements or representations contained in the Contracts
21
<PAGE>
or in the Contract or Fund registration statement, the Contract or Fund
prospectus, statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund not supplied by
the Underwriter or the Fund or persons under the control of the Underwriter
or the Fund, respectively) or willful malfeasance, bad faith or gross
negligence of the Underwriter or the Fund or persons under the control of
the Underwriter or the Fund, respectively, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other
promotional material covering the Contracts (or any amendment thereof
or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Underwriter or the
Fund or persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related
thereto specified in Article VI of this Agreement except if such
failure is a result of the Company's failure to comply with the
notification procedures specified in Article VI); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter or the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Underwriter or the Fund; except to the extent
provided in Sections 8.2(b) and 8.3 hereof This indemnification shall
be in addition to any liability which the Underwriter may otherwise
have. (b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification.
22
<PAGE>
(c) The indemnified parties will promptly notify the Underwriter of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other
23
<PAGE>
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
parties to this Agreement in connection with the offering of Fund shares to the
Account and the acquisition, holding or sale of Fund shares by the Account, or
if such allocation is not permitted
24
<PAGE>
by applicable law, in such proportions as is appropriate to reflect the relative
net benefits referred to above but also the relative fault of the parties to
this Agreement in connection with any actions that lead to such losses, claims,
damages, liabilities or litigations, as well as any other relevant equitable
considerations.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10. 1. This Agreement shall terminate:
(a) at the option of any party upon six months' advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other
25
<PAGE>
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of the Fund shares, which the Fund reasonably
believes would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which the
Company reasonably believes would have a material adverse effect on the Fund's
or the Underwriter's ability to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will give
30 days prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any
26
<PAGE>
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof, or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that, the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement; or
(1) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written
notice of the election to
27
<PAGE>
terminate this Agreement for cause shall be furnished by the party terminating
the Agreement to the non-terminating parties, with said termination to be
effective upon receipt of such notice by the non-terminating parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.10 or 10.1 (k), prior written notice of
the election to terminate this Agreement for cause shall be furnished by the
party terminating this Agreement to the non-terminating parties. Such prior
written notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for
no reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
28
<PAGE>
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1 (a) and
thereafter the Fund, the Underwriter, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice to
the other party, such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund or Underwriter, need not be for more
than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
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<PAGE>
Kelly D. Clevenger
The Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802-3506
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
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<PAGE>
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
31
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
COMPANY:
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
SEAL By:
FUND:
OCC ACCUMULATION TRUST
SEAL By:
UNDERWRITER:
OCC DISTRIBUTORS
By-
32
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, The Lincoln National Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule I may invest in the following
Portfolios of the OCC Accumulation Trust:
Global Equity Portfolio
Managed Portfolio
May 15, 1998
S:\LEGALDEP\FUNDS\ASSET\WORD\PARTAGR2.LNL
<PAGE>
Writer's Direct Dial: 219/455-5135
Telefax Number: 219/455-3018
September 2, 1998
VIA EDGAR
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
Re: Lincoln Life Variable Annuity Account N
(Delaware Lincoln Choice Plus XL)
(File Nos. 811-08517)
Ladies and Gentlemen:
I have made such examination of law and have examined such records and documents
as I have deemed necessary to render the opinion expressed below.
I am of the opinion that upon acceptance by Lincoln National Variable Annuity
Account N (the "Account"), a segregated account of The Lincoln National Life
Insurance Company (Lincoln Life), of contributions from a person pursuant to an
annuity contract issued in accordance with the prospectus contained in the
registration statement on Form N-4, and upon compliance with applicable law,
such person will have a legally issued interest in his or her individual account
with the Account, and the securities issued will represent binding obligations
of Lincoln Life.
I consent to the filing of this Opinion as an exhibit to the Account's
Initial Registration Statement on Form N-4.
Sincerely,
/s/ Jeremy Sachs
Jeremy Sachs
Senior Counsel
<PAGE>
Exhibit 10
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Initial Registration Statement (Form N-4) and the related Statement of
Additional Information appearing therein and pertaining to Lincoln Life Variable
Annuity Account N, and to the use therein of our report dated February 5, 1998,
with respect to the statutory-basis financial statements of The Lincoln National
Life Insurance Company.
Fort Wayne, Indiana
August 29, 1998
<PAGE>
Exhibit 13
Lincoln National Life Account N
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
A. STANDARDIZED PERFORMANCE (1)
The Average Annual Total Return for each period will be 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:
n
P + (1 + T) = 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: a) all recurring fees have been charged to
Contract Owner accounts; 2) all applicable non-recurring charges are deducted at
the end of the period in questions; 3) there will be a complete redemption at
the end of the period in question.
1. Since Account N is a new account, the standardized performance shown
here is for example purposes only.
<PAGE>
B. NON-STANDARDIZED QUOTATIONS
This schedule presents the formulas and calculation employed in producing
non-standardized investment results. Amount and Compound Growth Rate
calculations are shown for all base periods disclosed.
The formula for calculating the current Amount of an originally invested
$10,000 for a particular base period is:
CP - (X / Y) * $10,000
where:
CP = Amount at End of Base Period
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
The formula for calculating the Compound Growth Rate for a particular base
period is:
(1 / N)
GR = (X / Y) - 1
where:
GR = Annualized Return
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
N = Number of Years of Fund Performance Being Evaluated
<PAGE>
Separate Account N - Standardized 1 Year Returns
ONE YEAR RETURNS PERIOD ENDING 6/28/98
<TABLE>
<CAPTION>
Bond
---------
<S> <C>
Fund Value $1,096.46
Fee 1.25
Surr Charge 0.00
Final Value $1,095.21
Annual Return 9.52%
</TABLE>
Calculation of Annual Return
Final Value - 1,000* (6/30/98 Unit Value/6/30/97 Unit Value) - Annual Fee -
Surrender Charge
Annual Return = Final Value/1,000 - 1
Unit Values
<TABLE>
<CAPTION>
Date Bond
- ------- ---------
<S> <C>
6/30/97 4.112465
6/30/98 4.509158
</TABLE>
<PAGE>
Separate Account N - Standardized 5 Year Returns
FIVE YEAR RETURNS PERIOD ENDING 6/30/98
<TABLE>
<CAPTION>
- ----------------------------------
Bond
- ----------------------------------
<S> <C>
One Year $978.19
Fee 1.25
Final Value $976.94
- ----------------------------------
Two Year $1,079.83
Fee 1.25
Final Value $1,078.58
- ----------------------------------
Three Year $1,108.88
Fee 1.25
Final Value $1,107.63
- ----------------------------------
Four Year $1,177.24
Fee 1.25
Final Value $1,175.99
- ----------------------------------
Five Year $1,289.43
Fee 1.25
Surr Charge 0.00
Final Value $1,288.18
Annual Return 5.20%
- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Calculation of Annual Return
<S> <C> <C> <C>
Final Value Year One = 1,000* (6-30-93 Unit Value / 6-30-94 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000* (6-30-94 Unit Value / 6-30-95 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000* (6-30-95 Unit Value / 6-30-96 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000* (6-30-96 Unit Value / 6-30-97 Unit Value) - Annual Fee Year Four
Final Value Year Five = 1,000* (6-30-97 Unit Value / 6-30-98 Unit Value) - Annual Fee Year Five - Surrender Charge
Annual Return = (Final Value Year Five / 1000) * (1/5) - 1
</TABLE>
<TABLE>
<CAPTION>
Unit Values
- --------------------------
Date Bond
- --------------------------
<S> <C>
6-30-93 3.480869
6-30-94 3.404959
6-30-95 3.763564
6-30-96 3.869300
6-30-97 4.112465
6-30-98 4.509158
</TABLE>
<PAGE>
Separate Account N - Standardized 10 Year Returns
TEN YEAR/LIFETIME RETURNS PERIOD ENDING 6/30/98
<TABLE>
<CAPTION>
- ----------------------------------
Bond
- ----------------------------------
<S> <C>
Year One $1,097.93
Fee 1.25
Final Value $1,096.68
- ----------------------------------
Year Two $1,148.81
Fee 1.25
Final Value $1,147.56
- ----------------------------------
Year Three $1,245.32
Fee 1.25
Final Value $1,244.07
- ----------------------------------
Year Four $1,409.70
Fee 1.25
Final Value $1,408.46
- ----------------------------------
Year Five $1,577.19
Fee 1.25
Final Value $1,575.94
- ----------------------------------
Year Six $1,541.58
Fee 1.25
Final Value $1,540.33
- ----------------------------------
Year Seven $1,702.55
Fee 1.25
Final Value $1,701.30
- ----------------------------------
Year Eight $1,749.10
Fee 1.25
Final Value $1,747.85
- ----------------------------------
Year Nine $1,857.89
Fee 1.25
Final Value $1,856.44
- ----------------------------------
Year Ten $2,035.52
Fee 1.25
Surr Charge 0.00
- ----------------------------------
Final Value $2,034.27
Annual Return 7.36%
- ----------------------------------
</TABLE>
<PAGE>
Separate Account N - Standardized 10 Year/Lifetime/Returns
<TABLE>
<CAPTION>
<S><C>
Calculation of Annual Return
For the Bond Fund
- ------------------------------------------------------------------------------------------------------------------
Final Value Year One = 1,000* (30-Jun-88 Unit Value/30-Jun-89 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000* (30-Jun-89 Unit Value/30-Jun-90 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000* (30-Jun-90 Unit Value/30-Jun-91 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000* (30-Jun-91 Unit Value/30-Jun-92 Unit Value) - Annual Fee Year Four
Final Value Year Five = 1,000* (30-Jun-92 Unit Value/30-Jun-93 Unit Value) - Annual Fee Year Five
Final Value Year Six = 1,000* (30-Jun-93 Unit Value/30-Jun-94 Unit Value) - Annual Fee Year Six
Final Value Year Seven = 1,000* (30-Jun-94 Unit Value/30-Jun-95 Unit Value) - Annual Fee Year Seven
Final Value Year Eight = 1,000* (30-Jun-95 Unit Value/30-Jun-96 Unit Value) - Annual Fee Year Eight
Final Value Year Nine = 1,000* (30-Jun-96 Unit Value/30-Jun-97 Unit Value) - Annual Fee Year Nine
Final Value Year Ten = 1,000* (30-Jun-97 Unit Value/30-Jun-98 Unit Value) - Annual Fee Year Ten - Surrender Charge
Annual Return = (Final Value Year Ten / 1,000) - (1/10) - 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------
Unit Values
- ------------------------------------------------
Bond
- ------------------------------------------------
<S> <C> <C>
31-Dec-85 30-Jun-88 2.197929
31-Dec-86 30-Jun-89 2.413165
31-Dec-87 30-Jun-90 2.527877
31-Dec-88 30-Jun-91 2.743222
31-Dec-89 30-Jun-92 3.108449
31-Dec-90 30-Jun-93 3.480889
31-Dec-91 30-Jun-94 3.404959
31-Dec-92 30-Jun-95 3.763564
31-Dec-93 30-Jun-96 3.869300
31-Dec-94 30-Jun-97 4.112465
31-Dec-95 30-Jun-98 4.509158
Period (in years) 10.0000
- ------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-standardized Performance - Separate Account N
Accumulated Amounts
Base Period
Years Start Date End Date Bond
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1 30-Jun-97 30-Jun-98 $1,096.40
2 30-Jun-96 30-Jun-98 $1,165.37
3 30-Jun-95 30-Jun-98 $1,198.11
4 30-Jun-94 30-Jun-98 $1,324.29
5 30-Jun-93 30-Jun-98 $1,295.41
Life See Below 30-Jun-98 $4,509.16
- ----------------------------------------------------------------------
</TABLE>
Accumulated Amounts = (End Date Unit Value/Start Date Unit Value) = 10,000
<TABLE>
<CAPTION>
Compound Growth Rate
Base Period
Years Start Date End Date Bond
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1 30-Jun-97 30-Jun-98 9.65%
2 30-Jun-96 30-Jun-98 7.95%
3 30-Jun-95 30-Jun-98 6.21%
4 30-Jun-94 30-Jun-98 7.27%
5 30-Jun-93 30-Jun-98 5.31%
Life See Below 30-Jun-98 9.55%
- ----------------------------------------------------------------------
</TABLE>
One Year Return = 30-Jun-97 Unit Value/30-Jun-98 Unit Value) - 1
Two Year Return = (30-Jun-96 Unit Value/30-Jun-98 Unit Value) - (1/2) - 1
Three Year Return = (30-Jun-95 Unit Value/30-Jun-98 Unit Value) - (1/3) - 1
Four Year Return = (30-Jun-94 Unit Value/30-Jun-98 Unit Value) - (1/4) - 1
Five Year Return = (30-Jun-93 Unit Value/30-Jun-98 Unit Value) - (1/3) - 1
Life Return = Unit Value/Inception Date Unit Value) - (1/period) - 1
Non-Standardized Performance - Separate Account N
<TABLE>
<CAPTION>
Unit Values Bond
- -----------------------------------
<S> <C>
30-Jun-98 4.509158
30-Jun-97 4.112465
30-Jun-96 3.869300
30-Jun-95 3.763564
30-Jun-94 3.404958
30-Jun-93 3.480869
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Life Returns Bond
- -----------------------------------
<S> <C>
Inception/Start Date 12/28/81
Unit Value 1.000000
Period (years) 16.5055
</TABLE>
<PAGE>
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 |
--------------------------------
| ---------------------------------------------
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life|
| | assurance & pension products |
| ---------------------------------------------
| -------------------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| -------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ------------------------------------------------
|--| Lincoln Funds Corporation |
| | 100% - Delaware - Intermediate Holding Company |
| ------------------------------------------------
| ---------------------------------------------------
|--|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 |
--------------------------------------
1
<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 Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | -------------------------------------------------------------
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (India) Inc. |
| | 100% - Indiana - India Representative Office |
| -----------------------------------------------
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
2
<PAGE>
<TABLE>
<CAPTION>
<S><C>
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
--------------------------------------------
-------------------------------
| |
| 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-MutualFund 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. |
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S><C>
| | | | | | | | 1% - Delaware - Investment Partnership|
| | | | | | | | 99% held by outside investors |
| | | | | | | --------------------------------------
| | | | | | | | -----------------------------------------
| | | | | | | |--|Founders CBO Corporation |
| |100%-Delaware-Co-Issuer with Founders CBO|
-----------------------------------------
--------------------------------
| |
| 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|
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S><C>
| | | | | | | 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 |
| | | ----------------------------------------------------
-----------------------------
| 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|
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Insurance Associates, Inc.|
| | | (fka Cigna Associates, Inc.) |
| | | 100% - Connecticut - Insurance Agency |
| | --------------------------------------------
| | | -------------------------------------------------------------
| | | | Lincoln National Insurance Associates of Massachusetts, Inc.|
| | | |(formerly Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| | | -------------------------------------------------------------
| | -------------------------------------
| |--|Sagemark Consulting, Inc. |
</TABLE>
5
<PAGE>
| | | (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 |
| | -----------------------------------------------------
| | ----------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc.|
| |--| (formerly Lincoln National Growth Fund, Inc.)|
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------
-----------------------------
| Lincoln National Corporation|
| Indiana - Holding Company |
-----------------------------
| --------------------------------------------
|--| The Lincoln National Life Insurance Company|
| | 100% - Indiana |
| --------------------------------------------
| | -----------------------------------------------------
| |--| 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 |
| | ------------------------------------
6
<PAGE>
| | -----------------------------------------
| |--| 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 |
| ---------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln European Reinsurance S.A. |
| | | 79% - Belgium |
| | | (Remaining 21% owned by Lincoln National Underwriting|
| | | Services, Ltd. |
------------------------------------------------------
-----------------------------
| 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.) |
| | -------------------------------------------------------
| | | -----------------------------------------------------
| | |--| Lincoln European Reinsurance S.A. |
7
<PAGE>
| | | | 21% - Belgium |
| | | | (Remaining 79% owned by Lincoln National Reinsurance|
| | | | Company Limited |
| | | -----------------------------------------------------
| | -------------------------------------------------------
| | | 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 |
| | ------------------------------------------------------
| | ---------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive|
| | ---------------------------------
| | -----------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services|
| | -----------------------------------------------------
| | --------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive)|
| | --------------------------------------------------------
| | ----------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing|
| | ----------------------------------------
| | -----------------------------------------------
| |--| 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 Unit Trust Management Limited |
| | | | (formerly: Laurentian Unit Trust Management Limited)|
| | | | 100% - England/Wales - Unit Trust Management |
| | | -----------------------------------------------------
| | | ------------------------------------------------
| | |-- |LUTM Nominees Limited |
| | | |100% - England/Wales - Nominee Services (Dormat)|
| | | ------------------------------------------------
-----------------------------
| Lincoln National Corporation|
| Indiana - Holding Company |
-----------------------------
| ---------------------------------------
|--| Lincoln National (UK) PLC |
8
<PAGE>
| | 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|
| | -----------------------------------------
9
<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 |
| | | | -----------------------------------
| | | | -------------------------
| | | |--| P.N. Kemp-Gee & Co. Ltd.|
| | | | | 100% - Inactive |
| | | | -------------------------
10
<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 National (Jersey) Limited|
| | | 100% - England/Wales - Dormat |
| | ----------------------------------
| | ------------------------------------
| |--| Lincoln National (Guernsey) Limited|
| | | 100% - England/Wales - Dormat |
| | ------------------------------------
| | ----------------------------
| |--| Lincoln SBP Trustee Limited|
| | | 100% - England/Wales |
| | ----------------------------
11
<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 |
-----------------------------------------
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.
12
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) 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) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
12a) 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)
13
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act ast Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
14
<PAGE>
JANUARY 1997 CON'T
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.
15
<PAGE>
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
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
16
<PAGE>
Company.
JUNE 1998
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.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
17
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT N
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.
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Annual Reports F&RM Eric Jones Permanently,
To Shareholders the first two
years in an
easily accessible
place
Semi-Annual F&RM Eric Jones Permanently,
Reports the first two
years in an
easily accessible
place
Form N-SAR F&RM Eric Jones Permanently,
the first two
years in an
easily
accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
TYPE OF RECORD
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of
<PAGE>
cash and all other debits and credits. Such records shall show for each such
transaction the name and quantity of securities, the unit and aggregate
purchase or sale price, commission paid, the market on which effected, the
trade date, the settlement date, and the name of the person through or from
whom purchased or received or to whom sold or delivered.
PURCHASES AND SALES JOURNALS
Daily reports CSRM Nancy Alford Permanently, the
of securities F&RM Eric Jones first two
transactions years in an easily
accessible
place
PORTFOLIO SECURITIES
C-Port Purchase/ F&RM Eric Jones Permanently, the
Sales Reports first two
years in an
easily accessible
place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
RECEIPTS AND DELIVERIES OF SECURITIES (UNITS)
Not Applicable.
PORTFOLIO SECURITIES
Not Applicable.
RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS
Daily Journals CSRM Nancy Alford Permanently, the
first two
F&RM Eric Jones years in an easily
accessible
place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of the
collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
GENERAL LEDGER
LNL trial F&RM Eric Jones Permanently, the
Balance (5000 first two
series) years in an easily
accessible
place
SECURITIES IN TRANSFER
Not Applicable.
SECURITIES IN PHYSICAL POSSESSION
Not Applicable.
<PAGE>
SECURITIES BORROWED AND LOANED
Not Applicable.
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
LNL Trial Controllers Eric Jones Permanently, the
Balance (5000 first two
series) years in an easily
accessible
place
LN-RECORD LOCATION PERSON TO CONTACT
RETENTION
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
LNL Trial F&RM Eric Jones Permanently, the
Balance (5000 first two
series) years in an easily
accessible
place
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Not Applicable.
<PAGE>
(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 company held.
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
Master file F&RM Eric Jones Permanently, the
first two
Record CSRM Nancy Alford years in an easily
accessible
place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The
record called for by this paragraph shall not be required in circumstances
under which all portfolio securities are maintained by a bank or banks or a
member or members of a national securities exchange as custodian under a
custody agreement or as agent for such custodian.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
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
Not Applicable.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
UIT applica- CSRM Nancy Alford Six years, the
tions and first two
daily reports years in an easily
of securities accessible
transactions place
(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.
<PAGE>
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>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
TRIAL BALANCE
LNL Trial F&RM Eric Jones Permanently, the
Balance (5000 first two
series) years in an easily
accessible
place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio
securities to named brokers or dealers and the division of brokerage
commissions or other compensation on such purchase and sale orders among named
persons were made during such quarter. The record shall indicate the
consideration given to (a) sales of shares of the investment company by brokers
or dealers, (b) the supplying of services or benefits by brokers or dealers to
the investment company, its investment advisor or principal underwriter or any
persons affiliated therewith, and (c) any other considerations other than the
technical qualifications of the brokers and the dealers as such. The record
shall show the nature of their services or benefits made available, and shall
describe in detail the application of any general or specific formula or other
determinant used in arriving at such allocation of purchase and sales orders
and such division of brokerage commissions or other compensation. The record
shall also include the identifies of the person responsible for the
determination of such allocation and such division of brokerage commissions or
other compensation.
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).
Advisory Law Division Sandy Lamp Six years, the
Agreements first two
years in an easily
accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
<PAGE>
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence CSRM Nancy Alford Six years, the
first two
years in an
easily accessible
place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Proxy State- CSRM Nancy Alford Six years, the
ments and first two
Proxy Cards years in an easily
accessible
place
Pricing Sheets F&RM Eric Jones Permanently, the
first two
years in an easily
accessible
place
Bank State- Treasurers Rusty Summers
ments
March 12, 1998
