<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1998
Registration No. 33-25990
811-3214
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 15
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
(Check appropriate box or boxes.)
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
-------------------------------------------
(Exact Name of Registrant)
LINCOLN NATIONAL LIFE INSURANCE COMPANY
-------------------------------------------
(Name of Depositor)
1300 South Clinton Street
Fort Wayne, Indiana 46802
-------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (219)455-2000
Jack D. Hunter, Esq.
200 East Berry Street
Fort Wayne, Indiana 46802
Telephone No. (219)455-2000
-------------------------------------------
(Name and Address of Agent for Service)
Copies of all communications to Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C.
Attention: Gary O. Cohen, Esq.
Approximate Date of Public Offering: Continuous
----------
It is proposed that this filing will become effective:
----- immediately upon filing pursuant to paragraph (b) of Rule 485
X on 5/1/98 pursuant to paragraph (b) of Rule 485
-----
----- 60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
-----
Title of Securities Being Registered:
Units of Interest Under Variable Annuity Contracts
<PAGE>
ACCOUNT C
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM CAPTION IN PROSPECTUS (PART A)
- -------- ------------------------------
<C> <S>
1. Cover Page
2. Special Terms
3.(a) Expense Table
(b) Not Applicable
(c) Not Applicable
(d) For Your Information
4.(a) Condensed Financial Information
(b) Condensed Financial Information
(c) Financial Statements
5.(a) Cover Page; Lincoln National Life
Insurance Company
(b) Cover Page; Variable Annuity Account;
Investments of the Variable Annuity
Account
(c) Investments of the Variable Account
(d) Cover Page
(e) Voting Rights
(f) Not Applicable
6.(a) For Your Information; Charges and
Other Deductions
(b) Charges and Other Deductions
(c) Charges and Other Deductions
(d) Charges and Other Deductions
(e) Charges and Other Deductions
(f) Charges and Other Deductions
7.(a) The Contracts; Investments of the Variable
Account; Annuity Payments; Voting Rights;
Return Privilege
(b) Investments of the Variable Account;
The Contracts; Cover Page
(c) The Contracts
(d) The Contracts
</TABLE>
<PAGE>
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM CAPTION IN PROSPECTUS (PART A)
- -------- ------------------------------
<C> <S>
1. Cover Page
8. (a) Annuity Payments
(b) Annuity Payments
(c) Annuity Payments
(d) Annuity Payments
(e) Cover Page; Annuity Payments
(f) The Contracts; Annuity Payments
9. (a) The Contracts; Annuity Payments
(b) The Contracts; Annuity Payments
10.(a) The Contracts; Cover Page; Charges
and Other Deductions
(b) The Contracts; Investments of the
Variable Account
(c) The Contracts
(d) Distribution of the Contracts
11.(a) The Contracts
(b) Restrictions Under the Texas
Optional Retirement Program
(c) The Contracts
(d) The Contracts
(e) Return Privilege
12.(a) Federal Tax Status
(b) Cover Page; Federal Tax Status
(c) Federal Tax Status
13.
14. Table of Contents to the Statement
of Additional Information (SAI)
for Lincoln National Variable
Annuity Account C
</TABLE>
<PAGE>
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
CAPTION IN STATEMENT OF ADDITIONAL
----------------------------------
N-4 ITEM INFORMATION (PART B)
- -------- --------------------
<C> <S>
15. Cover Page for Part B
16. Cover Page for Part B
17.(a) Not Applicable
(b) Not Applicable
(c) General Information and History
of Lincoln National Life
Insurance Co. (Lincoln Life)
18.(a) Not Applicable
(b) Not Applicable
(c) Services
(d) Not Applicable
(e) Not Applicable
(f) Services
19.(a) Purchase of Securities Being
Offered
(b) Not Applicable
20.(a) Underwriters
(b) Underwriters
(c) Underwriters
(d) Underwriters
21. Calculation of Performance Data
22. Annuity Payouts
23.(a) Financial Statements -- Lincoln
National Variable Annuity
Account C
(b) Statutory-basis Financial Statements --
Lincoln National Life
Insurance Co. (Lincoln Life)
</TABLE>
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
TABLE OF CONTENTS
POST-EFFECTIVE AMENDMENT NO. 15 UNDER THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 27 UNDER THE INVESTMENT COMPANY ACT OF 1940
ON FORM N-4
Cover Page
Table of Contents
Cross Reference Sheets
Prospectus (Part A)
Statement of Additional Information
Other Information (Part C)
SIGNATURES
Exhibit Index
<PAGE>
LINCOLN LIFE -Registered Trademark-
MULTI FUND -Registered Trademark-
PROSPECTUSES
Variable Annuity Account C,
and the underlying funds
May 1, 1998
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Ind. 46801
This Prospectus describes individual VARIABLE ANNUITY CONTRACTS issued by
Lincoln National Life Insurance Co. (LINCOLN LIFE). They are for use with the
following retirement plans qualified for special tax treatment (qualified
CONTRACTS) under the Internal Revenue Code of 1986, as amended (the CODE):
1. Public school systems and 501(c)(3) tax-exempt organizations (403(b));
2. Qualified corporate employee pension and profit-sharing trusts and qualified
annuity plans;
3. Corresponding plans of self-employed individuals (H.R. 10 or Keogh);
4. Individual retirement annuities (IRA);
5. Government deferred compensation plans (457);
6. Simplified employee pension plans (SEP);
7. Roth IRA; and
8. SIMPLE IRA (consult your representative as to the availability of this
CONTRACT for SIMPLE IRAs).
The CONTRACTS described in this Prospectus are also offered to plans established
by persons who are not entitled to participate in one of the previously
mentioned plans (nonqualified CONTRACTS).
This Prospectus offers you, as CONTRACTOWNER, CONTRACTS of the following types:
1. SINGLE PREMIUM DEFERRED ANNUITY;
2. FLEXIBLE PREMIUM DEFERRED ANNUITY (Multi Fund-Registered Trademark- 2, 3 AND
4); AND
3. PERIODIC PREMIUM DEFERRED ANNUITY (Multi Fund-Registered Trademark- 1).
The CONTRACTS offer you the accumulation of CONTRACT VALUE and payment of
periodic annuity benefits. These benefits may be paid on a variable or fixed
basis or a combination of both. Benefits start at an ANNUITY COMMENCEMENT DATE
which you select. If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE, a
DEATH BENEFIT will be paid to the BENEFICIARY.
The minimum initial PURCHASE PAYMENT for each of the three types of CONTRACT is:
1. SINGLE PREMIUM DEFERRED CONTRACT: $1,000 for Roth IRAs, IRAs and SEPs;
$3,000 for all others;
2. FLEXIBLE PREMIUM DEFERRED CONTRACT: $1,000 for Roth IRAs, IRAs and SEPs;
$3,000 for all others (subsequent PURCHASE PAYMENTS: minimum $100); and
3. PERIODIC PREMIUM DEFERRED CONTRACT: $600 per CONTRACT YEAR (minimum $25 per
PURCHASE PAYMENT).
All investments (PURCHASE PAYMENTS) for benefits on a variable basis will be
placed in Lincoln National Variable Annuity Account C (VARIABLE ANNUITY ACCOUNT
[VAA]). The VAA is a segregated investment account of LINCOLN LIFE, which is the
Depositor. Based upon your instructions, the VAA invests PURCHASE PAYMENTS (at
net asset value) in specified mutual funds (the FUND or FUNDS and SERIES). Both
the value of a CONTRACT before the ANNUITY COMMENCEMENT DATE and the amount of
payouts afterward will depend upon the investment performance of the FUND(S) or
SERIES selected. Investments in these FUNDS and SERIES are neither insured nor
guaranteed by the U.S. Government or by any other person or entity.
PURCHASE PAYMENTS for benefits on a fixed basis will be placed in the fixed side
of the CONTRACT, which is part of our general account. However, this Prospectus
deals only with those elements of the CONTRACTS relating to the VAA, except
where reference to the fixed side is made. Special limits apply to withdrawals
and transfers from the fixed side of the CONTRACT.
We may not offer a CONTRACT continuously or in every state. The Multi
Fund-Registered Trademark- 4 CONTRACT and the ENHANCED GUARANTEED MINIMUM DEATH
BENEFIT available in most states.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus details the information regarding the VAA that you should know
before investing. This Prospectus is printed in a booklet that also includes a
current Prospectus for each of the following FUNDS: Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital
Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln
National Global Asset Allocation Fund, Inc., Lincoln National Growth and Income
Fund, Inc., Lincoln National International Fund, Inc., Lincoln National Managed
Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National Social
Awareness Fund, Inc., and Lincoln National Special Opportunities Fund, Inc. and
a current Prospectus for the Delaware Group Premium Fund, Inc., which contains
information regarding the Decatur Total Return Series, Global Bond Series and
the Trend Series. All Prospectuses should be read carefully and kept for future
reference.
A STATEMENT OF ADDITIONAL INFORMATION (SAI), dated May 1, 1998, concerning the
VAA has been filed with the SEC and is incorporated by this reference into this
Prospectus. If you would like a free copy, write, Lincoln National Life
Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN
(454-6265). A table of contents for the SAI appears on the last page of this
Prospectus.
This Prospectus is dated May 1, 1998.
<PAGE>
FOR YOUR INFORMATION:
If you surrender your CONTRACT or withdraw CONTRACT VALUE, a SURRENDER CHARGE of
up to 8% may be deducted. The amount of the SURRENDER CHARGE depends on the type
of CONTRACT and its duration. However, no SURRENDER CHARGE is assessed when
ANNUITY PAYOUTS begin or at the ANNUITANT'S DEATH. See charges and other
deductions.
Also, you may be subject to a penalty tax under
Section 72 (q) of the CODE (see federal tax status) should you withdraw CONTRACT
VALUE or surrender the CONTRACT before the ANNUITY COMMENCEMENT DATE.
These CONTRACTS contain a free-look provision. See Return Privilege.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
- ----------------------------------------------------------
Special Terms 3
- ----------------------------------------------------------
Expense Tables 5
- ----------------------------------------------------------
Condensed financial information for the VAA 8
- ----------------------------------------------------------
Financial statements 10
- ----------------------------------------------------------
Lincoln National Life Insurance Co. 10
- ----------------------------------------------------------
Variable annuity account (VAA) 10
- ----------------------------------------------------------
Investments of the variable annuity account 11
- ----------------------------------------------------------
Charges and other deductions 13
- ----------------------------------------------------------
The contracts 15
- ----------------------------------------------------------
Annuity payouts 19
- ----------------------------------------------------------
<CAPTION>
PAGE
- ----------------------------------------------------------
<S> <C>
Federal tax status 20
- ----------------------------------------------------------
Voting rights 22
- ----------------------------------------------------------
Distribution of the contracts 23
- ----------------------------------------------------------
Return privilege 23
- ----------------------------------------------------------
State regulation 23
- ----------------------------------------------------------
Restrictions under the Texas Optional
Retirement Program 23
- ----------------------------------------------------------
Records and reports 23
- ----------------------------------------------------------
Other information 24
- ----------------------------------------------------------
Statement of additional information
table of contents for VAA 25
- ----------------------------------------------------------
</TABLE>
2
<PAGE>
SPECIAL TERMS
(Throughout this Prospectus, in order to make the following documents more
understandable to you, we have italicized the special terms.)
ACCOUNT OR VARIABLE ANNUITY ACCOUNT (VAA) -- The segregated investment account,
Account C, into which LINCOLN LIFE sets aside and invests the assets for the
VARIABLE ANNUITY CONTRACTS offered in this Prospectus.
ACCUMULATION UNIT -- A measure used to calculate CONTRACT VALUE for the variable
side of the CONTRACT before the ANNUITY COMMENCEMENT DATE. See The contracts.
ADVISOR OR INVESTMENT ADVISOR -- Lincoln Investment Management, Inc. (LINCOLN
INVESTMENT), which provides investment management services to each of the FUNDS.
See Investment advisor.
ANNUITANT -- The person upon whose life the ANNUITY benefit payments made after
the ANNUITY COMMENCEMENT DATE will be based.
ANNUITY COMMENCEMENT DATE -- The VALUATION DATE when the FUNDS or SERIES are
withdrawn or converted into ANNUITY UNITS or fixed dollar payout for payment of
ANNUITY BENEFITS under the ANNUITY PAYOUT OPTION selected. For purposes of
determining whether an event occurs before or after the ANNUITY COMMENCEMENT
DATE, the ANNUITY COMMENCEMENT DATE is deemed to begin at the VALUATION PERIOD.
ANNUITY OPTION -- One of the optional forms of payout of the annuity available
within the CONTRACT. See Annuity payouts.
ANNUITY PAYOUT -- An amount paid after the ANNUITY COMMENCEMENT DATE at regular
intervals under one of several options available to the ANNUITANT and/or any
other payee. This amount may be paid on a variable or fixed basis, or a
combination of both.
ANNUITY UNIT -- A measure used to calculate the amount of ANNUITY PAYOUTS after
the ANNUITY COMMENCEMENT DATE. See Annuity payouts.
BENEFICIARY -- The person whom you designate to receive the DEATH BENEFIT, if
any, in case of the ANNUITANT'S death.
CASH SURRENDER VALUE -- Upon SURRENDER, the CONTRACT VALUE less any applicable
charges, fees, and taxes.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT (VARIABLE ANNUITY CONTRACT) -- The agreement between you and us
providing a variable annuity.
CONTRACTOWNER (you, your, owner) -- The person who has the ability to exercise
the rights within the CONTRACT (decides on investment allocations, transfers,
payout options; designates the BENEFICIARY, etc.). Usually, but not always, the
owner is also the ANNUITANT.
CONTRACT VALUE -- At a given time, the total value of all ACCUMULATION UNITS for
a CONTRACT plus the value of the fixed side of the CONTRACT.
CONTRACT YEAR -- Each one-year period starting with the effective date of the
CONTRACT and starting with each CONTRACT anniversary after that.
DEATH BENEFIT -- The amount payable to your designated BENEFICIARY if the
ANNUITANT dies before the ANNUITY COMMENCEMENT DATE. See The contracts.
ENHANCED GUARANTEED MINIMUM DEATH BENEFIT (EGMDB) -- The EGMDB is the greater
of: (1) the CONTRACT VALUE at the end of the VALUATION PERIOD when the death
claim is approved for payment by LINCOLN LIFE or (2) the higher of:
a. the CONTRACT VALUE at the end of the VALUATION PERIOD when the EGMDB becomes
effective and;
b. the highest CONTRACT value at the end of the VALUATION PERIOD that includes
any CONTRACT anniversary date up to and including age 75 following election
of the EGMDB;
increased by PURCHASE PAYMENTS and decreased by any WITHDRAWALS, annuitizations,
and premium taxes incurred after the CONTRACT anniversary or EGMDB effective
date the highest CONTRACT VALUE occurred. See The contracts.
DELAWARE MANAGEMENT -- Delaware Management Company, Inc.
FLEXIBLE PREMIUM DEFERRED CONTRACT (Multi Fund-Registered Trademark- 2, 3, AND
4) -- An annuity CONTRACT with an initial PURCHASE PAYMENT, allowing additional
PURCHASE PAYMENTS to be made, and with ANNUITY PAYOUTS beginning at a future
date.
FUND -- Any of the eleven individual Lincoln National underlying investment
options in which your PURCHASE PAYMENTS are invested.
HOME OFFICE -- The headquarters of Lincoln National Life Insurance Co., located
at 1300 South Clinton Street, Fort Wayne, Indiana 46802.
LINCOLN INVESTMENT -- Lincoln Investment Management, Inc.
LINCOLN LIFE (we, us, our) -- Lincoln National Life Insurance Co.
3
<PAGE>
LUMP SUM -- A one-time PURCHASE PAYMENT of $5,000 or more ($1,000 for IRAs and
SEPs) made to a PERIODIC PREMIUM DEFERRED CONTRACT.
PERIODIC PREMIUM DEFERRED CONTRACT (Multi Fund-Registered Trademark- 1) -- An
annuity CONTRACT with PURCHASE PAYMENTS due periodically and with ANNUITY
PAYOUTS beginning at a future date.
PURCHASE PAYMENTS -- Amounts paid into the contract to purchase an annuity.
QUALIFIED PLAN -- A retirement plan qualified for special tax treatment under
the Code, as amended, including Sections 401, 403, 408 and 457.
SERIES -- Any of the three underlying portfolios of the Delaware Group Premium
Fund, Inc., in which your PURCHASE PAYMENTS are invested.
SINGLE PREMIUM DEFERRED CONTRACT -- An annuity CONTRACT with a single PURCHASE
PAYMENT and with ANNUITY PAYOUTS beginning at a future date.
STATEMENT OF ADDITIONAL INFORMATION (SAI) -- A document required by the SEC to
be provided upon request to a prospective purchaser of a CONTRACT, you. This
free document gives more information about LINCOLN LIFE, the VAA, and the
VARIABLE ANNUITY CONTRACT.
SUBACCOUNT -- That portion of the VAA that reflects investments in ACCUMULATION
and ANNUITY UNITs of a particular FUND and SERIES. There is a separate
SUBACCOUNT which corresponds to each FUND.
SURRENDER -- A CONTRACT right that allows you to terminate your CONTRACT and
receive your CASH SURRENDER VALUE. See The contracts.
SURRENDER CHARGE -- The term that refers to what is known in the industry as a
contingent deferred sales charge. See Charges and other deductions.
VALUATION DATE -- Each day the New York Stock Exchange (NYSE) is open for
trading.
VALUATION PERIOD -- The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading and ending at
the close of such trading on the next VALUATION DATE.
WITHDRAWAL -- A CONTRACT right that allows you to obtain a portion of your CASH
SURRENDER VALUE.
4
<PAGE>
EXPENSE TABLES
CONTRACTOWNER TRANSACTION EXPENSES -- SINGLE PREMIUM AND PERIODIC PREMIUM
DEFERRED CONTRACTS:
<TABLE>
<S> <C>
SURRENDER CHARGE (as a percentage of CONTRACT VALUE surrendered/withdrawn): 7% (SINGLE PREMIUM)
8% (PERIODIC PREMIUM)
</TABLE>
(Note: Upon the first WITHDRAWAL of CONTRACT VALUE in any CONTRACT YEAR, up to
15% of CONTRACT VALUE may be withdrawn free of this charge.)
REDUCED SURRENDER CHARGES OVER TIME:
The SURRENDER CHARGE percentages listed above are the maximum percentages
charged as a percentage of CONTRACT VALUE withdrawn. The later a
SURRENDER/WITHDRAWAL occurs, the lower the SURRENDER CHARGE percentage applied,
according to the following table:
<TABLE>
<CAPTION>
CONTRACT TYPE CONTRACT YEAR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10
Single premium 7% 6 5 4 3 2 1 0 0 0
Periodic premium 8% 8 8 8 8 4 4 4 4 4
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONTRACT TYPE
<S> <C>
- ----------------
11+
Single premium 0
Periodic premium 0
- ----------------
</TABLE>
CONTRACTOWNER TRANSACTION EXPENSES -- FLEXIBLE PREMIUM DEFERRED CONTRACT:
<TABLE>
<S> <C>
SURRENDER CHARGE (as a percentage of PURCHASE PAYMENTS surrendered/withdrawn) 7% (FLEXIBLE PREMIUM)
</TABLE>
(Note: Upon the first WITHDRAWAL of PURCHASE PAYMENTS in any CONTRACT YEAR, up
to 15% of those PURCHASE PAYMENTS may be withdrawn free of this charge.)
REDUCED SURRENDER CHARGE OVER TIME:
The SURRENDER CHARGE percentage listed above is the maximum percentage charged
as a percentage of PURCHASE PAYMENTS withdrawn. This charge is calculated
separately for each CONTRACT YEAR'S PURCHASE PAYMENTS. The later a
SURRENDER/WITHDRAWAL occurs, the lower the SURRENDER CHARGE percentage applied,
according to the following table:
<TABLE>
<CAPTION>
COMPLETED
CONTRACT
YEARS
BETWEEN
DATE OF
PURCHASE
PAYMENTS
AND DATE
OF
CONTRACT TYPE SURRENDER/WITHDRAWAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
0 1 2 3 4 5 6 7+
Flexible premium 7% 6 5 4 3 2 1 0
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL CONTRACT FEE:
$-0-(SINGLE PREMIUM AND FLEXIBLE PREMIUM Multi Fund-Registered Trademark- 3 AND
4)
$25 (PERIODIC AND FLEXIBLE PREMIUM Multi Fund-Registered Trademark- 2) This fee
is a single charge assessed against CONTRACT VALUE on the last VALUATION DATE of
each CONTRACT YEAR and upon full SURRENDER; it is NOT a separate charge for each
SUBACCOUNT.
VAA ANNUAL EXPENSES
(as a percentage of average account value for each SUBACCOUNT)*:
<TABLE>
<CAPTION>
CONTRACTS WITH CONTRACTS WITHOUT
EGMDB EGMDB
<S> <C> <C>
Mortality and expense risk fees 1.00 % 1.00 %
EGMDB charge .30 --
--- ---
Total Account C annual expenses 1.30 % 1.00 %
</TABLE>
*The VAA is divided into 14 separately-named SUBACCOUNTs, each of which, in
turn, invests PURCHASE PAYMENTS in its respective FUND or SERIES.
5
<PAGE>
ANNUAL EXPENSES OF THE FUNDS and SERIES for the year ended 1997
(as a percentage of each FUND'S and SERIES' average net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES + EXPENSES = EXPENSES
<C><S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1. Aggressive Growth (AG) .73% .08% .81%
- ---------------------------------------------------------------------------------------
2. Bond (B) .46 .07 .53
- ---------------------------------------------------------------------------------------
3. Capital Appreciation (CA)* .75* .09 .84
- ---------------------------------------------------------------------------------------
4. Equity-Income (EI)* .75* .07 .82
- ---------------------------------------------------------------------------------------
5. Global Asset Allocation (GAA) .72 .17 .89
- ---------------------------------------------------------------------------------------
6. Growth and Income (GI) .32 .03 .35
- ---------------------------------------------------------------------------------------
7. International (I) .79 .14 .93
- ---------------------------------------------------------------------------------------
8. Managed (M) .37 .05 .42
- ---------------------------------------------------------------------------------------
9. Money Market (MM) .48 .11 .59
- ---------------------------------------------------------------------------------------
10. Social Awareness (SA) .36 .05 .41
- ---------------------------------------------------------------------------------------
11. Special Opportunities (SO) .37 .05 .42
- ---------------------------------------------------------------------------------------
12. Trend Series (TS)** .67** .13 .80
- ---------------------------------------------------------------------------------------
13. Decatur Total Return Series (DTRS)** .60** .11 .71
- ---------------------------------------------------------------------------------------
14. Global Bond Series (GBS)** .47** .33 .80
- ---------------------------------------------------------------------------------------
</TABLE>
*The management fee for the Capital Appreciation Fund has been decreased from
.80% to .75% effective May 1, 1998, and for the Equity-Income Fund it has been
decreased from .95% to .75% effective January 1, 1998 and the expense
information in this table has been restated to reflect current fees.
**The investment advisors for the series currently voluntarily waive the
management fee to the extent necessary to maintain the series total expense
ratio at a maximum of .80%. The management fee and total expense, absent the
waiver, would have been .75% and .88% for TS and .75% and 1.08% for GBS. Should
they cease to waive those amounts in the future, these management fee
percentages and total expenses may be higher in future years.
EXAMPLES
(reflecting expenses of the VAA, the FUNDS and SERIES):
If you SURRENDER your CONTRACT at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
FLEXIBLE FLEXIBLE FLEXIBLE FLEXIBLE
MULTI MULTI MULTI MULTI
FUND FUND FUND FUND
-REGISTERED -REGISTERED -REGISTERED -REGISTERED
TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- 3
SINGLE 2 3 & 4 PERIODIC SINGLE 2 & 4 PERIODIC
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1. AG $91 $88 $88 $101 $112 $107 $107 $145
- ------------------------------------------------------------------------------------------------------------
2. B 88 86 86 98 104 98 98 137
- ------------------------------------------------------------------------------------------------------------
3. CA 91 89 89 102 114 109 109 147
- ------------------------------------------------------------------------------------------------------------
4. EI 93 91 91 103 118 113 113 151
- ------------------------------------------------------------------------------------------------------------
5. GAA 91 89 89 102 114 109 109 147
- ------------------------------------------------------------------------------------------------------------
6. GI 86 84 84 97 98 93 93 132
- ------------------------------------------------------------------------------------------------------------
7. I 92 90 90 102 115 111 111 148
- ------------------------------------------------------------------------------------------------------------
8. M 87 84 84 97 101 95 95 134
- ------------------------------------------------------------------------------------------------------------
9. MM 89 86 86 99 106 100 100 139
- ------------------------------------------------------------------------------------------------------------
10. SA 87 84 84 97 100 95 95 133
- ------------------------------------------------------------------------------------------------------------
11. SO 87 84 84 97 101 95 95 134
- ------------------------------------------------------------------------------------------------------------
12. TS 91 88 88 101 112 107 107 144
- ------------------------------------------------------------------------------------------------------------
13. DTRS 90 87 87 100 109 104 104 142
- ------------------------------------------------------------------------------------------------------------
14. GBS 91 88 88 101 112 107 107 144
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
5 YEARS 10 YEARS
FLEXIBLE FLEXIBLE FLEXIBLE FLEXIBLE
MULTI MULTI MULTI MULTI
FUND FUND FUND FUND
-REGISTERED -REGISTERED -REGISTERED -REGISTERED
TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK-
SINGLE 2 3 & 4 PERIODIC SINGLE 2 3 & 4 PERIODIC
- --- ---------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1. $133 $128 $128 $191 $213 $212 $213 $267
- --- ---------------------------------------------------------------------------------------------
2. 119 113 114 178 183 182 183 238
- --- ---------------------------------------------------------------------------------------------
3. 137 132 132 195 221 221 221 221
- --- ---------------------------------------------------------------------------------------------
4. 144 139 139 201 235 234 235 288
- --- ---------------------------------------------------------------------------------------------
5. 137 132 132 195 221 221 221 275
- --- ---------------------------------------------------------------------------------------------
6. 110 104 104 169 163 162 163 219
- --- ---------------------------------------------------------------------------------------------
7. 139 134 134 197 226 225 226 279
- --- ---------------------------------------------------------------------------------------------
8. 114 108 108 173 170 170 170 226
- --- ---------------------------------------------------------------------------------------------
9. 122 117 117 181 189 189 189 244
- --- ---------------------------------------------------------------------------------------------
10. 113 107 107 172 169 169 169 225
- --- ---------------------------------------------------------------------------------------------
11. 114 108 108 173 170 170 170 226
- --- ---------------------------------------------------------------------------------------------
12. 133 127 128 191 212 211 212 266
- --- ---------------------------------------------------------------------------------------------
13. 128 123 123 187 202 202 202 257
- --- ---------------------------------------------------------------------------------------------
14. 133 127 128 191 212 211 212 266
- --- ---------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
If you do not surrender your CONTRACT, (whether SINGLE, FLEXIBLE or PERIODIC),
or if you annuitize, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SINGLE, SINGLE, PERIODIC, PERIODIC,
FLEXIBLE, FLEXIBLE, SINGLE, FLEXIBLE SINGLE, FLEXIBLE
PERIODIC PERIODIC FLEXIBLE MULTI FLEXIBLE MULTI
MULTI MULTI MULTI FUND FUND MULTI FUND FUND
FUND FUND -REGISTERED -REGISTERED -REGISTERED -REGISTERED
-REGISTERED -REGISTERED TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK-
TRADEMARK- TRADEMARK- 3 AND 4 2 3 AND 4 2
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
1. AG $18 $57 $ 98 $ 98 $213 $212
- --------------------------------------------------------------------------------------------
2. B 16 48 84 83 183 182
- --------------------------------------------------------------------------------------------
3. CA 19 59 102 102 221 221
- --------------------------------------------------------------------------------------------
4. EI 21 63 109 109 235 234
- --------------------------------------------------------------------------------------------
5. GAA 19 59 102 102 221 221
- --------------------------------------------------------------------------------------------
6. GI 14 43 74 74 163 162
- --------------------------------------------------------------------------------------------
7. I 20 61 104 104 226 225
- --------------------------------------------------------------------------------------------
8. M 14 45 78 78 170 170
- --------------------------------------------------------------------------------------------
9. MM 16 50 87 87 189 189
- --------------------------------------------------------------------------------------------
10. SA 14 45 77 77 169 169
- --------------------------------------------------------------------------------------------
11. SO 14 45 78 78 170 170
- --------------------------------------------------------------------------------------------
12. TS 18 57 98 97 212 211
- --------------------------------------------------------------------------------------------
13. DTRS 17 54 93 93 202 202
- --------------------------------------------------------------------------------------------
14. GBS 18 57 98 97 212 211
- --------------------------------------------------------------------------------------------
</TABLE>
This table is provided to assist you in understanding the various costs and
expenses that you will bear directly or indirectly. The table reflects expenses
of the VAA, the 11 FUNDS and the three SERIES for the year ended December 31,
1997, although the expenses have been restated to reflect current fees for
Capital Appreciation and Equity-Income. For more complete descriptions of the
various costs and expenses involved, see Charges and other deductions in this
Prospectus, and Management of the FUNDS in the Appendix to the FUNDS'
Prospectuses and the Prospectus for Delaware Group Premium Fund, Inc. Premium
taxes may also be applicable, although they do not appear in the table. In
addition, we reserve the right to impose a charge on transfers between
SUBACCOUNTS as well as to and from the fixed account, although we do not
currently do so. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. This
table is unaudited.
These examples reflect expenses assuming that the EGMDB is NOT in effect. If the
EGMDB is in effect, these examples will be higher.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR THE
VAA
ACCUMULATION UNIT VALUES
The following information relating to ACCUMULATION UNIT values (not including
the GMDB charge) and number of ACCUMULATION UNITS for each of the 10 years in
the period ended December 31, 1997 comes from the VAA'S financial statements. It
should be read in conjunction with the VAA'S financial statements and notes
which are all included in the SAI.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Aggressive Growth subaccount
Accumulation unit value
- - Beginning of period $ 1.384 1.196 .896 1.000 1.000*
- - End of period $ 1.687 1.384 1.196 .896 1.000* trading began in 1994.
Number of accumulation units
- - End of period (000's omitted) 199,221 172,630 114,518 67,547 110
- ---------------------------------------------------------------------------------------------------------
Bond subaccount
Accumulation unit value
- - Beginning of period $ 4.283 4.228 3.585 3.780 3.398 3.181 2.737 2.591
- - End of period $ 4.632 4.283 4.228 3.585 3.780 3.398 3.181 2.737
Number of accumulation units
- - End of period (000's omitted) 60,078 62,709 62,644 57,900 62,765 52,842 46,830 40,983
- ---------------------------------------------------------------------------------------------------------
Capital Appreciation subaccount
Accumulation unit value
- - Beginning of period $ 1.520 1.294 1.017 1.000 1.000 *
- - End of period $ 1.884 1.520 1.294 1.017 1.000 * trading began in 1994.
Number of accumulation units
- - End of period (000's omitted) 234,328 174,073 98,067 52,125 110
- ---------------------------------------------------------------------------------------------------------
Equity-Income subaccount
Accumulation unit value
- - Beginning of period $ 1.663 1.391 1.046 1.000 1.000 *
- - End of period $ 2.150 1.663 1.391 1.046 1.000 * trading began in 1994.
Number of accumulation units
- - End of period (000's omitted) 371,051 275,632 171,817 75,383 110
- ---------------------------------------------------------------------------------------------------------
Global Asset Allocation
subaccount
Accumulation unit value
- - Beginning of period $ 2.302 2.013 1.642 1.689 1.453 1.378 1.174 1.175
- - End of period $ 2.720 2.302 2.013 1.642 1.689 1.453 1.378 1.174
Number of accumulation units
- - End of period (000's omitted) 159,590 140,242 126,558 122,061 92,778 67,873 57,199 50,149
- ---------------------------------------------------------------------------------------------------------
Growth and Income subaccount
Accumulation unit value
- - Beginning of period $ 7.453 6.292 4.593 4.579 4.084 4.050 3.125 3.126
- - End of period $ 9.650 7.453 6.292 4.593 4.579 4.084 4.050 3.125
Number of accumulation units
- - End of period (000's omitted) 357,850 332,885 291,063 253,621 226,072 188,659 144,515 114,974
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
1989 1988
<S> <C> <C>
- ---------------------------------
Aggressive Growth subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Bond subaccount
Accumulation unit value
- - Beginning of period 2.312 2.162
- - End of period 2.591 2.312
Number of accumulation units
- - End of period (000's omitted) 37,671 28,146
- ---------------------------------
Capital Appreciation subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Equity-Income subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Global Asset Allocation
subaccount
Accumulation unit value
- - Beginning of period 1.005 .914
- - End of period 1.175 1.005
Number of accumulation units
- - End of period (000's omitted) 39,835 27,750
- ---------------------------------
Growth and Income subaccount
Accumulation unit value
- - Beginning of period 2.611 2.436
- - End of period 3.126 2.611
Number of accumulation units
- - End of period (000's omitted) 96,161 81,066
- ---------------------------------
</TABLE>
* These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of
the subaccounts, through December 31.
8
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International subaccount
Accumulation unit value
- - Beginning of period $ 1.488 1.368 1.271 1.243 .901 .990 1.000*
trading
began in
- - End of period $ 1.562 1.488 1.368 1.271 1.243 .901 .990* 1991.
Number of accumulation units
- - End of period (000's omitted) 294,705 294,570 261,509 248,639 129,551 50,718 21,088
- ---------------------------------------------------------------------------------------------------------
Managed subaccount
Accumulation unit value
- - Beginning of period $ 3.913 3.515 2.747 2.827 2.558 2.492 2.065 2.015
- - End of period $ 4.714 3.913 3.515 2.747 2.827 2.558 2.492 2.065
Number of accumulation units
- - End of period (000's omitted) 179,210 178,496 172,789 167,184 162,485 139,606 115,929 104,011
- ---------------------------------------------------------------------------------------------------------
Money Market subaccount
Accumulation unit value
- - Beginning of period $ 2.324 2.235 2.137 2.079 2.044 1.996 1.907 1.783
- - End of period $ 2.419 2.324 2.235 2.137 2.079 2.044 1.996 1.907
Number of accumulation units
- - End of Period (000's omitted) 36,107 40,057 35,136 37,106 39,763 46,993 77,812 57,377
- ---------------------------------------------------------------------------------------------------------
Social Awareness subaccount
Accumulation unit value
- - Beginning of period $ 3.638 2.843 2.005 2.021 1.796 1.750 1.285 1.357
- - End of period $ 4.950 3.638 2.843 2.005 2.021 1.796 1.750 1.285
Number of accumulation units
- - End of period (000's omitted) 251,168 175,970 106,204 83,069 69,006 50,838 30,735 19,486
- ---------------------------------------------------------------------------------------------------------
Special Opportunities subaccount
Accumulation unit value
- - Beginning of period $ 6.505 5.618 4.303 4.392 3.740 3.519 2.481 2.710
- - End of period $ 8.249 6.505 5.618 4.303 4.392 3.740 3.519 2.481
Number of accumulation units
- - End of period (000's omitted) 101,475 97,744 88,993 73,673 62,314 51,056 37,798 33,837
- ---------------------------------------------------------------------------------------------------------
Trend subaccount
Accumulation unit value
- - Beginning of period $ 0.991 1.000 *
- - End of period $ 1.191 0.991 * trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 46,558 23,508
- ---------------------------------------------------------------------------------------------------------
Decatur Total Return subaccount
Accumulation unit value
- - Beginning of period 1.126 1.000 *
- - End of period 1.461 1.126 * trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 64,052 12,220
- ---------------------------------------------------------------------------------------------------------
Global Bond subaccount
Accumulation unit value
- - Beginning of period $ 1.111 1.000 *
- - End of period $ 1.109 1.111 * trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 11,177 7,613
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
1989 1988
- ---------------------------------
<S> <C> <C>
International subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Managed subaccount
Accumulation unit value
- - Beginning of period 1.737 1.609
- - End of period 2.015 1.737
Number of accumulation units
- - End of period (000's omitted) 95,285 84,586
- ---------------------------------
Money Market subaccount
Accumulation unit value
- - Beginning of period 1.651 1.553
- - End of period 1.783 1.651
Number of accumulation units
- - End of Period (000's omitted) 53,287 37,890
- ---------------------------------
Social Awareness subaccount
Accumulation unit value
- - Beginning of period 1.042 1.000*
- - End of period 1.357 1.042*
trading
began in
1988
Number of accumulation units
- - End of period (000's omitted) 7,127 1,984
- ---------------------------------
Special Opportunities subaccount
Accumulation unit value
- - Beginning of period 2.054 1.997
- - End of period 2.710 2.054
Number of accumulation units
- - End of period (000's omitted) 27,789 31,068
- ---------------------------------
Trend subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Decatur Total Return subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
Global Bond subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ---------------------------------
</TABLE>
* These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of
the subaccounts, through December 31.
ADDITIONAL INFORMATION FOR THE MONEY MARKET SUBACCOUNT:
Seven-day yield: 4.37%; Length of base period-7 days; Date of last day of base
period: December 31, 1997.
9
<PAGE>
PERFORMANCE DATA:
At times the VAA may advertise the Money Market SUBACCOUNT's yield. The yield
refers to the income generated by an investment in the SUBACCOUNT over a seven-
day period. This income is then annualized. The process of annualizing results
when the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. THE YIELD FIGURE IS BASED ON HISTORICAL EARNINGS
AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The VAA advertises the annual performance of the SUBACCOUNTs for the FUNDS and
SERIES on both a standardized and nonstandardized basis.
The standardized calculation measures average annual total return. This is based
on a hypothetical $1,000 payment made at the beginning of a one-year, a
five-year, and a 10-year period. This calculation reflects all fees and charges
that are or could be imposed on all CONTRACTOWNER accounts.
The nonstandardized calculation compares changes in ACCUMULATION UNIT values
from the beginning of the most recently completed calendar year to the end of
that year. It may also compare changes in ACCUMULATION UNIT values over shorter
or longer time periods. This calculation reflects mortality and expense risk
fees. It also reflects management fees and other expenses of the FUND. It does
not include SURRENDER CHARGEs or the account charge; if included, they would
decrease the performance.
For additional information about performance calculations, please refer to the
SAI.
FINANCIAL STATEMENTS
The financial statements of the VAA and the statutory-basis financial statements
and schedule of LINCOLN LIFE are located in the SAI. You may obtain a free copy
by writing Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne,
Indiana 46801 or calling 1-800-4LINCOLN (454-6265).
LINCOLN NATIONAL LIFE INSURANCE CO.
LINCOLN LIFE was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are the
issuer of the variable annuity contracts. The obligations set forth in the
contracts, other than those of the contract holder or participant are our
obligations. We also serve as the principal underwriter for the CONTRACTS. We
are owned by Lincoln National Corp. (LNC) which is also organized under Indiana
law. LNC's primary businesses are insurance and financial services.
VARIABLE ANNUITY ACCOUNT (VAA)
On June 3, 1981, the VAA was established as an insurance company separate
account under Indiana law. It is registered with the SEC as a unit investment
trust under the provisions of the Investment Company Act of 1940 (1940 Act). The
SEC does not supervise the VAA or LINCOLN LIFE. The VAA is a segregated
investment account, meaning that its assets may not be charged with liabilities
resulting from any other business that we may conduct. Income, gains and losses,
whether realized or not, from assets allocated to the VAA are, in accordance
with the applicable annuity CONTRACTS, credited to or charged against the VAA.
They are credited or charged without regard to any other income, gains or losses
of LINCOLN LIFE. The VAA satisfies the definition of separate account under the
federal securities laws. We do not guarantee the investment performance of the
VAA. Any investment gain or loss depends on the investment performance of the
FUNDS and SERIES. YOU ASSUME THE FULL INVESTMENT RISK FOR ALL AMOUNTS PLACED IN
THE VAA.
FIXED SIDE OF THE CONTRACT
PURCHASE PAYMENTS allocated to the fixed side of the CONTRACT become part of
LINCOLN LIFE'S general account, and DO NOT participate in the investment
experience of the VAA. The general account is subject to regulation and
supervision by the Indiana Insurance Department as well as the insurance laws
and regulations of the jurisdictions in which the CONTRACTS are distributed.
IN RELIANCE ON CERTAIN EXEMPTIONS, EXCLUSIONS AND RULES, LINCOLN LIFE HAS NOT
REGISTERED INTERESTS IN THE GENERAL ACCOUNT AS A SECURITY UNDER THE SECURITIES
ACT OF 1933 AND HAS NOT REGISTERED THE GENERAL ACCOUNT AS AN INVESTMENT COMPANY
UNDER THE 1940 ACT. ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS
THEREIN ARE SUBJECT TO REGULATION UNDER THE 1933 ACT OR THE 1940 ACT. LINCOLN
LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT MADE A REVIEW OF THE
DISCLOSURES WHICH ARE INCLUDED IN THIS PROSPECTUS WHICH RELATE TO OUR GENERAL
ACCOUNT AND TO THE FIXED ACCOUNT UNDER THE CONTRACT. THESE DISCLOSURES, HOWEVER,
MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL
SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN
PROSPECTUSES. THIS PROSPECTUS IS GENERALLY INTENDED TO SERVE AS A DISCLOSURE
DOCUMENT ONLY FOR ASPECTS OF THE CONTRACT INVOLVING THE VAA, AND THEREFORE
CONTAINS ONLY SELECTED INFORMATION REGARDING THE FIXED SIDE OF THE CONTRACT.
COMPLETE DETAILS REGARDING THE FIXED SIDE OF THE CONTRACT ARE IN THE CONTRACT.
PURCHASE PAYMENTS allocated to the fixed side of the CONTRACT are guaranteed to
be credited with a minimum interest rate, specified in the CONTRACT, of at least
3.0%. A
10
<PAGE>
PURCHASE PAYMENT allocated to the fixed side of the CONTRACT is credited with
interest beginning on the next calendar day following the date of receipt if all
data is complete. LINCOLN LIFE may vary the way in which it credits interest to
the fixed side of the CONTRACT from time to time.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE IN LINCOLN LIFE'S
SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0%
WILL BE DECLARED.
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT
You decide the SUBACCOUNT(S) to which you allocate PURCHASE PAYMENTS. There is a
separate SUBACCOUNT which corresponds to each FUND and SERIES. You may change
your allocations without penalty or charges. Shares of the FUNDS and SERIES will
be sold at net asset value (See the Appendix to the FUNDS' Prospectuses for an
explanation of net asset value) to the VAA in order to fund the CONTRACTS. The
FUNDS and SERIES are required to redeem their shares at net asset value upon our
request. We reserve the right to add, delete or substitute FUNDS and SERIES.
INVESTMENT ADVISOR
LINCOLN INVESTMENT (owned by LNC) is the ADVISOR for each of the FUNDS and is
primarily responsible for the investment decisions affecting the FUNDS. The
services it provides are explained in the Prospectuses of the FUNDS. Under an
advisory agreement with each FUND, LINCOLN INVESTMENT provides portfolio
management and investment advice to that FUND, subject to the supervision of the
FUND'S Board of Directors.
Additionally, LINCOLN INVESTMENT currently has six sub-advisory agreements in
which the sub-advisor may perform some or substantially all of the investment
advisory services required by those respective FUNDS.
No additional compensation from the assets of those FUNDS will be assessed as a
result of the sub-advisory agreements.
Following is a chart that shows the FUND names and the six sub-advisors under
LINCOLN INVESTMENT (the ADVISOR):
<TABLE>
<CAPTION>
SUB-ADVISOR FUND
<S> <C>
- ---------------------------------------------------
Delaware
International
Advisors, Ltd. International
<CAPTION>
- ---------------------------------------------------
<S> <C>
Fidelity Management
Trust Co. Equity-Income
<CAPTION>
- ---------------------------------------------------
<S> <C>
Janus Capital Corp. Capital Appreciation
<CAPTION>
- ---------------------------------------------------
<S> <C>
Lynch & Mayer, Inc. Aggressive Growth
<CAPTION>
- ---------------------------------------------------
<S> <C>
Putnam Investment
Management, Inc. Global Asset Allocation
<CAPTION>
- ---------------------------------------------------
<S> <C>
Vantage Investment
Advisors Growth and Income; Managed
(for stock portfolio);
Social Awareness; and
Special Opportunities
<CAPTION>
- ---------------------------------------------------
</TABLE>
The Bond and Money Market FUNDS do not have sub-advisors.
DELAWARE MANAGEMENT, an indirect subsidiary of LNC, is the advisor for the TREND
SERIES AND DECATUR TOTAL RETURN SERIES and is primarily responsible for the
investment decisions affecting these SERIES. Delaware International Advisers
Ltd. (Delaware International), an affiliate of DELAWARE MANAGEMENT, furnishes
investment management services to the Global Bond SERIES.
Additional information about DELAWARE MANAGEMENT and Delaware International may
be found in the Delaware Group Premium Fund, Inc. Prospectus enclosed in this
booklet under Management of the Fund.
FUNDS/SERIES
Following are brief summaries of the investment objectives and policies of the
FUNDS. The year in which each FUND started trading is in parentheses. There is
more detailed information in the current Prospectuses for the FUNDS, which are
included in this booklet.
All of the FUNDS with the exception of the Special Opportunities Fund are
diversified, open-end management investment companies. Diversified means not
owning too great a percentage of the securities of any one company. An open-end
company is one which, in this case, permits LINCOLN LIFE to sell its shares back
to the FUND or SERIES when you make a WITHDRAWAL, surrender the CONTRACT or
transfer from one FUND to another. Management investment company is the legal
term for a mutual fund. The Special Opportunities Fund is open-end, but is
non-diversified. Non-diversified means the FUND may own a larger percentage of
the securities of particular companies than will a diversified company. These
definitions are very general. The precise legal definitions for these terms are
contained in the 1940 Act. PLEASE BE ADVISED THAT THERE IS NO ASSURANCE THAT ANY
OF THE FUNDS OR SERIES WILL ACHIEVE ITS STATED OBJECTIVES.
11
<PAGE>
FUNDS
1. Aggressive Growth Fund (1994) -- The investment objective is to maximize
capital appreciation. The FUND invests in stocks of smaller, lesser-known
companies which have a chance to grow significantly in a short time.
2. Bond Fund (1981) -- The investment objective is maximum current income
consistent with prudent investment strategy. The FUND invests primarily in
medium-and long-term corporate and government bonds.
3. Capital Appreciation Fund (1994) -- The investment objective is long-term
growth of capital in a manner consistent with preservation of capital. The
FUND primarily buys stocks in a large number of companies of all sizes if
the companies are competing well and if their products or services are in
high demand. It may also buy some money market securities and bonds,
including junk (high-risk) bonds.
4. Equity-Income Fund (1994) -- The investment objective is to achieve
reasonable income by investing primarily in income-producing equity
securities. The FUND invests mostly in high-income stocks and some
high-yielding bonds (including junk bonds).
5. Global Asset Allocation Fund (1987) -- The investment objective is
long-term total return consistent with preservation of capital. The FUND
allocates its assets among several categories of equity and fixed-income
securities, both of U.S. and foreign issuers.
6. Growth and Income Fund (1981) -- The investment objective is long-term
capital appreciation. The FUND buys stocks of established companies.
7. International Fund (1991) -- The investment objective is long-term capital
appreciation. The FUND trades in securities issued outside the United
States--mostly stocks, with an occasional bond or money market security.
8. Managed Fund (1983) -- The investment objective is maximum long-term total
return (capital gains plus income) consistent with prudent investment
strategy. The FUND invests in a mix of stocks, bonds, and money market
securities, as determined by an investment committee.
9. Money Market Fund (1981) -- The investment objective is maximum current
income consistent with the preservation of capital. The FUND invests in
short-term obligations issued by U.S. corporations; the U.S. Government;
and federally-chartered banks and U.S. branches of foreign banks.
10. Social Awareness Fund (1988) -- The investment objective is long-term
capital appreciation. The FUND buys stocks of established companies which
adhere to certain specific social criteria.
11. Special Opportunities Fund (1981) -- The investment objective is maximum
capital appreciation. The FUND primarily invests in mid-size companies
whose stocks have significant growth potential. Current income is a
secondary consideration.
SERIES
Following are brief summaries of the investment objectives and policies of the
three SERIES being offered by Delaware Group Premium Fund, Inc. More detailed
information may be obtained from the current prospectus for those SERIES, which
is included in this booklet. PLEASE BE ADVISED THAT THERE IS NO ASSURANCE THAT
ANY OF THE SERIES WILL ACHIEVE ITS STATED OBJECTIVES.
1. Decatur Total Return Series -- 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. Decatur
Total Returns invests, but not exclusively, in common stocks and
income-producing securities convertible into common stocks, consistent
with the SERIES' objective.
2. Trend Series -- seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These securities will have
been judged to be responsive to changes in the market place and to have
fundamental characteristics to support growth. Income is not an objective.
3. Global Bond Series -- seeks current income consistent with preservation of
principal by investing primarily in fixed income securities that may also
provide the potential for capital appreciation. This SERIES is a global
fund. As such, at least 65% of the SERIES' assets will be invested in
fixed income securities of issuers organized or having a majority of their
assets in or deriving a majority of their operating income in at least
three different countries, one of which may be the United States.
Shares of the FUNDS and SERIES are sold to LINCOLN LIFE for investment of the
assets of the VAA and of Lincoln Life Flexible Premium Variable Life Account K,
for variable life insurance contracts. Shares of some, but not all, of the FUNDS
are also sold to LINCOLN LIFE for investment of the assets of Lincoln Life
Flexible Premium Variable Life Accounts D and G, also to fund variable life
insurance contracts. In addition, shares of the Delaware Group Premium Fund,
Inc. are sold to separate accounts of life insurance companies other than
LINCOLN LIFE. See Other
12
<PAGE>
information. Shares of the FUNDS and SERIES are not sold directly to the general
public.
We will purchase shares of the FUNDS and SERIES at net asset value and direct
them to the appropriate SUBACCOUNTs of the VAA. We will redeem sufficient shares
of the appropriate FUNDS and SERIES to pay ANNUITY PAYOUTS, DEATH BENEFITS,
SURRENDER/WITHDRAWAL proceeds or for purposes described in the CONTRACT. If you
desire to transfer all or part of your investment from one SUBACCOUNT to
another, we may redeem shares held in the first and purchase shares for the
other SUBACCOUNT. The shares are retired, but they may be reissued later.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
All of the investment objectives of the FUNDS and SERIES are fundamental which
means that no changes may be made without the affirmative vote of a majority of
the outstanding voting securities of each respective FUND or SERIES. The extent
to which the particular investment policies, practices or restrictions for each
FUND or SERIES are fundamental or nonfundamental depends on the particular FUND
or SERIES. If they are nonfundamental, they may be changed by the Board of
Directors of the FUNDS or SERIES without shareholder approval.
You are urged to consult the Prospectuses in this booklet and SAIs for each
individual FUND or SERIES for additional information regarding the fundamental
and non-fundamental policies, practices and restrictions of each of the FUNDS
and SERIES.
REINVESTMENT
All dividend and capital gain distributions of the FUNDS and SERIES are
automatically reinvested in shares of the distributing FUNDS and SERIES at their
net asset value on the date of distribution. Dividends are not paid out to
CONTRACTOWNERs as additional units, but are reflected in changes in unit values.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, within the law, to make additions, deletions and
substitutions for the FUNDS and SERIES held by the VAA. (We may substitute
shares of another series or of other funds for shares already purchased, or to
be purchased in the future, under the CONTRACT. This substitution might occur if
shares of a FUND and SERIES should no longer be available, or if investment in
any FUND'S and SERIES' shares should become inappropriate, in the judgement of
our management, for the purposes for the CONTRACT.) No substitution of the
shares attributable to your account may take place without notice to you and
prior approval of the SEC, in accordance with the 1940 Act.
CHARGES AND OTHER DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
There are no front-end deductions for sales charges made from PURCHASE PAYMENTS.
However, we will deduct premium taxes, when applicable.
ACCOUNT CHARGE
There is no account charge for SINGLE PREMIUM DEFERRED CONTRACTS AND FLEXIBLE
PREMIUM DEFERRED CONTRACTS, Multi Fund-Registered Trademark- 3 and 4. For
PERIODIC AND FLEXIBLE PREMIUM, Multi Fund-Registered Trademark- 2 DEFERRED
CONTRACTS, we will deduct $25 from the CONTRACT VALUE on the last VALUATION DATE
of each CONTRACT YEAR to compensate us for the administrative services provided
to you; this $25 account charge will also be deducted from the CONTRACT VALUE
upon SURRENDER. Administrative services include processing applications; issuing
CONTRACTS; processing purchase and redemptions of FUND shares; maintaining
records; administering ANNUITY PAYOUTS; providing accounting, valuation,
regulatory and reporting services.
SURRENDER CHARGES
There are charges associated with the SURRENDER of a CONTRACT or the WITHDRAWAL
of CONTRACT VALUE (or of PURCHASE PAYMENTS, for FLEXIBLE CONTRACTS) before the
ANNUITY COMMENCEMENT DATE. The SURRENDER CHARGES associated with SURRENDER or
WITHDRAWAL are paid to us to compensate us for the loss we experience on
CONTRACT distribution costs when CONTRACTOWNERS surrender or withdraw before
distribution costs have been recovered. Charges are the same for
SURRENDERS/WITHDRAWALS except that, for the first WITHDRAWAL in a CONTRACT YEAR,
up to 15% of CONTRACT VALUE (PURCHASE PAYMENTS for FLEXIBLE CONTRACTS) may be
withdrawn free of charges. This 15% WITHDRAWAL exception does not apply to a
SURRENDER of a CONTRACT.
A. PERIODIC PREMIUM DEFERRED CONTRACT
For the first WITHDRAWAL in a CONTRACT YEAR in excess of 15%, for any subsequent
WITHDRAWALs in the same CONTRACT YEAR, or for SURRENDER of the CONTRACT, there
will be a SURRENDER CHARGE of 8% for years 1-5; 4% in years 6-10; and no charge
after the CONTRACT has been in force for 10 years. In addition, as explained
previously, an account charge will be deducted for a SURRENDER.
SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If
between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled [as defined in
Section 22(e)(3) of the CODE], SURRENDER CHARGES will also be waived. In
addition, for 403(b) and 457 CONTRACTS only, SURRENDER CHARGES will be waived in
the event the ANNUITANT: (1) has terminated employment with the employer that
sponsored the CONTRACT; and (2) has been in the CONTRACT for at least five years
(the
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five year date beginning either November 1, 1991 or the date of the CONTRACT,
whichever is later); and (3) is at least age 55.
B. SINGLE PREMIUM DEFERRED CONTRACT OR NONRECURRING LUMP SUM PAYMENT TO PERIODIC
PREMIUM DEFERRED CONTRACT
For a SINGLE PREMIUM DEFERRED CONTRACT or a nonrecurring LUMP SUM payment made
to a PERIODIC PREMIUM DEFERRED CONTRACT, the SURRENDER/WITHDRAWAL CHARGES (when
applicable as described previously) will be:
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH
SURRENDER/WITHDRAWAL
OCCURS
<S> <C>
- ---------------------------------------------------
1 2 3 4 5 6 7 8+
Charge as a percent of
proceeds withdrawn 7% 6 5 4 3 2 1 0
</TABLE>
Investment gains attributable to a nonrecurring LUMP SUM payment made to a
PERIODIC PREMIUM DEFERRED CONTRACT will be subject to SURRENDER CHARGES of 8% in
years 1-5, 4% in years 6-10, and no charge after the CONTRACT has been in force
for 10 years.
LUMP SUM payments may be deposited into a PERIODIC PREMIUM DEFERRED CONTRACT
within 12 months of the effective date of the CONTRACT. After the 12-month
period, a new CONTRACT must be established for a LUMP SUM payment.
For PERIODIC PREMIUM DEFERRED CONTRACTS under which a nonrecurring LUMP SUM has
been received, WITHDRAWALS will be made first from any amount subject to the
lowest charge until that amount is gone.
SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If
between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled, SURRENDER charges
will also be waived.
C. FLEXIBLE PREMIUM DEFERRED CONTRACT
For a FLEXIBLE PREMIUM DEFERRED CONTRACT, the SURRENDER/WITHDRAWAL charges (when
applicable as described previously) will be:
<TABLE>
<CAPTION>
COMPLETED CONTRACT YEARS
BETWEEN DATE OF PURCHASE
PAYMENTS AND DATE OF
SURRENDER/WITHDRAWAL*
<S> <C>
- ---------------------------------------------------
0 1 2 3 4 5 6 7+
Charge as a percent of
total PURCHASE
PAYMENTS
surrendered/withdrawn
in a contract year 7% 6 5 4 3 2 1 0
</TABLE>
* The SURRENDER CHARGE is calculated separately for each CONTRACT YEAR'S
PURCHASE PAYMENTS.
For the first WITHDRAWAL of PURCHASE PAYMENTS in each CONTRACT YEAR, up to 15%
of PURCHASE PAYMENTS will be free of these charges. In addition, as explained
previously, an account charge will be deducted for a SURRENDER on Multi
Fund-Registered Trademark- 2 FLEXIBLE PREMIUM CONTRACTS.
SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If
between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled, SURRENDER CHARGES
will also be waived.
The SURRENDER CHARGE is calculated separately for each CONTRACT YEAR'S PURCHASE
PAYMENTS to which a charge applies. (FOR PURPOSES OF CALCULATING THIS CHARGE, WE
ASSUME THAT PURCHASE PAYMENTS ARE WITHDRAWN ON A FIRST IN-FIRST OUT BASIS, AND
THAT ALL PURCHASE PAYMENTS ARE WITHDRAWN BEFORE ANY EARNINGS ARE WITHDRAWN.) The
SURRENDER CHARGES associated with SURRENDER or WITHDRAWAL are paid to us to
compensate us for the loss we experience on CONTRACT distributions costs when
CONTRACTOWNERS surrender or withdraw before distribution costs have been
recovered.
ADDITIONAL INFORMATION
Participants in the Texas Optional Retirement Program should refer to
Restrictions under the Texas Optional Retirement Program, later in this
Prospectus booklet.
The charges associated with SURRENDER/WITHDRAWAL are paid to us to compensate us
for the cost of distributing the CONTRACTS. As required by the National
Association Securities Dealers, in no event will the aggregate SURRENDER CHARGES
under a CONTRACT exceed 8.5% of your total PURCHASE PAYMENTS.
The SURRENDER and account charges described previously may be reduced or
eliminated for any particular CONTRACT. However these charges will be reduced
only to the extent that we anticipate lower distribution and/or administrative
expenses or that we perform fewer sales or administrative services than those
originally contemplated in establishing the level of those charges. Lower
distribution and administrative expenses may be the result of economies
associated with (1) the use of mass enrollment procedures, (2) the performance
of administrative or sales functions by the employer, (3) the use by an employer
of automated techniques in submitting deposits or information related to
deposits on behalf of its employees, or (4) any other circumstances which reduce
distribution or administrative expenses. The exact amount of SURRENDER and
account charges applicable to a particular CONTRACT will be stated in that
CONTRACT.
For example, in certain circumstances, a holder of an annuity contract issued by
Lincoln Life may exchange it for a CONTRACT. In this circumstance, the surrender
charge applicable to such CONTRACT in the future will be calculated as if (i)
the date of purchase of the CONTRACT is the date the original annuity contract
was purchased and (ii) each purchase payment had been made on the actual date of
such payment, whether under the annuity contract or the CONTRACT. An exchange of
an annuity contract for a CONTRACT may or may not be advantageous,
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<PAGE>
based on all of the circumstances, including a comparison of contractual terms
and conditions such as investment options and charges and deductions other than
surrender charges. Generally speaking, an exchange would not involve an exchange
fee or be subject to taxes. We may pay a commission to the agent assisting on
the exchange. Additional information on exchanges, as well as a copy of the
prospectus for the annuity contract, is available upon request.
DEDUCTIONS FROM THE VAA FOR ASSUMPTION OF MORTALITY AND EXPENSE RISKS
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 1.002% of the daily net asset value, to compensate us for our assumption
of certain risks described below. This charge is made up of two parts: (1) our
assumption of mortality risks (0.900%) and (2) our assumption of expense risks
(0.102%). The level of this charge is guaranteed not to change.
Our assumption of mortality risks guarantees that the ANNUITY PAYOUTS made to
our CONTRACTOWNERS will not be affected by the mortality experience (life span)
either of persons receiving those payouts or of the general population. We
assume this mortality risk through guaranteed annuity rates incorporated into
the CONTRACT which cannot be changed. We also assume the risk that the charges
for administrative expenses, which cannot be changed by us, will be insufficient
to cover actual administrative costs.
If the 1.002% charge proves insufficient to cover underwriting and
administrative costs in excess of the charges made for administrative expenses,
we will absorb the loss. However, if the amount deducted proves more than
sufficient, we will keep the profit.
DEDUCTIONS FOR PREMIUM TAXES
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the CONTRACTS or the VAA will be deducted from the CONTRACT
VALUE when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation, or by judicial action. These premium taxes will
generally depend upon the law of your state of residence. The tax ranges from
0.5% to 4.0%.
DEDUCTION FOR THE EGMDB
When the EGMDB becomes effective, we will begin deducting from the VAA an
amount, computed daily, which is equal to an annual rate of 0.30% of the daily
net asset value. This charge will start at the beginning of the next VALUATION
PERIOD. This charge will continue for all future CONTRACT YEARS unless the owner
elects to discontinue the EGMDB. If the EGMDB is discontinued, the 0.30% annual
charge will cease at the end of the VALUATION PERIOD when the EGMDB is
terminated. See The contracts -- Death benefit before the annuity commencement
date.
OTHER CHARGES AND DEDUCTIONS
There are deductions from and expenses paid out of the assets of the eleven
FUNDS and the three SERIES that are described later in this booklet in the
Appendix to the FUNDS' Prospectuses and in the Prospectus for the SERIES
respectively.
THE CONTRACTS
PURCHASE OF CONTRACTS
If you wish to purchase a CONTRACT, you must apply for it through one of our
authorized sales representatives. The completed application is sent to us and we
decide whether to accept or reject it. If the application is accepted, a
CONTRACT is prepared and executed by our legally authorized officers. The
CONTRACT is then sent to you through your sales representative. See Distribution
of the contracts.
If a completed application and all other information necessary for processing a
purchase order are received, an initial PURCHASE PAYMENT will be priced no later
than two business days after we receive the order. While attempting to finish an
incomplete application, we may hold the initial PURCHASE PAYMENT for no more
than five business days. If the incomplete application cannot be completed
within those five days, you will be informed of the reasons, and the PURCHASE
PAYMENT will be returned immediately (unless you specifically authorize us to
keep it until the application is complete). Once the application is complete,
the initial PURCHASE PAYMENT must be priced within two business days.
WHO CAN INVEST
To apply for a PERIODIC PREMIUM DEFERRED CONTRACT, you must be of legal age in a
state where the CONTRACTS may be lawfully sold and also be eligible to
participate in any of the qualified or nonqualified plans for which the
CONTRACTS are designed. The ANNUITANT cannot be older than age 74.
To apply for a FLEXIBLE PREMIUM DEFERRED CONTRACT, a SINGLE PREMIUM DEFERRED
CONTRACT or to make a nonrecurring LUMP SUM payment to a PERIODIC PREMIUM
DEFERRED CONTRACT, you must meet the same requirements as for an application of
a PERIODIC PREMIUM DEFERRED CONTRACT, except that the ANNUITANT cannot be older
than age 84.
PURCHASE PAYMENTS
PURCHASE PAYMENTS are payable to us at a frequency and in an amount selected by
you in the application. The minimum PURCHASE PAYMENT for a SINGLE PREMIUM
DEFERRED
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VALUATION DATE
ACCUMULATION and ANNUITY UNITS will be valued once daily as of the close of
trading (currently 4:00 p.m., New York time) on each day that the NYSE is open
for trading (VALUATION DATE). On any date other than a VALUATION DATE, the
ACCUMULATION UNIT value and the ANNUITY UNIT value will not change.
ALLOCATION OF PURCHASE PAYMENTS
PURCHASE PAYMENTS are placed into the VAA'S SUBACCOUNTS, each of which invests
in shares of its corresponding FUND or SERIES, according to your instructions.
The minimum amount of any PURCHASE PAYMENT which can be put into any one
SUBACCOUNT is $20 under PERIODIC PREMIUM DEFERRED CONTRACTS, $1,000 under SINGLE
PREMIUM DEFERRED CONTRACTS and $100 under FLEXIBLE PREMIUM DEFERRED CONTRACTS.
Upon allocation to the appropriate SUBACCOUNT, PURCHASE PAYMENTS are converted
into ACCUMULATION UNITS. The number of ACCUMULATION UNITS credited is determined
by dividing the amount allocated to each SUBACCOUNT by the value of an
ACCUMULATION UNIT for that SUBACCOUNT on the VALUATION DATE on which the
PURCHASE PAYMENT is received at the HOME OFFICE if received before 4:00 p.m.,
New York time. If the PURCHASE PAYMENT is received at or after 4:00 p.m., New
York time, we will use the ACCUMULATION UNIT value computed on the next
VALUATION DATE. The number of ACCUMULATION UNITS determined in this way shall
not be changed by any subsequent change in the value of an ACCUMULATION UNIT.
However, the dollar value of an ACCUMULATION UNIT will vary depending not only
upon how well the investments perform, but also upon the related expenses of the
VAA and the underlying FUNDS and SERIES.
VALUATION OF ACCUMULATION UNITS
PURCHASE PAYMENTS allocated to the VAA are converted into ACCUMULATION UNITS.
This is done by dividing each PURCHASE PAYMENT by the value of an ACCUMULATION
UNIT for the VALUATION PERIOD during which the PURCHASE PAYMENT is allocated to
the VAA. The ACCUMULATION UNIT value for each SUBACCOUNT was or will be
established at the inception of the SUBACCOUNT. It may increase or decrease from
VALUATION PERIOD to VALUATION PERIOD. The ACCUMULATION UNIT value for a
SUBACCOUNT for a later valuation period is determined as follows:
(1) The total value of the FUND OR SERIES shares held in the SUBACCOUNT is
calculated by multiplying the number of FUND OR SERIES shares owned by
the SUBACCOUNT at the beginning of the VALUATION PERIOD by the net asset
value per share of the FUND OR SERIES at the end of the VALUATION
PERIOD, and adding any dividend or other distribution of the FUND OR
SERIES if an ex-dividend date occurs during the VALUATION PERIOD; minus
(2) The liabilities of the SUBACCOUNT at the end of the VALUATION PERIOD;
these liabilities include daily charges imposed on the SUBACCOUNT, and
may include a charge or credit with respect to any taxes paid or
reserved for by us that we determine result from the operations of the
VAA; and
(3) Dividing the result by the number of SUBACCOUNT units outstanding at the
beginning of the VALUATION PERIOD.
The daily charges imposed on a SUBACCOUNT for any VALUATION PERIOD are equal to
the daily mortality and expense risk charge multiplied by the number of calendar
days in the VALUATION PERIOD. Because a different daily charge is made for
CONTRACTS with the EGMDB than for those without, each of the two types of
CONTRACTS will have different corresponding ACCUMULATION UNIT values on any
given day.
TRANSFERS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment from one SUBACCOUNT to
another. A transfer involves the SURRENDER of ACCUMULATION UNITS in one
SUBACCOUNT and the purchase of ACCUMULATION UNITS in the other SUBACCOUNT. A
transfer will be done using the respective ACCUMULATION UNIT values as of the
VALUATION DATE immediately following receipt of the transfer request.
Transfers between SUBACCOUNTS are restricted to once every 30 days; although, we
reserve the right to waive this 30-day period. The minimum amount which may be
transferred between SUBACCOUNTS is $500 or the entire amount in the SUBACCOUNT,
if less than $500. If the transfer from a SUBACCOUNT would leave you with less
than $100 in the SUBACCOUNT, we may transfer the total balance of the
SUBACCOUNT. (We have the right to reduce these minimum amounts.)
A transfer may be made by writing to the HOME OFFICE or, if a Telephone Exchange
Authorization form (available from us) is on file with us, by a toll-free
telephone call. In order to prevent unauthorized or fraudulent telephone
transfers, we may require a CONTRACTOWNER to provide certain identifying
information before we will act upon their instructions. We may also assign the
CONTRACTOWNER a Personal Identification Number (PIN) to serve as identification.
We will not be liable for following telephone instructions we reasonably believe
are genuine. Telephone tranfer requests may be recorded and written confirmation
of all transfer requests will be mailed to the CONTRACTOWNER on the next
VALUATION DATE.
Telephone transfers will be processed on the VALUATION DATE that they are
received when they are received at our customer service center before 4:00 PM
New York time.
You may also transfer all or any part of the CONTRACT VALUE from the
SUBACCOUNT(S) to the fixed side of the CONTRACT. Transfers from the fixed side
of the CONTRACT to the various SUBACCOUNT(S) are allowed subject to the
following restrictions: (1) the sum of the percentages of the fixed
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<PAGE>
value transferred is limited to 25% of the value of the fixed side in any 12
month period; and (2) the minimum amount which can be transferred is $500 or the
amount in the fixed account. We reserve the right to waive any of these
restrictions.
When thinking about a transfer of CONTRACT VALUE, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that a transfer will be made at an inopportune time.
There is no charge to you for a transfer. However, we reserve the right to
impose a charge in the future for any transfers.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment in one SUBACCOUNT to
another SUBACCOUNT or to the fixed side of the CONTRACT. Those transfers will be
limited to three times per CONTRACT YEAR. HOWEVER, AFTER THE ANNUITY
COMMENCEMENT DATE, NO TRANSFERS ARE ALLOWED FROM THE FIXED SIDE OF THE CONTRACT
TO THE SUBACCOUNTS.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
You may designate a BENEFICIARY during the life of the ANNUITANT and change the
BENEFICIARY by filing a written request with the HOME OFFICE. Each change of
BENEFICIARY revokes any previous designation. We reserve the right to request
that you send us the CONTRACT for endorsement of a change of BENEFICIARY.
If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the EGMDB is not
in effect, a DEATH BENEFIT equal to the CONTRACT VALUE will be paid to your
designated BENEFICIARY.
An optional EGMDB is available for nonqualified, Roth IRA and IRA FLEXIBLE
PREMIUM DEFERRED ANNUITY CONTRACTS, for ANNUITANTS up to age 75. (Please check
with your representative for availability to current CONTRACTOWNERS.) The EGMDB
will take effect on the VALUATION DATE when the EGMDB election form is approved
at our HOME OFFICE, if before 4:00 p.m. New York time. The OWNER may discontinue
the EGMDB at any time. If discontinued, the EGMDB will terminate on the
VALUATION DATE written notice is received at our HOME OFFICE, if before 4:00
p.m. New York time. If after 4:00 p.m. New York time, the EGMDB election or
termination will be effective with the next VALUATION DATE. The OWNER may not
reelect the EGMDB once it is discontinued. As of the annuity commencement date
the EGMDB will be discontinued and the charge for the EGMDB will cease. See
Charges and other deductions -- Deduction for the EGMDB.
If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the EGMDB is in
effect, the DEATH BENEFIT paid to your designated BENEFICIARY will be the
greater of:
1. the CONTRACT VALUE at the end of the VALUATION PERIOD when the death claim is
approved for payment by LINCOLN LIFE, or
2. the higher of:
(a) the CONTRACT VALUE at the end of the VALUATION PERIOD when the EGMDB
becomes effective and;
(b) the highest CONTRACT VALUE, at the end of the VALUATION PERIOD, on any
contract anniversary date up to and including age 75 following election
of the EGMDB;
increased by PURCHASE PAYMENTS and decreased by any WITHDRAWALS, annuitizations,
and premium taxes incurred after the contract anniversary or EGMDB effective
date the highest CONTRACT VALUE occurred.
The CONTRACT VALUE available upon death is the value of the CONTRACT at the end
of the VALUATION PERIOD during which the death claim is approved for payment by
LINCOLN LIFE. The approval of the death claim payment will occur after receipt
of: (1) proof, satisfactory to us, of the death of the ANNUITANT; (2) written
authorization for payment; and (3) our receipt of all required claim forms fully
completed.
The EGMDB may not be elected on or after the ANNUITY COMMENCEMENT DATE.
At any time during a 60-day period the BENEFICIARY may elect to receive payment
either in the form of a lump sum settlement or an ANNUITY PAYOUT.
If a LUMP SUM settlement is requested and the amount of the settlement is
$10,000 or more, a SecureLine-Registered Trademark- account will be established
in the name of the BENEFICIARY for that amount. If the LUMP SUM amount is less
than $10,000, it will be sent to the BENEFICIARY. In either event, the proceeds
will be disbursed within seven days of receipt of satisfactory claim
documentation, as discussed previously, subject to the laws and regulations
governing payment of DEATH BENEFITS. If an election has not been made by the end
of the 60-day period, a LUMP SUM settlement will be made at that time using
SecureLine-Registered Trademark- if the amount is $10,000 or more; if the amount
is under $10,000 it will be sent to the BENEFICIARY. This payment may be
postponed as permitted by the 1940 Act.
SecureLine-Registered Trademark- is an interest-bearing checking account
established in the name of the BENEFICIARY which is administered by State Street
Bank and Trust Company of Boston, MA. Once the SecureLine-Registered Trademark-
account is established, only the BENEFICIARY can authorize checks to be drawn on
the account.
Annuity payouts will be made in accordance with applicable laws and regulations
governing payment of DEATH BENEFITS.
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Unless otherwise provided in the BENEFICIARY designation, one of the following
procedures will take place on the death of a BENEFICIARY:
1. If any BENEFICIARY dies before the ANNUITANT, that BENEFICIARY's interest
will go to any other beneficiaries named, according to their respective
interests. There are no restrictions on the BENEFICIARY's use of the
proceeds; and/or
2. If no BENEFICIARY survives the ANNUITANT, the proceeds will be paid to the
CONTRACTOWNER or to his/her estate, as applicable.
JOINT/CONTINGENT OWNERSHIP
If joint owners are named in the application, the joint owners shall be treated
as having equal undivided interests in the CONTRACT. Either owner, independently
of the other, may exercise any ownership rights in this CONTRACT. Only the
spouse can be a joint owner on Multi Fund-Registered Trademark- 4, FLEXIBLE
PREMIUM DEFERRED ANNUITY CONTRACTS.
A contingent owner may exercise ownership rights in this CONTRACT only after the
CONTRACTOWNER dies.
DEATH OF CONTRACTOWNER
If the CONTRACTOWNER of a nonqualified contract dies before the ANNUITY
COMMENCEMENT DATE, then, in compliance with the CODE, the CASH SURRENDER VALUE
of the CONTRACT will be paid as follows:
1. Upon the death of a NON-ANNUITANT CONTRACTOWNER, the proceeds shall be paid
to any surviving joint or contingent owner(s). If no joint or contingent
owner has been named, then the CASH SURRENDER VALUE shall be paid to the
ANNUITANT named in the CONTRACT; and
2. Upon the death of a CONTRACTOWNER, who is also the ANNUITANT, the death will
be treated as death of the ANNUITANT and the provisions of this CONTRACT
regarding death of ANNUITANT will control. If the recipient of the proceeds
is the surviving spouse of the CONTRACTOWNER, the CONTRACT may be continued
in the name of that spouse as the new CONTRACTOWNER.
The CODE requires that any distribution be paid within five years of the death
of the CONTRACTOWNER unless the BENEFICIARY begins receiving, within one year of
the CONTRACTOWNER's death, the distribution in the form of a life annuity or an
annuity for a period certain not exceeding the BENEFICIARY's life expectancy.
SURRENDERS AND WITHDRAWALS
Before the ANNUITY COMMENCEMENT DATE, we will allow the SURRENDER of the
CONTRACT or a WITHDRAWAL of the CONTRACT VALUE upon your written request,
subject to the rules below.
Special restrictions on SURRENDERS/WITHDRAWALS apply if your CONTRACT is
purchased as part of a retirement plan of a public school system or Section
501(c)(3) organization under Section 403(b) of the CODE. Beginning January 1,
1989, in order for a CONTRACT to retain its tax-qualified status, Section 403(b)
prohibits a WITHDRAWAL from a Section 403(b) CONTRACT of post-1988 contributions
(and earnings on those contributions) pursuant to a salary reduction agreement.
However, this restriction does not apply if the ANNUITANT attains age (a) 59 1/2
(b) separates from service, (c) dies, (d) becomes totally and permanently
disabled and/or (e) experiences financial hardship (in which event the income
attributable to those contributions may not be withdrawn).
A SURRENDER/WITHDRAWAL after the ANNUITY COMMENCEMENT DATE depends upon the
ANNUITY OPTION selected.
Pre-1989 contributions and earnings through December 31, 1988, are not subject
to the previously stated restriction.
The CONTRACT VALUE available upon SURRENDER/WITHDRAWAL is the CASH SURRENDER
VALUE at the end of the VALUATION PERIOD during which the written request for
SURRENDER/WITHDRAWAL is received at the HOME OFFICE. Unless a request for
WITHDRAWAL specifies otherwise, WITHDRAWALS will be made from all SUBACCOUNTS
within the VAA and from the general account in the same proportion that the
amount of WITHDRAWAL bears to the total CONTRACT VALUE. The minimum amount which
can be withdrawn is $100, and the remaining CONTRACT VALUE must be at least
$300. Where permitted by CONTRACT, SURRENDER/WITHDRAWAL payments will be mailed
within seven days after we receive a valid written request at the HOME OFFICE.
The payment may be postponed as permitted by the 1940 Act. You may specify that
the charges be deducted from the amount you request withdrawn or from the
remaining CONTRACT VALUE.
There are charges associated with SURRENDER of a CONTRACT or WITHDRAWAL of
CONTRACT VALUE before the ANNUITY COMMENCEMENT DATE. See Charges and other
deductions.
The tax consequences of a SURRENDER/WITHDRAWAL are discussed later in this
booklet. See Federal tax status.
If the total CONTRACT VALUE is less than $600, and if no PURCHASE PAYMENTS have
been made for at least two years, we reserve the right to terminate the
CONTRACT.
REINVESTMENT PRIVILEGE
You may elect to make a reinvestment purchase with any part of the proceeds of a
SURRENDER/WITHDRAWAL, and we will recredit the SURRENDER/WITHDRAWAL charges
previously deducted. This election must be made within 30 days of the date of
the SURRENDER/WITHDRAWAL, and the repurchase must be of a CONTRACT covered by
this Prospectus. In the case of a qualified CONTRACT, a representation must be
made that the proceeds being used to make the purchase have retained their
tax-favored status under an arrangement for which the CONTRACTS offered by this
Prospectus are designed. The number of ACCUMULATION UNITS which will be credited
when the proceeds are reinvested will be based on the value of the
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ACCUMULATION UNIT(S) on the next VALUATION DATE. This computation will occur
following receipt of the proceeds and request for reinvestment at the HOME
OFFICE. You may utilize the reinvestment privilege only once. For tax reporting
purposes, we will treat a SURRENDER/WITHDRAWAL and a subsequent reinvestment
purchase as separate transactions. You should consult a tax advisor before you
request a SURRENDER/WITHDRAWAL or subsequent reinvestment purchase.
AMENDMENT OF CONTRACT
We reserve the right to amend the CONTRACT to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified in writing of any changes, modifications or waivers.
COMMISSIONS
For the FLEXIBLE PREMIUM DEFERRED ANNUITY Multi Fund-Registered Trademark- 2 and
3 CONTRACTS, the maximum commission which could be paid to dealers is equal to
5.25% on each PURCHASE PAYMENT; plus up to 0.10% of the value of PURCHASE
PAYMENTS in the VARIABLE ANNUITY ACCOUNT while the EGMDB is in effect. For
FLEXIBLE PREMIUM DEFERRED ANNUITY Multi Fund-Registered Trademark- 4 CONTRACTS,
the maximum commission which could be paid to dealers is equal to 4.50% on each
PURCHASE PAYMENT; plus an annual continuing commission up to .40% of the value
of the CONTRACT PURCHASE PAYMENTS invested for at least 15 months; plus up to
0.10% of the value of PURCHASE PAYMENTS in the VARIABLE ANNUITY ACCOUNT while
the EGMDB is in effect.
For the PERIODIC PREMIUM DEFERRED ANNUITY CONTRACT, the maximum commission which
could be paid to dealers is 9% on the total PURCHASE PAYMENTS received during
the first CONTRACT YEAR and 5.25% on each PURCHASE PAYMENT in renewal CONTRACT
YEARS (or an equivalent schedule).
OWNERSHIP
As CONTRACTOWNER, you have all rights under the CONTRACT. According to Indiana
law, the assets of the VAA are held for the exclusive benefit of all
CONTRACTOWNERS and their designated BENEFICIARIES. The assets of the VAA are not
chargeable with liabilities arising from any other business that we may conduct.
CONTRACTS used for QUALIFIED PLANS may not be assigned or transferred except as
permitted by the Employee Retirement Income Security Act (ERISA) of 1974 and
upon written notification to us. We assume no responsibility for the validity or
effect of any assignment. Consult your tax ADVISOR about the tax consequences of
an assignment.
CONTRACTOWNER QUESTIONS
The obligations to purchasers under the CONTRACTS are those of LINCOLN LIFE.
Your questions and concerns should be directed to us at 1-800-4LINCOLN
(454-6265).
ANNUITY PAYOUTS
When you apply for a CONTRACT, you may select any ANNUITY COMMENCEMENT DATE
permitted by law. (PLEASE NOTE THE FOLLOWING EXCEPTION: CONTRACTS issued under
qualified employee pension and profit-sharing trusts [described in Section
401(a) and tax exempt under Section 501(a) of the CODE] and qualified annuity
plans [described in Section 403(a) of the CODE], including H.R. 10 trusts and
plans covering self-employed individuals and their employees, provide for
ANNUITY PAYOUTS to start at the date and under the option specified in the
plan.)
The CONTRACT provides that all or part of the CONTRACT VALUE may be used to
purchase an annuity. Optional forms of payout of annuities (ANNUITY OPTIONS) are
available, each of which is payable on a variable basis, a fixed basis or a
combination of both. We may choose to make other ANNUITY OPTIONS available in
the future.
You may elect ANNUITY PAYOUTS in monthly, quarterly, semiannual or annual
installments. If the payouts from any SUBACCOUNT would be or become less than
$50, we have the right to reduce their frequency until the payouts are at least
$50 each. Following are explanations of the ANNUITY OPTIONS available.
ANNUITY OPTIONS
LIFE ANNUITY. This option offers a periodic payout during the lifetime of the
ANNUITANT and ends with the last payout before the death of the ANNUITANT. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a DEATH BENEFIT for BENEFICIARIES.
HOWEVER, THERE IS THE RISK UNDER THIS OPTION THAT THE ANNUITANT WOULD RECEIVE NO
PAYOUTS IF DEATH OCCURS BEFORE THE DATE SET FOR THE FIRST PAYOUT; ONLY ONE
PAYOUT IF DEATH OCCURS BEFORE THE SECOND SCHEDULED PAYOUT, AND SO ON.
LIFE INCOME WITH PAYOUTS GUARANTEED FOR DESIGNATED PERIOD. This option
guarantees periodic payouts during a designated period, usually 10 or 20 years,
and then continues throughout the lifetime of the ANNUITANT. The designated
period is selected by the CONTRACTOWNER.
JOINT LIFE ANNUITY. This option offers a periodic payout during the joint
lifetime of the annuitant and a designated joint annuitant. The payouts continue
during the lifetime of the survivor.
JOINT LIFE ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic
payouts during a designated period, usually 10 or 20 years, and continues during
the joint lifetime of the ANNUITANT and a designated joint annuitant. The
payouts continue during the lifetime of
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the survivor. The designated period is selected by the CONTRACTOWNER.
JOINT-AND-TWO-THIRDS SURVIVOR ANNUITY. This option provides a periodic payout
during the joint lifetime of the ANNUITANT and a designated joint annuitant.
When one of the joint annuitants dies, the survivor, during their lifetime,
receives two thirds of the periodic payout made when both were alive.
UNIT REFUND LIFE ANNUITY. This option offers a periodic payout during the
lifetime of the ANNUITANT with the guarantee that upon death a payout will be
made of the value of the number of ANNUITY UNITS (see Variable annuity payouts)
equal to the excess, if any, of: (a) the total amount applied under this option
divided by the ANNUITY UNIT value for the date payouts begin, divided by (b) the
ANNUITY UNITS represented by each payout to the ANNUITANT multiplied by the
number of payouts paid before death. The value of the number of ANNUITY UNITS is
computed on the date the death claim is approved for payment by the HOME OFFICE.
None of the options listed above currently provide WITHDRAWAL features,
permitting the CONTRACTOWNER to WITHDRAW commuted values as a LUMP SUM payment.
Other options may be made available by us. Options are only available to the
extent they are consistent with the requirements of the CONTRACT and Section
72(s) of the CODE, if applicable. The mortality and expense risk charge will be
assessed on all VARIABLE ANNUITY PAYOUTS, including options that do not have a
life contingency and therefore no mortality risk.
The ANNUITY COMMENCEMENT DATE is usually on or before the ANNUITANT'S 85th
birthday; however you may change the ANNUITY COMMENCEMENT DATE, change the
ANNUITY OPTION, or change the allocation of the investment among SUBACCOUNTS up
to 30 days before the scheduled ANNUITY COMMENCEMENT DATE, upon written notice
to the HOME OFFICE. You must give us at least 30 days notice before the date on
which you want payouts to begin. If proceeds become available to a BENEFICIARY
in a LUMP SUM, the BENEFICIARY may choose any ANNUITY PAYOUT OPTION.
Unless you select another option, the CONTRACT automatically provides for a life
with a 10 year guaranteed period annuity (on a fixed, variable or combination
fixed and variable basis, in proportion to the account allocation at the time of
annuitization), except when a joint life payout is required by law. Under any
option providing for guaranteed payouts, the number of payouts which remain
unpaid at the date of the ANNUITANT'S death (or surviving ANNUITANT'S death in
the case of a joint life annuity) will be paid to your BENEFICIARY as payouts
become due.
The CONTRACT contains no provision under which an ANNUITANT or a BENEFICIARY may
surrender their CONTRACT or make a WITHDRAWAL and receive a LUMP-SUM settlement
once ANNUITY PAYOUTS have begun. See Surrenders and withdrawals. Options are
only available to the extent they are consistent with the requirements of
Section 72(s) of the CODE, if applicable.
VARIABLE ANNUITY PAYOUTS
VARIABLE ANNUITY PAYOUTS will be determined using:
1. The CONTRACT VALUE on the ANNUITY COMMENCEMENT DATE;
2. The annuity tables contained in the CONTRACT;
3. The ANNUITY OPTION selected; and
4. The investment performance of the FUND(S) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the CONTRACT with a fixed number of ANNUITY UNITS equal to the first
periodic payout divided by the ANNUITY UNIT value; and
3. Calculate the value of the ANNUITY UNITS each month thereafter.
We assume an investment return of 5% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying FUND(S) and SERIES perform, relative to the 5% assumed
rate. There is a more complete explanation of this calculation in the SAI.
FEDERAL TAX STATUS
This section is a discussion of the Federal income tax rules applicable to the
CONTRACTS as of the date of this Prospectus. More information is provided in the
SAI. THESE DISCUSSIONS AND THOSE IN THE SAI ARE NOT INTENDED AS TAX ADVICE. This
section does not discuss the Federal tax consequences resulting from every
possible situation. No attempt has been made to consider any applicable state,
local or foreign tax law, other than the imposition of any state premium taxes
(See Charges and other deductions). If you are concerned about the tax
implications with respect to the CONTRACTS, you should consult a tax advisor.
The following discussion is based upon our understanding of the present Federal
income tax laws as they are currently interpreted by the Internal Revenue
Service (IRS). The United States Congress has in the past and may again in the
future enact legislation changing the tax treatment of annuities in both the
non-qualified and the qualified markets. The Treasury Department may issue new
or amended regulations or other interpretations of existing tax law. Judicial
interpretations may also affect the tax treatment of annuities. It is possible
that such changes could have retroactive effect. We suggest that you consult
your legal or tax adviser on these issues.
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TAXATION OF NONQUALIFIED CONTRACTS
You are generally not taxed on increases in the value of your CONTRACT until a
distribution occurs. This distribution can be in the form of a LUMP SUM payout
received by requesting all or part of the CASH SURRENDER VALUE (i.e.
SURRENDERS/WITHDRAWALS) or as ANNUITY PAYOUTS. For this purpose, the assignment
or pledge of, or the agreement to assign or pledge, any portion of the value of
a CONTRACT will be treated as a distribution. A transfer of ownership of a
CONTRACT, or designation of an ANNUITANT (or other BENEFICIARY) who is not also
the CONTRACTOWNER, may also result in tax consequences. The taxable portion of a
distribution (in the form of a LUMP SUM payout or an annuity) is taxed as
ordinary income. For PURCHASE PAYMENTS made after February 28, 1986, a
CONTRACTOWNER who is not a natural person (for example, a corporation) [subject
to limited exceptions] will be taxed on any increase in the CONTRACT'S cash
value over the investment in the CONTRACT during the taxable year, even if no
distribution occurs. The next discussion applies to CONTRACTS owned by natural
persons.
In the case of a SURRENDER under the CONTRACT or WITHDRAWAL of CONTRACT VALUE,
generally amounts received are first treated as taxable income to the extent
that the cash value of the CONTRACT immediately before the SURRENDER exceeds the
investment in the CONTRACT at that time. Any additional amount withdrawn is not
taxable. In the case of a SURRENDER under a CONTRACT issued before August 14,
1982, and allocable to an investment in the CONTRACT made before that date,
amounts received are treated as taxable income only to the extent that they
exceed the investment in the CONTRACT. The investment in the CONTRACT generally
equals the portion, if any, of any PURCHASE PAYMENT paid by or on behalf of an
individual under a CONTRACT which is not excluded from the individual's gross
income.
Even though the tax consequences may vary depending on the form of ANNUITY
PAYOUT selected under the CONTRACT, the CONTRACTOWNER of an ANNUITY PAYOUT
generally is taxed on the portion of such payout that exceeds the investment in
the CONTRACT. For variable ANNUITY PAYOUTS, the taxable portion is determined by
a formula that establishes a specific dollar amount of each payout that is not
taxed. The dollar amount is determined by dividing the investment in the
CONTRACT by the total number of expected periodic payouts. For fixed ANNUITY
PAYOUTS, there generally is no tax on the portion of each payout that represents
the same ratio that the investment in the CONTRACT bears to the total expected
value of payouts for the term of the annuity; the remainder of each payout is
taxable. For individuals whose annuity starting date is after December 31, 1986,
the entire distribution (whether fixed or variable) will be fully taxable once
the recipient is deemed to have recovered the dollar amount of the investment in
the CONTRACT.
There may be imposed a penalty tax on distributions equal to 10% of the amount
treated as taxable income. The penalty tax is not imposed in certain
circumstances, which generally are distributions:
1. Received on or after age 59 1/2;
2. Made as a result of death or disability of CONTRACTOWNER;
3. Received in substantially equal periodic payments as a life annuity (subject
to special recapture rules if the series of payouts is subsequently
modified);
4. Allocable to the investment in the CONTRACT before August 14, 1982;
5. Under a qualified funding asset in a structured settlement;
6. Under an immediate annuity contract as defined in the CODE; and/or
7. Under a CONTRACT purchased in connection with the termination of certain
retirement plans.
TAXATION OF QUALIFIED CONTRACTS
The CONTRACTS may be purchased in connection with the following types of
tax-favored retirement plans:
1. CONTRACTS purchased for employees of public school systems and certain
tax-exempt organizations, qualified under Section 403(b) of the CODE;
2. Pension and profit-sharing plans of self-employed individuals (H.R. 10 or
Keogh plans) or corporations, qualified under Section 401(a) or 403(a) of
the CODE;
3. IRAs, qualified under Section 408 of the CODE;
4. Roth IRAs qualified under Section 408A of the CODE;
5. Deferred compensation plans of state or local governments, qualified under
Section 457 of the CODE;
6. SEPs, qualified under Section 408(k) of the CODE;
and/or
7. Simple plans, qualified under Sections 401(k)(11) and 408(k) of the CODE.
The tax rules applicable to these plans, including restrictions on contributions
and benefits, taxation of distributions and any tax penalties, vary according to
the type of plan and its terms and conditions. Participants under such plans, as
well as CONTRACTOWNERS, ANNUITANTS and BENEFICIARIES, should be aware that the
rights of any person to any benefits under such plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the CONTRACTS. Purchasers of CONTRACTS for use with any qualified
plan, as well as plan participants and BENEFICIARIES, should consult counsel and
other advisors as to the suitability of the CONTRACTS to their specific needs,
and as to applicable CODE limitations and tax consequences.
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contract is $3,000 ($1,000 for IRAs and SEPs). The minimum initial PURCHASE
PAYMENT for a FLEXIBLE PREMIUM DEFERRED CONTRACT is $3,000 ($1,000 for IRAs and
SEPs), and subsequent PURCHASE PAYMENTS must be at least $100. For a PERIODIC
PREMIUM DEFERRED CONTRACT, the minimum amount of any scheduled PURCHASE PAYMENT
is $25, and the scheduled PURCHASE PAYMENTS must total at least $600 per year.
PURCHASE PAYMENTS in any one CONTRACT YEAR which exceed twice the amount of
PURCHASE PAYMENTS made in the first CONTRACT YEAR may be made only with our
permission. PURCHASE PAYMENTS in total may not exceed $1 million for each
ANNUITANT. If you stop making PURCHASE PAYMENTS, the CONTRACT will remain in
force as a paid-up CONTRACT as long as the total CONTRACT VALUE is at least
$600. Payments may be resumed at any time until the ANNUITY COMMENCEMENT DATE,
the maturity date, the SURRENDER of the CONTRACT, or payment of any DEATH
BENEFIT, whichever comes first.
MULTIPLE CONTRACTS
All CONTRACTS entered into after October 21, 1988, and issued by the same
insurance company (or its affiliates) to the same CONTRACTOWNER during any
calendar year will be treated as a single CONTRACT for tax purposes.
INVESTOR CONTROL
The Treasury Department has indicated that guidelines may be issued under which
a variable annuity CONTRACT will not be treated as an annuity CONTRACT for tax
purposes if the CONTRACTOWNER has excessive control over the investments
underlying the CONTRACT. They may consider the number of investment options or
the number of transfer opportunities available between options as relevant when
determining excessive control. The issuance of those guidelines may require us
to impose limitations on your right to control the investment. We do not know
whether any such guidelines would have a retroactive effect.
Section 817(h) of the CODE and the related regulation that the Treasury
Department has adopted require that assets underlying a variable annuity
CONTRACT be adequately diversified. The regulations provide that a variable
annuity CONTRACT which does not satisfy the diversification standards will not
be treated as an annuity CONTRACT, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and the CONTRACTOWNER or we pay an
amount to the IRS. The amount will be based on the tax that would have been paid
by the CONTRACTOWNER if the income, for the period the CONTRACT was not
diversified, had been received by the CONTRACTOWNER. If the failure to diversify
is not corrected in this manner, the CONTRACTOWNER of an annuity CONTRACT will
be deemed the owner of the underlying securities and will be taxed on the
earnings of his or her account. We believe, under our interpretation of the CODE
and regulations thereunder, that the investments underlying this CONTRACT meet
these diversification standards.
WITHHOLDING
Generally, pension and annuity distributions are subject to withholding for the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Under the CODE, 20% income tax withholding may apply to eligible
rollover distributions. All taxable distributions from qualified plans and
Section 403(b) annuities are eligible rollover distributions, except (1)
annuities paid out over life or life expectancy, (2) installments paid for a
period spanning 10 years or more, and (3) required minimum distributions. The
CODE imposes a mandatory 20% income tax withholding on any eligible rollover
distribution that the CONTRACTOWNER does not elect to have paid in a direct
rollover to another qualified plan, Section 403(b) annuity or individual
retirement account.
Distributions from Section 457 plans are subject to the general wage withholding
rules.
VOTING RIGHTS
As required by law, we will vote the FUND and SERIES shares held in the VAA at
meetings of the shareholder of the various FUNDS and SERIES. The voting will be
done according to the instructions of CONTRACTOWNERS who have interests in any
SUBACCOUNTS which invest in a FUND or FUNDS and SERIES. If the 1940 Act or any
regulation under it should be amended or if present interpretations should
change, and if as a result we determine that we are permitted to vote the FUND
shares in our own right, we may elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a SUBACCOUNT to the total number of votes
attributable to the SUBACCOUNT. In determining the number of votes, fractional
shares will be recognized. After the annuity commencement date, the votes
attributable to a CONTRACT will decrease.
FUND shares held in a SUBACCOUNT for which no timely instructions are received
will be voted by us in proportion to the voting instructions which are received
for all CONTRACTS participating in that SUBACCOUNT. Voting instructions to
abstain on any item to be voted on will be applied on a pro rata basis to reduce
the number of votes eligible to be cast.
Maryland law and the bylaws of each FUND and SERIES allow investment companies
registered under the 1940 Act to dispense with annual meetings of shareholders
in certain cases where the meetings are only a formality. The Board of Directors
of each FUND will decide each year whether or not to hold the shareholder's
annual meeting for that year.
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The dispensing with annual meetings of the shareholder in effect results in
retaining the existing Directors in office. Consequently, the SEC requires the
FUNDS to assure CONTRACTOWNERs that a majority of those Directors have at some
point been elected by the shareholder. The SEC also requires that the FUNDS
comply with Section 16(c) of the 1940 Act, concerning procedures by which
shareholders may remove Directors. For a more detailed explanation of this
procedure, see Description of shares in the Appendix to the Prospectuses for the
FUNDS; also see the Prospectus for the series.
Annual meetings of each FUND and of the SERIES normally will not be held, unless
the Board of Directors decides to hold them. Special meetings of the shareholder
may be called for any valid purpose. Whenever a shareholder's meeting is called,
each person having a voting interest in a SUBACCOUNT will be sent proxy voting
material, reports and other materials relating to the FUND, and SERIES involved.
DISTRIBUTION OF THE
CONTRACTS
We are the distributor of the CONTRACTS. They will be sold by registered
representatives who have been licensed by state insurance departments. The
CONTRACTS will also be sold by broker-dealers who generally have been licensed
by state insurance departments (or such broker-dealers have made other
arrangements to comply with state insurance laws) to represent us and who have
selling agreements with us. We are registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer and are a member of the National
Association of Securities Dealers (NASD). LINCOLN LIFE will offer CONTRACTS in
all states where it is licensed to do business.
RETURN PRIVILEGE
Within the free-look period after you first receive the CONTRACT, you may cancel
it for any reason by delivering or mailing it postage prepaid, to the HOME
OFFICE at P.O. Box 2340, 1300 South Clinton Street, Fort Wayne, Indiana, 46801.
A CONTRACT canceled under this provision will be void. With respect to the fixed
portion of a CONTRACT, we will return PURCHASE PAYMENTS. With respect to the
VAA, except as explained in the following paragraph, we will return the CONTRACT
VALUE as of the date of receipt of the cancellation, plus any account charge and
any premium taxes which had been deducted. No SURRENDER CHARGE will be made. A
PURCHASER WHO PARTICIPATES IN THE VAA IS SUBJECT TO THE RISK OF A MARKET LOSS
DURING THE FREE-LOOK PERIOD.
For CONTRACTS written in those states whose laws require that we assume this
market risk during the free-look period, a CONTRACT may be canceled, subject to
the conditions explained before, except that we will return only the PURCHASE
PAYMENT(S).
STATE REGULATION
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Insurance Department at all times. A full examination of our operations is
conducted by that Department at least once every five years.
RESTRICTIONS UNDER THE
TEXAS OPTIONAL RETIREMENT
PROGRAM
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a VARIABLE ANNUITY CONTRACT issued under the ORP only upon:
1. Termination of employment in all institutions of higher education as defined
in Texas law;
2. Retirement; or
3. Death.
Accordingly, participants in the ORP will be required to obtain a certificate of
termination from their employer(s) before accounts can be redeemed.
RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
will mail to you, at your last known address of record at the HOME OFFICE, at
least semiannually after the first CONTRACT YEAR, reports containing information
required by the 1940 Act or any other applicable law or regulation. We have
entered into an agreement with the DELAWARE SERVICE COMPANY, INC., 2005 Market
Street, Philadelphia, PA 19203, to provide accounting services to the VAA.
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OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the CONTRACTS being offered by this Prospectus. This
Prospectus does not contain all the information in the Registration Statement,
its amendments and exhibits. Please refer to the Registration Statement for
further information about the VAA, LINCOLN LIFE and the CONTRACTS offered.
Statements in this Prospectus about the content of CONTRACTS and other legal
instruments are summaries. For the complete text of those CONTRACTS and
instruments, please refer to those documents as filed with the SEC.
Lincoln National Flexible Premium Variable Life Accounts D, G and K, segregated
investment accounts of ours registered under the 1940 Act, are authorized to
invest assets in the following FUNDS and SERIES: Bond, Growth and Income,
Managed, Money Market and Special Opportunities (for Account D); Growth and
Income and Special Opportunities (for Account G) and all FUNDS and SERIES for
Account K. Through the VAA and the Variable Life Accounts we are the sole
shareholder in the eleven FUNDS. However, we are not the sole shareholder of
SERIES shares in the Delaware Group Premium Fund, Inc. Collectively, the VAA and
the Variable Life Accounts may be referred to in this booklet and in the SAI as
the VARIABLE ACCOUNTS.
Due to differences in redemption rates, tax treatment or other considerations,
the interests of CONTRACTOWNERs under the Variable Life Accounts could conflict
with those of CONTRACTOWNERS under the VAA. In those cases where assets from
variable life and VARIABLE ANNUITY SEPARATE ACCOUNTS are invested in the same
FUND or FUNDS or SERIES (i.e., where mixed funding occurs), the Boards of
Directors of the FUNDS involved will monitor for any material conflicts and
determine what action, if any, should be taken. If it becomes necessary for any
separate account to replace shares of any FUND or SERIES with another
investment, that FUND or SERIES may have to liquidate securities on a
disadvantageous basis. Refer to the Prospectus for each FUND and for the SERIES
FUND for more information about mixed funding.
In the future, we may purchase shares in the FUNDS and SERIES for one or more
unregistered segregated investment accounts.
ADVERTISEMENTS/SALES LITERATURE
In marketing the VARIABLE ANNUITY CONTRACTS, we and our various sales
representatives may refer to certain ratings assigned to us under the Rating
System of the A.M. Best Co., Oldwick, New Jersey. The objective of Best's Rating
System is to evaluate the various factors affecting the overall performance of
an insurance company in order to provide Best's opinion about that company's
relative financial strength and ability to meet its contractual obligations. The
procedure includes both a quantitative and qualitative review of the insurance
company. In marketing the CONTRACTS and the underlying FUNDS and SERIES, we may
at times use data published by other nationally-known independent statistical
services. These service organizations provide relative measures of such factors
as an insurer's claim-paying ability, the features of particular CONTRACTS, and
the comparative investment performance of the FUNDS and SERIES with other
portfolios having similar objectives. A few such services are: Duff & Phelps,
the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS. There is
more information about each of these services under Advertising and sales
literature in the SAI. Marketing materials may employ illustrations of compound
interest and dollar-cost averaging; discuss automatic withdrawal services;
describe our customer base, assets, and our relative size in the industry. They
may also discuss other features of LINCOLN LIFE, the VAA, the FUNDS, the SERIES
and their investment management.
PREPARING FOR YEAR 2000
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.
LINCOLN LIFE, as part of its year 2000 updating process, is responsible for the
updating of the VAA related computer systems. An affiliate of LINCOLN LIFE,
Delaware Service Company (Delaware), provides substantially all of the necessary
accounting and valuation services for the VAA. Delaware, for its part, is
responsible for updating all of its computer systems, including those which
service VAA, to accommodate the year 2000. LINCOLN LIFE and Delaware have begun
formal discussions with each other to assess the requirements for their
respective systems to interface properly in order to facilitate the accurate and
orderly operation of the VAA beginning in 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
VAA. 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
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systems to accommodate the year 2000. Also, in addition to the discussions with
each other noted above, 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, 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 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 and, for each
company, will be based on its management's best estimates which are 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 either by LINCOLN LIFE or by
Delaware that 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.
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. Two lawsuits alleging fraud in the sale of interest-sensitive universal
and whole life insurance policies have been filed against LINCOLN LIFE. These
two suits have been filed as class actions, although as of the date of this
Prospectus the court had not certified a class in either case. 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 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.
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS FOR VAA
ITEM
- --------------------------------------------------
General information and history of Lincoln Life
Special terms
Services
Purchase of securities being offered Underwriters
Calculation of performance data
For a free copy of the SAI please see page one of this booklet.
ITEM
- --------------------------------------------------
Annuity payouts
Federal tax status
Advertising and sales literature/graphics
Financial statements
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Fort Wayne, Indiana 46801
- -C- 1998 Lincoln National Life Insurance Co.
May 98 [LOGO]
<PAGE>
LINCOLN NATIONAL
VARIABLE ANNUITY ACCOUNT C (VAA) (REGISTRANT)
LINCOLN NATIONAL
LIFE INSURANCE COMPANY (DEPOSITOR)
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should be read in conjunction with the Prospectus of the VAA dated May
1, 1998.
You may obtain a copy of the VAA Prospectus on request and without charge.
Please
write Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana
46801
or call 1-800-4LINCOLN (454-6265).
TABLE OF CONTENTS
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PAGE
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GENERAL INFORMATION AND HISTORY
OF LINCOLN LIFE B-2
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SPECIAL TERMS B-2
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SERVICES B-2
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PURCHASE OF SECURITIES BEING OFFERED B-2
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UNDERWRITERS B-2
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CALCULATION OF PERFORMANCE DATA B-2
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PAGE
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ANNUITY PAYOUTS B- 6
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FEDERAL TAX STATUS B- 7
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DETERMINATION OF ACCUMULATION AND
ANNUITY UNIT VALUE B-10
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ADVERTISING AND SALES
LITERATURE/GRAPHICS B-10
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FINANCIAL STATEMENTS B-12
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</TABLE>
SPECIAL NOTICE TO CONTRACTOWNERS ABOUT THIS YEAR'S LINCOLN LIFE FINANCIAL
STATEMENTS.
The financial statements are presented in statutory form. Both statutory and
GAAP (known as Generally Accepted Accounting Principles) financials fairly
represent the financial position of LINCOLN LIFE. To avoid extra costs, only
statutory statements are shown here.
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1998.
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GENERAL INFORMATION
AND HISTORY OF
LINCOLN NATIONAL LIFE
INSURANCE CO. (LINCOLN LIFE)
The prior Depositor of the ACCOUNT, Lincoln National Pension Insurance Co., was
merged into LINCOLN LIFE, effective January 1, 1989. LINCOLN LIFE, organized in
1905, is an Indiana stock insurance corporation, engaged primarily in insurance
and financial services. LINCOLN LIFE is owned by Lincoln National Corp., a
publicly held insurance holding company domiciled in Indiana.
SPECIAL TERMS
The special terms used in this SAI are the ones defined in the Prospectus. They
are italicized to make this document more understandable.
SERVICES
INDEPENDENT AUDITORS
The financial statements of the VAA and the statutory-basis financial statements
and schedules of LINCOLN LIFE appearing in this SAI and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports which also appear elsewhere in this document and in the
Registration Statement. The financial statements and schedules audited by Ernst
& Young LLP have been included in this document in reliance on their reports
given on their authority as experts in accounting and auditing.
KEEPER OF RECORDS
All accounts, books, records and other documents which are required to be
maintained for the VAA are maintained by LINCOLN LIFE. No separate charge
against the assets of the VAA is made by LINCOLN LIFE for this service. We have
entered into an agreement with DELAWARE SERVICE CO., 2005 Market Street,
Philadelphia, PA 19203, to provide accounting services to the VAA.
PRINCIPAL UNDERWRITER
LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS.
PURCHASE OF SECURITIES BEING OFFERED
The VARIABLE ANNUITY CONTRACTS are offered to the public through licensed
insurance agents who specialize in selling LINCOLN LIFE products; through
independent insurance brokers; and through certain securities broker/dealers
selected by LINCOLN LIFE whose personnel are legally authorized to sell annuity
products. There are no special purchase plans for any class of prospective
buyers. However, under certain limited circumstances described in the Prospectus
under the section Charges and other deductions, the CONTRACT and/or the
SURRENDER CHARGES may be waived.
There are exchange privileges between SUBACCOUNTS, and between the VAA and
LINCOLN LIFE'S General Account (See Transfers of accumulation units between
SUBACCOUNTS in the Prospectus.) No exchanges are permitted between the VAA and
other separate accounts.
UNDERWRITERS
LINCOLN LIFE has contracted with some broker/dealers, and may contract with
others, to sell the VARIABLE ANNUITY CONTRACTS through certain legally
authorized persons and organizations. These dealers are compensated under a
standard Compensation Schedule.
LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS. We
may not offer a contract continuously or in every state. LINCOLN LIFE retains no
underwriting commissions from the sale of the VARIABLE ANNUITY CONTRACTS.
CALCULATION OF PERFORMANCE DATA
A. MONEY MARKET FUNDED SUBACCOUNTS:
1. Seven-day yield: 4.37%
Length of base period used in computing the yield: 7 days
Last Day in the base period: December 31, 1997
2. The yield reported above and in the table of condensed financial
information in the Prospectus is determined by calculating the change in
unit value for the base period (the 7-day period ended December 31,
1997); then dividing this figure by the account value at the beginning
of the period; then annualizing this result by the factor of 365/7. This
yield includes all deductions charged to the CONTRACTOWNER'S account,
and excludes any realized gains and losses from the sale of securities.
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B. OTHER SUBACCOUNTS:
1. TOTAL RETURN -- the tables below show, for the various SUBACCOUNTS of
the VAA, an average annual total return as of the stated periods, based
upon a hypothetical initial PURCHASE PAYMENT of $1,000, calculated
according to the formula set out after the table.
The first table below sets out performance data for each of the SUBACCOUNTS for
CONTRACTS without the EGMDB. The second table below sets out hypothetical
performance data for each of the SUBACCOUNTS for CONTRACTS with the EGMDB. The
hypothetical performance shown in the second table is based on the actual
performance of the SUBACCOUNTS, but reflects the charges that hypothetically
would have been made had the EGMDB been available under the CONTRACTS for the
period indicated.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1997
CONTRACTS WITHOUT EGMDB
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<CAPTION>
1-YEAR 5-YEARS 10-YEARS
SINGLE & SINGLE & SINGLE &
PERIODIC FLEXIBLE PERIODIC FLEXIBLE PERIODIC FLEXIBLE
PYMT. PREM. PYMT. PREM. PYMT. PREM.
MULTI MULTI FUND MULTI MULTI FUND MULTI MULTI FUND
FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 FUND 1 2, 3, & 4
CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Bond
Commenced Activity on December 21, 1981 -0.55% 1.61% 5.46% 5.90% 7.83% 7.83%
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Growth and Income
Commenced Activity on December 21, 1981 19.06% 21.65% 17.73% 18.22% 14.66% 14.66%
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International
Commenced Activity on May 1, 1991 -3.51% -1.41% 10.65% 11.10% 6.18% 6.67%
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Managed
Commenced Activity on April 29, 1983 10.77% 13.18% 12.02% 12.48% 11.26% 11.26%
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Global Asset Allocation
Commenced Activity on August 3, 1987 8.65% 11.02% 12.37% 12.83% 11.42% 11.42%
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Social Awareness
Commenced Activity on May 2, 1988 25.12% 27.84% 21.41% 21.91% 17.39% 17.89%*
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Special Opportunities
Commenced Activity on December 21, 1981 16.61% 19.14% 16.11% 16.59% 15.14% 15.14%
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Aggressive Growth
Commenced Activity on January 3, 1994 12.05% 14.49% * * 11.57%* 12.76%*
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Capital Appreciation
Commenced Activity on January 3, 1994 14.01% 16.49% * * 14.70%* 15.93%*
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Equity-Income
Commenced Activity on January 3, 1994 18.89% 21.47% * * 18.55%* 19.81%*
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Trend Series
Commenced Activity on May 1, 1996 10.50% 12.90% * * 5.56%* 6.93%*
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Decatur Total Return Series
Commenced Activity on May 1, 1996 19.28% 21.88% * * 19.28%* 20.83%*
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Global Bond Series
Commenced Activity on May 1, 1996 -8.17% -6.17% * * 1.15%* 2.46%*
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</TABLE>
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
The performance shown is for the period from commencement of activity.
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AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1997
CONTRACTS WITH EGMDB
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<CAPTION>
1-YEAR 5-YEARS 10-YEARS
SINGLE & SINGLE & SINGLE &
PERIODIC FLEXIBLE PERIODIC FLEXIBLE PERIODIC FLEXIBLE
PYMT. PREM. PYMT. PREM. PYMT. PREM.
MULTI MULTI FUND MULTI MULTI FUND MULTI MULTI FUND
FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 FUND 1 2, 3, & 4
CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Bond
Commenced Activity on December 21, 1981 -0.85% 1.30% 5.14% 5.58% 7.50% 7.50%
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Growth and Income
Commenced Activity on December 21, 1981 18.70% 21.28% 17.38% 17.86% 14.32% 14.32%
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International
Commenced Activity on May 1, 1991 -3.80% -1.71% 10.31% 10.77% 5.86% 6.35%
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Managed
Commenced Activity on April 29, 1983 10.43% 12.83% 11.68% 12.14% 10.92% 10.92%
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Global Asset Allocation
Commenced Activity on August 3, 1987 8.32% 10.68% 12.03% 12.49% 11.09%* 11.09%*
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Social Awareness
Commenced Activity on May 2, 1988 24.74% 27.45% 21.05% 21.55% 17.04%* 17.53%*
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Special Opportunities
Commenced Activity on December 21, 1981 16.25% 18.78% 15.76% 16.24% 14.80% 14.80%
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Aggressive Growth
Commenced Activity on January 3, 1994 11.71% 14.14% * * 11.22%* 12.41%*
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Capital Appreciation
Commenced Activity on January 3, 1994 13.67% 16.14% * * 14.34%* 15.57%*
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Equity-Income
Commenced Activity on January 3, 1994 18.53% 21.10% * * 18.18%* 19.44%*
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Trend Series
Commenced Activity on May 1, 1996 10.16% 12.56% * * 5.25%* 6.61%*
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Decatur Total Return Series
Commenced Activity on May 1, 1996 18.92% 21.51% * * 18.92%* 20.46%*
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Global Bond Series
Commenced Activity on May 1, 1996 -8.45% -6.46% * * 0.84%* 2.15%*
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</TABLE>
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
The performance shown is for the period from commencement of activity.
The length of the periods and the last day of each period used in the above
tables are set out in the table headings. The Average annual total return for
each period was determined by finding the average annual compounded rate of
return over each period that would equate the initial amount invested to the
ending redeemable value for that period, according to the following formula --
P (1 + T)(n) = ERV
Where: P = a hypothetical initial PURCHASE PAYMENT of $1,000
T = average annual total return for the period in question
n = number of years
ERV = redeemable value (as of the end of the period in question) of a
hypothetical $1,000 PURCHASE PAYMENT made at the beginning of the 1-year,
5-year, or 10-year period in question (or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been charged to
CONTRACTOWNER accounts; 2) all applicable nonrecurring charges are deducted at
the end of the period in question; and 3) there will be a complete redemption at
the end of the period in question. The performance figures shown in the tables
above relate to the contract form containing the highest level of charges.
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2. NONSTANDARDIZED PERFORMANCE DATA
The VAA advertises the performance of its various SUBACCOUNTS by observing how
they perform over various time periods -- monthly, year-to-date, yearly (fiscal
year); and over periods of three years and more. Monthly, year-to-date and
yearly performance are computed on a cumulative basis; performance for a
three-year period and for greater periods is computed both on a cumulative and
on an annualized basis.
Cumulative quotations are arrived at by calculating the change in the
ACCUMULATION UNIT value between the first and last day of the base period being
measured, and expressing the difference as a percentage of the unit value at the
beginning of the base period. The calculation reflects the mortality and expense
risk fees under the CONTRACTS and the management fees and other expenses of the
FUND and SERIES. The calculation does not include SURRENDER CHARGES or the
account charge, which, if included, would decrease the performance.
Annualized quotations are arrived at by applying a formula which determines the
level rate of return which, if earned over the entire base period, would produce
the cumulative return.
The first table below sets out performance data for each of the SUBACCOUNTS for
CONTRACTS without the EGMDB. The second table below sets out hypothetical
performance data for each of the SUBACCOUNTS for CONTRACTS with the EGMDB. The
hypothetical performance shown in the second table is based on the actual
performance of the SUBACCOUNTS, but reflects the charges that hypothetically
would have been made had the EGMDB been available under the CONTRACTS for the
period indicated.
The tables below set out representative performance quotations, according to the
definitions above, for each of the SUBACCOUNTS, for the following base periods:
1) monthly; 2) year-to-date; 3) yearly; and 4) a three-year period. For all
quotations except 2), the end of the base period is December 31, 1996. For
quotation 2, the end of the base period is November 30, 1996. (The year-to-date
quotation would equal the yearly quotation if the end of the base period
selected for the former were December 31.) In addition, the VAA may advertise by
quotations with base periods of more than three years. These will be calculated
in an identical manner to the method used to calculate the quotation for the
three-year period; the only difference is that the base period utilized in the
formula will be longer.
NONSTANDARDIZED PERFORMANCE DATA
SUBACCOUNTS OF ACCOUNT C (CONTRACTS WITHOUT EGMDB)
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TYPE OF
PERFORMANCE SUBACCOUNT
DATA AG B CA EI GAA GI I M
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Monthly
(12/31/97) 0.71% 0.98% 0.61% 2.38% 0.94% 1.84% 1.39% 1.15%
Year-to-Date
(11/30/97) 21.00 7.11 23.23 26.28 17.06 27.14 3.50 19.09
Yearly
(12/31/97) 21.86 8.15 23.99 29.29 18.16 29.48 4.94 20.46
3-Year Cumulative 88.24 29.22 85.26 105.41 65.67 110.11 22.86 71.61
3-Year Annualized 23.47 8.92 22.82 27.12 18.33 28.08 7.10 19.72
</TABLE>
<TABLE>
<CAPTION>
TYPE OF
PERFORMANCE SUBACCOUNT
DATA MM SA SO TS DTRS GBS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Monthly
(12/31/97) 0.35% 2.27% 1.86% 1.32% 3.21% -1.21%
Year-to-Date
(11/30/97) 3.70 33.04 24.50 18.60 25.69 1.10
Yearly
(12/31/97) 4.06 36.06 26.81 20.17 29.72 -0.13
3-Year Cumulative 13.18 146.90 91.68 * * *
3-Year Annualized 4.21 35.16 24.22 * * *
</TABLE>
Key: AG=Aggressive Growth; B=Bond; CA=Capital Appreciation; EI=Equity-Income;
GAA=Global Asset Allocation; GI=Growth and Income; I=International; M=Managed;
MM=Money Market; SA=Social Awareness; SO=Special Opportunities; TS=Trend Series;
DTRS=Decatur Total Return Series; GBS=Global Bond Series
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
All performance quotations may be advertised on a cumulative basis; performance
quotations with a base period of two years or longer may also be advertised on
an annualized basis.
B-5
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NONSTANDARDIZED PERFORMANCE DATA
SUBACCOUNTS OF ACCOUNT C (CONTRACTS WITH EGMDB)
<TABLE>
<CAPTION>
TYPE OF
PERFORMANCE SUBACCOUNT
DATA AG B CA EI GAA GI I M
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Monthly
(12/31/97) 0.68% 0.95% 0.59% 2.35% 0.91% 1.81% 1.37% 1.13%
Year-to-Date
(11/30/97) 20.66 6.81 22.89 25.93 16.74 26.79 3.21 18.76
Yearly
(12/31/97) 21.49 7.82 23.61 28.89 17.80 29.08 4.62 20.10
3-Year Cumulative 86.54 28.06 83.60 103.56 64.18 108.22 21.76 70.06
3-Year Annualized 23.10 8.59 22.45 26.74 17.97 27.70 6.78 19.36
</TABLE>
<TABLE>
<CAPTION>
TYPE OF
PERFORMANCE SUBACCOUNT
DATA MM SA SO DTRS TS GBS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Monthly
(12/31/97) 0.33% 2.25% 1.83% 3.18% 1.29% -1.24%
Year-to-Date
(11/30/97) 3.41 32.67 24.15 25.34 18.27 0.82
Yearly
(12/31/97) 3.75 35.65 26.42 29.33 19.80 -0.43
3-Year Cumulative 12.16 144.68 89.95 * * *
3-Year Annualized 3.90 34.75 23.85 * * *
</TABLE>
Key: AG=Aggressive Growth; B=Bond; CA=Capital Appreciation; EI=Equity-Income;
GAA=Global Asset Allocation; GI=Growth and Income; I=International; M=Managed;
MM=Money Market; SA=Social Awareness; SO=Special Opportunities; TS=Trend Series;
DTRS=Decatur Total Return Series; GBS=Global Bond Series
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
All performance quotations may be advertised on a cumulative basis; performance
quotations with a base period of two years or longer may also be advertised on
an annualized basis.
ANNUITY PAYOUTS
VARIABLE ANNUITY PAYOUTS
Variable ANNUITY PAYOUTS will be determined on the basis of: (1) the value of
the contract on the ANNUITY COMMENCEMENT DATE; (2) the annuity tables contained
in the CONTRACT; (3) the type of ANNUITY OPTION selected; and (4) the investment
performance of the eligible FUND(S) selected. In order to determine the amount
of variable ANNUITY PAYOUTS, LINCOLN LIFE makes the following calculation:
first, it determines the dollar amount of the first payout; second, it credits
the ANNUITANT with a fixed number of ANNUITY UNITS based on the amount of the
first payout; and third, it calculates the value of the ANNUITY UNITS each
period thereafter. These steps are explained below.
The dollar amount of the first variable ANNUITY PAYOUT is determined by applying
the total value of the ACCUMULATION UNITS credited under the CONTRACT valued as
of the ANNUITY COMMENCEMENT DATE (less any premium taxes) to the annuity tables
contained in the CONTRACT. The first variable ANNUITY PAYOUT will be paid 14
days after the ANNUITY COMMENCEMENT DATE. This date will become the date on
which all future ANNUITY PAYOUTS will be paid. Amounts shown in the tables are
based on the 1971 Individual Annuity Mortality Tables for the SINGLE PREMIUM,
PERIODIC PREMIUM and FLEXIBLE PREMIUM Multi Fund 2 and 3 ANNUITY CONTRACTS and
the 1983(a) Individual Mortality Table for FLEXIBLE PREMIUM ANNUITY CONTRACT
Multi Fund 4 modified, with an assumed investment return at the rate of 5% per
annum. The first ANNUITY PAYOUT is determined by multiplying the benefit per
$1,000 of value shown in the CONTRACT tables by the number of thousands of
dollars of CONTRACT VALUE under the CONTRACT. These annuity tables vary
according to the form of annuity selected and the age of the ANNUITANT at the
ANNUITY COMMENCEMENT DATE. The 5% interest rate stated above is the measuring
point for subsequent ANNUITY PAYOUTS. If the actual Net Investment Rate
(annualized) exceeds 5%, the payment will increase at a rate equal to the amount
of such excess. Conversely, if the actual rate is less than 5%, ANNUITY PAYOUTS
will decrease. If the
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assumed rate of interest were to be increased, ANNUITY PAYOUTS would start at a
higher level but would decrease more rapidly or increase more slowly.
LINCOLN LIFE may use sex distinct annuity tables in CONTRACTS that are not
associated with employer sponsored plans where not prohibited by law.
At an ANNUITY COMMENCEMENT DATE, the ANNUITANT is credited with ANNUITY UNITS
for each SUBACCOUNT on which variable ANNUITY PAYOUTS are based. The number of
ANNUITY UNITS to be credited is determined by dividing the amount of the first
payout by the value of an ANNUITY UNIT in each SUBACCOUNT selected. Although the
number of ANNUITY UNITS is fixed by this process, the value of such units will
vary with the value of the underlying eligible FUNDS. The amount of the second
and subsequent ANNUITY PAYOUTS is determined by multiplying the CONTRACTOWNER'S
fixed number of ANNUITY UNITS in each SUBACCOUNT by the appropriate ANNUITY UNIT
value for the VALUATION DATE ending 14 days before the date that payment is due.
The value of each SUBACCOUNT ANNUITY UNIT was set initially at $1.00. The
ANNUITY UNIT value for each SUBACCOUNT at the end of any VALUATION DATE is
determined by multiplying the SUBACCOUNT ANNUITY UNIT value for the immediately
preceding VALUATION DATE by the product of:
a. The net investment factor of the SUBACCOUNT for the VALUATION PERIOD for
which the ANNUITY UNIT value is being determined, and
b. A factor to neutralize the assumed investment return in the annuity table.
The value of the ANNUITY UNITS is determined as of a VALUATION DATE 14 days
before the payout date in order to permit calculation of amounts of ANNUITY
PAYOUTS and mailing of checks in advance of their due dates. Such checks will
normally be issued and mailed at least three days before the due date.
PROOF OF AGE, SEX AND SURVIVAL
LINCOLN LIFE may require proof of age, sex or survival of any payee upon whose
age, sex or survival PAYOUTS depend.
FEDERAL TAX STATUS
GENERAL
The operations of the VAA form a part of, and are taxed with, the operations of
LINCOLN LIFE under the Internal Revenue Code of 1986, as amended (the CODE).
Investment income and realized net capital gains on the assets of the VAA are
reinvested and taken into account in determining the ACCUMULATION and ANNUITY
UNIT values. As a result, such investment income and realized net capital gains
are automatically retained as part of the reserves under the CONTRACT. Under
existing federal income tax law, LINCOLN LIFE believes that VAA investment
income and realized net capital gains are not taxed to the extent they are
retained as part of the reserves under the CONTRACTS. Accordingly, LINCOLN LIFE
does not anticipate that it will incur any federal income tax liability
attributable to the VAA, and therefore it does not intend to make any provision
for such taxes. However, if changes in the federal tax laws or interpretations
thereof result in LINCOLN LIFE'S being taxed on income or gains attributable to
the VAA, then LINCOLN LIFE may impose a charge against the VAA in order to make
provision for payment of such taxes.
TAX STATUS OF NONQUALIFIED CONTRACTS
The CODE (Section 72(s)) provides that CONTRACTS issued after January 18, 1985,
will not be treated as annuity CONTRACTS for purposes of Section 72 unless the
CONTRACT provides that (A) if any CONTRACTOWNER dies on or after the annuity
starting date, but before the time the entire interest in the CONTRACT has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution in effect at the time of the
CONTRACTOWNER'S death; and (B) if any CONTRACTOWNER dies before the annuity
starting date, the entire interest must be distributed within five years after
the death of the CONTRACTOWNER. These requirements are considered satisfied to
the extent that any portion of the CONTRACTOWNER'S interest that is payable to
or for the benefit of a designated BENEFICIARY is distributed over that
designated BENEFICIARY'S life, or a period not extending beyond the designated
BENEFICIARY'S life expectancy, and if that distribution begins within one year
of the CONTRACTOWNER'S death. The designated BENEFICIARY must be a natural
person. CONTRACTS issued after January 18, 1985 contain provisions intended to
comply with these CODE requirements, although regulations interpreting these
requirements have yet to be issued. LINCOLN LIFE intends to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Section 72(s) when clarified by regulation or otherwise.
QUALIFIED CONTRACTS
The rules governing the tax treatment of contributions and distributions under
qualified plans, as set forth in the CODE and applicable rulings and
regulations, are complex and subject to change. These rules also vary according
to the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made herein to provide more than general information about the use
of CONTRACTS with the various types of plans, based on LINCOLN LIFE'S
understanding of the current federal tax laws as interpreted by the Internal
Revenue Service (IRS). Purchasers of CONTRACTS for use with such a plan and plan
participants and BENEFICIARIES should consult counsel and other competent
advisors as to the suitability of the plan and the CONTRACT to their specific
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needs, and as to applicable CODE limitations and tax consequences. Participants
under such plans, as well as CONTRACTOWNERS, ANNUITANTS and BENEFICIARIES,
should also be aware that the rights of any person to any benefits under such
plans may be subject to the terms and conditions of the plans themselves
regardless of the terms and conditions of the CONTRACT.
Following are brief descriptions of the various types of plans and of the use of
CONTRACTS in connection therewith.
PUBLIC SCHOOL SYSTEMS AND SECTION 501(C)(3) ORGANIZATIONS (403(B))
Payments made to purchase annuity CONTRACTS by public school systems or certain
Section 501(c)(3) organizations for their employees are excludable from the
gross income of the employee to the extent that aggregate payments for the
employee do not exceed the exclusion allowance provided by Section 403(b) of the
CODE, the over-all limits for excludable contributions of Section 415 of the
CODE or the limit on elective contributions. Furthermore, the investment results
of the FUND credited to the account are not taxable until benefits are received
either in the form of ANNUITY PAYOUTS or in a single sum.
If an employee's individual account is surrendered, usually the full amount
received would be includable in income for that year at ordinary rates.
QUALIFIED CORPORATE EMPLOYEE'S PENSION AND PROFIT-SHARING TRUSTS AND QUALIFIED
ANNUITY PLANS
Payments made by a corporate employer and the increments on all payments for
qualified corporate plans are not taxable as income to the employee until
distributed. However, the employee may be required to include these amounts in
gross income before distribution if the qualified plan or trust loses its
qualification. Corporate plans qualified under Sections 401(a) or 403(a) of the
CODE are subject to extensive rules, including limitations on maximum
contributions or benefits.
Distributions of amounts in excess of nondeductible employee contributions
allocated to such distributions are generally taxable as ordinary income. If an
employee or BENEFICIARY receives a LUMP SUM distribution, that is, if the
employee or BENEFICIARY receives in a single tax year the total amounts payable
with respect to that employee and the benefits are paid as a result of the
employee's death or separation from service or after the employee attains
59 1/2, taxable gain may be either eligible for special LUMP SUM averaging
treatment or, if the recipient was age 50 before January 1, 1986, eligible for
taxation at a 20% rate to the extent the distribution reflects payouts made
before January 1, 1974. For plan years beginning after December 31, 1996, tax
exempt organizations (except state or local governments) may have 401(k) plans.
These special tax rules are not available in all cases.
SELF-EMPLOYED INDIVIDUALS (H.R. 10 OR KEOGH)
Under CODE provisions, self-employed individuals may establish plans commonly
known as H.R. 10 or Keogh plans for themselves and their employees. The tax
consequences to participants under such plans depend upon the plan itself. Such
plans are subject to special rules in addition to those applicable to qualified
corporate plans, although certain of these rules have been repealed or modified
effective in 1984. Purchasers of the CONTRACTS to use with H.R. 10 plans should
seek competent advice as to suitability of plan documents and the funding
contracts.
INDIVIDUAL RETIREMENT ANNUITIES (IRA)
Under Section 408 of the CODE, individuals may participate in a retirement
program known as an IRA. An individual may make an annual IRA contribution of up
to the lesser of $2,000 (or $4,000 if IRAs are maintained for both the
individual and the nonworking spouse and they file a joint tax return) or 100%
of compensation. However, IRA contributions may be nondeductible in whole or in
part if (1) the individual or the spouse is an active participant in certain
other retirement programs and (2) the income of the individual (or of the
individual and the spouse) exceeds a specified amount. Distributions from
certain types of retirement plans may be rolled over to an IRA on a tax-deferred
basis if certain requirements are met. Distributions from IRA's are subject to
certain restrictions. Deductible IRA contributions and all earnings will be
taxed as ordinary income when distributed. The failure to satisfy certain CODE
requirements with respect to an IRA results in adverse tax consequences.
ROTH IRAS
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to $2,000 per
year. This limitation is phased out for adjusted gross income between $95,000
and $110,000 in the case of single taxpayers, between $150,000 and $160,000 in
the case of married taxpayers filing joint returns, and between $0 and $15,000
in the case of married taxpayers filing separately. An overall $2,000 annual
limitation continues to apply to all of a taxpayer's IRA contributions,
including Roth IRAs and non-Roth IRAs.
Qualified distributions from Roth IRAs are entirely tax free. A qualified
distribution requires that the individual has held the Roth IRA for at least
five years and, in addition, that the distribution is made either after the
individual reaches age 59 1/2, on the individual's death or disability, or as a
qualified first-time home purchase,
B-8
<PAGE>
subject to a $10,000 lifetime maximum, for the individual, a spouse, child,
grandchild, or ancestor.
An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the non-Roth IRA being rolled over that represents
income or a previously deductible IRA contribution. For rollovers in 1998, the
individual may pay that tax ratably in 1998 and over the succeeding three years.
There are no similar limitations on rollovers from a Roth IRA to another Roth
IRA.
DEFERRED COMPENSATION PLANS (457 PLANS)
Under the CODE provisions, employees and independent contractors (participants)
performing services for state and local governments and tax-exempt organizations
may establish deferred compensation plans. Plans of state or local governments
established on August 20, 1996, or later, must hold all assets and income in
trust (or custodial accounts or an ANNUITY CONTRACT) for the exclusive benefit
of participants and their BENEFICIARIES. Section 457 plans that were in
existence before August 20, 1996 are allowed until January 1, 1999 to meet this
requirement. While participants in such plans may be permitted to specify the
form of investment in which their plan accounts will participate, all such
investments are owned by the sponsoring employer and are subject to the claims
of its creditors. The amounts deferred under a plan which meet the requirements
of Section 457 of the CODE are not taxable as income to the participant until
paid or otherwise made available to the participant or BENEFICIARY. Deferrals
are taxed as compensation from the employer when they are actually or
constructively received by the employee. As a general rule, the maximum amount
which can be deferred in any one year is the lesser of $7,500 (as indexed) or
33 1/3% of the participant's includable compensation. However, in the limited
circumstances, up to $15,000 may be deferred in each of the last three years
before retirement.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEP)
An employer may make contributions on behalf of employees to a SEP as provided
by Section 408(k) of the CODE. The contributions and distribution dates are
limited by the CODE provisions. All distributions from the plan will be taxed as
ordinary income. For tax years after 1996, salary reduction SEP's (SAR/SEP) may
no longer be established. However, SAR/SEPs in existence prior to January 1,
1997 may continue to receive contributions.
Any distribution before the employee attains age 59 1/2 (except in the event of
death or disability) or the failure to satisfy certain other CODE requirements
may result in adverse tax consequences.
SAVINGS INCENTIVE MATCHED PLAN FOR EMPLOYEES (SIMPLE)
Employers with 100 or fewer employees who earned $5,000 during the proceeding
year, may establish SIMPLEs. For tax years beginning after December 31, 1996,
SIMPLE plans are available and may be in the form of an IRA or part of a 401(k)
plan. Under a SIMPLE IRA, employees are permitted to make elective contributions
to an IRA, stated as a percentage of the employees compensation, but not to
exceed $6,000 annually as indexed. Such deferrals are not subject to income tax
until withdrawn. WITHDRAWALS made by an employee in the first two years of the
employees participation are subject to a 25% penalty. Later WITHDRAWALS are
subject to penalties applicable to IRAs. Under a SIMPLE 401(k), employee
deferrals are limited to no more than $6,000 annually. Employer contributions
are usually required for each type of SIMPLE.
TAX ON DISTRIBUTIONS FROM QUALIFIED CONTRACTS
The following rules generally apply to distributions from CONTRACTS purchased in
connection with the plans discussed previously, other than deferred compensation
plans and Roth IRAs.
The portion, if any, of any contribution under a CONTRACT made by or on behalf
of an individual which is not excluded from the employee's gross income
(generally, the employee's own nondeductible contributions) constitutes the
investment in the CONTRACT. If a distribution is made in the form of ANNUITY
PAYOUTS, the employee's investment in the CONTRACT (adjusted for certain refund
provisions) divided by the life expectancy (or other period for which ANNUITY
PAYOUTS are expected to be made) constitutes a tax-free return of capital each
year. The dollar amount of ANNUITY PAYOUTS received in any year in excess of
such return is taxable as ordinary income. All distributions will be fully
taxable once the employee is deemed to have recovered the dollar amount of the
investment in the CONTRACT.
If a SURRENDER of or WITHDRAWAL from the CONTRACT is effected and distribution
is made from the plan in a single payout, the proceeds may qualify for special
LUMP SUM distribution treatment under certain qualified plans, as discussed
above. Otherwise, the amount by which the payment exceeds the investment in the
CONTRACT (adjusted for any prior WITHDRAWAL) allocated to that payment, if any,
will be taxed as ordinary income in the year of receipt. Rules generally provide
that all distributions which are not received as an annuity will be taxed as a
pro rata distribution of taxable and nontaxable amounts (rather than as a
distribution first of nontaxable amounts).
Distributions from qualified plans, Keoghs, SEPs, 403(b) plans and IRAs will be
subject to a 10% penalty tax if made before age 59 1/2 unless certain other
exceptions
B-9
<PAGE>
apply. Failure to meet certain minimum distribution requirements for the above
plans, as well as for Section 457 plans, will result in a 50% excise tax.
Various other adverse tax consequences may also be potentially applicable in
certain circumstances to these types of plans.
Upon an employee's death, the taxation of benefits payable to the BENEFICIARY
generally follows these same principles, subject to a variety of special rules.
OTHER CONSIDERATIONS
It should be understood that the foregoing comments about the federal tax
consequences under these CONTRACTS are not exhaustive and that special rules are
provided with respect to other tax situations not discussed herein. Further, the
foregoing discussion does not address any applicable state, local or foreign tax
laws. Finally, in recent years numerous changes have been made in the federal
income tax treatment of CONTRACTS and retirement plans, which are not fully
discussed above. Before an investment is made in any of the CONTRACTS, a
competent tax advisor should be consulted.
DETERMINATION OF
ACCUMULATION AND
ANNUITY UNIT VALUE
A description of the days on which ACCUMULATION and ANNUITY UNITS will be valued
is given in the Prospectus. The New York Stock Exchange's (NYSE) most recent
announcement (which is subject to change) states that in 1998 it will be closed
on New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
It may also be closed on other days.
Since the portfolios of some of the FUNDS and SERIES will consist of securities
primarily listed on foreign exchanges or otherwise traded outside the United
States, those securities may be traded (and the net asset value of those FUNDS
and SERIES and of the VARIABLE ACCOUNT could therefore be significantly
affected) on days when the investor has no access to those FUNDS and SERIES.
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, LINCOLN LIFE may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM evaluates the various factors affecting the overall
performance of an insurance company in order to provide an opinion as to an
insurance company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS insurance company claims paying ability (CPA) service provides
purchasers of insurance company policies and contracts with analytical and
statistical information on the solvency and liquidity of major U.S licensed
insurance companies, both mutual and stock.
EAFE Index is prepared by Morgan Stanley Capital International (MSCI). It
measures performance of securities in Europe, Australia and the Far East. The
index reflects the movements of world stock markets by representing the
evolution of an unmanaged portfolio. The EAFE Index offers international
diversification with over 1000 companies across 20 different countries.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a publisher
of statistical data covering the investment company industry in the United
States and overseas. Lipper is recognized as the leading source of data on
open-end and closed-end funds. Lipper currently tracks the performance of over
5,000 investment companies and publishes numerous specialized reports, including
reports on performance and portfolio analysis, fee and expense analysis.
MOODY'S insurance claims-paying rating is a system of rating insurance company's
financial strength, market leadership and ability to meet financial obligations.
The purpose of Moody's ratings is to provide investors with a simple system of
gradation by which the relative quality of insurance companies may be noted.
MORNINGSTAR is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
VARIABLE ANNUITY CONTRACTS.
STANDARD & POOR's CORP. insurance claims-paying ability rating is an assessment
of an operating insurance company's financial capacity to meet obligations under
an insurance policy in accordance with the terms. The likelihood of a timely
flow of funds from the insurer to the trustee for the bondholders is a key
element in the rating determination for such debt issues.
VARDS (Variable Annuity Research Data Service) provides a comprehensive guide to
VARIABLE ANNUITY CONTRACT features and historical fund performance. The service
also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
B-10
<PAGE>
STANDARD & POOR'S 500 INDEX (S&P 500) -- broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks; commonly known as the S&P 500. The selection of stocks, their
relative weightings to reflect differences in the number of outstanding shares
and publication of the index itself are services of Standard & Poor's Corp., a
financial advisory, securities rating and publishing firm.
NASDAQ-OTC Price Index -- this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) -- price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express
Co. and American Telephone and Telegraph Co. Prepared and published by Dow Jones
& Co., it is the oldest and most widely quoted of all the market indicators. The
average is quoted in points, not dollars.
INTERNET -- As an electronic communications network may be used to provide
information regarding LINCOLN LIFE performance of the SUBACCOUNTS and
advertisement literature.
In its advertisements and other sales literature for the VAA and the eligible
FUNDS, LINCOLN LIFE intends to illustrate the advantages of the CONTRACTS in a
number of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of the
VARIABLE ANNUITY CONTRACT. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the VARIABLE ACCOUNT over the fixed side; and the
compounding effect when a client makes regular contributions to his or her
account.
DOLLAR-COST AVERAGING ILLUSTRATIONS. These illustrations will generally discuss
the price-leveling effect of making regular purchases in the same SUBACCOUNTS
over a period of time, to take advantage of the trends in market prices of the
portfolio securities purchased for those SUBACCOUNTS.
AUTOMATIC WITHDRAWAL SERVICE. A service provided by LINCOLN LIFE, through which
a CONTRACTOWNER may take any distribution allowed by CODE Section 401(a)(9) in
the case of qualified CONTRACTS, or permitted under CODE Section 72 in the case
of nonqualified CONTRACTS, by way of an automatically generated payment.
EARNINGS SWEEP. A service provided by LINCOLN LIFE which allows a client to
designate one of the variable SUBACCOUNTS or the fixed side as a holding
account, and to transfer earnings from that side to any other variable
SUBACCOUNT. The CONTRACTOWNER chooses a specific FUND as the holding account. At
specific intervals, account value in the holding account fund that exceeds a
certain designated baseline amount is automatically transferred to another
specified FUND(S). The minimum account value required for the Earnings Sweep
feature is $10,000.
LINCOLN LIFE'S CUSTOMERS. Sales literature for the VAA, the FUNDS and series may
refer to the number of employers and the number of individual annuity clients
which LINCOLN LIFE serves. As of March 17, 1998, LINCOLN LIFE was serving over
13,000 organizations and had more than 1 million annuity clients.
LINCOLN LIFE'S ASSETS, SIZE. LINCOLN LIFE may discuss its general financial
condition (see, for example, the reference to A.M. Best Co., above); it may
refer to its assets; it may also discuss its relative size and/or ranking among
companies in the industry or among any subclassification of those companies,
based upon recognized evaluation criteria. For example, at year-end 1997,
LINCOLN LIFE was the 6th largest U.S. stock life insurance company based on
overall assets.
Sales literature may reference the Multi Fund newsletter which is a newsletter
distributed quarterly to clients of the VAA. The contents of the newsletter will
be a commentary on general economic conditions and, on some occasions,
referencing matters in connection with the Multi Fund annuity.
Sales literature and advertisements may reference these and other similar
reports from Best's or other similar publications which report on the insurance
and financial services industries.
The graphs below compare accumulations attributable to contributions to
conventional savings vehicles such as savings accounts at a bank or credit
union, nonqualified CONTRACTS purchased with after tax contributions, and
qualified CONTRACTS purchased with pre-tax contributions under tax-favored
retirement programs.
B-11
<PAGE>
THE POWER OF TAX DEFERRED GROWTH
The hypothetical chart below compares the results of contributing $1,200 per
year ($100 per month) during the time periods illustrated. Each graph assumes a
28% tax rate and an 8% fixed rate of return (before fees
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONVENTIONAL NONQUALIFIED TAX DEFERRED
<S> <C> <C> <C>
Savings annuity contracts annuity
with tax deferred retirement
growth program
10 years $16,049 $18,013 $25,017
15 years $28,143 $33,761 $46,890
20 years $44,145 $56,900 $79,028
10 years $16,193 $17,012
15 years $29,340 $33,761
20 years $47,688 $56,900
</TABLE>
and charges). For tax deferred annuities (TDA), the results are based on
contributing $1,666.66 ($138.88 per month) during the time periods illustrated.
The additional $38.88 per month is the amount of federal taxes paid by those
contributing to the conventional savings accounts or nonqualified CONTRACTS. In
this example, it has been invested by the contributors to the qualified
CONTRACTS. The deduction of fees and charges is also indicated in the graph. The
dotted lines represent the amount remaining after deducting any taxes due and
all fees (including SURRENDER CHARGES). See Charges and other deductions in the
Prospectus for discussion of charges. Additionally, a 10% tax penalty (not
included here) may apply to WITHDRAWALS before age 59 1/2.
The contributions and interest earnings on conventional savings accounts are
usually taxed currently. For nonqualified CONTRACTS contributions are usually
taxed currently, while earnings are not usually subject to income tax until
withdrawn. However, contributions to and earnings on qualified plans are
ordinarily not subject to income tax until withdrawn. Therefore, having greater
amounts re-invested in a qualified or nonqualified plan increases the
accumulation power of savings over time.
As you can see, a tax deferred plan can provide a much higher account value over
a long period of time. Therefore, tax deferral is an important component of a
retirement plan or other long-term financial goals. (The above chart is for
illustrative purposes and should not be construed as representative of actual
results, which may be more or less).
TAX BENEFITS TODAY
When you put a portion of your salary in a tax deferred retirement plan, your
contributions don't appear as taxable income on your W-2 form at the end of the
calendar year. So while you are contributing, you can reduce your taxes and
increase your income after savings and taxes, as compared to saving the same
amount in a plan that is not tax-deferred.
Here's an example: Let's assume you are single, your taxable income is $50,000,
and you are in the 28% tax bracket.
<TABLE>
<CAPTION>
SAVINGS OF
TRADITIONAL PRE-TAX
SAVINGS PLAN DOLLARS
<S> <C> <C>
- --------------------------------------------------------
Your income $ 50,000 $ 50,000
Tax-deferred savings -0- 2,400
Taxable income 50,000 47,600
*Estimated federal income
taxes 10,481 9,809
Income after taxes 39,519 37,791
After-tax savings 2,400 -0-
Remaining income after
savings and taxes 37,119 37,791
</TABLE>
With a tax-deferred plan, you have $672 more spendable income each year because
you are paying less taxes currently.
*The above chart assumes a 28% marginal federal tax rate on conventional
contributions. TDA contributions are generally taxed as ordinary income when
withdrawn. Federal tax penalties generally apply to distributions before age
59 1/2. For illustrative purposes only.
FINANCIAL STATEMENTS
Financial statements for the VAA and statutory-basis financial statements and
schedules of Lincoln Life appear on the following pages. For more information
about the financial statements for Lincoln Life provided in this SAI, please see
the cover page of this SAI.
B-12
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
B-13
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DELAWARE
PERCENT AGGRESSIVE CAPITAL EMERGING
OF NET GROWTH APPRECIATION GROWTH
ASSETS COMBINED ACCOUNT BOND ACCOUNT ACCOUNT SERIES
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at net asset value:
- Lincoln National Aggressive Growth
Fund,
Inc. - 20,538,876.338 shares at
$16.39 per share
(cost - $240,321,099) 3.6% $ 336,538,224 $ 336,538,224
- ---------------------------------------
- Lincoln National Bond Fund, Inc. -
21,673,088.212 shares at $12.86 per
share
(cost - $256,731,556) 3.0 278,728,827 $ 278,728,827
- ---------------------------------------
- Lincoln National Capital
Appreciation Fund,
Inc. - 25,239,693.100 shares at
$17.53 per share
(cost - $332,345,658) 4.7 442,461,845 $ 442,461,845
- ---------------------------------------
- Delaware Emerging Growth Series
3,188,970.924
shares at $17.39 per share
(cost - $49,181,353) 0.6 55,456,204 $ 55,456,204
- ---------------------------------------
- Delaware Equity/Income Series
5,012,656.118
shares at $18.80 per share
(cost - $85,288,396) 1.0 94,237,935
- ---------------------------------------
- Delaware Global Bond Series
1,181,485.729
shares at $10.50 per share
(cost - $12,389,777) 0.1 12,405,600
- ---------------------------------------
- Lincoln National Equity-Income Fund,
Inc. -
39,782,391.791 shares at $20.12 per
share
(cost - $555,166,058) 8.5 800,339,302
- ---------------------------------------
- Lincoln National Global Asset
Allocation
Fund, Inc. - 27,866,136.046 shares
at $15.63 per
share (cost - $336,837,273) 4.6 435,502,051
- ---------------------------------------
- Lincoln National Growth and Income
Fund,
Inc. - 83,235,581.825 shares at
$41.95 per share
(cost - $2,099,399,866) 37.0 3,491,608,711
- ---------------------------------------
- Lincoln National International Fund,
Inc. -
31,426,189.646 shares at $14.67 per
share
(cost - $394,676,976) 4.9 461,109,004
- ---------------------------------------
- Lincoln National Managed Fund, Inc.
-
43,887,686.344 shares at $19.30 per
share
(cost - $597,984,621) 9.0 847,217,671
- ---------------------------------------
- Lincoln National Money Market Fund,
Inc. -
8,746,828.400 shares at $10.00 per
share
(cost - $87,468,284) 0.9 87,468,284
- ---------------------------------------
- Lincoln National Social Awareness
Fund,
Inc. - 34,938,768.165 shares at
$35.66 per share
(cost - $826,939,759) 13.2 1,245,806,391
- ---------------------------------------
- Lincoln National Special
Opportunities Fund,
Inc. - 23,910,129.802 shares at
$35.06 per share
(cost - $602,317,122) 8.9 838,185,104
- --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------
- ---------------------------------------
TOTAL INVESTMENTS & TOTAL ASSETS (Cost
- $6,477,047,798) 100.0 9,427,065,153 336,538,224 278,728,827 442,461,845 55,456,204
- ---------------------------------------
LIABILITY -
Payable to The Lincoln National Life
Insurance Company 0.0 258,012 9,083 7,626 12,070 1,491
- --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------
- ---------------------------------------
NET ASSETS 100.0% $ 9,426,807,141 $ 336,529,141 $ 278,721,201 $ 442,449,775 $ 55,454,713
- --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------
------- --------------- ------------- ------------- ------------- ------------
- ---------------------------------------
NET ASSETS ARE REPRESENTED BY:
MULTIFUND WITHOUT GUARANTEED MINIMUM
DEATH BENEFIT
Units in accumulation period 198,261,432 59,831,710 232,364,459 45,956,994
- ---------------------------------------
Annuity reserves units 254,392 94,218 489,213 0
- ---------------------------------------
Unit value $1.687 $4.632 $1.884 $1.191
- ---------------------------------------
Value in accumulation period 334,483,346 277,147,745 437,833,856 54,740,484
- ---------------------------------------
Annuity reserves 429,181 436,433 921,803 --
- ---------------------------------------
------------- ------------- ------------- ------------
334,912,527 277,584,178 438,755,659 54,740,484
------------- ------------- ------------- ------------
MULTIFUND WITH GUARANTEED MINIMUM DEATH
BENEFIT
Units in accumulation period 959,741 245,847 1,963,593 600,523
- ---------------------------------------
Annuity reserves units
- ---------------------------------------
Unit value $1.684 $4.625 $1.881 $1.189
- ---------------------------------------
Value in accumulation period 1,616,614 1,137,023 3,694,116 714,229
- ---------------------------------------
------------- ------------- ------------- ------------
TOTAL NET ASSETS $ 336,529,141 $ 278,721,201 $ 442,449,775 $ 55,454,713
- ---------------------------------------
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
<CAPTION>
DELAWARE DELAWARE
EQUITY/ GLOBAL
INCOME BOND
SERIES SERIES
<S> <C> <C>
- ---------------------------------------
ASSETS
Investments at net asset value:
- Lincoln National Aggressive Growth
Fund,
Inc. - 20,538,876.338 shares at
$16.39 per share
(cost - $240,321,099)
- ---------------------------------------
- Lincoln National Bond Fund, Inc. -
21,673,088.212 shares at $12.86 per
share
(cost - $256,731,556)
- ---------------------------------------
- Lincoln National Capital
Appreciation Fund,
Inc. - 25,239,693.100 shares at
$17.53 per share
(cost - $332,345,658)
- ---------------------------------------
- Delaware Emerging Growth Series
3,188,970.924
shares at $17.39 per share
(cost - $49,181,353)
- ---------------------------------------
- Delaware Equity/Income Series
5,012,656.118
shares at $18.80 per share
(cost - $85,288,396) $ 94,237,935
- ---------------------------------------
- Delaware Global Bond Series
1,181,485.729
shares at $10.50 per share
(cost - $12,389,777) $ 12,405,600
- ---------------------------------------
- Lincoln National Equity-Income Fund,
Inc. -
39,782,391.791 shares at $20.12 per
share
(cost - $555,166,058)
- ---------------------------------------
- Lincoln National Global Asset
Allocation
Fund, Inc. - 27,866,136.046 shares
at $15.63 per
share (cost - $336,837,273)
- ---------------------------------------
- Lincoln National Growth and Income
Fund,
Inc. - 83,235,581.825 shares at
$41.95 per share
(cost - $2,099,399,866)
- ---------------------------------------
- Lincoln National International Fund,
Inc. -
31,426,189.646 shares at $14.67 per
share
(cost - $394,676,976)
- ---------------------------------------
- Lincoln National Managed Fund, Inc.
-
43,887,686.344 shares at $19.30 per
share
(cost - $597,984,621)
- ---------------------------------------
- Lincoln National Money Market Fund,
Inc. -
8,746,828.400 shares at $10.00 per
share
(cost - $87,468,284)
- ---------------------------------------
- Lincoln National Social Awareness
Fund,
Inc. - 34,938,768.165 shares at
$35.66 per share
(cost - $826,939,759)
- ---------------------------------------
- Lincoln National Special
Opportunities Fund,
Inc. - 23,910,129.802 shares at
$35.06 per share
(cost - $602,317,122)
- --------------------------------------- ------------ ------------
- ---------------------------------------
TOTAL INVESTMENTS & TOTAL ASSETS (Cost
- $6,477,047,798) 94,237,935 12,405,600
- ---------------------------------------
LIABILITY -
Payable to The Lincoln National Life
Insurance Company 2,567 342
- --------------------------------------- ------------ ------------
- ---------------------------------------
NET ASSETS $ 94,235,368 $ 12,405,258
- --------------------------------------- ------------ ------------
------------ ------------
- ---------------------------------------
NET ASSETS ARE REPRESENTED BY:
MULTIFUND WITHOUT GUARANTEED MINIMUM
DEATH BENEFIT
Units in accumulation period 62,514,884 10,909,411
- ---------------------------------------
Annuity reserves units 450,356 8,169
- ---------------------------------------
Unit value $1.461 $1.109
- ---------------------------------------
Value in accumulation period 91,334,715 12,099,923
- ---------------------------------------
Annuity reserves 657,974 9,060
- ---------------------------------------
------------ ------------
91,992,689 12,108,983
------------ ------------
MULTIFUND WITH GUARANTEED MINIMUM DEATH
BENEFIT
Units in accumulation period 1,537,440 267,546
- ---------------------------------------
Annuity reserves units
- ---------------------------------------
Unit value $1.459 $1.107
- ---------------------------------------
Value in accumulation period 2,242,679 296,275
- ---------------------------------------
------------ ------------
TOTAL NET ASSETS $ 94,235,368 $ 12,405,258
- ---------------------------------------
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
B-14
<PAGE>
<TABLE>
<CAPTION>
EQUITY- GLOBAL ASSET GROWTH AND
INCOME ALLOCATION INCOME INTERNATIONAL MANAGED
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at net asset value:
- Lincoln National Aggressive Growth
Fund,
Inc. - 20,538,876.338 shares at
$16.39 per share
(cost - $240,321,099)
- ---------------------------------------
- Lincoln National Bond Fund, Inc. -
21,673,088.212 shares at $12.86 per
share
(cost - $256,731,556)
- ---------------------------------------
- Lincoln National Capital
Appreciation Fund,
Inc. - 25,239,693.100 shares at
$17.53 per share
(cost - $332,345,658)
- ---------------------------------------
- Delaware Emerging Growth Series
3,188,970.924
shares at $17.39 per share
(cost - $49,181,353)
- ---------------------------------------
- Delaware Equity/Income Series
5,012,656.118
shares at $18.80 per share
(cost - $85,288,396)
- ---------------------------------------
- Delaware Global Bond Series
1,181,485.729
shares at $10.50 per share
(cost - $12,389,777)
- ---------------------------------------
- Lincoln National Equity-Income Fund,
Inc. -
39,782,391.791 shares at $20.12 per
share
(cost - $555,166,058) $ 800,339,302
- ---------------------------------------
- Lincoln National Global Asset
Allocation
Fund, Inc. - 27,866,136.046 shares
at $15.63 per
share (cost - $336,837,273) $ 435,502,051
- ---------------------------------------
- Lincoln National Growth and Income
Fund,
Inc. - 83,235,581.825 shares at
$41.95 per share
(cost - $2,099,399,866) $ 3,491,608,711
- ---------------------------------------
- Lincoln National International Fund,
Inc. -
31,426,189.646 shares at $14.67 per
share
(cost - $394,676,976) $ 461,109,004
- ---------------------------------------
- Lincoln National Managed Fund, Inc.
-
43,887,686.344 shares at $19.30 per
share
(cost - $597,984,621) $ 847,217,671
- ---------------------------------------
- Lincoln National Money Market Fund,
Inc. -
8,746,828.400 shares at $10.00 per
share
(cost - $87,468,284)
- ---------------------------------------
- Lincoln National Social Awareness
Fund,
Inc. - 34,938,768.165 shares at
$35.66 per share
(cost - $826,939,759)
- ---------------------------------------
- Lincoln National Special
Opportunities Fund,
Inc. - 23,910,129.802 shares at
$35.06 per share
(cost - $602,317,122)
- --------------------------------------- ------------- ------------- --------------- ------------- -------------
- ---------------------------------------
TOTAL INVESTMENTS & TOTAL ASSETS (Cost
- $6,477,047,798) 800,339,302 435,502,051 3,491,608,711 461,109,004 847,217,671
- ---------------------------------------
LIABILITY -
Payable to The Lincoln National Life
Insurance Company 21,918 11,944 95,677 12,728 23,189
- --------------------------------------- ------------- ------------- --------------- ------------- -------------
- ---------------------------------------
NET ASSETS $ 800,317,384 $ 435,490,107 $ 3,491,513,034 $ 461,096,276 $ 847,194,482
- --------------------------------------- ------------- ------------- --------------- ------------- -------------
------------- ------------- --------------- ------------- -------------
- ---------------------------------------
NET ASSETS ARE REPRESENTED BY:
MULTIFUND WITHOUT GUARANTEED MINIMUM
DEATH BENEFIT
Units in accumulation period 367,650,521 158,528,476 356,437,044 293,362,761 178,408,049
- ---------------------------------------
Annuity reserves units 1,261,113 521,791 3,955,002 502,083 511,247
- ---------------------------------------
Unit value $2.150 $2.720 $9.650 $1.562 $4.714
- ---------------------------------------
Value in accumulation period 790,308,116 431,188,333 3,439,732,725 458,218,383 841,011,899
- ---------------------------------------
Annuity reserves 2,710,910 1,419,239 38,167,051 784,229 2,410,011
- ---------------------------------------
------------- ------------- --------------- ------------- -------------
793,019,026 432,607,572 3,477,899,776 459,002,612 843,421,910
------------- ------------- --------------- ------------- -------------
MULTIFUND WITH GUARANTEED MINIMUM DEATH
BENEFIT
Units in accumulation period 3,400,524 1,061,444 1,412,921 1,342,514 801,564
- ---------------------------------------
Annuity reserves units
- ---------------------------------------
Unit value $2.146 $2.716 $9.635 $1.560 $4.707
- ---------------------------------------
Value in accumulation period 7,298,358 2,882,535 13,613,258 2,093,664 3,772,572
- ---------------------------------------
------------- ------------- --------------- ------------- -------------
TOTAL NET ASSETS $ 800,317,384 $ 435,490,107 $ 3,491,513,034 $ 461,096,276 $ 847,194,482
- ---------------------------------------
------------- ------------- --------------- ------------- -------------
------------- ------------- --------------- ------------- -------------
<CAPTION>
MARKET AWARENESS OPPORTUNITIES
ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C>
- ---------------------------------------
ASSETS
Investments at net asset value:
- Lincoln National Aggressive Growth
Fund,
Inc. - 20,538,876.338 shares at
$16.39 per share
(cost - $240,321,099)
- ---------------------------------------
- Lincoln National Bond Fund, Inc. -
21,673,088.212 shares at $12.86 per
share
(cost - $256,731,556)
- ---------------------------------------
- Lincoln National Capital
Appreciation Fund,
Inc. - 25,239,693.100 shares at
$17.53 per share
(cost - $332,345,658)
- ---------------------------------------
- Delaware Emerging Growth Series
3,188,970.924
shares at $17.39 per share
(cost - $49,181,353)
- ---------------------------------------
- Delaware Equity/Income Series
5,012,656.118
shares at $18.80 per share
(cost - $85,288,396)
- ---------------------------------------
- Delaware Global Bond Series
1,181,485.729
shares at $10.50 per share
(cost - $12,389,777)
- ---------------------------------------
- Lincoln National Equity-Income Fund,
Inc. -
39,782,391.791 shares at $20.12 per
share
(cost - $555,166,058)
- ---------------------------------------
- Lincoln National Global Asset
Allocation
Fund, Inc. - 27,866,136.046 shares
at $15.63 per
share (cost - $336,837,273)
- ---------------------------------------
- Lincoln National Growth and Income
Fund,
Inc. - 83,235,581.825 shares at
$41.95 per share
(cost - $2,099,399,866)
- ---------------------------------------
- Lincoln National International Fund,
Inc. -
31,426,189.646 shares at $14.67 per
share
(cost - $394,676,976)
- ---------------------------------------
- Lincoln National Managed Fund, Inc.
-
43,887,686.344 shares at $19.30 per
share
(cost - $597,984,621)
- ---------------------------------------
- Lincoln National Money Market Fund,
Inc. -
8,746,828.400 shares at $10.00 per
share
(cost - $87,468,284) $ 87,468,284
- ---------------------------------------
- Lincoln National Social Awareness
Fund,
Inc. - 34,938,768.165 shares at
$35.66 per share
(cost - $826,939,759) $ 1,245,806,391
- ---------------------------------------
- Lincoln National Special
Opportunities Fund,
Inc. - 23,910,129.802 shares at
$35.06 per share
(cost - $602,317,122) $ 838,185,104
- --------------------------------------- ------------ --------------- -------------
- ---------------------------------------
TOTAL INVESTMENTS & TOTAL ASSETS (Cost
- $6,477,047,798) 87,468,284 1,245,806,391 838,185,104
- ---------------------------------------
LIABILITY -
Payable to The Lincoln National Life
Insurance Company 2,400 34,120 22,857
- --------------------------------------- ------------ --------------- -------------
- ---------------------------------------
NET ASSETS $ 87,465,884 $ 1,245,772,271 $ 838,162,247
- --------------------------------------- ------------ --------------- -------------
------------ --------------- -------------
- ---------------------------------------
NET ASSETS ARE REPRESENTED BY:
MULTIFUND WITHOUT GUARANTEED MINIMUM
DEATH BENEFIT
Units in accumulation period 35,963,168 249,012,275 101,002,630
- ---------------------------------------
Annuity reserves units 56,935 524,138 137,167
- ---------------------------------------
Unit value $2.419 $4.950 $8.249
- ---------------------------------------
Value in accumulation period 86,979,858 1,232,525,060 833,140,183
- ---------------------------------------
Annuity reserves 137,700 2,594,303 1,131,452
- ---------------------------------------
------------ --------------- -------------
87,117,558 1,235,119,363 834,271,635
------------ --------------- -------------
MULTIFUND WITH GUARANTEED MINIMUM DEATH
BENEFIT
Units in accumulation period 144,247 2,155,674 472,405
- ---------------------------------------
Annuity reserves units
- ---------------------------------------
Unit value $2.415 $4.942 $8.236
- ---------------------------------------
Value in accumulation period 348,326 10,652,908 3,890,612
- ---------------------------------------
------------ --------------- -------------
TOTAL NET ASSETS $ 87,465,884 $ 1,245,772,271 $ 838,162,247
- ---------------------------------------
------------ --------------- -------------
------------ --------------- -------------
</TABLE>
B-15
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
THE ACCOUNT: The Lincoln National Variable Annuity Account C (the Variable
Account) is a segregated investment account of The Lincoln National Life
Insurance Company (the Company) and is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust. The Variable
Account consists of one product offering a guaranteed minimum death benefit
(GMDB) rider option.
INVESTMENTS: The Variable Account invests in the Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital
Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln
National Global Asset Allocation Fund, Inc., Lincoln National Growth and
Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc.,
Lincoln National Social Awareness Fund, Inc., Lincoln National Special
Opportunities Fund, Inc., Delaware Emerging Growth Series, Delaware
Equity/Income Series and the Delaware Global Bond Series (the Funds).
Investments in the Funds are stated at the closing net values per share on
December 31, 1997. The Funds are registered as open ended investment
management companies.
Investment transactions are accounted for on a trade-date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by the average-cost method.
DIVIDENDS: Dividends are automatically reinvested in shares of the Funds on
the payable date.
FEDERAL INCOME TAXES: Operations of the Variable Account form a part of and
are taxed with operations of the Company, which is taxed as a "life insurance
company" under the Internal Revenue Code. Using current law, no federal
income taxes are payable with respect to the Variable Account's net
investment income and the net realized gain on investments.
ANNUITY RESERVES: Reserves on contracts not involving life contingencies are
calculated using an assumed investment rate of 5%. Reserves on contracts
involving life contingencies are calculated using a modification of the 1971
Individual Annuitant Mortality Table and an assumed investment rate of 5%.
2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to the Company for mortality and expense guarantees at a
percentage of the current value of the Variable Account each day. The rates
are as follows:
- Multifund at a daily rate of .00274525% (1.002% on an annual basis).
- Multifund with GMDB at a daily rate of .00356712328% (1.302% on an
annual basis).
In addition, amounts retained by the Company from the proceeds of the sales
of annuity contracts for contract charges and surrender charges were as
follows during 1997:
<TABLE>
<S> <C>
Lincoln National Aggressive Growth
Account $ 97,296
- ---------------------------------------
Lincoln National Bond Account 715,809
- ---------------------------------------
Lincoln National Capital Appreciation
Account 114,914
- ---------------------------------------
Delaware Emerging Growth Account 11,915
- ---------------------------------------
Delaware Equity Income Account 10,069
- ---------------------------------------
Delaware Global Bond Account 1,315
- ---------------------------------------
Lincoln National Equity-Income Account 203,095
- ---------------------------------------
Lincoln National Global Asset
Allocation Account 449,871
- ---------------------------------------
Lincoln National Growth and Income
Account 3,920,982
- ---------------------------------------
Lincoln National International Account 631,218
- ---------------------------------------
Lincoln National Managed Account 927,374
- ---------------------------------------
Lincoln National Money Market Account 813,396
- ---------------------------------------
Lincoln National Social Awareness
Account 1,123,658
- ---------------------------------------
Lincoln National Special Opportunities
Account 906,949
- --------------------------------------- ----------
- ---------------------------------------
$9,927,861
- --------------------------------------- ----------
----------
</TABLE>
Accordingly, the Company is responsible for all sales, general, and
administrative expenses applicable to the Variable Account.
B-20
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
B-21
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. NET ASSETS
Net Assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
DELAWARE DELAWARE
AGGRESSIVE CAPITAL EMERGING EQUITY/
GROWTH BOND APPRECIATION GROWTH INCOME
COMBINED ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $5,043,582,942 $227,902,481 $138,519,777 $317,396,112 $48,914,475 $82,726,689
- ---------------------------------------
Annuity reserves 24,597,907 288,056 304,719 650,131 -- 575,923
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
5,068,180,849 228,190,537 138,824,496 318,046,243 48,914,475 83,302,612
Accumulated net investment income
(loss) 1,306,316,744 8,667,056 118,141,970 13,022,186 (67,760) 1,861,288
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 102,292,193 3,454,423 (242,536) 1,265,159 333,147 121,929
- ---------------------------------------
Net unrealized appreciation on
investments 2,950,017,355 96,217,125 21,997,271 110,116,187 6,274,851 8,949,539
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
$9,426,807,141 $336,529,141 $278,721,201 $442,449,775 $55,454,713 $94,235,368
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
-------------- ------------ ------------ ------------ ----------- -----------
<CAPTION>
DELAWARE
GLOBAL
BOND
ACCOUNT
<S> <C>
- ---------------------------------------
Unit Transactions:
Accumulation units $11,765,918
- ---------------------------------------
Annuity reserves 8,550
- --------------------------------------- -----------
- ---------------------------------------
11,774,468
Accumulated net investment income
(loss) 528,215
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 86,752
- ---------------------------------------
Net unrealized appreciation on
investments 15,823
- --------------------------------------- -----------
- ---------------------------------------
$12,405,258
- --------------------------------------- -----------
-----------
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
EQUITY- GLOBAL ASSET GROWTH AND MONEY
INCOME ALLOCATION INCOME INTERNATIONAL MANAGED MARKET
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $535,946,820 $251,871,731 $1,552,007,990 $354,234,434 $358,852,074 $32,036,377
- ---------------------------------------
Annuity reserves 1,666,670 839,047 15,948,964 591,808 1,268,810 102,206
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
537,613,490 252,710,778 1,567,956,954 354,826,242 360,120,884 32,138,583
Accumulated net investment income
(loss) 16,292,020 81,067,677 504,470,847 27,627,063 226,415,207 55,327,301
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 1,238,630 3,046,874 26,876,388 12,210,943 11,425,341 --
- ---------------------------------------
Net unrealized appreciation on
investments 245,173,244 98,664,778 1,392,208,845 66,432,028 249,233,050 --
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
$800,317,384 $435,490,107 $3,491,513,034 $461,096,276 $847,194,482 $87,465,884
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
------------ ------------ -------------- ------------ ------------ -----------
<CAPTION>
AWARENESS OPPORTUNITIES
ACCOUNT ACCOUNT
<S> <C> <C>
- ---------------------------------------
Unit Transactions:
Accumulation units $ 748,397,217 $383,010,847
- ---------------------------------------
Annuity reserves 1,743,548 609,475
- --------------------------------------- -------------- ------------
- ---------------------------------------
750,140,765 383,620,322
Accumulated net investment income
(loss) 72,287,389 180,676,285
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 4,477,485 37,997,658
- ---------------------------------------
Net unrealized appreciation on
investments 418,866,632 235,867,982
- --------------------------------------- -------------- ------------
- ---------------------------------------
$1,245,772,271 $838,162,247
- --------------------------------------- -------------- ------------
-------------- ------------
</TABLE>
B-23
<PAGE>
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>
PART C--OTHER INFORMATION
Item 24.
- --------
(a) LIST OF FINANCIAL STATEMENTS
(1) Part A The Table of Condensed Financial Information is included in
Part A of this Registration Statement.
(2) Part B
The following financial statements of Account C are included in the
SAI:
Statement of Assets and Liability -- December 31, 1997
Statement of Operations -- Year ended December 31, 1997
Statements of Changes in Net Assets -- Years ended
December 31, 1997 and 1996
Notes to Financial Statements -- December 31, 1997
Report of Ernst & Young LLP, Independent Auditors
(3) Part B
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
24 (b) LIST OF EXHIBITS
(1) Resolution establishing separate accounts
(2) N/A
(3) N/A
(4) Variable Annuity Contract
(a) Multi Fund - Single premium contract
(b) Multi Fund 1 - Periodic
(c) Multi Fund 2 - Flexible
(d) Multi Fund 3 - Flexible
(e) Multi Fund 4 - Flexible (filed with Post-Effective
Amendment No. 14 to this Registration Statement.)
(f) Contract Rider - Multi Fund 2 & Multi Fund 3
(filed with Post-Effective Amendment No. 13
to this Registration Statement.)
(g) Contract Rider - Multi Fund 4 (filed with Post-Effective
Amendment No. 13 to this Registration Statement.)
(5) (a) Deferred Annuity Application (filed with Post-Effective
Amendment No. 14 to this Registration Statement.)
(b) 403(b) Annuity Application (filed with Post-Effective
Amendment No. 14 to this Registration Statement.)
(6) (a) Articles of Incorporation of The Lincoln National Life
Insurance Company are incorporated herein by reference
to the Registration Statement of Lincoln National Life
Insurance Company 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 the Registration
Statement of Lincoln National Life Insurance Company on
Form N-4 (33-27783) filed on December 5, 1996.
(7) N/A
(8) (a) Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc. and Lincoln National
Life Insurance Company (incorporated by reference to the
Registration Statement of Lincoln National Life Insurance
Company on Form S-6 (333-40745) filed on November 21, 1997.
(b) Participation Agreement among Delaware Group Premimum
Fund, Inc and Lincoln National Life and Delaware
Distributors, LP
(9) Opinion and Consent of Jeremy Sachs, Senior Counsel (Filed
with post-effective amendment No. 14 to this registration
statement.)
(10) Consent of Ernst & Young LLP, Independent Auditors
(11) N/A
(12) N/A
(13) Schedule of Computation. (Filed with post-effective amendment
No. 13 to this registration statement.)
(14) N/A
(15) (a) Organizational Chart of Lincoln National Life Insurance
Holding Company System
(b) Memorandum Concerning Books and Records
<PAGE>
Item 25.
- --------
DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name Positions and Offices with LNL
- ---- ------------------------------
<S> <C>
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
Jack D. Hunter* Executive Vice President and General Counsel
Donald E. Keller* Vice President
Stephen H. Lewis* Senior Vice President
H. Thomas McMeekin** Director
Reed P. Miller* Vice President
Ian M. Rolland** Director
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
</TABLE>
*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 Magnavox 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): The Organizational Chart of The Lincoln National
Insurance Holding Company System is hereby incorporated herein by this
reference.
Item 27.
- --------
NUMBER OF CONTRACT OWNERS
As of February 28, 1998, there were 495,273 Contract Owners under Account
C.
Item 28.
- --------
INDEMNIFICATION--UNDERTAKING
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life
Insurance Company (LNL) provides that LNL will indemnify certain
persons against expenses, judgments and certain other specified costs
incurred by any such person if he/she is made a party or is threatened
to be made a party to a suit or proceeding because he/she was a
director, officer, or employee of LNL, as long as he/she acted in good
faith and in a manner he/she reasonably believed to be in the best
interests of, or not opposed to the best interests of, LNL. Certain
additional conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of LNL in connection with suits by, or in the
rights of, LNL.
Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b)
hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the requirements of,
Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item
28(a) above or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29.
- --------
PRINCIPAL UNDERWRITER
(a) Lincoln National Variable Annuity Fund A (Group); Lincoln National
Variable Annuity Fund A (Individual); Lincoln National Flexible Premium
Variable Life Account D; Lincoln National Flexible Premium Variable
Life Account F; Lincoln National Flexible Premium Variable Life
Account G; Lincoln National Variable Annuity Account H; Lincoln Life
Flexible Premium Variable Life Account K; Lincoln Life Flexible Premium
Variable Life Account M; Lincoln Life Variable Annuity Account N;
Lincoln Life Variable Annuity Account Q; Lincoln National Variable
Annuity Accounts 50 and 51
(b) See Item 25.
(c) Commissions and Other Compensation Received by Lincoln National Life
Insurance Company from Account C during the fiscal year which ended
December 31, 1997:
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting
Name of Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
- ----------------- ---------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
The Lincoln National
Life Insurance a b
Company None $9,930,703 None $80,449,450
</TABLE>
Notes:
(a) These figures represent compensation received by Lincoln National Life
Insurance Company for surrender, withdrawal and contract charges. See Charges
and other deductions, in the Prospectus.
(b) These figures represent compensation received by Lincoln National Life
Insurance Company for mortality and expense guarantees. See Charges and other
deductions, in the Prospectus.
Item 30.
- --------
LOCATION OF ACCOUNTS AND RECORDS
Exhibit 15(b) is hereby expressly incorporated herein by this reference.
Item 31.
- --------
Item 32. Undertakings
- --------
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Certificate or an Individual Contract offered by
the Prospectus, a space that an applicant can check to request a Statement
of Additional Information, or (2) a post cared or similar written
communication affixed to or included in the Prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statement required to be made available under this Form
promptly upon written or oral request to Lincoln Life at the address or
phone number listed in the Prospectus.
(d) The Lincoln National Life Insurance company hereby represents that the fees
and charges deducted under the contract, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by The Lincoln National Life Insurance Company.
Item 33.
- --------
(Additional Item) - Undertaking Concerning the Texas Optional Retirement
Program
Refer to the initial Registration Statement.
Item 34.
- --------
(Additional Item) - Undertaking Concerning Withdrawal Restrictions on IRC
Section 403(b) Plan Participants
Refer to the initial Registration Statement.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment
Company Act of 1940, as amended the Registrant certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Registration Statement to be
signed on its behalf, by the undersigned thereunto duly authorized
in the City of Fort Wayne, and State of Indiana on this 22nd day of April,
1998.
LINCOLN NATIONAL VARIABLE ANNUITY
ACCOUNT C, (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 (LNL)
(Depositor)
By /s/ Gabriel L. Shaheen
------------------------------------
Gabriel L. Shaheen
Chief Executive Officer and President
------------------------------------
(Title)
(b) As required by the Securities Act of 1993, this Registration
Statement has been signed for the Depositor by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Gabriel L. Shaheen Chief Executive April 22, 1998
- ----------------------- Officer, President & --------------
Gabriel L. Shaheen Director (Principal Executive
Officer)
Executive Vice President,
- ----------------------- General Counsel & Director --------------
Jack D. Hunter
Executive Vice President
- ----------------------- & Director --------------
Lawrence T. Rowland
/s/ Keith J. Ryan Senior Vice President, April 22, 1998
- ----------------------- Assistant Treasurer and Chief --------------
Keith J. Ryan
/s/ Ian M. Rolland Director April 22, 1998
- ----------------------- --------------
Ian M. Rolland
Director
- ----------------------- --------------
H. Thomas McMeekin
/s/ Richard C. Vaughan Director April 22, 1998
- ----------------------- --------------
Richard C. Vaughan
/s/ Jon A. Boscia Director April 22, 1998
- ----------------------- --------------
Jon A. Boscia
<PAGE>
Exhibit Index
(1) Resolution establishing separate accounts
(4) Variable Annuity Contract
(a) Multi Fund - Single Premium Contract
(b) Multi Fund 1 - Periodic
(c) Multi Fund 2 - Flexible
(d) Multi Fund 3 - Flexible
(8) (b) Participation Agreement
(10) Consent of Ernst & Young LLP, Independent Auditors
(15) (a) Organizational Chart of Lincoln National Life Insurance Holding
Company System
(b) Memorandum Concerning Books and Records.
<PAGE>
Exhibit 1
CHANGE OF NAME OF SEGREGATED ACCOUNT OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Pursuant to the authority given me by Resolution No. 118, dated December 14,
1981 of the Board of Directors of Lincoln National Pension Insurance Company
(LNP) and by virtue of the merger of LNP into The Lincoln National Life
Insurance Company effective January 1, 1989, I hereby amend the original
"DESIGNATION OF SEGREGATED ACCOUNT OF LINCOLN NATIONAL PENSION INSURANCE
COMPANY", dated June 3, 1981, so that effective immediately the name of the
Segregated Account shall be: "Lincoln National Variable Annuity Account C".
5/8/89 /s/ Ian M. Rolland
- ------------------ -------------------------------------------
DATE Ian M. Rolland, President
The Lincoln National Life Insurance Company
<PAGE>
BOARD RESOLUTION
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTED NOVEMBER 4, 1982
82-28 RESOLVED, That the resolution relating to the establishment of
segregated investment accounts, adopted by the Board of Directors on
September 12, 1968, is hereby rescinded effective this date; and
RESOLVED FURTHER, That the chief executive officers of the Company
is hereby authorized in his discretion from time to time to establish one
or more segregated investment accounts in accordance with the provisions of
the Indiana Insurance Law, for such purpose or purposes as he may determine
and as may be appropriate under the Indiana Insurance Law; and
RESOLVED FURTHER, That if in the opinion of legal counsel of the
Company it is necessary or desirable to register any of such accounts under
the Investment Company Act of 1940 or to register a security issued by any
such account under the Securities Act of 1933, or to make application for
exemption from registration, the chief executive officer or such other
officers as he may designate are hereby authorized to accomplish any such
registration or to make any such application for exemption, and to perform
all other acts as may be desirable or necessary in connection with the
conduct of business of the Company with respect to any such account.
<PAGE>
Abraham Lincoln
XX-0123456
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
ANNUITY CONTRACT
SINGLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits
and other rights described in this Contract in accordance with the terms of this
Contract.
NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT
IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON BY DELIVERING OR MAILING
IT TO THE REPRESENTATIVE THROUGH WHOM IT WAS PURCHASED OR THE HOME OFFICE OF
LNL. UPON CANCELLATION, THIS CONTRACT SHALL BE VOID FROM THE BEGINNING AND LNL
WILL RETURN THE VALUE OF ANY PAYMENT MADE TO THE VARIABLE ACCOUNT AND/OR ANY
PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE CONTRACT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ JON A. BOSCIA /s/ PATRICK WILTSHIRE
JON A. BOSCIA, PRESIDENT PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 PURCHASE PAYMENTS 4
2 BENEFITS 5
3 BENEFICIARY 7
4 GENERAL PROVISIONS 8
5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 9
6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 10
7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 11
<PAGE>
CONTRACT DATA
CONTRACT NUMBER XX-0123456
ANNUITANT ABRAHAM LINCOLN
AGE AT ISSUE 35
CONTRACT DATE APRIL 1, 1989
PURCHASE PAYMENT $1,500.00
PURCHASE PAYMENT FREQUENCY MONTHLY
MATURITY DATE APRIL 1, 2039
OWNER
ABRAHAM LINCOLN
MARY LINCOLN
TODD LINCOLN
BENEFICIARY DESIGNATION
AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION
THE PORTION OF YOUR INITIAL PURCHASE PAYMENT ALLOCATED TO THE FIXED ACCOUNT OF
YOUR ANNUITY CONTRACT IS GUARANTEED TO BE CREDITED AN INITIAL EFFECTIVE ANNUAL
INTEREST RATE OF 4.500% THROUGH 04/09/1992.
Page 3
<PAGE>
ARTICLE 1
PURCHASE PAYMENTS
1.01 WHERE PAYABLE
The Purchase Payments must be made to The Lincoln National Life Insurance
Company (LNL) at its Home Office. The Gross Purchase Payment is shown on Page 3.
The Net Purchase Payment is equal to the Gross Purchase Payment less $50. The
Gross Purchase Payment for the Contract must be at least $5,000.
1.02 VARIABLE ACCOUNT
The Net Purchase Payment under the Contract may be allocated to the Lincoln
National Life Variable Annuity Account C (Variable Account) and/or to the fixed
portion of the Contract. The Variable Account is for the exclusive benefit of
persons entitled to receive benefits under variable annuity contracts. The
Variable Account will not be charged with the liabilities from any other part of
LNL's business. There are currently seven sub-accounts in the Variable Account.
The Owner may direct the Net Purchase Payment under the Contract to any of the
available sub-accounts subject to the following limitations. A minimum payment
to any one sub-account must be at least $1,000. If the Owner elects to direct
the Net Purchase Payment to a new sub-account not previously selected, the
election must be in writing to LNL. All the amounts allocated to each
sub-account will be invested at net asset value in the shares of one of the
regulated investment companies (the Eligible Funds). The Eligible Funds are:
1. Lincoln National Growth Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Putnam Master Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Other Funds made available by LNL.
LNL reserves the right to eliminate the shares of
any of the Eligible Funds and substitute the securities of a different
investment company if the shares of an Eligible Fund are no longer available for
investment, or if in the judgment of LNL, further investment in any Eligible
Fund should become inappropriate in view of the purposes of the Contract. LNL
may add an Eligible Fund in order to invest the assets of a new sub-account in
the Variable Account. LNL shall give the Owner written notice of the elimination
and substitution of Eligible Funds within five days after such substitution
occurs.
LNL shall use the Net Purchase Payment allocated to the Variable Account by the
Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The
number of Accumulation Units bought shall be determined by dividing the amount
directed to the sub-account by the dollar value of an Accumulation Unit in such
sub-account as of the day the Purchase Payment is received at the Home Office of
LNL. The number of Accumulation Units held for the account of an Owner shall not
be changed by any change in the dollar value of Accumulation Units in any
sub-account.
1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR
The Variable Account value of an Owner's Contract at any time prior to the
Annuity Commencement Date equals the Value of the Accumulation Units held in the
name of the Owner in the Variable Account under the Contract.
A "Valuation Date" is each day that the New York Stock Exchange is open for
business. A "Valuation Period" is the period commencing at the close of business
on the New York Stock Exchange on each Valuation Date and ending at the close of
business on the next succeeding Valuation Date.
Accumulation Units for each sub-account are valued separately. Initially, the
value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter,
the value of an Accumulation Unit in any sub-account on any Valuation Date
equals the value of an Accumulation Unit in that sub-account as of the
immediately preceding Valuation Date multiplied by the "net investment factor"
of that sub-account for the current Valuation Period. In order to arrive at
this factor, a "Gross Investment Rate" is first determined for each Eligible
Fund for the Valuation Period. Such rate for the Valuation Period is equal to:
a) the investment income of the Fund: plus
b) capital gains (realized and unrealized); minus
c) capital losses (realized and unrealized); minus
d) certain operational expenses of the Fund; minus
e) the reserve for federal taxes on realized capital gains (if applicable);
minus
f) the investment advisory fee accrued by the Funds for each day of the
Valuation Period--0.480% of the first $200,000,000 of net assets on an
annual basis, 0.400% of the next $200,000,000 of net assets, and 0.300% of
net assets above $400,000,000; divided by
g) the net asset value of the Fund as of the beginning of the Valuation Period.
The Gross Investment Rate may be positive or negative.
The Net Investment Rate for each sub-account is equal to the Gross Investment
Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for
each day of the Valuation Period, plus or minus an adjustment for any taxes
attributable to the operation of the Variable Account. LNL makes the
Page 4
<PAGE>
1.002% deduction for administrative expenses and mortality and expense risk
guarantees.
The method used to determine unit values may increase or decrease the dollar
value of benefits under the Contract. The dollar value of benefits will not be
adversely affected by expenses incurred by LNL.
The Net Investment Factor for each sub-account is equal to 1.000000000 plus the
Net Investment Rate for the period.
1.04 FIXED ALLOCATIONS
The Net Purchase Payment under the Contract may be allocated to the Variable
Account and/or to the fixed portion of the Contract. A minimum payment to the
fixed portion must be at least $1,000. Purchase Payments allocated to the fixed
portion will be invested in the general account of LNL.
1.05 CREDITING OF INTEREST
Interest shall be credited daily on the Net Purchase Payment that is allocated
to the fixed portion of this Contract.
Prior to the time the Annuitant elects to receive Benefit Payments or the death
of the Annuitant, whichever occurs first, LNL guarantees that it will credit
interest on fixed allocations at an effective annual rate not less than 4.5%
during the first five contract years, 4.0% for the next five contract years, and
3.5% after that. A table of guaranteed values for the fixed allocations may be
found in Article 7.
LNL may credit interest at rates in excess of the guaranteed rates at any time.
1.06 AUTOMATIC NONFORFEITURE OPTION
This Contract will continue until the earlier of the Maturity Date, surrender of
the Contract, or death of the Annuitant. Additional Purchase Payments may not be
made at any lime. The total Account Value must be at least $600. If not, LNL may
surrender the Contract.
1.07 TRANSFERS
The Owner may direct a transfer of assets from one sub-account to another
sub-account or to the fixed portion of the Contract. The Owner may also direct a
transfer of assets from the fixed portion of the Contract to one or more
sub-accounts of the Variable Account. Such a transfer request must be in
writing. Amounts transferred to the sub-account(s) will purchase Accumulation
Units as described in the last paragraph of Section 1.02.
The minimum transfer amount is $500 or the entire amount in the
sub-account/fixed portion, whichever is less. If after the transfer the amount
remaining under this Contract in the sub-account/fixed portion from which the
transfer is taken is less than $100 the entire amount held in that
sub-account/fixed portion will be transferred with the transfer amount. The
transfer is subject to any applicable transfer charge. There may not be more
than one transfer in any thirty day period. LNL reserves the right to limit the
number of transfers.
For transfers between sub-accounts and from the sub-account(s) to the fixed
portion of the Contract there are no restrictions on the maximum amount which
may be transferred. For transfers from the fixed portion of the Contract to the
Variable Account, the sum of the percentages of fixed value transferred will be
limited to 25% in any 12 month period.
ARTICLE 2
BENEFITS
2.01 ANNUITY PAYMENTS
An election to receive proceeds under an Annuity Payment Option must be made by
the Maturity Date.
If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity
payments will commence on the Maturity Date under the Annuity Payment Option
providing a Life Annuity with Annuity Payments guaranteed for 10 years.
However, upon written request by the Owner and any Beneficiary who cannot be
changed, the Maturity Date may be deferred. The Maturity Date cannot be deferred
past the Contract Anniversary on which the attained age of the Annuitant is 75.
2.02 CHOICE OF ANNUITY PAYMENT OPTION
BY OWNER
While the Annuitant is alive, the Owner may choose any Annuity Payment Option or
change any choice, if that right has been reserved, but only before the Maturity
Date. The election must be made not later than thirty days prior to the Maturity
Date.
BY BENEFICIARY
At the time proceeds are payable, a Beneficiary may choose or change any Annuity
Payment Option if proceeds are available to the Beneficiary in one sum.
A choice or change must be in writing to LNL.
2.03 ANNUITY PAYMENT OPTIONS
a) Life Annuity, Guaranteed Period - Payments will be made for life with no
certain period or life and a 10 year certain period or life and a 20 year
certain period.
Page 5
<PAGE>
b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime of
the Annuitant, terminating with the last payment due prior to the death of the
Annuitant, provided that, at such death, the Beneficiary will receive an
additional payment of the then dollar value of the number of Annuity Units equal
to the excess, if any, of (a) over (b) where (a) is the total amount applied
under the option divided by the Annuity Unit Value at the Annuity Commencement
Date and (b) is the product of the number of Annuity Units represented by each
payment and the number of payments made.
c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with
no certain period or life and a 10 year certain period or life and a 20 year
certain period. Payments will be made during the joint life of the Annuitant and
a Joint Annuitant of the Annuitant's choice. Payments continue for the life of
the survivor at the death of the Annuitant or Joint Annuitant.
d) Other options may be available as agreed upon by LNL.
At the time Annuity Payments start under the provisions of this Contract, the
Owner may elect to have the total value applied to provide a variable annuity, a
fixed annuity, or a combination fixed and variable annuity. If no election is
made the value of the Annuitant's Variable Account shall be used to provide a
variable annuity, and the value of the Annuitant's fixed allocations shall be
used to provide a fixed annuity.
The amount of Annuity Payment will depend on the age and sex of the Annuitant at
the time the first payment is due. A choice may be made to receive payments once
each month, four times each year, twice each year, or once each year. The value
used to effect benefit payments for an Annuitant will be calculated as of the
fourteenth day prior to the date benefit payments start.
The payment amounts shown in the option tables in Article 5 will be used to
determine the first monthly payment under a variable payment option. The tables
show the dollar amount of the first monthly payment which can be purchased with
each $1,000 of Account Value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a
guaranteed rate of return of 5% per year.
The payment amounts shown in the option tables in Article 6 will be used to
determine the monthly payments under a fixed payment option. The tables show
the dollar amount of the monthly payments which can be purchased with each
$1,000 of account value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with
a guaranteed rate of return of 3 1/2% per year.
2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST
Each Variable Annuity Payment after the first will be determined by multiplying
the Annuity Unit Value of the date each payment is due by a constant number of
Annuity Units. This constant is determined by dividing the amount of the first
payment by the Annuity Unit Value for the date the first payment is due.
The Annuity Unit Value for any Valuation Period for any sub-account is
determined by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the product of (a) 0.999866337 raised to a power equal to
the number of days in the current Valuation Period and (b) the Net Investment
Factor of the sub-account for the Valuation Period containing the fourteenth day
prior to the last day of the current Valuation Period.
The valuation of all assets in the sub-account shall be determined in accordance
with the provisions of applicable laws, rules, and regulations The method of
determination by LNL of the value of an Accumulation Unit and of an Annuity Unit
will be conclusive upon the Annuitant and any Beneficiary.
LNL guarantees that the dollar amount of each installment after the first shall
not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
2.05 PROOF OF AGE
Annuity Payment will be subject to proof of age that LNL will accept.
2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS
If the Annuity Payment Option chosen results in payments of less than $50 per
sub-account, the frequency will be changed so that payments will be at least
$50.
For the purposes of this Section, the fixed portion of the Contract is
considered a sub-account.
2.07 EVIDENCE OF SURVIVAL
LNL has the right to ask for proof that the person on whom the payment is based
is alive when each payment is due.
2.08 CHANGE IN ANNUITY PAYMENT
Changes in Annuity Payments may not be made after Annuity Payments commence.
2.09 ASSIGNMENT
This Contract may not be assigned.
Page 6
<PAGE>
2.10 SURRENDER OPTION
The Owner may surrender this Contract for its surrender value. On surrender,
this Contract terminates. Surrender will be effective on date on which LNL has
receives a written request at its Home Office. The surrender value will be the
total Account Value on the Valuation Date less a Surrender Charge. The Surrender
Charge will be determined as follows:
SCHEDULE A
<TABLE>
<CAPTION>
% Charge of Total
Amount or Lump
Surrender/Withdrawal Sum Deposits
During Contract Year Surrendered/Withdrawn
<S> <C>
1 7
2 6
3 5
4 4
5 3
6 2
7 1
8+ 0
</TABLE>
For any portion of the Net Purchase Payment that is the result of proceeds
transferred from another Lincoln National Life Insurance Company Annuity
Contract, either of which did not contain surrender/withdrawal charges, the
applicable charge will be 2% of the proceeds if surrender occurs in years 1-5
and no charge if surrender occurs after the Contract has been in force for 5
years. Investment gains and/or interest earnings on such portion of the Net
Purchase Payment will be subject to the graded charges shown in Schedule A.
For any portion of the Net Purchase Payment that is the result of proceeds
transferred from another Lincoln National Life Insurance Company Annuity
Contract, either of which contained surrender/withdrawal charges, the applicable
charge will be as shown in Schedule A.
A Contract Year is the period from the contract effective date (month and day)
to the anniversary of the contract effective date in the following year. After
the Contract has been in force for 7 Contract Years, there will be no Surrender
Charge applied.
Any cash payment will be mailed from LNL's Home Office within seven days after
the date of surrender; however, LNL may be permitted to defer such payment under
the Investment Company Act of 1940, as in effect at the time a request for
surrender is received. The Surrender Option is not available after Annuity
Payments have begun.
2.11 WITHDRAWAL OPTION
The Owner may withdraw a part of the surrender value of this Contract, subject
to the charges outlined under Surrender Option. The first partial withdrawal in
any Contract Year will be free of withdrawal charges up to 15% of the surrender
value. Withdrawals will be made first from any amount subject to the lowest
charge until those amounts are gone. Withdrawal will be effective on the
valuation date on which or next following the date LNL receives a written
request at its Home Office. The minimum withdrawal is $100. If any withdrawal
reduces the total Account Value to less than $600, LNL may surrender the
Contract for its value. The remaining value will be subject to the charges as
provided under Surrender Option. The request should specify from which
sub-account the withdrawal will be made. If no sub-account is specified, LNL
will withdraw, on a prorata basis from each sub-account, the amount requested.
Any cash payment will be mailed from LNL's Home Office within seven days
after the dateof withdrawal; however, LNL may be permitted to defer such
payment under the Investment Company Act of 1940, as in effect at the time such
request for withdrawal is received. The Withdrawal Option is not available
after Annuity Payments have begun.
For purposes of this Section, the fixed portion of the Contract is considered a
sub-account.
2.12 DEATH OF ANNUITANT
On receipt of due proof of the death of the Annuitant before a choice is made to
receive proceeds under an Annuity Payment Option, LNL will pay to the
Beneficiary the value of the Contract as of the day on which written notice of
death is received by LNL. Due proof of death shall be either a certified copy of
the certificate of death, a certified copy of the statement of death from the
attending physician, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to LNL.
On receipt of due proof of death of the Annuitant after Annuity Payments have
begun under an Annuity Payment Option, if any Annuity Payments remain under the
Option they will be paid to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the Owner, if
living; otherwise, to the Owner's estate.
ARTICLE 3
BENEFICIARY
3.01 DESIGNATION
The Beneficiary named in the application for this Contract will receive the
proceeds on the death of the Annuitant unless the Beneficiary has been changed
by the Owner.
3.02 CHANGE
The Owner may change any Beneficiary during the life of the Annuitant unless
otherwise provided in the previous designation. A change of Beneficiary will
revoke any previous designation.
Page 7
<PAGE>
A change may be made by filing a written request to LNL at its Home Office. The
change will become effective upon receipt of the written request by LNL at its
Home Office.
3.03 DEATH OF BENEFICIARY
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Annuitant, that Beneficiary's interest will pass to any other
Beneficiaries according to their respective interests.
If the Beneficiary dies while receiving any remaining Annuity Payments due
after the death of the Annuitant, the value of the remainder of such Annuity
Payments will be paid in one sum to the Beneficiary's estate.
ARTICLE 4
GENERAL PROVISIONS
4.01 THE CONTRACT
This Contract, the application, and any riders attached to this Contract make up
the whole Contract. Only the President, a Vice-President, the Secretary or an
Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify,
or waive any provisions of this Contract.
Any changes, modifications, or waivers must be in writing. LNL will not be bound
by any promises or representations made by any representative or other person
except as specified above.
4.02 CONTROL
Consistent with the terms of any Beneficiary designation, the Owner may,
during the life of the Annuitant, do any of the things described below.
- - Prior to the time when Annuity Payments have begun the Owner may surrender
this Contract or withdraw a portion of the surrender value.
- - The Owner may change this Contract with the consent of LNL.
- - The Owner may exercise any right, receive any benefit, or enjoy any privilege
contained in this Contract.
4.03 INCONTESTABILITY
This Contract will not be contested.
4.04 MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, the benefits available under
this Contract will be those which the Purchase Payments would have purchased for
the correct age. Any underpayments already made by LNL shall be made up
immediately and any overpayments already made by LNL shall be charged against
the Annuity Payments falling due after adjustment.
4.05 NONPARTICIPATING
The Contract is nonparticipating and will not share in the surplus earnings of
LNL.
4.06 VOTING RIGHTS
The Owner shall have the right to vote only at the meetings of the Eligible
Fund(s) invested in by the Owner due to their interest in the sub-accounts of
the Variable Account. Ownership of this Contract shall not entitle any person to
vote at any meeting of shareholders of LNL. Votes attributable to the Contract
shall be cast in conformity with applicable law.
4.07 OWNERSHIP OF THE ASSETS
LNL shall have exclusive and absolute ownership and control of its assets,
including all assets in the Variable Account.
4.08 REPORTS
At least once each Contract Year LNL shall mail a report to the Owner. The
report shall be mailed to the last address known to LNL. The report shall
include a statement of the number of units credited to the Variable Account
under this Contract and the dollar value of such units as well as a statement of
the value of the fixed portion of this Contract. The information in the report
shall be as of a date not more than two months prior to the date of mailing the
report. LNL shall also mail to the Owner at least once in each Contract Year a
report of the investments held in the sub-accounts under this Contract.
Page 8
<PAGE>
ARTICLE 5
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.69 $5.61 $5.38 $5.47
61 5.79 5.70 5.44 5.55
62 5.90 5.79 5.50 5.63
63 6.01 5.89 5.57 5.72
64 6.13 6.00 5.63 5.82
65 6.26 6.12 5.69 5.92
66 6.40 6.24 5.75 6.03
67 6.56 6.37 5.82 6.15
68 6.72 6.50 5.88 6.27
69 6.90 6.65 5.93 6.40
70 7.10 6.80 5.99 6.54
71 7.32 6.96 6.04 6.68
72 7.55 7.13 6.08 6.84
73 7.80 7.30 6.12 7.00
74 8.07 7.48 6.16 7.17
75 8.37 7.66 6.19 7.36
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
120 240 Joint 120 240
None Months Months Age None Months Months
<S> <C> <C> <C> <C> <C> <C>
$5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26
5.14 5.14 5.11 61 5.56 5.50 5.33
5.22 5.21 5.17 62 5.65 5.59 5.39
5.29 5.29 5.24 63 5.75 5.68 5.45
5.37 5.37 5.30 64 5.86 5.77 5.52
5.46 5.46 5.38 65 5.97 5.88 5.58
5.56 5.55 5.45 66 6.09 5.99 5.65
5.66 5.65 5.52 67 6.23 6.11 5.71
5.77 5.76 5.60 68 6.37 6.24 5.78
5.90 5.88 5.67 69 6.53 6.37 5.84
6.03 6.00 5.75 70 6.70 6.51 5.90
6.17 6.14 5.82 71 6.89 6.66 5.96
6.32 6.28 5.89 72 7.09 6.82 6.01
6.49 6.43 5.95 73 7.31 6.99 6.06
6.66 6.60 6.01 74 7.54 7.16 6.11
6.86 6.77 6.06 75 7.80 7.34 6.15
</TABLE>
Page 9
<PAGE>
ARTICLE 6
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
GUARANTEED DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.31 $5.17 $4.77 $4.83
61 5.43 5.27 4.83 4.92
62 5.56 5.38 4.89 5.01
63 5.70 5.50 4.95 5.10
64 5.85 5.62 5.01 5.20
65 6.00 5.74 5.07 5.31
66 6.17 5.88 5.13 5.42
67 6.35 6.01 5.18 5.53
68 6.55 6.16 5.24 5.65
69 6.75 6.30 5.29 5.79
70 6.98 6.46 5.34 5.92
71 7.21 6.63 5.38 6.06
72 7.47 6.79 5.42 6.22
73 7.75 6.96 5.46 6.37
74 8.04 7.13 5.49 6.54
75 8.36 7.31 5.52 6.73
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
120 240 Joint 120 240
None Months Months Age None Months Months
<S> <C> <C> <C> <C> <C> <C>
$4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64
4.58 4.57 4.48 61 5.11 5.01 4.71
4.67 4.65 4.55 62 5.23 5.11 4.77
4.76 4.75 4.62 63 5.35 5.22 4.84
4.86 4.85 4.69 64 5.48 5.33 4.90
4.97 4.95 4.77 65 5.62 5.45 4.97
5.09 5.06 4.84 66 5.76 5.58 5.03
5.21 5.18 4.92 67 5.92 5.71 5.09
5.34 5.31 4.99 68 6.09 5.85 5.15
5.49 5.44 5.07 69 6.27 5.99 5.21
5.64 5.58 5.14 70 6.46 6.14 5.27
5.80 5.73 5.21 71 6.67 6.30 5.32
5.98 5.89 5.27 72 6.90 6.46 5.37
6.17 6.06 5.33 73 7.14 6.63 5.41
6.37 6.23 5.38 74 7.40 6.81 5.45
6.59 6.41 5.43 75 7.67 6.99 5.49
</TABLE>
Page 10
<PAGE>
ARTICLE 7
GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES
FOR FIXED ALLOCATIONS*
$10,000 Net Contribution
<TABLE>
<CAPTION>
End Guaranteed Guaranteed
of Accumulated Surrender
Year Value Value
<S> <C> <C>
1 $10,450.00 $ 9,718.50
2 10,920.25 10,265.04
3 11,411.66 10,841.08
4 11,925.18 11,448.17
5 12,461.81 12,087.96
6 12,960.28 12,701.07
7 13,478.69 13,343.90
8 14,017.84 14,017.84
9 14,578.55 14,578.55
10 15,161.69 15,161.69
11 15,692.35 15,692.35
12 16,241.58 16,241.58
13 16,810.04 16,810.04
14 17,398.39 17,398.39
15 18,007.33 18,007.33
16 18,637.59 18,637.59
17 19,289.91 19,289.91
18 19,965.06 19,965.06
19 20,663.84 20,663.84
20 21,387.07 21,387.07
21 22,135.62 22,135.62
22 22,910.37 22,910.37
23 23,712.23 23,712.23
24 24,542.16 24,542.16
25 25,401.14 25,401.14
26 26,290.18 26,290.18
27 27,210.34 27,210.34
28 28,162.70 28,162.70
29 29,148.39 29,148.39
30 30,168.58 30,168.58
31 31,224.48 31,224.48
32 32,317.34 32,317.34
33 33,448.45 33,448.45
34 34,619.15 34,619.15
35 35,830.82 35,830.82
36 37,084.90 37,084.90
37 38,382.87 38,382.87
38 39,726.27 39,726.27
39 41,116.69 41,116.69
40 42,555.77 42,555.77
41 44,045.22 44,045.22
42 45,586.80 45,586.80
43 47,182.34 47,182.34
44 48,833.72 48,833.72
45 50,542.90 50,542.90
</TABLE>
* These values do not provide for premium tax, if any.
Page 11
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
The second and third paragraphs under the section "SURRENDER OPTION", found in
Article 2 of this Contract, shall be deleted.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ PATRICK WILTSHIRE
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
Any reference to Fund or Funds shall be followed by "and Series".
VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as
follows:
"The Eligible Funds and Series are:
1. Lincoln National Growth & Income Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Global Asset Allocation Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National International Fund, Inc.
9. Lincoln National Aggressive Growth Fund, Inc.
10. Lincoln National Capital Appreciation Fund, Inc.
11. Lincoln National Equity-income Fund, Inc.
12. Delaware Group Premium Fund, Inc. Equity/Income Series.
13. Delaware Group Premium Fund, Inc. Emerging Growth Series.
14. Delaware Group Premium Fund, Inc. Global Bond Series.
15. Other Funds and Series made available by LNL."
Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4
and 5 of this Contract shall be amended in its entirety as follows:
"the investment advisory fee accrued by the Fund or Series for each day of the
Valuation Period from the Advisory Fee Table below; divided by"
Advisory Fee Table
------------------
<TABLE>
<CAPTION>
Fund or Series First Next In excess of
$200 million... $200 million... $400 million...
<S> <C> <C> <C>
... Of average daily net asset value
- --------------------------------------------------------------------------------
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1
Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1
Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1
All other Funds .48 of 1 .40 of 1 .30 of 1
- --------------------------------------------------------------------------------
</TABLE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ PATRICK WILTSHIRE
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
CONTRACT MODIFICATION
Section 1.01 of the attached contract shall be modified as follows:
"1.01 WHERE PAYABLE
The Purchase Payment must be made to LNL at its Home Office. The Gross Purchase
Payment is shown on Page 3. The Net Purchase Payment is equal to the Gross
Purchase Payment. The Gross Purchase Payment for the contract must be at least
$5,000."
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ PATRICK WILTSHIRE
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
BENEFICIARY RIDER
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
The following paragraphs shall be inserted after the second paragraph under the
Section "DEATH OF ANNUITANT" of this Contract:
"If the Beneficiary designated at the time of the Annuitant's death is a
surviving spouse, the Contract may be continued in the name of the spouse
as the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies before Annuity
Payments have begun under the Contract, the amounts must be distributed to
the designated Beneficiary within five years of the death of the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies after Annuity
Payments have begun under the Contract, the remaining portion of the
Annuitant's interest must either be distributed at least as rapidly as
under the method of distribution being used as of the date of the
Annuitant's death or distributed over the life of the Beneficiary or a
period not extending beyond the life expectancy of the Beneficiary. The
distribution of these amounts must begin not later than one year after the
Annuitant's death."
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ JON C. GEIST
JON C. GEIST, SECOND VICE PRESIDENT
<PAGE>
ANNUITY
CONTRACT
SINGLE PAYMENT DEFERRED VARIABLE ANNUITY
OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
If you have any questions concerning
this Contract, or if anyone suggests that
you change or replace this Contract, please
contact your Lincoln National Life
representative or the Home Office of LNL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 2340
FORT WAYNE, INDIANA 46801-2340
800-348-1212
<PAGE>
ABRAHAM LINCOLN
XX-0123456
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
ANNUITY CONTRACT
DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits
and other rights described in this Contract in accordance with the terms of this
Contract.
NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT
IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON BY DELIVERING OR MAILING
IT TO THE HOME OFFICE OF LNL. UPON CANCELLATION, THIS CONTRACT WILL BE VOID FROM
THE BEGINNING AND LNL WILL RETURN THE VALUE OF ANY PAYMENTS MADE TO THE VARIABLE
ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE
CONTRACT.
ALL PAYMENTS AND VALUES PRO VIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT SEE PAGES 4 AND 6.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ Patrick Wiltshire
JON A. BOSCIA, PRESIDENT PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 PURCHASE PAYMENTS 4
2 BENEFITS 5
3 BENEFICIARY 8
4 GENERAL PROVISIONS 8
5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 10
6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 11
7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 12
<PAGE>
CONTRACT DATA
CONTRACT NUMBER XX-0123456
ANNUITANT ABRAHAM LINCOLN
AGE AT ISSUE 35
CONTRACT DATE APRIL 1,1989
PURCHASE PAYMENT $1,500.00
PURCHASE PAYMENT FREQUENCY MONTHLY
MATURITY DATE APRIL 1, 2039
OWNER
ABRAHAM LINCOLN
MARY LINCOLN
TODD LINCOLN
BENEFICIARY DESIGNATION
AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION
Page 3
<PAGE>
ARTICLE I
PURCHASE PAYMENTS
1.01 WHERE PAYABLE
All Purchase Payments must be made to LNL at its Home Office.
1.02 AMOUNT AND FREQUENCY
Purchase Payments are made in an amount and at the frequency shown on page 3.
Purchase Payments may be paid once each year, twice each year, four times each
year, once each month, twice each month, or once each two weeks. The owner may
change the frequency or amount of Purchase Payments subject to LNL's rules in
effect at the time of the change. The change is made by filing a written request
to LNL at its Home Office.
The amount of Purchase Payments made in the first year may be increased in years
after the first up to twice that amount. The amount may be decreased but not
below LNL's Purchase Payment minimum in effect at the time of the decrease. An
increase in Purchase Payments in excess of those described in the first sentence
will be accepted only with the consent of LNL.
The total annual Purchase Payment for the Contract must be at least $600. The
minimum payment to the Contract at any one time must be at least $25.
1.03 VARIABLE ACCOUNT
Purchase Payments under the Contract may be allocated to the Lincoln National
Life Variable Annuity Account C (Variable Account) and/or to the fixed portion
of the Contract. The Variable Account is for the exclusive benefit of persons
entitled to receive benefits under variable annuity contracts. The Variable
Account will not be charged with the liabilities from any other part of LNL's
business. There are currently seven sub-accounts in the Variable Account. The
Owner may direct Purchase Payments under the Contract to any of the available
sub- accounts subject to the following limitations. A minimum payment to any one
sub-account must be at least $20. If the Owner elects to direct Purchase
Payments to a new sub-account not previously selected, the election must be in
writing to LNL. All the amounts allocated to each sub-account will be invested
at net asset value in the shares of one of the regulated investment companies
(the Eligible Funds). The Eligible Funds are:
1. Lincoln National Growth Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Putnam Master Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Other Funds made available by LNL.
LNL reserves the right to eliminate the shares of any of the Eligible Funds and
substitute the securities of a different investment company if the shares of an
Eligible Fund are no longer available for investment, or if in the judgment of
LNL further investment in any Eligible Fund should become inappropriate in view
of the purposes of the Contract. LNL may add an Eligible Fund in order to invest
the assets of a new sub-account in the Variable Account. LNL shall give the
Owner written notice of the elimination and substitution of Eligible Funds
within five days after such substitution occurs.
LNL shall use each Purchase Payment allocated to the Variable Account by the
Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The
number of Accumulation Units bought shall be determined by dividing the amount
directed to the sub-account by the dollar value of an Accumulation Unit in such
sub-account as of the day the Purchase Payment is received at the Home Office of
LNL. The number of Accumulation Units held for the account of an Annuitant shall
not be changed by any change in the dollar value of Accumulation Units in any
sub-account.
1.04 NET INVESTMENT RATE AND NET INVESTMENT FACTOR
The Variable Account value of an Owner's Contract at any time prior to the
Annuity Commencement Date equals the sum of the values of the Accumulation Units
credited in the Variable Account under the Contract.
A "Valuation Date" is each day that the New York Stock Exchange is open for
business. A "Valuation Period" is the period commencing at the close of business
on the New York Stock Exchange on each Valuation Date and ending at the close of
business on the next succeeding Valuation Date.
Accumulation Units for each sub-account are valued separately. Initially, the
value of an Accumulation Unit was set at $1.00. Thereafter, the value of an
Accumulation Unit in any sub-account on any Valuation Date equals the value of
an Accumulation Unit in that sub-account for the current Valuation Period. In
order to arrive at this factor, a "Gross Investment Rate" is first determined
for each Eligible Fund for the Valuation Period. Such rate for the Valuation
Period is equal to:
a) the investment income of the Fund: plus
b) capital gains (realized and unrealized); minus
c) capital losses (realized and unrealized); minus
d) certain operational expenses of the Fund; minus
e) the reserve for federal taxes on realized capital gains (if applicable);
minus
Page 4
<PAGE>
f) the investment advisory fee accrued by the Funds for each day of the
Valuation Period--0.480% of the first $200,000,000 of net assets on an
annual basis,(0.750% for the Lincoln National Putnam Master Fund, Inc.)
0.400% of the next $200,000,000 of net assets, (0.700% for the Lincoln
National Putnam Master Fund, Inc.) and 0.300% of net assets above
$400,000,000, (0.680% for the Lincoln National Putnam Master Fund, Inc.);
divided by
g) the net asset value of the Fund as of the beginning of the Valuation
Period.
The Gross Investment Rate may be positive or negative.
The Net Investment Rate for each sub-account is equal to the Gross Investment
Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for
each day of the Valuation Period, plus or minus an adjustment for any taxes
attributable to the operation of the Variable Account. LNL makes the 1.002%
deduction for administrative expenses and mortality and expense risk guarantees.
The method used to determine unit values may increase or decrease the dollar
value of benefits under the Contract. The dollar value of benefits will not be
adversely affected by expenses incurred by LNL.
The Net Investment Factor for each sub-account is equal to 1.000000000 plus the
Net Investment Rate for the period.
1.05 FIXED ALLOCATIONS
Purchase Payments under the Contract may be allocated to the Variable Account
and/or to the fixed portion of the Contract. A minimum payment to the fixed
portion must be at least $20. Purchase Payments allocated to the fixed portion
will be invested in the general account of LNL.
1.06 CREDITING OF INTEREST
Interest shall be credited daily on all Purchase Payments that are allocated to
the fixed portion of this Contract.
Prior to the time the Annuitant elects to receive Benefit Payments or the death
of the Annuitant, whichever occurs first, LNL guarantees that it will credit
interest on fixed allocations at an effective annual rate not less than 4.5%
during the first five contract years, 4.0% during the next five contract years,
and 3.5% after that. A table of guaranteed values for the fixed allocations may
be found in Article 7.
LNL may credit interest at rates in excess of the guaranteed rates at any time.
1.07 AUTOMATIC NONFORFEITURE OPTION
In the event that Purchase Payments are stopped, this Contract will continue as
a paid-up Contract until the earlier of the Maturity Date, surrender of the
Contract, or death of the Annuitant. Purchase Payments may be resumed at any
time prior to maturity, surrender, or death of the Annuitant. If the Contract
continues as a paid-up Contract, the total account value must be at least
$600.00. If not, and if Purchase Payments have not been paid for at least two
years, LNL may surrender the Contract.
1.08 TRANSFERS
The Owner may direct a transfer of assets from one sub-account to another
sub-account or to the fixed portion of the Contract. The Owner may also direct a
transfer of assets from the fixed portion of the Contract to one or more
sub-accounts of the Variable Account. Such a transfer request must be in
writing. Amounts transferred to the sub-account(s) will purchase Accumulation
Units as described in the last paragraph of Section 1.03.
The minimum transfer amount is $500 or the entire amount in the
sub-account/fixed portion, whichever is less. If after the transfer the
amount remaining under this Contract in the sub-account/fixed portion from
which the transfer is taken is less than $100, the entire amount held in that
sub-account/fixed portion will be transferred with the transfer amount. The
transfer is subject to any applicable transfer charge. There may not be more
than one transfer in any thirty day period. LNL reserves the right to limit
the number of transfers.
For transfers between sub-accounts and from the sub-account(s) to the fixed
portion of the Contract, there are no restrictions on the maximum amount which
may be transferred. For transfers from the fixed portion of the Contract to the
Variable Account, the sum of the percentages of fixed value transferred will be
limited to 25% in any 12 month period.
ARTICLE 2
BENEFITS
2.01 ANNUITY PAYMENTS
An election to receive proceeds under an Annuity Payment Option must be made by
the Maturity Date.
If an Annuity Payment Option is not chosen prior to the Maturity Date, payments
will commence on the Maturity Date under the Annuity Payment Option providing a
Life Annuity with Annuity Payments guaranteed for 10 years.
However, upon written request by the Owner and any Beneficiary who cannot be
changed, the Maturity Date may be deferred. The Maturity Date cannot be deferred
past the Contract Anniversary on which the attained age of the Annuitant is 75.
Purchase Payments may be made until the new Maturity Date.
Page 5
<PAGE>
2.02 CHOICE OF ANNUITY PAYMENT OPTION
BY OWNER
While the Annuitant is alive, the Owner may choose any Annuity Payment Option or
change any choice, it that right has been reserved, but only before the Maturity
Date. The election must be made not later than thirty days prior to the Maturity
Date.
BY BENEFICIARY
At the time proceeds are payable, a Beneficiary may choose or change any Annuity
Payment Option if proceeds are available to the Beneficiary in one sum.
A choice or change must be in writing to LNL.
2.03 ANNUITY PAYMENT OPTIONS
a) Life Annuity, Guaranteed Period - Payments will be made for life with no
certain period or life and a 10 year certain period or life and a 20 year
certain period.
b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime
of the Annuitant, terminating with the last payment due prior to the death
of the Annuitant, provided that, at such death, the Beneficiary will
receive an additional payment of the then dollar value of the number of
Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the
total amount applied under the option divided by the Annuity Unit Value at
the Annuity Commencement Date and (b) is the product of the number of
Annuity Units represented by each payment and the number of payments made.
c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with
no certain period or life and a 10 year certain period or life and a 20
year certain period. Payments will be made during the joint life of the
Annuitant and a Joint Annuitant of the Annuitant's choice. Payments
continue for the life of the survivor at the death of the Annuitant or
Joint Annuitant.
d) Other options may be available as agreed upon by LNL.
At the time Annuity Payments start under the provisions of this Contract, the
Owner may elect to have the total value applied to provide a variable annuity, a
fixed annuity, or a combination fixed and variable annuity. If no election is
made the value of the Annuitant's Variable Account shall be used to provide a
variable annuity, and the value of the Annuitant's fixed allocations shall be
used to provide a fixed annuity.
The amount of Annuity Payment will depend on the age and sex of the Annuitant
at the time the first payment is due. A choice may be made to receive
payments once each month, four times each year, twice each year, or once each
year. The value used to effect benefit payments for an Annuitant will be
calculated as of the fourteenth day prior to the date benefit payments start.
The payment amounts shown in the option tables in Article 5 will be used to
determine the first monthly payment under a variable payment option. The tables
show the dollar amount of the first monthly payment which can be purchased with
each $1,000 of account value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with an
assumed rate of return of 5% per year.
The payment amounts shown in the option tables in Article 6 will be used to
determine the monthly payments under a fixed payment option. The tables show the
dollar amount of the monthly payments which can be purchased with each $1,000 of
account value, after deduction of any applicable premium taxes. Amounts shown
use the 1971 Individual Annuity Mortality Table, modified, with an assumed rate
of return of 3 1/2% per year.
2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST
Each Variable Annuity Payment after the first will be determined by multiplying
the Annuity Unit Value for the date each payment is due by a constant number of
Annuity Units. This constant is determined by dividing the amount of the first
payment by the Annuity Unit Value for the date the first payment is due.
The Annuity Unit Value for any Valuation Period for any sub-account is
determined by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the product of (a) 0.999866337 raised to a power equal to
the number of days in the current Valuation Period and (b) the Net Investment
Factor of the sub-account for the Valuation Period containing the fourteenth day
prior to the last day of the current Valuation Period.
The valuation of all assets in the sub-account shall be determined in accordance
with the provisions of applicable laws, rules, and regulations. The method of
determination by LNL of the value of an Accumulation Unit and of an Annuity Unit
will be conclusive upon the Annuitant and any Beneficiary.
LNL guarantees that the dollar amount of each installment after the first shall
not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
2.05 PROOF OF AGE
Payment will be subject to proof of age that LNL will accept.
Page 6
<PAGE>
2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS
If the Annuity Payment Option chosen results in payments of less than $50 per
sub-account the frequency will be changed so that payments will be at least $50.
For the purposes of this Section, the fixed portion of the Contract is
considered a sub-account.
2.07 EVIDENCE OF SURVIVAL
LNL has the right to ask for proof that the person on whom the payment is based
is alive when each payment is due.
2.08 CHANGE IN ANNUITY PAYMENT
Changes in Annuity Payments may not be made after Annuity Payments commence.
2.09 ASSIGNMENT
This Contract may not be assigned.
2.10 ACCOUNT CHARGE
On the last business day of each Contract Year, LNL will deduct $25.00 from
the account value. At surrender the account charge will be deducted from the
account value. The account value is the value of all the Accumulation Units
in the name of the Owner plus the value of the fixed portion of the Contract.
If the Annuitant has elected more than one sub- account, the deduction of the
Account Charge shall be taken from each sub-account on a pro-rata basis. Each
sub-account will be adjusted by an amount equal to a fraction of the charge.
The fraction is equal to "a" divided by "b", where "a" is the account value
of the sub-account and "b" is the value of all sub-accounts under the
Contract. The fraction for each sub-account is applied to the deduction to
determine each sub-account's deduction.
For the purposes of this Section, the fixed portion of the Contract is
considered a sub-account.
2.11 SURRENDER OPTION
The Owner may surrender this Contract for its surrender value. On surrender,
this Contract terminates. Surrender will be effective on the Valuation Date on
which or next following the date LNL has received a written request at its Home
Office. The surrender value will be the total account value on the Valuation
Date, less a Surrender Charge and the Account Charge. The Surrender Charge will
be determined as follows.
SCHEDULE A
FOR PERIODIC DEPOSITS AND NON-RECURRING
LUMP SUM DEPOSITS OF
LESS THAN $5,000
<TABLE>
<CAPTION>
% CHARGE OF TOTAL
SURRENDER/WITHDRAWAL ACCOUNT VALUE
DURING CONTRACT YEAR SURRENDERED/WITHDRAWN
<S> <C>
1-5 8
6-10 4
11+ 0
</TABLE>
SCHEDULE B
FOR NON-RECURRING LUMP SUM DEPOSITS OF
$5000 OR MORE
<TABLE>
<CAPTION>
% CHARGE OF TOTAL
SURRENDER/WITHDRAWAL ACCOUNT VALUE
DURING CONTRACT YEAR SURRENDERED/WITHDRAWN
<S> <C>
1 7
2 6
3 5
4 4
5 3
6 2
7 1
8+ 0
</TABLE>
Where the non-recurring lump sum deposit of $5,000 or more is the result of
proceeds transferred from another LNL Contract or a Lincoln National Life
Insurance Company Annuity Contract, either of which did not contain
surrender/withdrawal charges, the applicable charge will be 2% of the proceeds
if surrender occurs in years 1-5 and no charge if surrender occurs after the
Contract has been in force for 5 years.
Where the non-recurring lump sum deposit of $5,000 or more is the result of
proceeds transferred from another Lincoln National Life Insurance Company
Annuity Contract, either of which contained surrender/withdrawal charges,
the applicable charge will be as shown in Schedules A and B.
Investment gains and/or interest earnings on nonrecurring lump sum deposits will
be subject to an 8% charge for contract years 1-5, 4% for years 5-10, and no
charge for years 11 on.
A Contract Year is the period from the contract effective date (month and day)
to the anniversary of the contract effective date in the following year. After
the Contract has been in force for 10 Contract Years, there will be no Surrender
Charge applied.
Any cash payment will be mailed from LNL's Home Office within seven days after
the date of surrender; however, LNL may be permitted to defer such payment under
the Investment Company Act of 1940, as in effect at the time a request for
surrender is re-
Page 7
<PAGE>
ceived. The Surrender Option is not available after Annuity
Payments have begun.
2.12 WITHDRAWAL OPTION
The Owner may withdraw a part of the surrender value of this Contract,
subject to the charges outlined under Surrender Option. The first partial
withdrawal in any Contract Year will be free of withdrawal charges up to 15%
of the surrender value. Withdrawals will be made first from any amounts
subject to the lowest charge until those amounts are gone. Withdrawal will be
effective on the Valuation Date on which or next following the date LNL
receives a written request at its Home Office. The minimum withdrawal is
$100.00. If any withdrawal reduces the total account value to less than $300,
LNL may surrender the Contract for its value. The remaining value will be
subject to the charges as provided under Surrender Option. The request should
specify from which sub-account the withdrawal will be made. If no sub-
account is specified, LNL will withdraw, on a pro-rata basis from each
sub-account, the amount requested. Any cash payment will be mailed from LNL's
Home Office within seven days after the dale of withdrawal; however, LNL may
be permitted to defer such payment under the Investment Company Act of 1940,
as in effect at the time such request for withdrawal is received. The
Withdrawal Option is not available after Annuity Payments have begun.
For purposes of this Section, the fixed portion of the Contract is considered a
sub-account.
2.13 DEATH OF ANNUITANT
On receipt of due proof of the death of the Annuitant before a choice is made to
receive proceeds under an Annuity Payment Option, LNL will pay to the
Beneficiary the value of the Contract as of the day on which written notice of
death is received by LNL. Due proof of death shall be either the certificate of
death, a copy of the certified statement of death from the attending physician,
a copy of a certified decree of a court of competent jurisdiction as to the
finding of death, or any other proof satisfactory to LNL.
On receipt of due proof of death of the Annuitant after Annuity Payments have
begun under an Annuity Payment Option, if any Annuity Payments remain under the
Option they will be paid to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuilant, the proceeds will be paid in one sum to the Owner, if
living; otherwise, to the Owner's estate.
ARTICLE 3
BENEFICIARY
3.01 DESIGNATION
The Beneficiary named in the application for this Contract will receive the
proceeds on the death of the Annuitant unless the Beneficiary has been changed
by the Owner.
3.02 CHANGE
The Owner may change any Beneficiary during the life of the Annuitant unless
otherwise provided in the previous designation. A change of Beneficiary will
revoke any previous designation.
A change may be made by filing a written request to LNL at its Home Office. The
change will become effective upon receipt of the written request by LNL at its
Home Office.
3.03 DEATH OF BENEFICIARY
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Annuitant, that Beneficiary's interest will pass to any other
Beneficiaries according to their respective interests.
If the Beneficiary dies while receiving any remaining Annuity Payments due
after the death of the Annuitant, the value of the remainder of such Annuity
Payments will be paid in one sum to the Beneficiary's estate.
ARTICLE 4
GENERAL PROVISIONS
4.01 THE CONTRACT
This Contract, the application, and any riders attached to this Contract make up
the whole Contract. Only the President, a Vice-President, the Secretary or an
Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify,
or waive any provisions of this Contract.
Any changes, modifications, or waivers must be in writing. LNL will not be bound
by any promises or representations made by any representative or other person
except as specified above.
4.02 CONTROL
Consistent with the terms of any Beneficiary designation, the Owner may, during
the life of the Annuitant, do any of the things described below.
1. Prior to the time when Annuity Payments have begun the Owner may surrender
this Contract or withdraw a portion of the surrender value.
Page 8
<PAGE>
2. The Owner may change this Contract with the consent of LNL.
3. The Owner may exercise any right, receive any benefit, or enjoy any
privilege contained in this Contract.
4.03 INCONTESTABILITY
This Contract will not be contested.
4.04 MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, the benefits available under
this Contract will be those which the Purchase Payments would have purchased for
the correct age. Any underpayments already made by LNL shall be made up
immediately and any overpayments already made by LNL shall be charged against
the Annuity Payments falling due after adjustment.
4.05 NONPARTICIPATING
The Contract is nonparticipating and will not share in the surplus earnings of
LNL.
4.06 VOTING RIGHTS
The Owner shall have the right to vote only at the meetings of the Eligible
Fund(s) invested in by the Owner due to their interest in the sub-accounts of
the Variable Account. Ownership of this Contract shall not entitle any person
to vote at any meeting of shareholders of LNL. Votes attributable to the
Contract shall be cast in conformity with applicable law.
4.07 OWNERSHIP OF THE ASSETS
LNL shall have exclusive and absolute ownership and control of its assets,
including all assets in the Variable Account.
4.08 REPORTS
At least once each Contract Year LNL shall mail a report to the Owner. The
report shall be mailed to the last address known to LNL. The report shall
include a statement of the number of units credited to the Variable Account
under this Contract and the dollar value of such units as well as a statement of
the value of the fixed portion of this Contract. The information in the report
shall be as of a date not more than two months prior to the date of mailing the
report. LNL shall also mail to the Owner at least once in each Contract Year a
report of the investments held in the sub-accounts under this Contract.
Page 9
<PAGE>
ARTICLE 5
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.69 $5.61 $5.38 $5.47
61 5.79 5.70 5.44 5.55
62 5.90 5.79 5.50 5.63
63 6.01 5.89 5.57 5.72
64 6.13 6.00 5.63 5.82
65 6.26 6.12 5.69 5.92
66 6.40 6.24 5.75 6.03
67 6.56 6.37 5.82 6.15
68 6.72 6.50 5.88 6.27
69 6.90 6.65 5.93 6.40
70 7.10 6.80 5.99 6.54
71 7.32 6.96 6.04 6.68
72 7.55 7.13 6.08 6.84
73 7.80 7.30 6.12 7.00
74 8.07 7.48 6.16 7.17
75 8.37 7.66 6.19 7.36
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
Joint
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26
5.14 5.14 5.11 61 5.56 5.50 5.33
5.22 5.21 5.17 62 5.65 5.59 5.39
5.29 5.29 5.24 63 5.75 5.68 5.45
5.37 5.37 5.30 64 5.86 5.77 5.52
5.46 5.46 5.38 65 5.97 5.88 5.58
5.56 5.55 5.45 66 6.09 5.99 5.65
5.66 5.65 5.52 67 6.23 6.11 5.71
5.77 5.76 5.60 68 6.37 6.24 5.78
5.90 5.88 5.67 69 6.53 6.37 5.84
6.03 6.00 5.75 70 6.70 6.51 5.90
6,17 6.14 5.82 71 6.89 6.66 5.96
6.32 6.28 5.89 72 7.09 6.82 6.01
6.49 6.43 5.95 73 7.31 6.99 6.06
6.66 6.60 6.01 74 7.54 7.16 6.11
6.86 6.77 6.06 75 7.80 7.34 6.15
</TABLE>
Page 10
<PAGE>
ARTICLE 6
ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION
GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.31 $5.17 $4.77 $4.83
61 5.43 5.27 4.83 4.92
62 5.56 5.38 4.89 5.01
63 5.70 5.50 4.95 5.10
64 5.85 5.62 5.01 5.20
65 6.00 5.74 5.07 5.31
66 6.17 5.88 5.13 5.42
67 6.35 6.01 5.18 5.53
68 6.55 6.16 5.24 5.65
69 6.75 6.30 5.29 5.79
70 6.98 6.46 5.34 5.92
71 7.21 6.63 5.38 6.06
72 7.47 6.79 5.42 6.22
73 7.75 6.96 5.46 6.37
74 8.04 7.13 5.49 6.54
75 8.36 7.31 5.52 6.73
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
Joint
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64
4.58 4.57 4.48 61 5.11 5.01 4.71
4.67 4.65 4.55 62 5.23 5.11 4.77
4.76 4.75 4.62 63 5.35 5.22 4.84
4.86 4.85 4.69 64 5.48 5.33 4.90
4.97 4.95 4.77 65 5.62 5.45 4.97
5.09 5.06 4.84 66 5.76 5.58 5.03
5.21 5.18 4.92 67 5.92 5.71 5.09
5.34 5.31 4.99 68 6.09 5.85 5.15
5.49 5.44 5.07 69 6.27 5.99 5.21
5.64 5.58 5.14 70 6.46 6.14 5.27
5.80 5.73 5.21 71 6.67 6.30 5.32
5.98 5.89 5.27 72 6.90 6.46 5.37
6.17 6.06 5.33 73 7.14 6.63 5.41
6.37 6.23 5.38 74 7.40 6.81 5.45
6.59 6.41 5.43 75 7.67 6.99 5.49
</TABLE>
Page 11
<PAGE>
ARTICLE 7
GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES
FOR FIXED ALLOCATIONS*
<TABLE>
<CAPTION>
$1,000 Annual Contribution $100 Monthly Contribution
End Guaranteed Guaranteed End Guaranteed Guaranteed
of Accumulated Surrender of Accumulated Surrender
Year Value Value Year Value Value
<S> <C> <C> <C> <C> <C>
1 $1,020.00 $938.40 1 $1,204.05 $1,107.73
2 2,085.90 1,919.03 2 2,462.29 2,265.31
3 3,199.77 2,943.78 3 3,777.15 3,474.97
4 4,363.75 4,014.65 4 5,151.17 4,739.08
5 5,580.12 5,133.71 5 6,587.03 6,060.07
6 6,818.33 6,545.60 6 8,051.35 7,729.30
7 8,106.06 7,781.82 7 9,574.25 9,191.28
8 9,445.30 9,067.49 8 11,158.06 10,711.74
9 10,838.12 10,404.59 9 12,805.23 12,293.02
10 12,286.64 11,795.17 10 14,518.28 13,937.55
11 13,726.67 13,726.67 11 16,224.05 16,224.05
12 15,217.11 15,217.11 12 17,989.53 17,989.53
13 16,759.71 16,759.71 13 19,816.79 19,816.79
14 18,356.30 18,356.30 14 21,708.01 21,708.01
15 20,008.77 20,008.77 15 23,665.42 23,665.42
16 21,719.07 21,719.07 16 25,691.34 25,691.34
17 23,489.24 23,489.24 17 27,788.17 27,788.17
18 25,321.36 25,321.36 18 29,958.38 29,958.38
19 27,217.61 27,217.61 19 32,204.56 32,204.56
20 29,180.23 29,180.23 20 34,529.35 34,529.35
21 31,211.54 31,211.54 21 36,935.50 36,935.50
22 33,313.94 33,313.94 22 39,425.88 39,425.88
23 35,489.93 35,489.93 23 42,003.41 42,003.41
24 37,742.08 37,742.08 24 44,671.16 44,671.16
25 40,073.05 40,073.05 25 47,432.28 47,432.28
26 42,485.60 42,485.60 26 50,290.05 50,290.05
27 44,982.60 44,982.60 27 53,247.83 53,247.83
28 47,566.99 47,566.99 28 56,309.13 56,309.13
29 50,241.84 50,241.84 29 59,477.58 59,477.58
30 53,010.30 53,010.30 30 62,756.93 62,756.93
31 55,875.66 55,875.66 31 66,151.05 66,151.05
32 58,841.31 58,841.31 32 69,663.97 69,663.97
33 61,910.76 61,910.76 33 73,299.84 73,299.84
34 65,087.63 65,087.63 34 77,062.96 77,062.96
35 68,375.70 68,375.70 35 80,957.80 80,957.80
36 71,778.85 71,778.85 36 84,988.95 84,988.95
37 75,301.11 75,301.11 37 89,161.19 89,161.19
38 78,946.65 78,946.65 38 93,479.46 93,479.46
39 82,719.78 82,719.78 39 97,948.83 97,948.83
40 86,624.97 86,624.97 40 102,574.72 102,574.72
41 90,666.85 90,666.85 41 107,362.46 107,362.46
42 94,850.19 94,850.19 42 112,317.78 112,317.78
43 99,179.94 99,179.94 43 117,446.53 117,446.53
44 103,661.24 103,651.24 44 122,754.79 122,754.79
45 108,299.38 108,299.38 45 128,248.84 128,248.84
</TABLE>
Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or
less than shown in the table because of the variable of the day of receipt of
the Purchase Payment at the Home Office from period to period and the crediting
of interest to the Annuitant's account on a daily basis. Values shown are based
upon contributions equally spaced with interest occurring at the beginning of
the year.
These values do not provide for premium tax, if any.
Page 12
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
The second and third paragraphs under the section "SURRENDER OPTION", found in
Article 2 of this Contract, shall be deleted.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ Patrick Wiltshire
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
Any reference to Fund or Funds shall be followed by "and Series".
VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as
follows:
"The Eligible Funds and Series are:
1. Lincoln National Growth & Income Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Global Asset Allocation Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National International Fund, Inc.
9. Lincoln National Aggressive Growth Fund, Inc.
10. Lincoln National Capital Appreciation Fund, Inc.
11. Lincoln National Equity-Income Fund, Inc.
12. Delaware Group Premium Fund, Inc. Equity/Income Series.
13. Delaware Group Premium Fund, Inc. Emerging Growth Series.
14. Delaware Group Premium Fund, Inc. Global Bond Series.
15. Other Funds and Series made available by LNL."
Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4
and 5 of this Contract shall be amended in its entirety as follows:
"the investment advisory fee accrued by the Fund or Series for each day of the
Valuation Period from the Advisory Fee Table below; divided by"
Advisory Fee Table
<TABLE>
<CAPTION>
In excess
Fund or Series First Next of $400
$200 million... $200 million... million...
Of average daily net asset value
<S> <C> <C> <C>
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1
Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1
Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1
All other Funds .48 of 1 .40 of 1 .30 of I
</TABLE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ Patrick Wiltshire
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
VARIABLE ANNUITY RIDER
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT").
The following two paragraphs shall be inserted on Page 6 immediately after
option (d). under Section 2.03,
"ANNUITY PAYMENT OPTIONS".
"If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then
under the Annuity Payment Option elected the present value of the
payments projected to be made to the Annuitant must equal more than
50% of the present value of the total payments projected to be made to
the Annuitant and the Beneficiary or Joint Annuitant. The present
value of such projected payments shall be determined on the basis of
the actuarial assumptions utilized by LNL in determining the amount of
the annuity payments.
If the Beneficiary or Joint Annuitant is the Annuitant's spouse, under
the Annuity Payment Option elected the periodic payment made to the
spouse on the death of the Annuitant may be no greater than the
payment made to the Annuitant during his lifetime."
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ Jon C. Geist
JON C. GEIST, SECOND VICE PRESIDENT
<PAGE>
BENEFICIARY RIDER
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ('THIS CONTRACT")
The following paragraphs shall be inserted after the second paragraph under the
Section "DEATH OF ANNUITANT" of this Contract:
"If the Beneficiary designated at the time of the Annuitant's death is a
surviving spouse, the Contract may be continued in the name of the spouse
as the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies before Annuity
Payments have begun under the Contract, the amounts must be distributed to
the designated Beneficiary within five years of the death of the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies after Annuity
Payments have begun under the Contract, the remaining portion of the
Annuitant's interest must either be distributed at least as rapidly as
under the method of distribution being used as of the date of the
Annuitant's death or distributed over the life of the Beneficiary or a
period not extending beyond the life expectancy of the Beneficiary. The
distribution of these amounts must begin not later than one year after the
Annuitant's death."
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ Jon C. Geist
JON C. GEIST, SECOND VICE PRESIDENT
<PAGE>
SECTION 403(b) ANNUITY ENDORSEMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
This Endorsement is attached to an annuity contract ("Contract") described in
Section 403(b) of the Internal Revenue Code of 1986 and applicable regulations
("IRC"). The Contract will be governed by this Endorsement and Section 403(b)
annuity rules and any contrary provisions in the Contract are amended as
follows. If the Section 403(b) arrangement ("Arrangement") in which you
participate is subject to the requirements of the Employee Retirement Income
Security Act of 1974 and applicable regulations ("ERISA"), the provisions of
Section 10 below shall also apply.
OWNER AND ANNUITANT
1. The Owner must be either an organization described in IRC Section
403(b)(1)(A) ("Employer") or an employee of such an Employer. If the Owner
is the Employer, the term ("Employee") will mean the individual for whose
benefit the Employer established an annuity program under IRC Section
403(b). This Employee will be the Annuitant under the Contract. If the
Owner is an Employee of the Employer, the Annuitant under the Contract will
be that Employee.
If this Contract is used to accept a rollover under IRC Sections 403(b)(8)
or 408(d)(3) ("Rollover") or a non- taxable direct transfer from another
Arrangement ("Direct Transfer"), the Owner will be the Employer or the
individual for whose benefit the Section 403(b) program was established,
who will also be the Annuitant.
A Contingent Owner or a Joint Owner cannot be named.
NONTRANSFERABLE
2. The Employee's interest in this Contract is nontransferable within the
meaning of IRC Section 401(g). This Contract may not be sold, assigned,
discounted, or pledged as collateral for a loan and may not be alienated
except under the terms of a qualified domestic relations order within the
meaning of IRC Section 414(p) ("QDRO"). However, an Employee may be
permitted to borrow amounts from this contract -- see Section 8 below.
PURCHASE PAYMENTS
3. Purchase payments must be made by an Employer or an Employee, except in the
case of a Rollover or a Direct Transfer.
Purchase payments must not exceed the limits in IRC Sections 415 or 403(b),
and if made under the terms of a salary reduction agreement ("Agreement")
also will be limited as provided in IRC Section 402(g). Purchase payments
in excess of such amounts may be distributed by The Lincoln National Life
Insurance Company ("LL") as permitted by law.
Minimum purchase payments will not exceed $200 annually under this
Contract, except in the case of a Rollover or a Direct Transfer. LL may not
surrender the Contract.
REQUIRED DISTRIBUTIONS
4. The Contract account value will be distributed as required under IRC
Section 403(b)(10) including the requirement that payments to persons other
than the Employee are incidental.
Required Beginning Date: The term "Required Beginning Date" will mean the
following:
a) For years beginning before 1997, "Required Beginning Date" means April
1 of the calendar year following the calendar year the Employee
attains age 70 1/2. For an Employee who attains age 70 1/2 before
January 1, 1988, or for an Employee in a governmental plan or a church
plan (as defined in IRC Section 401(a)(9)(C)), Required Beginning Date
means April 1 of the calendar year following the later of (I) the
calendar year the Employee attains age 70 1/2, or (ii) the calendar
year the Employee retires.
<PAGE>
b) For years beginning in 1997 and after, "Required Beginning Date" means
April i of the calendar year following the later of (i) the calendar
year the Employee attains age 70 1/2, or (ii) the calendar year the
Employee retires. Except in the case of a governmental plan or a
church plan (as defined in IRC Section 401(a)(9)(C)), for an Employee
who is a "five-percent owner" (as defined in IRC Section 416),
"Required Beginning Date" means April 1 of the calendar year following
the calendar year the Employee attains age 70 1/2.
Distributions During Employee's Life: If required by Section 403(b)(10), the
Employee's entire interest will be distributed by the Required Beginning Date,
or will be distributed, beginning by the Required Beginning Date, over (a) the
life of the Employee, or the lives of the Employee and the Employee's designated
beneficiary as defined in IRC Section 401(a)(9) ("Designated Beneficiary"), or
(b) a period certain not longer than the life expectancy of the Employee or the
joint and last survivor expectancy of the Employee and the Designated
Beneficiary.
If the Employee's interest is to be distributed over a period greater than one
year, the amount to be distributed by December 31 of each year (including the
year in which the Required Beginning Date occurs) wilt be governed by IRC
Section 401(a)(9) including the incidental death benefit requirement and
Regulation 1.401(a)(9)-2 as required by IRC Section 403(b)(10).
Distributions after Employee's Death: If the Employee dies on or after the
Required Beginning Date (or after irrevocable annuity distributions have begun
before the required beginning date), any remaining interest will be distributed
at least as rapidly as under the distribution method in effect at the Employee's
death.
If required by Section 403(b)(10) and if the Employee dies before the Required
Beginning Date and an irrevocable annuity distribution has not begun, the entire
interest will be distributed by December 31 of the calendar year containing the
fifth anniversary of the Employee's death ("End of the Fifth Year"), except:
a) if the interest is payable to an individual who is the Designated
Beneficiary, the Designated Beneficiary may elect to receive the entire
interest over life or a period that is no longer than the life expectancy
of the Designated Beneficiary, starting by December 31 of the calendar year
immediately following the calendar year of the Employee's death; or,
b) if the Designated Beneficiary is the Employee's surviving spouse ("Spousal
Designated Beneficiary"), the surviving spouse may elect to receive the
entire interest over life or any period no longer than life expectancy
starting at any date on or before the later of:
i) December 31 of the calendar year immediately following the calendar
year in which the
Employee died; and
ii) December 31 of the calendar year in which the Employee would have
attained age 70 1/2.
If the surviving spouse dies before distributions begin, the
limitations of this Section (other than this paragraph (b)) will be
applied as if the surviving spouse were the Employee.
An irrevocable election of the method of distribution by a Spousal
Designated Beneficiary must be made by the earlier of End of the Fifth
Year or the date distributions are required to begin under this
paragraph (b). If no election is made, the entire interest will be
distributed by the End of the Fifth Year.
An irrevocable election of the method of distribution by a non-spouse Designated
Beneficiary must be made by December 31 of the calendar year immediately
following the calendar year in which the employee died. If no election is made,
the entire interest will be distributed by the End of the Fifth Year.
Life Expectancy Calculations: Life expectancies will be calculated using the
Employee's (and the Designated Beneficiary's) attained age as of the Employee's
birthday (and the Designated Beneficiary's birthday) in the calendar year the
Employee attains age 70 1/2. Life expectancies will be calculated in accordance
with Federal tax requirements and will not be recalculated unless the Employee,
or for distributions beginning after the Employee's death, the Spousal
Designated Beneficiary, makes an Election, prior to the date distributions are
required to begin, to have life expectancies recalculated annually.
<PAGE>
ANNUITY OPTIONS AND WITHDRAWALS
5. All Annuity Payment Options ("Options") and Withdrawals under the Contract
must meet the required distributions of Section 4, including the
requirement that payments to persons other than the employee are
incidental.
The amount of Annuity Payments will be based on unisex rates.
DISTRIBUTION OF SALARY REDUCTION CONTRIBUTIONS
6. Any contributions made after 1988, under an Agreement and the earnings on
such contributions and on amounts held on December 31, 1988, may not be
distributed unless the Employee has reached age 59 1/2, separated from
service, died, become disabled (within the meaning of IRC Section 72(m)(7))
or incurred a hardship. Hardship distributions will be limited to
contributions (not the earnings) made under an Agreement. Also, amounts may
be distributed under the terms of a QDRO.
Direct Transfers to another Arrangement may be made only as permitted by
applicable law. Amounts subject to withdrawal restrictions under the IRC
may only be transferred to an Arrangement with the same or stricter
restrictions.
DISTRIBUTION OF CUSTODIAL ACCOUNT CONTRIBUTIONS
7. Purchase payments made by Direct Transfer which are subject to the
withdrawal restrictions of IRC Section 403(b)(7)(A)(ii) and earnings on
such payments will continue to be subject to the same legal restrictions.
LOANS
8. You may borrow from the account value using the Contract as sole security
for the loan by signing the required loan agreement. Any loan must comply
with IRC Section 72(p), including the amount and terms of any loan. Loans
are permitted under this Contract only to the extent permitted under your
Employer's Section 403(b) plan, if any, according to law and LL's loan
terms.
DIRECT ROLLOVERS
9. The Employee, the Employee's spouse, or the Employee's spouse or former
spouse, who is the alternate payee under a ODRO ("Distributee"), may elect
to have any portion of an eligible rollover distribution paid directly to
an eligible retirement plan. This is called a direct rollover.
An eligible rollover distribution ("Distribution") is any distribution
unless it is:
a) one of a series of substantially equal periodic payments (made at
feast annually) for the life (or life expectancy) of the Distributee
or the joint lives (or joint life expectancies) of the Distributee and
the Distributee's Designated Beneficiary, or for a specified period
often years or more;
b) any required distribution under IRC Section 403(b)(10); or
c) any part of a distribution that is not includible in income.
An eligible retirement plan is an IRC Section 403(b) annuity or an individual
retirement plan as defined in IRC Section 7701(a)(37) ("IRA") that accepts
Distributions. However, in the case of a Distribution to the surviving spouse,
an eligible retirement plan is an IRA.
This Section 9 applies to all Distributions made afler December 31, 1992.
ERISA REQUIREMENTS
10. If this Contract is subject to the requirements of ERISA, the following
applies, but only to the extent consistent with your Employer's 403(b)
plan.
<PAGE>
a) In the event of the Employee's death prior to the Maturity Date, the death
benefit shall be paid to (i) the surviving spouse of the Employee in the
form required by Section 205 of ERISA ("Section 205"), unless the spouse
elects otherwise within the requirements of Section 205 ("Consent"), or
(ii) if there is no surviving spouse, or if the surviving spouse has
Consented or if ERISA permits, to the Designated Beneficiary under the
Contract.
b) Unless ERISA permits, only Option (c) with no certain period is available
to a married Employee, and the Joint Annuitant must be the Employee's
spouse. A married Employee may elect another Option or designate another
Joint Annuitant provided his or her spouse Consents, or if such election is
permitted under ERISA. An unmarried Employee will be deemed to have elected
Option (a) with no period certain unless he or she makes a different
Election.
c) Elections and Consents may be revoked as permitted by ERISA and must be in
the form required by ERISA.
d) No partial or total withdrawal, and no loan may be made without Consent of
the Employee and the Employee's spouse, except to the extent not required
by ERISA. Any withdrawal must be made as required by ERISA unless the
Employee (and spouse, if any) makes an Election to receive the benefit in
another form. Any loan must conform to ERISA. Employer consent for partial
or total withdrawals and loans may also be required.
e) If the Employee's contract value is $3,500 or less as determined on the
first day of the month preceding the Annuity Date, LL will pay the Contract
value to the Employee on the Maturity Date in one lump sum as required by
Section 205.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ Kathleen Peterson
KATHLEEN PETERSON, SECOND VICE PRESIDENT
<PAGE>
ANNUITY
CONTRACT
DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
If you have any questions concerning
this Contract, or if anyone suggests that
you change or replace this Contract please
contact your Lincoln National Life
representative or the Home Office of LNL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 2340
FORT WAYNE, INDIANA 46801-2340
800-348-1212
<PAGE>
ABRAHAM LINCOLN
XX-0123456
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
ANNUITY CONTRACT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits
and other rights described in this Contract in accordance with the terms of this
Contract.
NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT
IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON WITHOUT PENALTY (E.G., NO
CONTINGENT DEFERRED SALES CHARGE WILL BE DEDUCTED) BY DELIVERING OR MAILING IT
TO THE HOME OFFLCE OF LNL. UPON CANCELLATION, LNL WILL RETURN THE VALUE OF ANY
PAYMENTS MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE
FIXED PORTION OF THE CONTRACT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ Jon C. Gelst
Jon A. Boscia, President Jon C. Gelst, Second Vice President
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 PURCHASE PAYMENTS 4
2 BENEFITS 5
3 BENEFICIARY 9
4 GENERAL PROVISIONS 9
5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 11
6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 12
7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 13
Page 2
<PAGE>
CONTRACT DATA
CONTRACT NUMBER XX-01 23456
ANNUITANT ABRAHAM LINCOLN
AGE AT ISSUE 35
CONTRACT DATE APRIL 1,1989
PURCHASE PAYMENT $1,500.00
PURCHASE PAYMENT FREQUENCY MONTHLY
MATURITY DATE APRIL 1, 2039
OWNER
ABRAHAM LINCOLN
MARY LINCOLN
TODD LINCOLN
BENEFICIARY DESIGNATION
AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION
The portion of your Initial purchase payment allocated to the Fixed Account of
your Annuity Contract is guaranteed to be credited an initial effective annual
Interest rate of 4.500% through 04/09/1992. The $25.00 account charge
referenced in Section 2.11 will not apply to your Contract.
Page 3
<PAGE>
ARTICLE I
PURCHASE PAYMENTS
1.01 WHERE PAYABLE
The Purchase Payments must be made to The Lincoln National Life Insurance
Company (LNL) at its Home Office. The initial Purchase Payment for this Contract
must be at least $5,000. Additional Purchase Payments must be at least $1,000.
1.02 VARIABLE ACCOUNT
Purchase Payments under the Contract may be allocated to the Lincoln National
Life Variable Annuity Account C (Variable Account) and/or to the fixed portion
of the Contract. The Variable Account is for the exclusive benefit of persons
entitled to receive benefits under variable annuity contracts. The Variable
Account will not be charged with the liabilities from any other part of LNL's
business. There are currently eight sub-accounts in the Variable Account. The
Owner may direct Purchase Payments under the Contract to any of the available
sub-accounts subject to the following limitations. A minimum payment to any one
sub-account must be at least $1,000. If the Owner elects to direct Purchase
Payments to a new sub-account not previously selected, the election must be in
writing to LNL. All the amounts allocated to each sub-account will be invested
at net asset value in the shares of one of the regulated investment companies
(the Eligible Funds). The Eligible Funds are:
1. Lincoln National Growth Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Putnam Master Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National international Fund, Inc.
9. Other Funds made available by LNL.
LNL reserves the right to eliminate the shares of any of the Eligible Funds and
substitute the securities of a different investment company if the shares of an
Eligible Fund are no longer available for investment, or if in the judgment of
LNL, further investment in any Eligible Fund should become inappropriate in view
of the purposes of the Contract. LNL may add an Eligible Fund in order to invest
the assets of a new sub-account in the Variable Account. LNL shall give the
Owner written notice of the elimination and substitution of Eligible Funds
within five days after such substitution occurs.
LNL shall use the Purchase Payment allocated to the Variable Account by the
Owner to buy Accumulation Units in the sub-account(s) selected by the Owner.
The number of Accumulation Units bought shall be determined by dividing the
amount directed to the sub-account by the dollar value of an Accumulation Unit
in such sub-account as of the day the Purchase Payments are received at the Home
Office of LNL. The number of Accumulation Units held for the account of an Owner
shall not be changed by any change in the dollar value of Accumulation Units in
any sub-account.
1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR
The Variable Account value of an Owner's Contract at any time prior to the
Annuity Commencement Date equals the Value of the Accumulation Units held in the
name of the Owner in the Variable Account under the Contract.
A "Valuation Date" is each day that the New York Stock Exchange is open for
business. A "Valuation Period" is the period commencing at the close of business
on the New York Stock Exchange on each Valuation Date and ending at the close of
business on the next succeeding Valuation Date.
Accumulation Units for each sub-account are valued separately. Initially, the
value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter,
the value of an Accumulation Unit in any sub- account on any Valuation Date
equals the value of an Accumulation Unit in that sub-account as of the
immediately preceding Valuation Date multiplied by the "net investment factor"
of that sub-account for the current Valuation Period. In order to arrive at
this factor, a "Gross Investment Rate" is first determined for each Eligible
Fund for the Valuation Period. Such rate for the Valuation Period is equal to:
a) the investment income of the Fund: plus
b) capital gains (realized and unrealized); minus
c) capital losses (realized and unrealized); minus
d) certain operational expenses of the Fund; minus
e) the reserve for federal taxes on realized capital gains (if applicable);
minus
f) the investment advisory fee accrued by the Funds for each day of the
Valuation Period--0.480% of the first $200,000,000 of net assets on an
annual basis,(0.750% for the Lincoln National Putnam Master Fund,
Inc./0.900% for the Lincoln National International Fund, Inc.), 0.400% of
the next $200,000,000 of net assets, (0.700% for the Lincoln National
Putnam Master Fund, lnc./0.750% for the Lincoln National International
Fund, Inc.), and 0.300% of net assets above $400,000,000, (0.680% for the
Lincoln National Putnam Master Fund, lnc./0.600% for the Lincoln National
International Fund, Inc.); divided by
g) the net asset value of the Fund as ofthe beginning of the Valuation Period.
The Gross Investment Rate may be positive or negative.
Page 4
<PAGE>
The Net Investment Rate for each sub-account is equal to the Gross Investment
Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for
each day of the Valuation Period, plus or minus an adjustment for any taxes
attributable to the operation of the Variable Account. LNL makes the 1.002%
deduction for administrative expenses and mortality and expense risk guarantees.
The method used to determine unit values may increase or decrease the dollar
value of benefits under the Contract. The dollar value of benefits will not be
adversely affected by expenses incurred by LNL.
The Net Investment Factor for each sub-account is equal to 1.000000000 plus the
Net Investment Rate for the period.
1.04 FIXED ALLOCATIONS
The Purchase Payments under the Contract may be allocated to the Variable
Account and/or to the fixed portion of the Contract. A minimum payment to the
fixed portion must be at least $1,000. Purchase Payments allocated to the fixed
portion will be invested in the general account of LNL.
1.05 CREDITING OF INTEREST
Interest shall be credited daily on all Purchase Payments that are allocated to
the fixed portion of this Contract.
Prior to the time the Annuitant elects to receive Benefit Payments or the death
of the Annuitant, whichever occurs first, LNL guarantees that it will credit
interest on fixed allocations at an effective annual rate not less than 4.5%
during the first five contract years, 4.0% for the next five contract years, and
3.5% after that. A table of guaranteed values for the fixed allocations may be
found in Article 7.
LNL may credit interest at rates in excess of the guaranteed rates at any time
and guarantee higher rates for shorter periods of time.
1.06 AUTOMATIC NONFORFEITURE OPTION
This Contract will continue until the earlier of the Maturity Date, surrender of
the Contract, or death of the Annuitant. Additional Purchase Payments may be
made at any time. The total Account Value must be at least $600. If not, LNL may
surrender the Contract. Purchase Payments may be resumed at any time prior to
maturity, surrender, or death of the Annuitant.
1.07 TRANSFERS
The Owner may direct a transfer of assets from one sub-account to another
sub-account or to the fixed portion of the Contract. The Owner may also direct a
transfer of assets from the fixed portion of the Contract to one or more
sub-accounts of the Variable Account. Such a transfer request must be in
writing. Amounts transferred to the sub-account(s) will purchase Accumulation
Units as described in the last paragraph of Section 1.02.
The minimum transfer amount is $500 or the entire amount in the
sub-account/fixed portion, whichever is less. If after the transfer the amount
remaining under this Contract in the sub-account/fixed portion from which the
transfer is taken is less than $100, the entire amount held in that
sub-account/fixed portion will be transferred with the transfer amount. The
transfer is subject to any applicable transfer charge. There may not be more
than one transfer in any thirty day period. LNL reserves the right to limit the
number of transfers.
For transfers between sub-accounts and from the sub-account(s) to the fixed
portion of the Contract, there are no restrictions on the maximum amount
which may be transferred. For transfers from the fixed portion of the Contract
to the Variable Account, the sum of the percentages of fixed value transferred
will be limited to 25% in any 12 month period.
ARTICLE 2 BENEFITS
2.01 ANNUITY PAYMENTS
An election to receive proceeds under an Annuity Payment Option must be made by
the Maturity Date.
If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity
payments will commence on the Maturity Date under the Annuity Payment Option
providing a Life Annuity with Annuity Payments guaranteed for 10 years.
However, upon written request by the Owner and any Beneficiary who cannot be
changed, the Maturity Date may be deferred. If the new Maturity Date extends
beyond age 85, LNL reserves the right to restrict the availability of certain
Annuity Payment Options.
2.02 CHOICE OF ANNUITY PAYMENT OPTION
BY OWNER
While the Annuitant is alive, the Owner may choose any Annuity Payment Option or
change any choice, if that right has been reserved, but only before the Maturity
Date. The election must be made not later than thirty days prior to the Maturity
Date.
BY BENEFICIARY
At the time proceeds are payable, a Beneficiary may choose or change any Annuity
Payment Option if proceeds are available to the Beneficiary in one sum.
Page 5
<PAGE>
A choice or change must be in writing to LNL.
2.03 ANNUITY PAYMENT OPTIONS
a) Life Annuity, Guaranteed Period - Payments will be made for life with no
certain period or life and a 10 year certain period or life and a 20 year
certain period.
b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime
of the Annuitant, terminating with the last payment due prior to the death
of the Annuitant, provided that, at such death, the Beneficiary will
receive an additional payment of the then dollar value of the number of
Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the
total amount applied under the option divided by the Annuity Unit Value at
the Annuity Commencement Date and (b) is the product of the number of
Annuity Units represented by each payment and the number of payments made.
c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with
no certain period or life and a 10 year certain period or life and a 20
year certain period. Payments will be made during the joint life of the
Annuitant and a Joint Annuitant of the Annuitant's choice. Payments
continue for the life of the survivor at the death of the Annuitant or
Joint Annuitant.
d) Other options may be available as agreed upon by LNL.
At the time Annuity Payments start under the provisions of this Contract, the
Owner may elect to have the total value applied to provide a variable annuity, a
fixed annuity, or a combination fixed and variable annuity. If no election is
made the value of the Annuitant's Variable Account shall be used to provide a
variable annuity, and the value of the Annuitant's fixed allocations shall be
used to provide a fixed annuity.
The amount of Annuity Payment will depend on the age and sex of the Annuitant at
the time the first payment is due. A choice may be made to receive payments once
each month, four times each year, twice each year, or once each year. The value
used to effect benefit payments for an Annuitant will be calculated as of the
fourteenth day prior to the date benefit payments start.
The payment amounts shown in the option tables in Article S will be used to
determine the first monthly payment under a variable payment option. The tables
show the dollar amount of the first monthly payment which can be purchased with
each $1,000 of Account Value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a
guaranteed rate of return of 5% per year.
The payment amounts shown in the option tables in Article 6 will be used to
determine the monthly payments under a fixed payment option. The tables show
the dollar amount of the monthly payments which can be purchased with each
$1,000 of account value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with
a guaranteed rate of return of 3 1/2% per year.
The following shall apply only in situations where the provisions of the
Retirement Equity Act of 1984 are required:
If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then under the
Annuity Payment Option elected, the present value of the payments projected to
be made to the Annuitant must equal more than 50% of the present value of the
total payments projected to be made to the Annuitant and the Beneficiary or
Joint Annuitant. The present value of such projected payments shall be
determined on the basis of the actuarial assumptions used by LNL in determining
the amount of annuity payments.
2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST
Each Variable Annuity Payment after the first will be determined by multiplying
the Annuity Unit Value of the date each payment is due by a constant number of
Annuity Units. This constant is determined by dividing the amount of the first
payment by the Annuity Unit Value for the date the first payment is due.
The Annuity Unit Value for any Valuation Period for any sub-account is
determined by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the product of (a) 0.999866337 raised to a power equal to
the number of days in the current Valuation Period and (b) the Net Investment
Factor of the sub-account for the Valuation Period containing the fourteenth day
prior to the last day of the current Valuation Period.
The valuation of all assets in the sub-account shall be determined in accordance
with the provisions of applicable laws, rules, and regulations. The method of
determination by LNL of the value of an Accumulation Unit and of an Annuity Unit
will be conclusive upon the Annuitant and any Beneficiary.
LNL guarantees that the dollar amount of each installment after the first shall
not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
2.05 PROOF OF AGE
Annuity Payment will be subject to proof of age that LNL will accept.
Page 6
<PAGE>
2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS
If the Annuity Payment Option chosen results in payments of less than $50 per
sub-account, the frequency will be changed so that payments will be at least
$50.
2.07 EVIDENCE OF SURVIVAL
LNL has the right to ask for proof that the person on whom the payment is based
is alive when each payment is due.
2.08 CHANGE IN ANNUITY PAYMENT
Changes in Annuity Payments may not be made after Annuity Payments commence.
2.09 ASSIGNMENT
This Contract or any portion of this contract may not be assigned except
pursuant to a Domestic Relations Order issued by court of proper jurisdiction
for any non-qualified Contract or pursuant to a Qualified Domestic Relations
Order, as defined under the Internal Revenue Code.
2.10 ACCOUNT VALUE
The Account Value is the Value of all Accumulation Units held in the name of the
Owner in the Variable Account plus the value of the fixed portion of the
Contract.
2.11 ACCOUNT CHARGE
On the last business day of each Contract Year, LNL will deduct $25.00 from the
Account Value. At surrender the Account Charge will be deducted from the Account
Value. If the Owner has elected more than one sub-account, the deduction of the
Account Charge shall be taken from each sub-account on a pro-rata basis. Each
sub-account will be adjusted by an amount equal to a fraction of the charge.
The fraction is equal to "a" divided by "b", where a is the Account Value of the
sub-account and "b" is the value of all sub-accounts under the Contract. The
fraction for each sub-account is applied to the deduction to determine each
sub-account's deduction.
For the purposes of this Section, the fixed portion of the Contract is
considered a sub-account.
2.12 SURRENDER OPTION
The Owner may surrender this Contract for its surrender value. On surrender,
this Contract terminates. Surrender will be effective on date on which LNL has
receives a written request at its Home Office. The surrender value will be the
total Account Value less a Surrender Charge and less the Account Charge.
The Surrender Charge is calculated as a percentage of the Purchase Payments
surrendered. This percentage is based on the number of completed Contract Years
between the Contract Year of Purchase Payment and the Contract Year of
surrender/withdrawal as shown in the following schedule. The Surrender Charge is
calculated separately for each Contract Year's Purchase Payments.
<TABLE>
<CAPTION>
CONTRACT YEAR OF
SURRENDER/WITHDRAWAL CHARGE AS A % OF TOTAL
MINUS CONTRACT YEAR OF PURCHASE PAYMENTS SURRENDERED/
PURCHASE PAYMENTS WITHDRAWN IN A CONTRAT YEAR
<S> <C>
0 7
1 6
2 5
3 4
4 3
5 2
6 1
7+ 0
</TABLE>
A Contract Year is the period from the Contract effective date (month and Day)
to the anniversary of the Contract effective date in the following year.
Any payment will be by check and mailed from LNL's Home Office within seven days
after receipt of the surrender request: however, LNL may be permitted to defer
such payment under the Investment Company Act of 1940, as in effect at the time
a request for surrender is received. Interest will be credited to money in the
fixed portion of this contract during the deferral period. The Surrender Option
is not available after Annuity Payments have begun.
Any Account Value payable as a result of annuitization, total and
permanent disability of the Annuitant subsequent to the effective date of this
Contract and prior to the 65th birthday of the Annuitant, or death of the
Annuitant will not be subject to the Surrender Charges. Total and permanent
disability is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve months. LNL must be
furnished with proof of the existence thereof by way of a physician's statement.
2.13 WITHDRAWAL OPTION
The Owner may withdraw a part of the surrender value of this Contract, subject
to the charges outlined under Surrender Option 2.12. The first partial
withdrawal in any Contract Year up to 15% of Purchase Payments will be free of
charges.
The Surrender Charge is calculated separately for each Contract Year's Purchase
Payments. For Surrender Charge purposes, LNL assumes that Purchase Payments are
withdrawn on a "first in-first out (FIFO)" basis, and that all Purchase Payments
are withdrawn before any earnings are withdrawn.
Page 7
<PAGE>
Withdrawal will be effective on the valuation date on which or next following
the date LNL receives a written request at its Home Office. The minimum
withdrawal is $100. If any withdrawal reduces the total Account Value to
less than $600, LNL may surrender the Contract for its value. The remaining
value will be subject to the charges as provided under Surrender Option. The
request should specify from which sub-account the withdrawal will be made. If
no sub- account is specified, LNL will withdraw, on a prorata basis from each
sub-account, the amount requested. Any payment will be by check and mailed
from LNL's Home Office within seven days after the date of withdrawal;
however, LNL may be permitted to defer such payment under the Investment
Company Act of 1940, as in effect at the time such request for withdrawal is
received. The Withdrawal Option is not available after Annuity Payments have
begun.
For purposes of this Section, the fixed portion of the Contract is considered a
sub-account.
2.14 DISTRIBUTIONS FROM IRC SECTION 403(b)
Pursuant to requirements of The Tax Reform Act of 1986, section 1123(c)(1)
amending IRC Section 403(b), effective January 1,1989:
Distributions of post 12/31/88 403(b) Tax Deferred Annuity elective deferrals
and earnings under this contract may be made only when:
- You attain the age of 59 1/2, separate from service, die, or become
disabled. The term disabled shall be as defined in the plan, or in the
absence of such definition, as defined in IRC Section 72(m)(7), or
- you experience a case of hardship. Hardship shall be determined by the
employer, plan administrator, trustee, or person performing similar
functions. In the case of hardship distributions, only your
contributions, and not the income attributable to your contributions,
may be distributed.
2.15 DEATH OF ANNUITANT
On receipt of due proof of the death of the Annuitant before a choice is made to
receive proceeds under an Annuity Payment Option, LNL will pay to the
Beneficiary the value of the Contract as of the day on which written notice of
death is received by LNL. Due proof of death shall be either a certified copy of
the certificate of death, a certified copy of the statement of death from the
attending physician, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to LNL.
On receipt of due proof of death of the Annuitant after Annuity Payments have
begun under an Annuity Payment Option, if any Annuity Payments remain under the
Option they will be paid to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the Owner, if
living; otherwise, to the Owner's estate.
If the Beneficiary designated at the Annuitant's death is a surviving spouse,
the Contract may be continued in the name of the spouse as the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies before Annuity
Payments have begun under this Contract, the proceeds must be distributed to the
designated Beneficiary within five years of the death of the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies after Annuity
Payments have begun under this Contract the remaining portion of the Annuitant's
interest must either be distributed at least as rapidly as under the method of
distribution being used as of the date of the Annuitant's death or distributed
over the life of the Beneficiary or a period not extending beyond the life
expectancy of the Beneficiary. The distribution of these amounts must begin not
later than one year after the Annuitant's death.
2.16 DEATH OF CONTRACT OWNER
If the owner of a non-qualified contract dies before annuity payments have
begun, then in accordance with the provisions of Section 72(s) of the Internal
Revenue Code (IRC), the Cash Surrender Value (proceeds) of the Contract will be
paid as follows:
- Upon the death of a non-annuitant owner, the proceeds shall be paid to
any surviving joint or contingent owner.
- If no joint or contingent owner has been named, then the proceeds shall
be paid to the annuitant named in the Contract.
If the decedent owner or joint owner is also the annuitant, then the death will
be treated as death of the annuitant subject to the provisions of this Contract
regarding death of annuitant.
If the recipient of the proceeds is the surviving spouse, such surviving spouse
shall be deemed as having held the Contract with rights of survivorship and the
Contract may be continued in the name of such spouse as owner.
In accordance with IRC Section 72(5), any distribution must be paid within 5
years of the death of the owner unless the beneficiary begins receiving,
within one year of the Contract Owner's death, the distribution in the form
of a life annuity or an annuity for a period certain not exceeding the
beneficiary's life expectancy.
2.17 JOINT/CONTINGENT OWNERSHIP
If joint owners are named in the application such joint owners shall be
treated as having equal undivided
Page 8
<PAGE>
interest in the Contract. Either owner, independent of the other, may
exercise any ownership rights in this Contract.
A contingent owner cannot exercise any ownership rights in this Contract while
the Contract Owner is alive.
ARTICLE 3
BENEFICIARY
3.01 DESIGNATION
The Beneficiary named in the application for this Contract will receive the
proceeds on the death of the Annuitant unless the Beneficiary has been
changed by the Owner.
3.02 CHANGE
The Owner may change any Beneficiary during the life of the Annuitant unless
otherwise provided in the previous designation. A change of Beneficiary will
revoke any previous designation.
A change may be made by filing a written request to LNL at its Home Office. The
change will become effective upon receipt of the written request by LNL at its
Home Office.
3.03 DEATH OF BENEFICIARY
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Annuitant, that Beneficiary's interest will pass to any other
Beneficiaries according to their respective interests.
If the Beneficiary dies while receiving any remaining Annuity Payments due after
the death of the Annuitant, the value of the remainder of such Annuity Payments
will be paid in one sum to the Beneficiary's estate.
ARTICLE 4
GENERAL PROVISIONS
4.01 THE CONTRACT
This Contract the application, and any riders attached to this Contract make up
the whole Contract. Only the President, a Vice-President, the Secretary or an
Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify,
or waive any provisions of this Contract.
Any changes, modifications, or waivers must be in writing. No representative or
person other than the above named officer has authority to change or modify this
Contract or waive any of its provisions.
All terms used in this Contract will have usual and customary meaning except
when specifically defined.
LNL reserves the right to unilaterally change the terms of this Contract for the
purpose of keeping this Contract in compliance with federal or state law.
4.02 CONTROL
Consistent with the terms of any Beneficiary designation, the Owner may, during
the life of the Annuitant, do any of the things described below.
- Prior to the time when Annuity Payments have begun the Owner may
surrender this Contract or withdraw a portion of the surrender value.
The Owner may change this Contract with the consent of LNL.
- The Owner may exercise any right, receive any benefit, or enjoy any
privilege contained in this Contract.
4.03 INCONTESTABILITY
This Contract will not be contested.
4.04 MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, the benefits available under
this Contract will be those which the Purchase Payments would have purchased for
the correct age. Any underpayments already made by LNL shall be made up
immediately and any overpayments already made by LNL shall be charged against
the Annuity Payments falling due after adjustment.
4.05 NONPARTICIPATING
The Contract is nonparticipating and will not share in the surplus earnings of
LNL.
4.06 VOTING RIGHTS
The Owner shall have the right to vote only at the meetings of the Eligible
Fund(s) invested in by the Owner due to their interest in the sub-accounts of
the Variable Account. Ownership of this Contract shall not entitle any person to
vote at any meeting of shareholders of LNL. Votes attributable to the Contract
shall be cast in conformity with applicable law.
4.07 OWNERSHIP OF THE ASSETS
LNL shall have exclusive and absolute ownership and control of its assets,
including all assets in the Variable Account.
4.06 REPORTS
At least once each Contract Year LNL shall mail a report to the Owner. The
report shall be mailed to the last address known to LNL. The report shall
include a statement of the number of units credited to the Variable Account
under this Contract and the dollar value of such units as well as a statement of
the value of the fixed portion of this Contract. The information in the report
shall be as of a date not more than two months prior to the date of mailing the
report. LNL shall also mail to the Owner at least once in each Contract Year a
report of the investments held in the sub-accounts under this Contract.
Page 9
<PAGE>
4.09 PREMIUM TAX
State and local government premium tax, if applicable, will be deducted from the
Account Value when incurred by LNL.
Page 10
<PAGE>
ARTICLE 5
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.69 $5.61 $5.38 $5.47
61 5.79 5.70 5.44 5.55
62 5.90 5.79 5.50 5.63
63 6.01 5.89 5.57 5.72
64 6.13 6.00 5.63 5.82
65 6.26 6.12 5.69 5.92
66 6.40 6.24 5.75 6.03
67 6.56 6.37 5.82 6.15
68 5.72 6.50 5.88 6.27
69 6.90 6.65 5.93 6.40
70 7.10 6.80 5.99 6.54
71 7.32 6.96 6.04 6.68
72 7.55 7.13 6.08 6.84
73 7.80 7.30 6.12 7.00
74 8.07 7.48 6.16 7.17
75 8.37 7.66 6.19 7.36
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
Joint
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26
5.14 5.14 5.11 61 5.56 5.50 5.33
5.22 5.21 5.17 62 5.65 5.59 5.39
5.29 5.29 5.24 63 5.75 5.68 5.45
5.37 5.37 5.30 64 5.86 5.77 5.52
5.46 5.46 5.38 65 5.97 5.88 5.58
5.56 5.55 5.45 66 6.09 5.99 5.65
5.66 5.65 5.52 67 6.23 6.11 5.71
5.77 5.76 5.60 68 6.37 6.24 5.78
5.90 5.88 5.67 69 6.53 6.37 5.84
6.03 6.00 5.75 70 6.70 6.51 5.90
6.17 6.14 5.82 71 6.89 6.66 5.96
6.32 6.28 5.89 72 7.09 6.82 6.01
6.49 6.43 5.95 73 7.31 6.99 6.06
6.66 6.60 6.01 74 7.54 7.16 6.11
6.86 6.77 6.06 75 7.80 7.34 6.15
</TABLE>
Page 11
<PAGE>
ARTICLE 6
ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION
GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.31 $5.17 $4.77 $4.83
61 5.43 5.27 4.83 4.92
62 5.56 5.38 4.89 5.01
63 5.70 5.50 4.95 5.10
64 5.85 5.62 5.01 5.20
65 6.00 5.74 5.07 5.31
66 6.17 5.88 5.13 5.42
67 6.35 6.01 5.18 5.53
68 6.55 6.16 5.24 5.65
69 6.75 6.30 5.29 5.79
70 6.98 5.46 5.34 5.92
71 7.21 6.63 5.38 6.06
72 7.47 6.79 5.42 6.22
73 7.75 6.96 5.46 6.37
74 8.04 7.13 5.49 6.54
75 8.36 7.31 5.52 6.73
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Certain Period
Joint
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64
4.58 4.57 4.48 61 5.11 5.01 4.71
4.67 4.65 4.55 62 5.23 5.11 4.77
4.76 4.75 4.62 63 5.35 5.22 4.84
4.86 4.85 4.69 64 5.48 5.33 4.90
4.97 4.95 4.77 65 5.62 5.45 4.97
5.09 5.06 4.84 66 5.76 5.58 5.03
5.21 5.18 4.92 67 5.92 5.71 5.09
5.34 5.31 4.99 68 6.09 5.85 5.15
5.49 5.44 5.07 69 6.27 5.99 5.21
5.64 5.58 5.14 70 6.46 6.14 5.27
5.80 5.73 5.21 71 6.67 6.30 5.32
5.98 5.89 5.27 72 6.90 6.46 5.37
6.17 6.06 5.33 73 7.14 6.63 5.41
6.37 6.23 5.38 74 7.40 6.81 5.45
6.59 6.41 5.43 75 7.67 6.99 5.49
</TABLE>
Page 12
<PAGE>
ARTICLE 7
GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES
FOR FIXED ALLOCATIONS*
$5,000 Initial Purchase Payment Thereafter
$1,000 Annual Purchase Payment
<TABLE>
<CAPTION>
End Guaranteed Guaranteed
of Accumulated Surrender
Year Value Value
<S> <C> <C>
1 $5,200.00 $ 4,850.00
2 6,454.00 6,084.00
3 7,784.43 7,384.43
4 9,133.83 8,753.83
5 10,564.85 10,194.85
6 12,002.45 11,652.45
7 13,497.54 13,177.54
8 15,052.45 14,772.45
9 16,669.54 16,389.54
10 18,351.32 18,071.32
11 20,003.62 19,723.62
12 21,713.75 21,433.75
13 23,483.73 23,203.73
14 25,315.66 25,035.66
15 27,211.71 26,931.71
16 29,174.12 28,894.12
17 31,205.21 30,925.21
18 33,307.39 33,027.39
19 35,483.15 35,203.15
20 37,735.06 37,455.06
21 40,065.79 39,785.79
22 42,478.09 42,198.09
23 44,974.83 44,694.83
24 47,558.95 47,278.95
25 50,233.51 49,953.51
20 53,001.68 52,721.68
27 55,866.74 55,586.74
28 58,832.08 58,552.08
29 61,901.20 61,621.20
30 65,077.74 64,797.74
31 68,365.46 68,085.46
32 71,768.25 71,488.25
33 75,290.14 75,010.14
34 78,935.30 78,655.30
35 82,708.03 82,428.03
36 86,612.81 86,332.81
37 90,654.26 90,374.26
38 94,837.16 94,557.16
39 99,166.46 98,886.46
40 103,647.29 103,367.29
41 108,284.94 108,004.94
42 113,084.92 112,804.92
43 118,052.89 117,772.89
44 123,194.74 122,914.74
45 128,516.55 128,236.55
</TABLE>
*Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or
less than shown in the table because of the variable of the day of receipt of
the Purchase Payment at the Home Office from period to period and the crediting
of interest to the Annuitant's account on a daily basis. Values shown are based
upon contributions equally spaced with interest occurring at the beginning of
the year.
These values do not provide for premium tax, if any.
Page 13
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
Any reference to Fund or Funds shall be followed by "and Series".
VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as
follows:
"The Eligible Funds and Series are:
1. Lincoln National Growth & Income Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Global Asset Allocation Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National International Fund, Inc.
9. Lincoln National Aggressive Growth Fund, Inc.
10. Lincoln National Capital Appreciation Fund, Inc.
11. Lincoln National Equity-Income Fund, Inc.
12. Delaware Group Premium Fund, Inc. Equity/Income Series.
13. Delaware Group Premium Fund, Inc. Emerging Growth Series.
14. Delaware Group Premium Fund, Inc. Global Bond Series.
15. Other Funds and Series made available by LNL."
Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4
and 5 of this Contract shall be amended in its entirety as follows:
"the investment advisory fee accrued by the Fund or Series for each day of the
Valuation Period from the Advisory Fee Table below; divided by"
Advisory Fee Table
<TABLE>
<CAPTION>
In excess
Fund or Series First Next of $400
$200 million... $200 million... million...
Of average daily net asset value
<S> <C> <C> <C>
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1
Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1
Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1
All other Funds .48 of 1 .40 of 1 .30 of 1
</TABLE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ PATRICK WILTSHIRE
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
ANNUITY
CONTRACT
DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
If you have any questions concerning
this Contract, or if anyone suggests that
you change or replace this Contract, please
contact your Lincoln National Life
representative or the Home Office of LNL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 2340
FORT WAYNE, INDIANA 46801
800-348-1212
<PAGE>
ABRAHAM LINCOLN
XX-0123456
LINCOLN NATIONAL
LIFE INSURANCE CO.
A PART OF LINCOLN NATIONAL CORPORATION
ANNUITY CONTRACT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits
and other rights described in this Contract in accordance with the terms of this
Contract.
NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT
IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON WITHOUT PENALTY (E.G., NO
CONTINGENT DEFERRED SALES CHARGE WILL BE DEDUCTED) BY DELIVERING OR MAILING IT
TO THE HOME OFFICE OF LNL. UPON CANCELLATION, LNL WILL RETURN THE VALUE OF ANY
PAYMENTS MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE
FIXED PORTION OF THE CONTRACT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ Jon C. Geist
JON A. BOSCIA, PRESIDENT JON C. GEIST, SECOND VICE PRESIDENT
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 PURCHASE PAYMENTS 4
2 BENEFITS 5
3 BENEFICIARY 9
4 GENERAL PROVISIONS 9
5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 11
6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 12
7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 13
<PAGE>
CONTRACT DATA
CONTRACT NUMBER XX-0123456
ANNUITANT ABRAHAM LINCOLN
AGE AT ISSUE 35
CONTRACT DATE APRIL 1,1969
PURCHASE PAYMENT $1,500.00
PURCHASE PAYMENT FREQUENCY MONTHLY
MATURITY DATE APRIL 1, 2039
OWNER
ABRAHAM LINCOLN
MARY LINCOLN
TODD LINCOLN
BENEFICIARY DESIGNATION
AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION
THE PORTION OF YOUR INITIAL PURCHASE PAYMENT ALLOCATED TO THE FIXED ACCOUNT OF
YOUR ANNUITY CONTRACT IS GUARANTEED TO BE CREDITED AN INITIAL EFFECTIVE ANNUAL
INTEREST RATE OF 4.500% THROUGH 04/09/1992.
Page 3
<PAGE>
ARTICLE I
PURCHASE PAYMENTS
1.01 WHERE PAYABLE
The Purchase Payments must be made to The Lincoln National Life Insurance
Company (LNL) at its Home Office. The initial Purchase Payment for this Contract
must be at least $5,000. Additional Purchase Payments must be at least $1,000.
1.02 VARIABLE ACCOUNT
Purchase Payments under the Contract may be allocated to the Lincoln National
Life Variable Annuity Account C (Variable Account) and/or to the fixed portion
of the Contract. The Variable Account is for the exclusive benefit of persons
entitled to receive benefits under variable annuity contracts. The Variable
Account will not be charged with the liabilities from any other part of LNL's
business. There are currently eight sub-accounts in the Variable Account. The
Owner may direct Purchase Payments under the Contract to any of the available
sub-accounts subject to the following limitations. A minimum payment to any one
sub-account must be at least $1,000. If the Owner elects to direct Purchase
Payments to a new sub-account not previously selected, the election must be in
writing to LNL. All the amounts allocated to each sub-account will be invested
at net asset value in the shares of one of the regulated investment companies
(the Eligible Funds). The Eligible Funds are:
1. Lincoln National Growth Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Putnam Master Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National International Fund, Inc.
9. Other Funds made available by LNL.
LNL reserves the right to eliminate the shares of any of the Eligible Funds and
substitute the securities of a different investment company if the shares of an
Eligible Fund are no longer available for investment, or if in the judgment of
LNL, further investment in any Eligible Fund should become inappropriate in view
of the purposes of the Contract. LNL may add an Eligible Fund in order to invest
the assets of a new sub-account in the Variable Account. LNL shall give the
Owner written notice of the elimination and substitution of Eligible Funds
within five days after such substitution occurs.
LNL shall use the Purchase Payment allocated to the Variable Account by the
Owner to buy Accumulation Units in the sub-account(s) selected by the Owner.
The number of Accumulation Units bought shall be determined by dividing the
amount directed to the sub-account by the dollar value of an Accumulation
Unit in such sub-account as of the day the Purchase Payments are received at
the Home Office of LNL. The number of Accumulation Units held for the account
of an Owner shall not be changed by any change in the dollar value of
Accumulation Units in any sub-account.
1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR
The Variable Account value of an Owner's Contract at any time prior to the
Annuity Commencement Date equals the Value of the Accumulation Units held in the
name of the Owner in the Variable Account under the Contract.
A "Valuation Date" is each day that the New York Stock Exchange is open for
business. A "Valuation Period" is the period commencing at the close of business
on the New York Stock Exchange on each Valuation Date and ending at the close of
business on the next succeeding Valuation Date.
Accumulation Units for each sub-account are valued separately. Initially, the
value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter,
the value of an Accumulation Unit in any sub-account on any Valuation Date
equals the value of an Accumulation Unit in that sub-account as of the
immediately preceding Valuation Date multiplied by the "net investment factor"
of that sub-account for the current Valuation Period. In order to arrive at
this factor, a "Gross Investment Rate" is first determined for each Eligible
Fund for the Valuation Period. Such rate for the Valuation Period is equal to:
a) the investment income of the Fund: plus
b) capital gains (realized and unrealized); minus
c) capital losses (realized and unrealized); minus
d) certain operational expenses of the Fund; minus
e) the reserve for federal taxes on realized capital gains (if applicable);
minus
f) the investment advisory fee accrued by the Funds for each day of the
Valuation Period--0.480% of the first $200,000,000 of net assets on an
annual basis, (0.750% for the Lincoln National Putnam Master Fund, Inc
/0.900% for the Lincoln National International Fund, Inc.), 0.400% of the
next $200,000,000 of net assets, (0.700% for the Lincoln National Putnam
Master Fund, Inc./0.750% for the Lincoln National International Fund,
Inc.), and 0.300% of net assets above $400,000,000, (0.680% for the Lincoln
National Putnam Master Fund, Inc./0.600% for the Lincoln National
International Fund, Inc.); divided by
g) the net asset value of the Fund as of the beginning of the Valuation
Period.
The Gross Investment Rate may be positive or negative.
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<PAGE>
The Net Investment Rate for each sub-account is equal to the Gross Investment
Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002%
for each day of the Valuation Period, plus or minus an adjustment for any
taxes attributable to the operation of the Variable Account. LNL makes the
1.002% deduction for administrative expenses and mortality and expense risk
guarantees.
The method used to determine unit values may increase or decrease the dollar
value of benefits under the Contract. The dollar value of benefits will not be
adversely affected by expenses incurred by LNL.
The Net Investment Factor for each sub-account is equal to 1.000000000 plus the
Net Investment Rate for the period.
1.04 FIXED ALLOCATIONS
The Purchase Payments under the Contract may be allocated to the Variable
Account and/or to the fixed portion of the Contract. A minimum payment to the
fixed portion must be at least $1,000. Purchase Payments allocated to the fixed
portion will be invested in the general account of LNL.
1.05 CREDITING OF INTEREST
Interest shall be credited daily on all Purchase Payments that are allocated to
the fixed portion of this Contract.
Prior to the time the Annuitant elects to receive Benefit Payments or the death
of the Annuitant, whichever occurs first, LNL guarantees that it will credit
interest on fixed allocations at an effective annual rate not less than 4.5%
during the first five contract years, 4.0% for the next five contract years, and
3.5% after that. A table of guaranteed values for the fixed allocations may be
found in Article 7.
LNL may credit interest at rates in excess of the guaranteed rates at any time
and guarantee higher rates for shorter periods of time.
1.06 AUTOMATIC NONFORFEITURE OPTION
This Contract will continue until the earlier of the Maturity Date, surrender of
the Contract, or death of the Annuitant. Additional Purchase Payments may be
made at any time. The total Account Value must be at least $000. If not, LNL may
surrender the Contract. Purchase Payments may be resumed at any time prior to
maturity, surrender, or death of the Annuitant.
1.07 TRANSFERS
The Owner may direct a transfer of assets from one sub-account to another
sub-account or to the fixed portion of the Contract. The Owner may also direct a
transfer of assets from the fixed portion of the Contract to one or more
sub-accounts of the Variable Account. Such a transfer request must be in
writing. Amounts transferred to the sub-account(s) will purchase Accumulation
Units as described in the last paragraph of Section 1.02.
The minimum transfer amount is $500 or the entire amount in the
sub-account/fixed portion, whichever is less. If after the transfer the amount
remaining under this Contract in the sub-account/fixed portion from which the
transfer is taken is less than $100, the entire amount held in that
sub-account/fixed portion will be transferred with the transfer amount. The
transfer is subject to any applicable transfer charge. There may not be more
than one transfer in any thirty day period. LNL reserves the right to limit the
number of transfers.
For transfers between sub-accounts and from the sub-account(s) to the fixed
portion of the Contract, there are no restrictions on the maximum amount which
may be transferred. For transfers from the fixed portion of the Contract to the
Variable Account, the sum of the percentages of fixed value transferred will be
limited to 25% in any 12 month period.
ARTICLE 2 BENEFITS
2.01 ANNUITY PAYMENTS
An election to receive proceeds under an Annuity Payment Option must be made by
the Maturity Date.
If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity
payments will commence on the Maturity Date under the Annuity Payment Option
providing a Life Annuity with Annuity Payments guaranteed for 10 years.
However, upon written request by the Owner and any Beneficiary who cannot be
changed, the Maturity Date may be deferred. If the new Maturity Date extends
beyond age 85, LNL reserves the right to restrict the availability of certain
Annuity Payment Options.
2.02 CHOICE OF ANNUITY PAYMENT OPTION
BY OWNER
While the Annuitant is alive, the Owner may choose any Annuity Payment Option or
change any choice, if that right has been reserved, but only before the Maturity
Date. The election must be made not later than thirty days prior to the Maturity
Date.
BY BENEFICIARY
At the time proceeds are payable, a Beneficiary may choose or change any Annuity
Payment Option if proceeds are available to the Beneficiary in one sum.
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<PAGE>
A choice or change must be in writing to LNL.
2.03 ANNUITY PAYMENT OPTIONS
a) Life Annuity, Guaranteed Period - Payments will be made for life with no
certain period or life and a 10 year certain period or life and a 20 year
certain period.
b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime
of the Annuitant, terminating with the last payment due prior to the death
of the Annuitant, provided that, at such death, the Beneficiary will
receive an additional payment of the then dollar value of the number of
Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the
total amount applied under the option divided by the Annuity Unit Value at
the Annuity Commencement Dale and (b) is the product of the number of
Annuity Units represented by each payment and the number of payments made.
c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with
no certain period or life and a 10 year certain period or life and a 20
year certain period. Payments will be made during the joint life of the
Annuitant and a Joint Annuitant of the Annuitant's choice. Payments
continue for the life of the survivor at the death of the Annuitant or
Joint Annuitant.
d) Other options may be available as agreed upon by LNL.
At the time Annuity Payments start under the provisions of this Contract, the
Owner may elect to have the total value applied to provide a variable annuity, a
fixed annuity, or a combination fixed and variable annuity. If no election is
made the value of the Annuitant's Variable Account shall be used to provide a
variable annuity, and the value of the Annuitant's fixed allocations shall be
used to provide a fixed annuity.
The amount of Annuity Payment will depend on the age and sex of the Annuitant at
the time the first payment is due. A choice may be made to receive payments once
each month, four times each year, twice each year, or once each year. The value
used to effect benefit payments for an Annuitant will be calculated as of the
fourteenth day prior to the date benefit payments start.
The payment amounts shown in the option tables in Article 5 will be used to
determine the first monthly payment under a variable payment option. The tables
show the dollar amount of the first monthly payment which can be purchased with
each $1,000 of Account Value, after deduction of any applicable premium taxes.
Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a
guaranteed rate of return of 5% per year.
The payment amounts shown in the option tables in Article 6 will be used to
determine the monthly payments under a fixed payment option. The tables show the
dollar amount of the monthly payments which can be purchased with each $1,000 of
account value, after deduction of any applicable premium taxes. Amounts shown
use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed
rate of return of 3 1/2% per year.
The following shall apply only in situations where the provisions of the
Retirement Equity Act of 1984 are required:
If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then under the
Annuity Payment Option elected, the present value of the payments projected to
be made to the Annuitant must equal more than 50% of the present value of the
total payments projected to be made to the Annuitant and the Beneficiary or
Joint Annuitant. The present value of such projected payments shall be
determined on the basis of the actuarial assumptions used by LNL in determining
the amount of annuity payments.
2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST
Each Variable Annuity Payment after the first will be determined by multiplying
the Annuity Unit Value of the date each payment is due by a constant number of
Annuity Units. This constant is determined by dividing the amount of the first
payment by the Annuity Unit Value for the date the first payment is due.
The Annuity Unit Value for any Valuation Period for any sub-account is
determined by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the product of (a) 0.999856337 raised to a power equal to
the number of days in the current Valuation Period and (b) the Net Investment
Factor of the sub-account for the Valuation Period containing the fourteenth day
prior to the last day of the current Valuation Period.
The valuation of all assets in the sub-account shall be determined in accordance
with the provisions of applicable laws, rules, and regulations. The method of
determination by LNL of the value of an Accumulation Unit and of an Annuity Unit
will be conclusive upon the Annuitant and any Beneficiary.
LNL guarantees that the dollar amount of each installment after the first shall
not be affected by variations in mortality experience from mortality
assumptions on which the first installment is based.
2.05 PROOF OF AGE
Annuity Payment will be subject to proof of age that LNL will accept.
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<PAGE>
2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS
If the Annuity Payment Option chosen results in payments of less than $50 per
sub-account, the frequency will be changed so that payments will be at least
$50.
2.07 EVIDENCE OF SURVIVAL
LNL has the right to ask for proof that the person on whom the payment is based
is alive when each payment is due.
2.08 CHANGE IN ANNUITY PAYMENT
Changes in Annuity Payments may not be made after Annuity Payments commence.
2.09 ASSIGNMENT
This Contract or any portion of this contract may not be assigned except
pursuant to a Domestic Relations Order issued by court of proper jurisdiction
for any non-qualified Contract or pursuant to a Qualified Domestic Relations
Order, as defined under the Internal Revenue Code.
2.10 ACCOUNT VALUE
The Account Value is the Value of all Accumulation Units held in the name of the
Owner in the Variable Account plus the value of the fixed portion of the
Contract.
2.11 ACCOUNT CHARGE
On the last business day of each Contract Year, LNL will deduct $25.00 from the
Account Value. At surrender the Account Charge will be deducted from the Account
Value. If the Owner has elected more than one sub-account, the deduction of the
Account Charge shall be taken from each sub-account on a pro-rata basis. Each
sub-account will be adjusted by an amount equal to a fraction of the charge.
The fraction is equal to "a" divided by "b", where a is the Account Value of the
sub-account and "b" is the value of all sub-accounts under the Contract. The
fraction for each sub-account is applied to the deduction to determine each
sub-account's deduction.
For the purposes of this Section, the fixed portion of the Contract is
considered a sub-account.
2.12 SURRENDER OPTION
The Owner may surrender this Contract for its surrender value. On surrender,
this Contract terminates. Surrender will be effective on date on which LNL has
receives a written request at its Home Office. The surrender value will be the
total Account Value less a Surrender Charge and less the Account Charge.
The Surrender Charge is calculated as a percentage of the Purchase Payments
surrendered. This percentage is based on the number of completed Contract
Years between the Contract Year of Purchase Payment and the Contract Year of
surrender/withdrawal as shown in the following schedule. The Surrender Charge
is calculated separately for each Contract Year's Purchase Payments.
<TABLE>
<CAPTION>
Contract Year of
Surrender/Withdrawal Charge as a % of Total
Minus Contract Year of Purchase Payments Surrendered/
Purchase Payments Withdrawn in a Contract year
<S> <C>
0 7
1 6
2 5
3 4
4 3
5 2
6 1
7+ 0
</TABLE>
A Contract Year is the period from the Contract effective date (month and Day)
to the anniversary of the Contract effective date in the following year.
Any payment will be by check and mailed from LNL's Home Office within seven days
after receipt of the surrender request: however, LNL may be permitted to defer
such payment under the Investment Company Act of 1940, as in effect at the time
a request for surrender is received. Interest will be credited to money in the
fixed portion of this contract during the deferral period. The Surrender Option
is not available atter Annuity Payments have begun.
Any Account Value payable as a result of annuitization, total and permanent
disability of the Annuitant subsequent to the effective date of this Contract
and prior to the 65th birthday of the Annuitant, or death of the Annuitant
will not be subject to the Surrender Charges. Total and permanent disability
is defined as the inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can
be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than twelve months. LNL must be furnished
with proof of the existence thereof by way of a physician's statement.
2.13 WITHDRAWAL OPTION
The Owner may withdraw a part of the surrender value of this Contract, subject
to the charges outlined under Surrender Option 2.12. The first partial
withdrawal in any Contract Year up to 15% of Purchase Payments will be free of
charges.
The Surrender Charge is calculated separately for each Contract Year's Purchase
Payments. For Surrender Charge purposes, LNL assumes that Purchase Payments are
withdrawn on a "first in-first out (FIFO)" basis, and that all Purchase Payments
are withdrawn before any earnings are withdrawn.
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Withdrawal will be effective on the valuation date on which or next following
the date LNL receives a written request at its Home Office. The minimum
withdrawal is $100. If any withdrawal reduces the total Account Value to less
than $000, LNL may surrender the Contract for its value. The remaining value
will be subject to the charges as provided under Surrender Option. The request
should specify from which sub-account the withdrawal will be made. If no sub-
account is specified, LNL will withdraw, on a prorata basis from each
sub-account, the amount requested. Any payment will be by check and mailed from
LNL's Home Office within seven days after the date of withdrawal; however, LNL
may be permitted to defer such payment under the Investment Company Act of 1940,
as in effect at the time such request for withdrawal is received. The
Withdrawal Option is not available after Annuity Payments have begun.
For purposes of this Section, the fixed portion of the Contract is considered a
sub-account.
2.14 DISTRIBUTIONS FROM IRC SECTION 403(b)
Pursuant to requirements of The Tax Reform Act of 1986, section 1123(c)(1)
amending IRC Section 403(b), effective January 1,1989:
Distributions of post 12/31/88 403(b) Tax Deferred Annuity elective deferrals
and earnings under this contract may be made only when:
- You attain the age of 59 1/2, separate from service, die, or become
disabled. The term disabled shall be as defined in the plan, or in the
absence of such definition, as defined in IRC Section 72(m)(7), or
- you experience a case of hardship. Hardship shall be determined by the
employer, plan administrator, trustee, or person performing similar
functions. In the case of hardship distributions, only your
contributions, and not the income attributable to your contributions,
may be distributed.
2.15 DEATH OF ANNUITANT
On receipt of due proof of the death of the Annuitant before a choice is made to
receive proceeds under an Annuity Payment Option, LNL will pay to the
Beneficiary the value of the Contract as of the day on which written notice of
death is received by LNL. Due proof of death shall be either a certified copy of
the certificate of death, a certified copy of the statement of death from the
attending physician, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to
LNL.
On receipt of due proof of death of the Annuitant after Annuity Payments have
begun under an Annuity Payment Option, if any Annuity Payments remain under the
Option they will be paid to the Beneficiary as provided by the Option.
Unless otherwise provided in the Beneficiary designation, if no Beneficiary
survives the Annuitant, the proceeds will be paid in one sum to the Owner, if
living; otherwise, to to the Owner's estate.
If the Beneficiary designated at the Annuitant's death is a surviving spouse,
the Contract may be continued in the name of the spouse as the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies before Annuity
Payments have begun under this Contract, the proceeds must be distributed to the
designated Beneficiary within five years of the death of the Annuitant.
For a Beneficiary other than a spouse, if the Annuitant dies after Annuity
Payments have begun under this Contract the remaining portion of the Annuitant's
interest must either be distributed at least as rapidly as under the method of
distribution being used as of the date of the Annuitant's death or distributed
over the life of the Beneficiary or a period not extending beyond the life
expectancy of the Beneficiary. The distribution of these amounts must begin not
later than one year after the Annuitant's death.
2.16 DEATH OF CONTRACT OWNER
If the owner of a non-qualified contract dies before annuity payments have
begun, then in accordance with the provisions or Section 72(s) of the Internal
Revenue Code (IRC), the Cash Surrender Value (proceeds) of the Contract will be
paid as follows:
- Upon the death of a non-annuitant owner, the proceeds shall be paid to
any surviving joint or contingent owner.
- If no joint or contingent owner has been named, then the proceeds shall
be paid to the annuitant named in the Contract.
If the decedent owner or joint owner is also the annuitant, then the death will
be treated as death of the annuitant subject to the provisions of this Contract
regarding death of annuitant.
If the recipient of the proceeds is the surviving spouse, such surviving spouse
shall be deemed as having held the Contract with rights of survivorship and the
Contract may be continued in the name of such spouse as owner.
In accordance with IRC Section 72(s), any distribution must be paid within 5
years of the death of the owner unless the beneficiary begins receiving, within
one year of the Contract Owner's death, the distribution in the form of a life
annuity or an annuity for a period certain not exceeding the beneficiary's life
expectancy.
2.17 JOINT/CONTINGENT OWNERSHIP
If joint owners are named in the application such joint owners shall be treated
as having equal undivided
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<PAGE>
interest in the Contract. Either owner, independent of the other, may
exercise any ownership rights in this Contract.
A contingent owner cannot exercise any ownership rights in this Contract while
the Contract Owner is alive.
ARTICLE 3
BENEFICIARY
3.01 DESIGNATION
The Beneficiary named in the application for this Contract will receive the
proceeds on the death of the Annuitant unless the Beneficiary has been changed
by the Owner.
3.02 CHANGE
The Owner may change any Beneficiary during the life of the Annuitant unless
otherwise provided in the previous designation. A change of Beneficiary will
revoke any previous designation.
A change may be made by filing a written request to LNL at its Home Office. The
change will become effective upon receipt of the written request by LNL at its
Home Office.
3.03 DEATH OF BENEFICIARY
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Annuitant, that Beneficiary's interest will pass to any other
Beneficiaries according to their respective interests.
If the Beneficiary dies while receiving any remaining Annuity Payments due after
the death of the Annuitant, the value of the remainder of such Annuity Payments
will be paid in one sum to the Beneficiary's estate.
ARTICLE 4
GENERAL PROVISIONS
4.01 THE CONTRACT
This Contract the application, and any riders attached to this Contract make up
the whole Contract. Only the President, a Vice-President, the Secretary or an
Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify,
or waive any provisions of this Contract.
Any changes, modifications, or waivers must be in writing. No representative or
person other than the above named officer has authority to change or modify this
Contract or waive any of its provisions.
All terms used in this Contract will have usual and customary meaning except
when specifically defined.
LNL reserves the right to unilaterally change the terms of this Contract for
the purpose of keeping this Contract in compliance with federal or state law.
4.02 CONTROL
Consistent with the terms of any Beneficiary designation the Owner may,
during the life of the Annuitant, do any of the things described below.
- Prior to the time when Annuity Payments have begun the Owner may
surrender this Contract or withdraw a portion of the surrender value.
- The Owner may change this Contract with the consent of LNL.
- The Owner may exercise any right, receive any benefit, or enjoy any
privilege contained in this Contract.
4.03 INCONTESTABILITY
This Contract will not be contested.
4.04 MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, the benefits available under
this Contract will be those which the Purchase Payments would have purchased for
the correct age. Any underpayments already made by LNL shall be made up
immediately and any overpayments already made by LNL shall be charged against
the Annuity Payments falling due after adjustment.
4.05 NONPARTICIPATING
The Contract is nonparticipating and will not share in the surplus earnings of
LNL.
4.06 VOTING RIGHTS
The Owner shall have the right to vote only at the meetings of the Eligible
Fund(s) invested in by the Owner due to their interest in the sub-accounts of
the Variable Account. Ownership of this Contract shall not entitle any person to
vote at any meeting of shareholders of LNL. Votes attributable to the Contract
shall be cast in conformity with applicable law.
4.07 OWNERSHIP OF THE ASSETS
LNL shall have exclusive and absolute ownership and control of its assets,
including all assets in the Variable Account.
4.08 REPORTS
At least once each Contract Year LNL shall mail a report to the Owner. The
report shall be mailed to the last address known to LNL. The report shall
include a statement of the number of units credited to the Variable Account
under this Contract and the dollar value of such units as well as a statement of
the value of the fixed portion of this Contract. The information in the report
shall be as of a date not more than two months prior to the date of mailing the
report. LNL shall also mail to the Owner at least once in each Contract Year a
report of the investments held in the sub-accounts under this Contract.
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4.09 PREMIUM TAX
State and local government premium tax, if applicable, will be deducted from the
Account Value when incurred by LNL.
Page 10
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ARTICLE 5
ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Unit
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.69 $5.61 $5.38 $5.47
61 5.79 5.70 5.44 5.55
62 5.90 5.79 5.50 5.63
63 6.01 5.89 5.57 5.72
64 6.13 6.00 5.63 5.82
65 6.26 6.12 5.69 5.92
66 6.40 6.24 5.75 6.03
67 5.56 6.37 5.82 6.15
68 6.72 6.50 5.88 6.27
69 6.90 6.65 5.93 6.40
70 7.10 6.80 5.99 6.54
71 7.32 6.96 6.04 5.68
72 7.55 7.13 6.08 6.84
73 7.80 7.30 6.12 7.00
74 8.07 7.48 6.16 7.17
75 8.37 7.66 6.19 7.36
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Joint Certain Period
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26
5.14 5.14 5.11 61 5.56 5.50 5.33
5.22 5.21 5.17 62 5.65 5.59 5.39
5.29 5.29 5.24 63 5.75 5.68 5.45
5.37 5.37 5.30 64 5.86 5.77 5.52
5.46 5.46 5.38 65 5.97 5.88 5.58
5.56 5.55 5.45 66 6.09 5.99 5.65
5.66 5.65 5.52 67 6.23 6.11 5.71
5.77 5.76 5.60 68 6.37 6.24 5.78
5.90 5.88 5.67 69 6.53 6.37 5.84
6.03 6.00 5.75 70 6.70 6.51 5.90
6.17 6.14 5.82 71 6.89 6.66 5.96
6.32 6.28 5.89 72 7.09 6.82 6.01
6.49 6.43 5.95 73 7.31 6.99 6.06
6.66 6.60 6.01 74 7.54 7.16 6.11
6.86 6.77 6.06 75 7.80 7.34 6.15
</TABLE>
Page 11
<PAGE>
ARTICLE 6
ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION
GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS
PURCHASED WITH EACH $1,000 APPLIED
SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
No 120 240
Period Months Months Cash
Age Certain Certain Certain Refund
<S> <C> <C> <C> <C>
60 $5.31 $5.17 $4.77 $4.83
61 5.43 5.27 4.83 4.92
62 5.56 5.38 4.89 5.01
63 5.70 5.50 4.95 5.10
64 5.85 5.62 5.01 5.20
65 6.00 5.74 5.07 5.31
66 6.17 5.88 5.13 5.42
67 6.35 6.01 5.18 5.53
68 6.55 6.16 5.24 5.65
69 6.75 6.30 5.29 5.79
70 6.98 6.46 5.34 5.92
71 7.21 6.63 5.38 6.06
72 7.47 6.79 5.42 6.22
73 7.75 6.96 5.46 6.37
74 8.04 7.13 5.49 6.54
75 8.36 7.31 5.52 6.73
</TABLE>
JOINT AND SURVIVOR ANNUITIES
<TABLE>
<CAPTION>
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR
Certain Period Joint Certain Period
None 120 Months 240 Months Age None 120 Months 240 Months
<S> <C> <C> <C> <C> <C> <C>
$4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64
4.58 4.57 4.48 61 5.11 5.01 4.71
4.67 4.65 4.55 62 5.23 5.11 4.77
4.76 4.75 4.62 63 5.35 5.22 4.84
4.86 4.85 4.69 64 5.48 5.33 4.90
4.97 4.95 4.77 65 5.62 5.45 4.97
5.09 5.06 4.84 66 5.76 5.58 5.03
5.21 5.18 4.92 67 5.92 5.71 5.09
5.34 5.31 4.99 68 6.09 5.85 5.15
5.49 5.44 5.07 69 6.27 5.99 5.21
5.64 5.58 5.14 70 6.46 6.14 5.27
5.80 5.73 5.21 71 6.67 6.30 5.32
5.98 5.89 5.27 72 6.90 6.46 5.37
6.17 6.06 5.33 73 7.14 6.63 5.41
6.37 6.23 5.38 74 7.40 6.81 5.45
6.59 6.41 5.43 75 7.67 6.99 5.49
</TABLE>
Page 12
<PAGE>
ARTICLE 7
GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES
FOR FIXED ALLOCATIONS*
<TABLE>
<CAPTION>
$5,000 Initial Purchase Payment Thereafter
$1,000 Annual Purchase Payment
End Guaranteed Guaranteed
of Accumulated Surrender
Year Value Value
<S> <C> <C>
1 $ 5,200.00 $ 4,850.00
2 5,454.00 5,084.00
3 7,764.43 7,384.43
4 9,133.83 8,753.83
5 10,564.85 10,194.85
6 12,002.45 11,652.45
7 13,497.54 13,177.54
8 15,052.45 14,772.45
9 16,569.54 16,389.54
10 18,351.32 18,071.32
11 20,003.62 19,723.62
12 21,713.75 21,433.75
13 23,483.73 23,203.73
14 25,315.66 25,035.66
15 27,211.71 26,931.71
16 29,174.12 28,894.12
17 31,205.21 30,925.21
18 33,307.39 33,027.39
19 35,483.15 35,203.15
20 37,735.06 37,455.06
21 40,065.79 39,785.79
22 42,478.09 42,198.09
23 44,974.83 44,694.83
24 47,558.95 47,278.95
25 50,233.51 49,953.51
26 53,001.68 52,721.68
27 55,866.74 55,586.74
28 58,832.08 58,552.08
29 61,901.20 61,621.20
30 65,077.74 64,797.74
31 68,365.46 68,085.46
32 71,768.25 71,488.25
33 75,290.14 75,010.14
34 78,935.30 78,655.30
35 82,708.03 82,428.03
36 86,612.81 86,332.81
37 90,654.26 90,374.26
38 94,837.16 94,557.16
39 99,156.46 98,886.46
40 103,647.29 103,367.29
41 108,284.94 108,004.94
42 113,084.92 112,804.92
43 118,052.89 117,772.89
44 123,194.74 122,914.74
45 128,516.55 128,236.55
</TABLE>
*Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or
tess than shown in the table because of the variable of the day of receipt of
the Purchase Payment at the Home Office from period to period and the crediting
of interest to the Annuitant's account on a daily basis. Values shown are based
upon contributions equally spaced with interest occurring at the beginning of
the year.
These values do not provide for premium tax, if any.
Page 13
<PAGE>
VARIABLE ANNUITY AMENDMENT
MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT")
Any reference to Fund or Funds shall be followed by "and Series".
VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as
follows:
"The Eligible Funds and Series are:
1. Lincoln National Growth & Income Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Money Market Fund, Inc.
4. Lincoln National Special Opportunities Fund, Inc.
5. Lincoln National Managed Fund, Inc.
6. Lincoln National Global Asset Allocation Fund, Inc.
7. Lincoln National Social Awareness Fund, Inc.
8. Lincoln National International Fund, Inc.
9. Lincoln National Aggressive Growth Fund, Inc.
10. Lincoln National Capital Appreciation Fund, Inc.
11. Lincoln National Equity-Income Fund, Inc.
12. Delaware Group Premium Fund, Inc. Equity/Income Series.
13. Delaware Group Premium Fund, Inc. Emerging Growth Series.
14. Delaware Group Premium Fund, Inc. Global Bond Series.
15. Other Funds and Series made available by LNL."
Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4
and 5 of this Contract shall be amended in its entirety as follows:
"the investment advisory fee accrued by the Fund or Series for each day of the
Valuation Period from the Advisory Fee Table below; divided by"
Advisory Fee Table
<TABLE>
<CAPTION>
Fund or Series First Next In excess of
$200 million $200 million $400 million
Of average daily net asset value
<S> <C> <C> <C>
Aggressive Growth 75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .05 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1
Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1
Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1
All other Funds .48 of 1 .40 of 1 .30 of 1
</TABLE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/S/ PATRICK WILTSHIRE
PATRICK WILTSHIRE, SECOND VICE PRESIDENT
<PAGE>
ANNUITY
CONTRACT
DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY
BENEFIT PAYMENT OPTIONS
NONPARTICIPATING
If you have any questions concerning
this Contract, or if anyone suggests that
you change or replace this Contract, please
contact your Lincoln National Life
representative or the Home Office of LNL.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 2340
FORT WAYNE, INDIANA 46801
800-348-1212
<PAGE>
PARTICIPATION AGREEMENT
AMONG
DELAWARE GROUP PREMIUM FUND, INC.
AND
LINCOLN NATIONAL LIFE INSURANCE CO.
AND
DELAWARE DISTRIBUTORS, LP
THIS AGREEMENT, made and entered into this 1st day of May, 1996,
by and between DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under
the laws of Maryland (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE CO., an
Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and DELAWARE DISTRIBUTORS, LP, a Delaware
limited partnership (the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the common stock of the Fund (the "Fund shares") consists of
separate series ("Series") issuing separate classes of shares ("Series shares"),
each such class representing an interest in a particular managed portfolio of
securities and other assets; and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-lA to register itself as an open-end
management investment company (File No. 811-5162) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No.
33-14363) under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC
to register under the 1933 Act certain variable annuity contracts described in
Schedule 2 to this Agreement as in effect at the time this Agreement is executed
and such other variable annuity contracts and variable life insurance policies
which may be added to Schedule 2 from time to time in accordance with Article XI
of this Agreement (such policies and contracts shall be referred to herein
collectively as the "Contracts," each such registration statement for a class or
classes of contracts
1
<PAGE>
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
WHEREAS, each Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Delaware Management Company, Inc. (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.
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use its best efforts to calculate such net asset
value by 6:00 p.m., E.S.T., on each such Business Day. Notwithstanding
2
<PAGE>
any other provision in this Agreement to the contrary, the Board of Directors of
the Fund (the "Fund Board") may suspend or terminate the offering of Fund shares
of any Series, if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Fund Board acting in
good faith and in light of its fiduciary duties under Federal and any applicable
state laws, suspension or termination is necessary and in the best interests of
the shareholders of any Series (it being understood that "shareholders" for this
purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full
or fractional shares of the Fund held by the Account or the Company, executing
such requests at the net asset value on a daily basis in accordance with Section
1.4 of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund
may delay redemption of Fund shares of any Series to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the then currently
effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of
receiving redemption and purchase requests from the Account
(but not from the general account of the Company), and receipt
on any Business Day by the Company as such limited agent of the
Fund prior to the time prescribed in the current Fund
Prospectus (which as of the date of execution of this Agreement
is 4 p.m., E.S.T.) shall constitute receipt by the Fund on that
same Business Day, provided that the Fund receives notice of
such redemption or purchase request by 11:00 a.m., E.S.T. on
the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New
York Stock exchange is open for trading.
(b) The Company shall pay for shares of each Series on the
same day that it places an order with the Fund to purchase
those Series shares for an Account. Payment for Series shares
will be made by the Account or the Company in Federal Funds
transmitted to the Fund by wire to be received by 11:00 a.m.,
E.S.T. on the day the Fund is properly notified of the purchase
order for Series shares. If Federal Funds are not received on
time, such funds will be invested, and Series shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for Series shares redeemed by the Account or
the Company will be made in Federal Funds transmitted to the
Company by wire on the day the Fund is notified of the
redemption order of Series shares, except that the Fund
reserves the right to delay payment of redemption proceeds, but
in no event may such payment be delayed longer than the period
permitted under Section 22(e) of the 1940 Act. Neither the
Fund nor the Distributor shall bear any responsibility
whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for
such action.
3
<PAGE>
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any Series shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Series shares so issued as payment of such dividends
and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share for each Series available to the Company by 6 p.m., E.S.T. each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, any Series, the Distributor, nor the Investment Manager nor
any of their affiliates shall be liable for any information provided to the
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company to the Fund, the Distributor or the
Investment Manager.
1.8.
(a) The Company may withdraw the Account's investment in
the Fund or a Series only: (I) as necessary to facilitate
Contract owner requests; (ii) upon a determination by a
majority of the Fund Board, or a majority of disinterested Fund
Board members, that an irreconcilable material conflict exists
among the interests of (x) any Product Owners or (y) the
interests of the Participating Insurance Companies investing in
the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the affected Series to substitute the
shares of another investment company for Series shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other
legal precedent of general application; or (v) at the Company's
sole discretion, pursuant to an order of the SEC under 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.
4
<PAGE>
(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 of any Series will
be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
separate account for its Contracts, and that it will maintain such registrations
for so long as any Contracts issued under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as
a Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund further represents and warrants that
it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such
5
<PAGE>
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 Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that it is duly
registered as a broker-dealer under the 1934 Act, a member in good standing of
the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager,
represents and warrants that the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940 and is in
compliance with applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies
of the current Fund Prospectus as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund at its expense shall provide
to the Company a camera-ready copy of the current Fund Prospectus suitable for
printing and other assistance as is reasonably necessary in order for the
Company to have a new Contracts Prospectus printed together with the Fund
Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Distributor (or, in
the Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other communications to
shareholders (except proxy material), in each case in a form suitable for
printing. The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
6
<PAGE>
(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.
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, promptly after the filing of such
document with the SEC or other regulatory authorities.
7
<PAGE>
3.8. The Company will provide to the Fund at least one complete copy
of all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, promptly after the filing of such document
with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, Statements of Additional
Information, shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under NASD rules, the 1940 Act or
the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the order referred to in
Article VII, the Fund shall: solicit voting instructions from Contract
owners;
4.2 Subject to applicable law and the order referred to in
Article VII, the Company shall:
(a) vote Fund shares of each Series attributable to Contract owners
in accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares of each Series attributable to Contract owners
for which no instructions have been received in the same proportion
as Fund shares of such Series for which instructions have been
received in timely fashion; and
(c) vote Fund shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to
Contract owners in the same proportion as Fund shares of such
Series for which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including
8
<PAGE>
expenses expressly assumed by the Fund pursuant to this Agreement) shall be paid
by the Fund to the extent permitted by law. Except as may otherwise be provided
in Section 1.4 and Article VII of this Agreement, the Company shall not bear any
of the expenses for the cost of registration and qualification of the Fund
shares under Federal and any state securities law, preparation and filing of the
Fund Prospectus and Fund Registration Statement, the preparation of all
statements and notices required by any Federal or state securities law, all
taxes on the issuance or transfer of Fund shares, and any expenses permitted to
be paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1
under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contract owners. (If for this purpose the
Company prints the Fund Prospectuses and SAIs in a booklet containing disclosure
for the Contracts and for underlying funds other than those of the Fund, then
the Fund shall pay only its proportionate share of the total cost to distribute
the booklet to existing Contract owners.)
The Company is responsible for the cost of printing and distributing
Fund prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contract owners. The Company shall have the final decision on choice
of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order 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.
9
<PAGE>
6.6. (a) The Company shall amend Schedule 3 when appropriate in
order to inform the Fund of any applicable state-mandated investment
restrictions with which the Fund must comply.
(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3, the Company
shall be informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and
Shared Funding Order") dated November 2, 1987 of the Securities and Exchange
Commission under Section 6' 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 or any
Series and reinvesting such assets in a different investment vehicle, including
another Series of the Fund, or submitting the question of whether such
segregation should be implemented to a vote of all affected Contractowners and,
as appropriate, segregating the assets of any particular group (i.e., variable
annuity Contractowners, variable life insurance policyowners, or variable
Contractowners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contractowners the option
of making such a change; and (b) establishing a new registered mutual fund or
management separate account, or taking such other action as is necessary to
remedy or eliminate the irreconcilable material conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving its right to
dispute the determination as between just the Company and the Fund. After
reserving that right the Company, although disagreeing with the Board that it
(the Company) was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance with
paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The
10
<PAGE>
parties shall then attempt to resolve the matter amicably through negotiation by
individuals from each party who are authorized to settle the controversy.
If the matter has not been amicably resolved within 60 days from the
date of the Company's notice of its intent to press the dispute, then before
either party shall undertake to litigate the dispute it shall be submitted to
non-binding arbitration conducted expeditiously in accordance with the CPR Rules
for Non-Administered Arbitration of Business Disputes, by a sole arbitrator;
PROVIDED, HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the 60-day period
set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or she will be
selected from the CPR Panels of Neutrals. The arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. Sec. 1-16. The place of arbitration
shall be Fort Wayne, Indiana. The Arbitrator is not empowered to award damages
in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
insurer was responsible for the conflict, then the Board shall notify the
Company immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other insurer, as applicable, shall, at its sole cost
and expense, take whatever steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4 Subject to the terms of Section 7.2 above, the Company shall
carry out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict with a view only to the
interests of Contract Owners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the Fund
be required to establish a new funding medium for any variable contract, nor
will the Company be required to establish a new funding medium for any Contract
if an offer to do so has been declined by a vote of a majority of affected
Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund, the Distributor and each person who
controls or is associated with the Fund (other than another Participating
Insurance Company) or the Distributor within the meaning of such terms under the
federal securities laws and any officer, trustee, director, employee or agent of
the foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
11
<PAGE>
(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 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 ofFund shares on a timely basis in accordance with the
procedures set forth in Article 1; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or
12
<PAGE>
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, 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
13
<PAGE>
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 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 six months advance written
notice to the other parties; or
(b) at the option of the Company if shares of any Series are
not available
14
<PAGE>
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
reasonablejudgment, materially impair the Company's ability to perform
the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment Manager
or any Sub-Investment Manager, by the NASD, the SEC, or any state
securities or insurance commission or any other regulatory body
regarding the duties of the Fund or the Distributor under this
Agreement, or an expected or anticipated ruling, judgment or outcome
which would, in the Company's reasonable judgment, materially impair
the Fund's or the Distributor's ability to perform Fund's or
Distributor's obligations and duties hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager
by the NASD, the SEC, or any state securities or insurance commission
or any other regulatory body which would, in the good faith opinion of
the Company, result in material harm to the Accounts, the Company, or
Contractowners.
(f) upon requisite vote of the Contract owners having an
interest in the affected Series (unless otherwise required by
applicable law) and written approval of the Company, to substitute the
shares of another investment company for the corresponding Series
shares of the Fund in accordance with the terms of the Contracts; or
(g) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
(h) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(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
15
<PAGE>
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(k) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes that
the Contracts may fail to so qualify; or
(l) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or financial
condition; or (2) the Company shall have been the subject of material
adverse publicity which is likely to have a material adverse impact
upon the business and operations of either the Fund or the
Distributor; or
(m) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that either:
(1) the Fund and the Distributor, or either of them, shall have
suffered a material adverse change in their respective businesses or
financial condition; or (2) the Fund or the Distributor, or both of
them, shall have been the subject of material adverse publicity which
is likely to have a material adverse impact upon the business and
operations of the Company; or
(n) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Accounts to another
insurance company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or unless this
Agreement is assigned to an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination, or sooner if required by law or
regulation.
(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
16
<PAGE>
10.1 of this Agreement, the Fund and the Distributor will, at the
option of the Company, continue to make available additional Fund
shares for so long after the termination of this Agreement as the
Company desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, if the Company so elects to make additional Fund
shares available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor shall
promptly notify the Company whether the Distributor and the Fund will
continue to make Fund shares available after such termination. If
Fund shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect except for Section
10.1(a) and thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this Section 10.3, upon
prior written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given by the
Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply
to any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect
of such Article VII termination shall be governed by the provisions
set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in the
Fund. The provisions of this Agreement shall be equally applicable to each such
class of contracts or policies, unless the context otherwise requires.
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:
Delaware Group Premium Fund, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Christopher Price
17
<PAGE>
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:
Delaware Distributors, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Keith E. Mitchell
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.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
DELAWARE GROUP PREMIUM FUND, INC. (Fund)
Date: By:
5/1/96 Name:/s/ David K. Downes
--------------------
Title: Senior Vice President, CAO and CFO
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Date: By:
4/30/96 Name:/s/ Kelly D. Clevenger
-----------------------
Title:Vice President
DELAWARE DISTRIBUTORS, LP (Distributor)
Date: By:
5/1/96 Name:/s/ Keith E. Mitchell
----------------------
Title: President and CEO
19
<PAGE>
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of May 1, 1996
Lincoln National Variable Annuity Account C
Lincoln Life Flexible Premium Variable Life Account K
20
<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of May 1, 1996
Multi Fund Variable Annuity Contracts
Multi Fund Variable Life Insurance Contracts
21
<PAGE>
SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of May 1, 1996
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.
22
<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 Post Effective Amendment No. 15 to the Registration
Statement (Form N-4 No. 33-25990) and the related Statement of Additional
Information pertaining to Lincoln National Variable Annuity Account C, and to
the use therein of our reports dated (a) February 5, 1998, with respect to
the statutory-basis financial statements of The Lincoln National Life
Insurance Company, and (b) April 6, 1998, with respect to the financial
statements of Lincoln National Variable Annuity Account C.
Fort Wayne, Indiana
April 20, 1998
<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 Planners, Ltd. |
| | 100% - Englad/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 |
| | --------------------------------------
<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. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
-------------------------------
| |
| 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. |
| | | | | | --| 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | --|Founders CBO Corporation |
| | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | -------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------
| | | | | ------------------------------------
| | | | |---| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | ------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |---| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |-- | Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | -------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Investment & Retirement Services, Inc. |
| | | | | 100% - Delaware - Registered Transfer Agent |
| | | | -----------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | -----------------------------------------
| | | |--| Lynch & Mayer Asia, Inc. |
| | | | | 100% - Delaware - Investment Management |
| | | | -----------------------------------------
| | | | ----------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ----------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
| | | ----------------------------------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--| AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | --------------------------------------------------
| | -------------------------------------------
| |--| Cigna Associates, Inc. |
| | | 100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | ----------------------------------------------------------
| | |--| Cigna Associates of Massachusetts, Inc. |
| | | | 100% - Massachusetts - Insurance Agency |
| | ----------------------------------------------------------
| | -------------------------------------------
| |--|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 |
| | ------------------------------------------------
<PAGE>
--------------------------------
| 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 |
| | ---------------------------------------
| | --------------------------------------------
| |--| 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. |
| | -------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | | ------------------------------------------------------
| | |--| Lincoln European Reinsurance S.A. |
| | | | 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) |
| | | | --------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | |(formerly: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--| Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | | 100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| ------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| 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 |
--------------------------
</TABLE>
<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 |
--------------------------------------------------
<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.
<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)
<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.
<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.
<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 Planners, 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.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln
National Life Insurance Company on January 1, 1998. Cigna Associates
of Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was
dissolved on January 12, 1998 and Lincoln National Mezzanine Fund,
L.P. was cancelled January 12, 1998.
c. Corporate organizational changes took place in the UK group of
companies on January 21, 1998: Lincoln Insurance Services Limited and
its subsidiaries were moved from Lincoln National (UK) PLC to Lincoln
Assurance Limited; Lincoln General Insurance Co. Ltd. was moved from
Lincoln Insurance Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation
on January 16, 1998 and a wholly-owned subsidiary of The Lincoln
National Life Insurance Company.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
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, the first two
To Shareholders years in an easily accessible
place
Semi-Annual F&RM Eric Jones Permanently, the first two
Reports 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 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 first two
of securities years in an easily accessible
transactions F&RM Eric Jones place
PORTFOLIO SECURITIES
C-Port Purchase/ F&RM Eric Jones Permanently, the first two
Sales Report 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 first two
Balance (5000 years in an easily accessible
series) place
SECURITIES IN TRANSFER
Not Applicable.
SECURITIES IN PHYSICAL POSSESSION
Not Applicable.
SECURITIES BORROWED AND LOANED
Not Applicable.
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
<PAGE>
LNL Trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
LNL Trial F&RM Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) 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
(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 first two
tions and years in an easily accessible
daily reports place
of securities
transactions
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
COMMERCIAL PAPER
Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
RECORD OF PUTS, CALLS, SPREADS, ETC.
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
TRIAL BALANCE
LNL Trial F&RM Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) 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 first two
Agreements years in an easily accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence 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 first two
ments and years in an easily accessible
Proxy Cards 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
