<PAGE>
As filed with the Securities and Exchange Commission on July 17, 1998
Registration No.333-50817
- - ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
(Check appropriate box or boxes.)
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C (e-Annuity)
-------------------------------------------
(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 Porter, Wright, Morris & Arthur
1667 K Street NW, Suite 1100
Washington, D.C. 20006
Attention: Patrice M. Pitts, Esq.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
ACCOUNT C
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
N-4 ITEM CAPTION IN PROSPECTUS (PART A)
- -------- ------------------------------
1. Cover Page
2. Special Terms
3.(a) Expense Table
(b) Synopsis
(c) Synopsis
(d) Not Applicable
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) Synopsis; Charges and
Other Deductions
(b) Charges and Other Deductions
(c) Charges and Other Deductions
(d) Not Applicable
(e) Synopsis; Charges and Other Deductions
(f) Synopsis; Charges and Other Deductions
7.(a) The Contract; Investments of the Variable Annuity
Account; Annuity Payments; Voting Rights;
Return Privilege
(b) Investments of the Variable Account;
The Contracts; Cover Page
(c) The Contracts
(d) The Contracts
<PAGE>
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
N-4 ITEM CAPTION IN PROSPECTUS (PART A)
- -------- ------------------------------
8. (a) Annuity Payouts
(b) Annuity Payouts
(c) Annuity Payouts
(d) Annuity Payouts
(e) Cover Page; Annuity Payouts
(f) The Contract; Annuity Payouts
9. (a) The Contract; Annuity Payouts
(b) The Contract; Annuity Payouts
10.(a) The Contract; Cover Page; Synopsis
(b) The Contracts; Investments of the
Variable Account
(c) The Contract
(d) Distribution of the Contract
11.(a) The Contract
(b) Not Applicable
(c) The Contract
(d) The Contract
(e) Return Privilege
12.(a) Federal Tax Status
(b) Cover Page; Federal Tax Status
(c) Federal Tax Status
13. Legal Proceedings
14. Table of Contents to the Statement
of Additional Information (SAI)
for Lincoln National Variable
Annuity Account C
<PAGE>
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
CAPTION IN STATEMENT OF ADDITIONAL
----------------------------------
N-4 ITEM INFORMATION (PART B)
- -------- --------------------
15.(a) Cover Page for Part B
(b) 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; Underwriter
19.(a) Purchase of Securities Being
Offered
(b) Not Applicable
20.(a) Underwriter
(b) Underwriter
(c) Underwriter
(d) Underwriter
21. Calculation of Performance Data
22. Annuity Payouts
23.(a) Financial Statements -- Lincoln
National Variable Annuity
Account C
(b) Statutory-basis Financial Statements and Schedules --
Lincoln National Life
Insurance Co. (Lincoln Life)
<PAGE>
[LOGO]
MULTI FUND-REGISTERED TRADEMARK-
PROSPECTUSES
Variable Annuity Account C
11 Lincoln National funds and
3 Delaware Group series
May 1, 1997
<PAGE>
EANNUITY-TM-
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY CONTRACT
ISSUED BY:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Ind. 46802
SERVICING ADDRESS:
Lincoln Financial Direct
P.O. Box 691
Leesburg, VA 20178
This prospectus describes an individual flexible premium deferred variable
annuity contract (Contract or variable annuity contract) issued by The Lincoln
National Life Insurance Company (Lincoln Life). Most transactions involving this
Contract may be performed through Lincoln Life's Internet Service Center.
The Contract described in this prospectus is offered for both traditional and
Roth individual retirement annuities (IRAs) and as a nonqualified Contract. A
nonqualified Contract can be owned jointly only by spouses and is purchased with
after-tax money.
The Contract offers you the accumulation of Contract Value and payment of
periodic annuity benefits. These benefits are paid on a variable basis. Annuity
benefits start at the Annuity Commencement Date which you select. If the
Contractowner dies before the Annuity Commencement Date, the Contract Value will
be paid to the Beneficiary. (See DEATH BENEFIT BEFORE ANNUITY COMMENCEMENT
DATE.)
The minimum initial Purchase Payment for the Contract is $1,000. The minimum
payment to the Contract, after the initial Purchase Payment, is $100 per
payment. Lincoln Life reserves the right to limit the sum of Purchase Payments
made under this Contract to $5,000,000.
All Purchase Payments 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 are neither insured nor guaranteed by the U.S. Government or by any other
person or entity.
This prospectus details the information regarding the VAA that you should know
before investing; you should read it carefully. It will remain available through
Lincoln Life's Internet Service Center. We have also attached a current
prospectus 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. You should read each of these prospectuses carefully before purchasing a
Contract and they will remain available through Lincoln Life's Internet Service
Center.
A Statement of Additional Information (SAI), dated , 1998,
concerning the VAA has been filed with the SEC and is incorporated by this
reference into this prospectus. A table of contents for the SAI appears on the
last page of this prospectus. A free copy of the SAI is available upon e-mail
request through our Internet Service Center (http://www.lfd.com) or by written
request to Lincoln Financial Direct, P.O. Box 691, Leesburg, VA 20178. The SAI
is also available through the SEC website (HTTP://WWW.SEC.GOV). In addition, the
material incorporated by reference and other information regarding registrants
who file electronically with the SEC are available through the SEC website.
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.
The date of this prospectus is .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
- ----------------------------------------------------------
SPECIAL TERMS 3
- ----------------------------------------------------------
EXPENSE TABLES 5
Contractowner transaction expenses 5
VAA annual expenses for eAnnuity subaccounts 5
Annual expenses of the Funds and Series for
the year ended 1997 5
Examples 6
- ----------------------------------------------------------
SYNOPSIS 7
- ----------------------------------------------------------
CONDENSED FINANCIAL INFORMATION 9
- ----------------------------------------------------------
INVESTMENT RESULTS 9
- ----------------------------------------------------------
FINANCIAL STATEMENTS 9
- ----------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. 9
- ----------------------------------------------------------
VARIABLE ANNUITY ACCOUNT (VAA) 9
- ----------------------------------------------------------
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT 9
Investment Advisor 9
Funds/Series 10
Funds 10
Series 11
Investment objectives, policies and
restrictions 11
Reinvestment 11
Addition, deletion or substitution of
investments 12
- ----------------------------------------------------------
CHARGES AND OTHER DEDUCTIONS 12
Deductions from the VAA for eAnnuity 12
Surrender charge 12
Deductions for premium taxes 12
Other charges and deductions 13
Additional information 13
- ----------------------------------------------------------
THE CONTRACT 13
Purchase of Contract 13
Who can invest 13
Purchase Payments 13
<CAPTION>
Page
- ----------------------------------------------------------
<S> <C>
Valuation Date 13
Allocation of Purchase Payments 13
Valuation of Accumulation Units 13
Transfers between Subaccounts on or before
the Annuity Commencement Date 14
Transfers after the Annuity Commencement Date 14
Death benefit before the Annuity Commencement
Date 14
Joint ownership 15
Death of Annuitant 15
Surrenders and Withdrawals 15
Amendment of Contract 15
Ownership 15
Contractowner questions 16
- ----------------------------------------------------------
ANNUITY PAYOUTS 16
Annuity options 16
General information 16
Variable annuity payouts 16
- ----------------------------------------------------------
FEDERAL TAX STATUS 17
Taxation of nonqualified contracts 17
Taxation of IRAs 17
Multiple contracts 17
Investor control 18
Withholding 18
- ----------------------------------------------------------
VOTING RIGHTS 18
- ----------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS 18
- ----------------------------------------------------------
RETURN PRIVILEGE 18
- ----------------------------------------------------------
STATE REGULATION 18
- ----------------------------------------------------------
RECORDS AND REPORTS 19
- ----------------------------------------------------------
OTHER INFORMATION 19
- ----------------------------------------------------------
ADVERTISEMENTS/SALES LITERATURE 19
- ----------------------------------------------------------
PREPARING FOR THE YEAR 2000 19
- ----------------------------------------------------------
LEGAL PROCEEDINGS 20
- ----------------------------------------------------------
</TABLE>
2
<PAGE>
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
contract offered in this prospectus.
Accumulation Unit -- A measure used to calculate Contract Value 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
and Delaware Management Company, Inc. (Delaware Management) which provides
investment management services to the Series. 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 are withdrawn or
converted into Annuity Units 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 close of business on the Valuation Date.
Annuity Payout Option -- An optional form of payout of the annuity available
under the Contract. See ANNUITY PAYOUTS.
Annuity Payout -- An amount paid at regular intervals after the Annuity
Commencement Date under one of several options available to the Annuitant and/or
any other payee. The amount paid may vary.
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 Contractowner'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 under the Contract (decides on investment allocations, transfers,
payout option, 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.
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 the Owner's designated Beneficiary if the
Owner dies before the Annuity Commencement Date. See THE CONTRACTS.
Delaware Management -- Delaware Management Company, Inc., an indirect subsidiary
of Lincoln Life and the Investment Advisor for the Series.
Fund -- Any of the eleven individual Lincoln National underlying investment
options in which your Purchase Payments are invested.
Internet Service Center -- The Internet site that Lincoln Life maintains to
provide Variable Annuity Contract documents and information to current and
prospective annuity Contractowners and through which various transactions may be
performed. Certain of these transactions may require faxed or mailed signatures.
Lincoln Investment -- Lincoln Investment Management, Inc.
Lincoln Life (we, us, our) -- Lincoln National Life Insurance Co.
Purchase Payments -- Amounts paid into the Contract.
Series -- Any of the three underlying portfolios of the Delaware Group Premium
Fund, Inc., in which your Purchase Payments are invested.
Servicing Office -- Lincoln Financial Direct, P.O. Box 691, Leesburg, VA 20178.
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
Contract.
Subaccount -- That portion of the VAA that reflects investments in Accumulation
and Annuity Units of a class of a particular Fund or Series. A Subaccount
corresponds to each Fund or Series.
3
<PAGE>
Surrender -- A Contract right that allows you to terminate your Contract and
receive your Cash Surrender Value. See THE CONTRACTS.
Surrender Charge -- Also known as a contingent deferred sales charge, this
charge may be assessed upon premature Withdrawals or Surrender of the Contract.
See CHARGES AND OTHER DEDUCTIONS.
Valuation Date -- Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation Period -- The period commencing at the close of trading (currently
4:00 p.m. EST) on each day that the NYSE is open for trading (i.e., the
Valuation Date) and ending at the close of such trading on the next succeeding
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:
The Surrender Charge percentage is reduced to zero after three years, according
to the following schedule:
<TABLE>
<CAPTION>
Contract year
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
1 2 3 4 or more
Surrender Charge (as a
percentage of the amount
surrendered, if
applicable.) 3% 2% 1% 0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(Note: This charge may be waived in certain cases. See CHARGES AND OTHER
DEDUCTIONS.)
VAA ANNUAL EXPENSES FOR EANNUITY SUBACCOUNTS:
(as a percentage of average account value for each Subaccount):
<TABLE>
<S> <C>
Annuity Asset Charge: 0.55%
</TABLE>
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) 0.73% 0.08% 0.81%
- --------------------------------------------------------------------------------------------
2. Bond (B) 0.46 0.07 0.53
- --------------------------------------------------------------------------------------------
3. Capital Appreciation (CA) 0.75 0.09 0.84
- --------------------------------------------------------------------------------------------
4. Equity-Income (EI) 0.75 0.07 0.82
- --------------------------------------------------------------------------------------------
5. Global Asset Allocation (GAA) 0.72 0.17 0.89
- --------------------------------------------------------------------------------------------
6. Growth and Income (GI) 0.32 0.03 0.35
- --------------------------------------------------------------------------------------------
7. International (I) 0.79 0.14 0.93
- --------------------------------------------------------------------------------------------
8. Managed (M) 0.37 0.05 0.42
- --------------------------------------------------------------------------------------------
9. Money Market (MM) 0.48 0.11 0.59
- --------------------------------------------------------------------------------------------
10. Social Awareness (SA) 0.36 0.05 0.41
- --------------------------------------------------------------------------------------------
11. Special Opportunities (SO) 0.37 0.05 0.42
- --------------------------------------------------------------------------------------------
12. Trend Series (TS)* 0.67* 0.13 0.80
- --------------------------------------------------------------------------------------------
13. Decatur Total Return Series(DTRS)* 0.60* 0.11 0.71
- --------------------------------------------------------------------------------------------
14. Global Bond Series (GBS)* 0.47* 0.33 0.80
- --------------------------------------------------------------------------------------------
</TABLE>
*The Investment Advisors for these Series currently voluntarily waive management
fees to the extent necessary to maintain the Series total expense ratio at a
maximum of .80%. The management fees and total expenses, 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.
5
<PAGE>
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
- ----------------------------------------------
<C> <S> <C> <C>
1. AG 45 54
- ----------------------------------------------
2. B 42 46
- ----------------------------------------------
3. CA 45 55
- ----------------------------------------------
4. EI 45 54
- ----------------------------------------------
5. GAA 46 57
- ----------------------------------------------
6. GI 40 40
- ----------------------------------------------
7. I 46 58
- ----------------------------------------------
8. M 41 42
- ----------------------------------------------
9. MM 43 47
- ----------------------------------------------
10. SA 41 42
- ----------------------------------------------
11. SO 41 42
- ----------------------------------------------
12. TS 45 54
- ----------------------------------------------
13. DTRS 44 51
- ----------------------------------------------
14. GBS 45 54
- ----------------------------------------------
</TABLE>
If you do not Surrender your Contract, 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
- -----------------------------------------------
<C> <S> <C> <C>
1. AG 14 43
- -----------------------------------------------
2. B 11 34
- -----------------------------------------------
3. CA 14 44
- -----------------------------------------------
4. EI 14 43
- -----------------------------------------------
5. GAA 15 46
- -----------------------------------------------
6. GI 9 29
- -----------------------------------------------
7. I 15 47
- -----------------------------------------------
8. M 10 31
- -----------------------------------------------
9. MM 12 36
- -----------------------------------------------
10. SA 10 31
- -----------------------------------------------
11. SO 10 31
- -----------------------------------------------
12 TS 14 43
- -----------------------------------------------
13. DTRS 13 40
- -----------------------------------------------
14. GBS 14 43
- -----------------------------------------------
</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 the 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. In
addition, premium taxes may be applicable, although they do not appear in the
table. Also, we reserve the right to impose a charge on transfers between
Subaccounts, 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.
6
<PAGE>
SYNOPSIS
WHAT TYPE OF CONTRACT AM I BUYING? It is an individual variable annuity contract
issued by Lincoln Life. See THE CONTRACT.
WHAT IS THE VARIABLE ANNUITY ACCOUNT (VAA)? It is a segregated asset account
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. The assets of the VAA are allocated to one or more
Subaccounts, according to your investment choice. Those assets are not
chargeable with liabilities arising out of any other business which Lincoln Life
may conduct. See VARIABLE ANNUITY ACCOUNT.
WHAT ARE MY INVESTMENT CHOICES? Through its various Subaccounts, the VAA uses
your Purchase Payments to purchase shares, at your direction, in one or more of
eleven Funds managed by Lincoln Investment or the three Series managed by
Delaware Management. In turn, each Fund or Series holds a portfolio of
securities consistent with its own particular investment policy. See INVESTMENTS
OF THE VARIABLE ANNUITY ACCOUNT.
HOW DOES THE CONTRACT WORK? During the accumulation period, while you are paying
in, your Purchase Payments will buy Accumulation Units under the Contract.
Should you decide to annuitize (that is, change your Contract to a payout mode
rather than an accumulation mode), your Accumulation Units will be converted to
Annuity Units. Your periodic Annuity Payout will be based upon the number of
Annuity Units to which you became entitled at the time you decided to annuitize
and the value of each unit on the Valuation Date. See THE CONTRACT.
WHAT CAN I DO THROUGH THE INTERNET SERVICE CENTER? Almost every transaction can
be accomplished through the Internet Service Center. Only in very rare cases
will transactions bypass the Internet Service Center. Documents can be received,
accounts can be monitored, funds moved from one Subaccount to another, addresses
changed, Beneficiaries changed, funds withdrawn from the Contract, etc. As
technology matures the ease with which transactions can be performed through the
Internet Service Center will improve. For security reasons you may be issued a
PIN or password. Also, for legal reasons, certain transactions, such as change
of Beneficiary or Withdrawal of funds from the Contract, will require the
Contractowner to print or write a document, sign it, and mail or fax it to us.
WHAT CHARGES ARE ASSOCIATED WITH THIS CONTRACT? Should you decide to withdraw
Contract Value before your initial Purchase Payment has been in your Contract
for a period of three years, you will incur a Surrender Charge of anywhere from
1% to 3% of Contract Value. (Note: This charge is not assessed upon either, (1)
a Surrender of this Contract as a result of the death of the Contractowner, or
in the case of joint Contractowners, the death of one of the Contractowners, or
(2) election of an Annuity Payout Option available within this Contract.)
If your state assesses a premium tax with respect to your Contract, then at the
time the tax is incurred (or at such other time as we may choose), we will
deduct those amounts from Purchase Payments or Contract Value, as applicable.
We assess annual charges in the aggregate amount of .55% against the daily net
asset value of the VAA, including that portion of the account attributable to
your Purchase Payments. This charge is the annuity asset charge. For a complete
discussion of the charges associated with the Contract, see CHARGES AND OTHER
DEDUCTIONS.
The VAA pays a fee to its Investment Advisor, based upon the average daily net
asset value of each Fund or Series. In addition, there are other expenses
associated with the daily operation of the Funds and Series. See the EXPENSE
TABLES. These fees and expenses are more fully described in the prospectus for
the Funds and Series.
HOW MUCH MUST I PAY, AND HOW OFTEN? Subject to the minimum payments and maximum
total stated on the first page of the prospectus, the amount and frequency of
your payments are completely flexible. See THE CONTRACT--PURCHASE PAYMENTS.
HOW WILL MY ANNUITY PAYOUTS BE CALCULATED? If you decide to annuitize, you elect
an Annuity Payout Option. Once you have done so, your periodic payout will be
based upon a number of factors. The changing values of the funds in which you
have invested will be one factor. See Annuity payouts. REMEMBER THAT
PARTICIPANTS IN THE VAA BENEFIT FROM ANY GAIN, AND TAKE A RISK OF ANY DROP, IN
THE VALUE OF THE SECURITIES IN THE FUNDS' OR SERIES' PORTFOLIOS.
WHAT HAPPENS IF I DIE BEFORE I ANNUITIZE? The Beneficiary whom you designate
will receive the then current value of the Contract. Your Beneficiary will have
certain options for how the money is to be paid out. SEE DEATH BENEFIT BEFORE
THE ANNUITY COMMENCEMENT DATE.
7
<PAGE>
MAY I TRANSFER CONTRACT VALUE BETWEEN FUNDS OR SERIES? Yes. Transfers are
allowed before the Annuity Commencement Date. Transfers are limited to three
times annually after the Annuity Commencement Date. See THE CONTRACT--TRANSFERS
BETWEEN SUBACCOUNTS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE and TRANSFERS
AFTER THE ANNUITY COMMENCEMENT DATE.
MAY I SURRENDER THE CONTRACT OR MAKE A WITHDRAWAL? Yes, subject to Contract
requirements. See SURRENDERS AND WITHDRAWALS.
If you Surrender the Contract or make a Withdrawal, certain charges may be
assessed, as discussed above and under Charges and other deductions. In
addition, the Internal Revenue Service (IRS) may assess a 10% premature
withdrawal penalty tax. A Surrender or a Withdrawal may be subject to 10%
withholding. See FEDERAL TAX STATUS-- WITHHOLDING.
DO I GET A FREE LOOK AT THIS CONTRACT? Yes. If within ten days (or a longer
period if required by law) of the date you receive the signed Contract through
the Internet Service Center, you cancel the Contract through the Internet
Service Center or return it, postage prepaid to the Servicing Office of Lincoln
Life, it will be canceled. During this period, your Purchase Payments will be
invested in the Money Market Fund. See RETURN PRIVILEGE.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
Because the Subaccounts which are available under the Contract did not begin
operation before the date of this prospectus, financial information for the
Subaccounts is not included in this prospectus or in the SAI.
INVESTMENT RESULTS
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods, with or without Surrender Charges. Results calculated without
Surrender Charges will be higher. Total returns include the reinvestment of all
distributions, which are reflected in changes in Accumulation Unit value. See
the SAI for further information.
FINANCIAL STATEMENTS
The financial statements of the VAA and the statutory-basis financial statements
and schedules of Lincoln Life are located in the SAI. If you would like a free
copy of the SAI, you may make an e-mail request to our Internet Service Center
or a written request to Lincoln Financial Direct, P.O. Box 691, Leesburg, VA
20178.
LINCOLN NATIONAL LIFE INSURANCE CO.
Lincoln Life was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are owned
by Lincoln National Corp. (LNC) which is also organized under Indiana law. LNC's
primary businesses are insurance and financial services. Lincoln Life is the
issuer of the variable annuity Contracts. The obligations set forth in the
Contracts, other than those of the Contractowner, are our obligations. We also
serve as principal underwriter for the Contracts.
VARIABLE ANNUITY ACCOUNT (VAA)
On February 7, 1989, the VAA was established as an insurance company separate
account under Indiana law. The VAA is registered with the SEC as a unit
investment trust under the provisions of the Investment Company Act of 1940
(1940 Act), but 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 is used to support
annuity contracts other than the Contract described in this prospectus. 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.
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT
The VAA consists of several Subaccounts. A separate Subaccount corresponds to
each Fund and Series. You decide the Subaccount(s) to which you allocate
Purchase Payments. You may change your allocations without penalty or charges.
Each share of the Funds and Series will be sold to the VAA at net asset value
next determined after receipt of your Purchase Payment to fund the Contracts
(See the Appendix to the Funds' prospectuses for an explanation of net asset
value). The Funds and Series are required to redeem their shares at net asset
value next determined after receipt of our request. We reserve the right to add,
delete or substitute Funds and Series, subject to any regulatory approval.
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.
9
<PAGE>
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 the Decatur Total Return Series and is primarily responsible for the
investment decisions affecting the 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. prospectuses under MANAGEMENT
OF THE FUND.
FUNDS/SERIES
Following are brief summaries of the investment objectives and policies of the
Funds and Series. The year in which each Fund or Series started trading is in
parentheses. There is more detailed information in the current prospectuses for
the Funds and Series.
All of the Funds with the exception of the Special Opportunities Fund are
diversified, open-end management investment companies. Diversified funds do not
own too large 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 or Series 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 Investment Company Act of 1940. PLEASE BE
ADVISED THAT THERE IS NO ASSURANCE THAT ANY OF THE FUNDS OR SERIES WILL ACHIEVE
ITS STATED OBJECTIVES.
FUNDS
1. Aggressive Growth Fund (1994) -- The investment objective is to increase
the value of your shares (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 stock in companies of all sizes that are competing
well and with products or services that are in high demand. It may also
buy some money market securities and bonds, including high risk (junk)
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 return consistent with preservation of capital. The Fund invests
in 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
10
<PAGE>
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 responsibility 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 prospectuses for those Series.
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 Return Series invests generally, 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, Lincoln Life Variable Annuity Account Q, Lincoln Life
Flexible Premium Variable Life Account K and for other variable life insurance
contracts. Shares of some, but not all, of the Funds are 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 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. 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 that Subaccount 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 non-fundamental depends on the particular Fund
or Series. If they are non-fundamental, they may be changed by the Board of
Directors of the Funds or Series without shareholder approval.
You are urged to consult the prospectus and SAI 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 Accumulation Units or Annuity Units, but are
reflected in changes in unit values.
11
<PAGE>
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 or Series should no longer be available, or if investment in
any Fund's and Series' shares should no longer be available, or if investment in
any Fund's and Series' share should become inappropriate, in the judgement of
our management, for the purposes for the Contract.) Lincoln Life shall give the
Owner notice of the elimination and substitution of any Fund or Series within
fifteen days after such substitution occurs. Such notice will be placed in your
personal folder at the Internet Service Center and sent to your last known
e-mail address. Any such elimination, substitution or addition will be subject
to compliance with any applicable regulatory requirements.
CHARGES AND OTHER DEDUCTIONS
We will deduct the charges described below to cover our costs and expenses for
services provided and risks assumed under the Contracts. We incur certain costs
and expenses for the distribution and administration of the Contracts and for
providing the benefits payable thereunder. In the future, we may pay commissions
to broker-dealers as a percentage of Purchase Payments. Our administrative
services include: processing applications for and issuing the Contracts;
processing purchases and redemptions of Fund or Series shares as required
(including dollar cost averaging, cross-reinvestment, and automatic Withdrawal
services); maintaining records; administering annuity payouts; furnishing
accounting and valuation services (including the calculation and monitoring of
daily Subaccount values); reconciling and depositing cash receipts; providing
Contract confirmations; and furnishing an Internet Service Center. The risks we
assume include: the risk that the actual life-span of persons receiving annuity
payouts under Contract guarantees will exceed the assumptions reflected in our
guaranteed rates (these rates are incorporated in the Contract and cannot be
changed); the risk that more owners than expected will qualify for waivers of
the Surrender Charge; and the risk that our costs in providing the services will
exceed our revenues from Contract charges (which cannot be changed by us). The
amount of a charge may not necessarily correspond to the costs associated with
providing the services or benefits indicated by the designation of the charge.
For example, the Surrender Charge collected may not fully cover all of the sales
and distribution expenses actually incurred by us.
DEDUCTIONS FROM THE VAA FOR EANNUITY
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 0.55% of the daily net asset value. This is our annuity asset charge.
SURRENDER CHARGE
The Surrender Charge percentage applies (except as described below) to
Surrenders or Withdrawals according to the following schedule:
<TABLE>
<CAPTION>
Contract Year
1 2 3 4 or more
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Surrender Charge as % of
Contract Value Withdrawn 3% 2% 1% 0 %
</TABLE>
In the case of a Withdrawal, the Surrender Charge will be deducted from the
remaining Contract Value and will itself be subject to a Surrender Charge.
A Surrender Charge does not apply to:
1. A Surrender or Withdrawal after the initial payment has been invested at
least three full years.
2. Annuitization of the Contract by electing an Annuity Payout Option
available within the Contract.
3. A Surrender of the Contract as a result of the death of the Contractowner;
or in the case of joint Contractowners, the death of one of the
Contractowners. The Surrender Charges are not waived as a result of the
death of an Annuitant who is not the Contractowner.
If a non-natural person (e.g., a corporation) is the Contractowner, the
Annuitant will be considered the Contractowner for purposes of (3) above.
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
vary, depending upon the law of your state of residence. In those states which
tax these premiums, the tax generally ranges from 0.5% to 4.0%.
12
<PAGE>
OTHER CHARGES AND DEDUCTIONS
There are deductions from and expenses paid out of the assets of the underlying
Series that are more fully described in the prospectus for the Series.
ADDITIONAL INFORMATION
The Surrender 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
Internet Service Center; (2) the use of mass enrollment procedures; (3) the
performance of administrative or sales functions by the employer; (4) the use by
an employer of automated techniques in submitting deposits or information
related to deposits on behalf of its employees; or (5) any other circumstances
which reduce distribution or administrative expenses. The exact amount of
Surrender Charges applicable to a particular Contract will be stated in that
Contract.
THE CONTRACT
PURCHASE OF CONTRACT
If you wish to purchase a Contract, you must apply for it through the Internet
Service Center. When we receive the completed application, 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 the Internet Service Center. See DISTRIBUTION OF THE CONTRACTS.
Once a completed application and all other information necessary for processing
a purchase order are received, the initial Purchase Payment will be invested in
the VAA 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 an 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 invested in the VAA within two
business days.
Purchase Payments can be mailed to: Lincoln National Life Insurance Company,
P.O. Box 62120, Baltimore, MD 21264-2120.
WHO CAN INVEST
To apply for a Contract, you must be of legal age--but no older than age 85--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.
PURCHASE PAYMENTS
The minimum initial Purchase Payment is $1,000. Subsequent Purchase Payments to
the Contract must be at least $100. Lincoln Life reserves the right to limit the
sum of Purchase Payments made under this Contract to $5,000,000. Payments may be
made or, if stopped, resumed at any time until the Annuity Commencement Date,
the Surrender of the Contract, the maturity date or the death of the
Contractowner (or joint Contractowner, if applicable), whichever comes first.
VALUATION DATE
Accumulation Units and Annuity Units will be valued once daily at the close of
trading (currently 4:00 p.m., EST) on each day the New York Stock Exchange is
open (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 Subaccounts. Following your allocation
instructions, each Subaccount invests in shares of the corresponding Fund or
Series.
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 by us if received before 4:00 p.m., E.S.T. If the
Purchase Payment is received at or after 4:00 p.m., E.S.T., we will use the
Accumulation Unit value computed on the next Valuation Date. The number of
Accumulation Units determined in this way is not 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 underlying
fund's investments perform, but also upon the expenses of the VAA and the
underlying Funds.
VALUATION OF ACCUMULATION UNITS
The Contract Value at any time prior to the Annuity Commencement Date equals the
sum of the values of the Accumulation Units credited in the Subaccounts under
the Contract.
13
<PAGE>
The value of a Subaccount on any Valuation Date is the number of Accumulation
Units in the Subaccount multiplied by the value of an Accumulation Unit in the
Subaccount at the end of the Valuation Period.
Accumulation Units for each Subaccount are valued separately. Initially, the
value of an Accumulation Unit was arbitrarily established at the inception of
the Subaccount. It may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Subaccount for any later Valuation
Period is determined as follows:
(1) THE TOTAL VALUE OF FUND OR SERIES SHARES HELD IN THE SUBACCOUNT is
calculated by multiplying the number of Fund or Series shares owned by the
Subaccount at the beginning of the Valuation Period by the net asset value
per share of the Fund or Series at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund or Series if an
ex-dividend date occurs during the Valuation Period; MINUS
(2) THE LIABILITIES OF THE SUBACCOUNT AT THE END OF THE VALUATION PERIOD (such
liabilities include daily charges imposed on the Subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by Lincoln Life that Lincoln Life determines are as a result of the
operations from the Variable Account); the result DIVIDED BY
(3) THE OUTSTANDING NUMBER OF ACCUMULATION UNITS IN THE SUBACCOUNT AT THE
BEGINNING OF THE VALUATION PERIOD.
The daily charges imposed on a Subaccount for any Valuation Period represent the
annuity asset charge adjusted for the number of calendar days in the Valuation
Period. On an annual basis the annuity asset charge will not exceed 0.55%. The
Accumulation Unit value and Annuity Unit value 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 Lincoln Life.
TRANSFERS BETWEEN SUBACCOUNTS 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 determined
at the end of the Valuation Date on which the transfer request is received.
Currently, there is no charge for a transfer. However, we reserve the right to
impose a charge in the future for transfers.
A transfer may be made through our Internet Service Center or by writing to our
Servicing Office. In order to prevent unauthorized or fraudulent Internet
transfers, we may require Contractowners to provide certain identifying
information before we will act upon their instructions. We may also assign the
Contractowner a password to serve as identification. We will not be liable for
following instructions we reasonably believe are genuine. Confirmation of all
transfer requests will be mailed electronically to the Contractowner on the next
Valuation Date. Internet transfers will be processed on the Valuation Date that
they are received when they are received at our Internet Service Center before 4
p.m. EST.
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.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment in one Subaccount to
another Subaccount. Those transfers will be limited to three times per Contract
Year. Currently, there is no charge for these transfers. However, we reserve the
right to impose a charge in the future for transfers.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
You may designate a Beneficiary during your lifetime and, unless prohibited by a
previous designation, change the Beneficiary by filing a written request with
our Servicing Office, or through our Internet Service Center. Each change of
Beneficiary revokes any previous designation.
If there is a single Contractowner and the Contractowner dies before the Annuity
Commencement Date, the Death Benefit paid to the designated Beneficiary will be
the Contract Value as of the day on which Lincoln Life approves the payment of
the claim.
The value of the Death Benefit will be determined as of the date on which the
death claim is approved for payment. This approval will be granted upon receipt
of: (1) proof, satisfactory to us, of the death of the owner; (2) written
authorization for payment; and (3) our receipt of all required claim forms,
fully completed.
If a lump sum settlement is requested, the proceeds will be paid within seven
days of receipt of satisfactory claim documentation as discussed previously.
This payment may be postponed as permitted by the 1940 Act.
Payment will be made in accordance with applicable laws and regulations
governing payment of Death Benefits. No payment will be allowed that does not
satisfy the requirements of Code section 72(s) or 401(a)(9) as applicable, as
amended from time to time.
14
<PAGE>
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 Contractowner, that Beneficiary's
interest will go to any other Beneficiaries named, according to their
respective interests; and/or
2. If no Beneficiary survives the Contractowner, the proceeds will be paid to
the Contractowner's estate.
The Death Benefit payable to the Beneficiary must be distributed within five
years of the Contractowner's date of death unless the Beneficiary begins
receiving within one year of the Contractowner's death substantially equal
installments over a period not extending beyond the Beneficiary's life
expectancy.
If the Beneficiary is the spouse of the Contractowner, then the spouse may elect
to continue the Contract as Contractowner. If the Contractowner is a corporation
or other non-individual (non-natural person), the death of the Annuitant will be
treated as death of the Contractowner and the above distribution rules apply.
If there are joint Contractowners, upon the death of the first joint
Contractowner, the surviving joint Contractowner will receive the Death Benefit.
The surviving joint Contractowner will be treated as the primary, designated
Beneficiary. Any other Beneficiary designation on record at the time of death
will be treated as a contingent Beneficiary.
If the surviving joint Contractowner, as spouse of the deceased joint
Contractowner, continues the Contract as the sole owner in lieu of receiving the
Death Benefit, then the designated Beneficiary(s) will receive the Death Benefit
upon the death of the surviving spouse.
JOINT OWNERSHIP
If a joint Contractowner is named in the application, the joint Contractowners
shall be treated as having equal undivided interests in the Contract. Either
Contractowner, independently of the other, may exercise any ownership rights in
this Contract. Only spouses may be joint Contractowners.
DEATH OF ANNUITANT
If the Annuitant is also the Contractowner or a joint Contractowner, then the
Death Benefit will be subject to the provisions of this Contract regarding death
of the Contractowner. If the surviving spouse assumes the Contract, the
contingent Annuitant becomes the Annuitant. If no contingent Annuitant is named,
the surviving spouse becomes the Annuitant.
If an Annuitant who is not the Contractowner or joint Contractowner dies, then
the contingent Annuitant, if any, becomes the Annuitant. If no contingent
Annuitant is named, the Contractowner (or joint contract owner if younger)
becomes the Annuitant.
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 or
through our Internet Service Center, subject to the rules discussed below. None
of the current annuitization options allow Surrender or Withdrawal rights after
the Annuity Commencement Date.
The Contract Value available upon Surrender/Withdrawal is the Cash Surrender
Value at the end of the Valuation Period during which the request for
Surrender/Withdrawal is received at the Servicing Office or Internet Service
Center. Unless a request for Withdrawal specifies otherwise, Withdrawals will be
made from all Subaccounts within the VAA in the same proportion that the amount
of Withdrawal bears to the total Contract Value. The minimum amount which can be
withdrawn is $300, and the remaining Contract Value must be at least $1000.
Unless prohibited, Surrender/Withdrawal payments will be mailed or
electronically transferred within seven days after we receive a valid request at
the Servicing Office or through the Internet Service Center. The payment may be
postponed as permitted by the Investment Company Act of 1940.
There may be charges associated with Surrender of a Contract or Withdrawal of
Contract Value. See CHARGES AND OTHER DEDUCTIONS.
The tax consequences of a Surrender or Withdrawal are discussed later in this
prospectus. See FEDERAL TAX STATUS.
We reserve the right to terminate the Contract, if your Contract fails to meet
minimum Contract Value or payment frequencies as set forth in your state's
nonforfeiture law for individual deferred annuities.
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 of any changes, modifications or waivers.
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.
IRAs may not be assigned or transferred except as permitted by a domestic
relations order 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.
15
<PAGE>
CONTRACTOWNER QUESTIONS
The obligations to purchasers under the Contracts are those of Lincoln Life.
Questions about your Contract should be directed to us by e-mail to our Internet
Service Center or in writing to Lincoln Financial Direct, P.O. Box 691,
Leesburg, VA 20178.
ANNUITY PAYOUTS
You may select any Annuity Commencement Date permitted by law provided that the
Annuity Commencement Date occurs before the Annuitant's (or the elder of the
joint Annuitants') 85th birthday. The Contract provides optional forms of
payouts of annuities, each of which is payable on a variable basis. Annuity
payments to you under any of the Annuity Payout Options are made on a monthly
basis. Following are explanations of the Annuity Payout 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 RECIPIENT WOULD RECEIVE NO
PAYOUTS IF THE ANNUITANT DIES 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 life
time of the Annuitant and a designated joint Annuitant. The payouts continue
during the lifetime of the survivor.
JOINT LIFE ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic
payouts during a designated period, usually 10 or 20 years, and continues during
the joint lifetime of the Annuitant and a designated joint Annuitant. The
payouts continue during the lifetime of the survivor. The designated period is
selected by the Contractowner.
GENERAL INFORMATION
None of the options listed above currently provide Withdrawal features
permitting the Contractowner to withdraw commuted values as a lump sum payment.
We may make available other options, with or without Withdrawal features,
available. Options are only available to the extent they are consistent with the
requirements of the Contract as well as Sections 72(s) and 401(a)(9) of the
Code, if applicable. The annuity asset charge will be assessed on all variable
annuity payouts, including options that may be offered 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. You may change the Annuity Commencement Date or change the Annuity
Payout Option up to the scheduled Annuity Commencement Date, through our
Internet Service Center or by written notice to the Servicing Office. You must
give us at least 14 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
annuity with annuity payouts guaranteed for 10 years (on a variable basis, in
proportion to the Subaccount allocations at the time of annuitization) except
when a joint life payout is required by law. Under any option providing for
payouts for a guaranteed period, the number of payouts which remain unpaid at
the date of the Annuitant's death (or surviving Annuitant's death in case of
joint life annuity) will be paid to the Contractowner if living, otherwise to
your Beneficiary as payouts become due.
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 Payout Option selected; and
4. The investment performance of the Fund(s) and Series selected.
We determine the amount of Annuity Payouts by:
1. Determining the dollar amount of the first periodic payout; then
2. Crediting the Contract with a fixed number of Annuity Units equal to the
first periodic payout divided by the Annuity Unit value; and
3. Calculating the value of the Annuity Units each period thereafter.
16
<PAGE>
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. The SAI contains a more complete explanation of this calculation.
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 DEDUCTIONS FOR PREMIUM TAXES). 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 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 IRA markets. The
Treasury Department may issue new or amended regulations or other
interpretations of existing 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 advisor on
these issues.
TAXATION OF NONQUALIFIED CONTRACTS
Generally, you are 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
or 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 change of ownership of a Contract
may 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. In
general, 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. (See Section 72(u) of the Code.) 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. The investment in the Contract generally equals the portion, if any, of
any Purchase Payment made 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 the Annuity 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 individuals,
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--generally, distributions:
1. Received on or after the Contractowner attains age 59 1/2;
2. Made as a result of death or disability of the Contractowner;
3. Received in substantially equal periodic payments such as a life annuity
(subject to special recapture rules if the series of payouts is
subsequently modified);
4. Under a qualified funding asset in a structured settlement;
5. Under an immediate annuity contract as defined in the Code; and/or
6. Under a Contract purchased in connection with the termination of certain
retirement plans.
TAXATION OF IRAS
The Contracts may be purchased in connection with traditional and Roth
Individual Retirement Annuities (IRAs), qualified under Sections 408 and 408A of
the Code.
The tax rules applicable to these IRAs, including restrictions on contributions
and benefits, taxation of distributions and any tax penalties are covered in the
SAI.
MULTIPLE CONTRACTS
All Contracts 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.
17
<PAGE>
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 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 Internal Revenue Service. 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, annuity distributions are subject to withholding for the recipient's
Federal income tax liability at a rate of 10%. Recipients, however, generally
are provided the opportunity to elect not to have tax withheld from
distributions.
VOTING RIGHTS
As required by law, we will vote the Funds and Series shares held in the VAA at
meetings of the shareholders 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 Investment
Company Act of 1940 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 or Series 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 of a class held in a Subaccount for which no timely instructions are
received will be voted by us in proportion to the voting instructions which are
received for all Contracts participating in that Subaccount. Voting instructions
to abstain on any item to be voted on will be applied on a pro-rata basis to
reduce the number of votes eligible to be cast.
Whenever a shareholders meeting is called, each person having a voting interest
in a Subaccount will be sent proxy voting material, reports and other materials
relating to the Series. Since the Series engages in shared funding, other
persons or entities besides Lincoln Life may vote Series shares.
DISTRIBUTION OF THE CONTRACTS
We are the distributors of the Contracts. They will be sold through the Internet
Service Center we maintain for this purpose. 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).
RETURN PRIVILEGE
Within the free-look period after you receive the Contract, you may cancel it
for any reason through our Internet Service Center or by delivering or mailing
it postage prepaid, to Lincoln Financial Direct at P.O. Box 691, Leesburg, VA
20178. A Contract canceled under this provision will be void and your Contract
Value will be returned. No Surrender Charge will be assessed.
The Purchase Payments will be invested in the Lincoln National Money Market Fund
during the free-look period.
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. That Department conducts a full examination
of our operations at least every five years.
18
<PAGE>
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
have entered into an agreement with the Delaware Service Company, 2005 Market
Street, Philadelphia, PA 19203, to provide accounting services to the VAA. We
will electronically mail to you, at your last known e-mail address, at least
semiannually after the first Contract Year, reports containing information
required by the 1940 Act or any other applicable law or regulation.
OTHER INFORMATION
A registration statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the Contracts being offered here. This prospectus is
only a part of that registration statement and, therefore, does not contain all
the information in the registration statement, its amendments and exhibits.
Please refer to the complete 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, K and Q (all
registered as investment companies 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 Accounts K
and Q. 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 the prospectus and in the SAI
as the variable accounts. Due to differences in redemption rates, tax treatment
or other considerations, the interests of Contractowners under the Variable Life
Accounts could conflict with those of Contractowners under the VAA. In those
cases where assets from variable life and variable annuity separate accounts are
invested in the same Fund or Funds or Series (i.e., where mixed funding occurs),
the Boards of Directors of the Funds or Series involved will monitor for any
material conflicts and determine what action, if any, should be taken. If it
becomes necessary for any separate account to replace shares of any Fund or
Series with another investment, that Fund or Series may have to liquidate
securities on a disadvantageous basis. Refer to the prospectus for each Fund and
Series for more information about mixed funding. In the future, we may purchase
shares in the Funds and Series for one or more unregistered segregated
investment accounts.
On January 2, 1998, The Lincoln National Life Insurance Company entered into an
indemnity reinsurance transaction whereby 100% of a block of individual life and
annuity business of CIGNA Corporation was reinsured. On May 21, 1998, The
Lincoln National Life Insurance Company announced its intentions to acquire
certain domestic individual life insurance business from Aetna, Inc. via a 100%
indemnity reinsurance transaction. The transaction is expected to close in the
fall of 1998.
ADVERTISEMENTS/SALES LITERATURE
In marketing the variable annuity Contracts, we 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 claims 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, and 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 and Series and their investment management.
PREPARING FOR THE YEAR 2000
Lincoln Life, as part of its year 2000 updating process, is responsible for the
updating of the VAA related computer systems. Many existing computer programs
use only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results by or at the year 2000. The year 2000 issue affects virtually
all companies and organizations. An affiliate of Lincoln Life, Delaware Services
Company (Delaware), provides substantially all of the necessary accounting and
valuation services for the VAA. Delaware, for its part, is responsible for
updating
19
<PAGE>
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 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, assuming the modification
of existing computer systems, updates by vendors and conversion to new software
and hardware, the year 2000 issue will not pose significant operations problems
for their respective computer systems. In addition, the Companies are
incorporating potential issues surrounding year 2000 into their contingency
planning process, in the event that, despite these substantial efforts, there
are unresolved year 2000 problems. If the remediation efforts noted above are
not completed timely or properly, the year 2000 issue could have a material
adverse impact on the operation of the businesses of Lincoln Life or Delaware,
or both.
The cost of addressing year 2000 issues and the timeliness of completion will be
closely monitored by management of the respective Companies. Nevertheless, there
can be no guarantee either by Lincoln Life or by Delaware that the estimated
costs will be achieved, and actual results could differ significantly from those
anticipated. Specific factors that might cause such differences include, but are
not limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer problems, and other
uncertainties.
LEGAL PROCEEDINGS
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of these proceedings are routine
and in the ordinary course of business. In some instances these proceedings
include claims for unspecified or substantial punitive damages and similar types
of relief in addition to amounts for alleged contractual liability or requests
for equitable relief. After consultation with legal counsel and a review of
available facts, it is management's opinion that the ultimate liability, if any,
under these suits will not have a material adverse effect on the financial
position of Lincoln Life.
During the 1990's class action lawsuits alleging sales practices fraud have been
filed against many life insurance companies, and Lincoln Life has not been
immune. Several suits involve alleged fraud in the sale of interest-sensitive
universal and whole life insurance policies. These suits have been filed as
class actions against Lincoln Life, although as of the date of this Prospectus
the court had not certified a class in any of them. Plaintiffs seek unspecified
damages and penalties for themselves and on behalf of the putative class.
Although the relief sought in these cases is substantial, the cases are in the
early stages of litigation, and it is premature to make assessments about
potential loss, if any. Management denies the allegations and intends to defend
these suits vigorously. The amount of the liability, if any, which may arise as
a result of these suits (exclusive of any indemnification from professional
liability insurers) cannot be reasonably estimated at this time.
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS FOR VAA
<TABLE>
<S> <C>
Item Item
- --------------------------------------------------- ---------------------------------------------------
General information and history of Lincoln Life Annuity payouts
Special terms Federal tax status
Services Advertising and sales literature/graphics
Purchase of securities being offered Financial statements
Underwriters
Calculation of performance data
For a free copy of the SAI please see page one of
this booklet.
</TABLE>
20
<PAGE>
E-ANNUITY-TM-
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 eAnnuity prospectus of the VAA
dated .
You may request a free copy of the eAnnuity VAA Prospectus from
http://www.lfd.com or you may write Lincoln Financial Direct, P.O. Box 691,
Leesburg, VA 20178.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
- -------------------------------------------------------
GENERAL INFORMATION AND HISTORY
OF LINCOLN LIFE B-2
- -------------------------------------------------------
SPECIAL TERMS B-2
- -------------------------------------------------------
SERVICES B-2
- -------------------------------------------------------
PURCHASE OF SECURITIES BEING OFFERED B-2
- -------------------------------------------------------
CALCULATION OF PERFORMANCE DATA B-2
- -------------------------------------------------------
ANNUITY PAYOUTS B-6
- -------------------------------------------------------
<CAPTION>
Page
- -------------------------------------------------------
<S> <C>
FEDERAL TAX STATUS B-7
- -------------------------------------------------------
DETERMINATION OF ACCUMULATION AND
ANNUITY UNIT VALUE B-8
- -------------------------------------------------------
ADVERTISING AND SALES
LITERATURE/GRAPHICS B-8
- -------------------------------------------------------
FINANCIAL STATEMENTS B-9
- -------------------------------------------------------
</TABLE>
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is .
B-1
<PAGE>
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 capitalized 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 report
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.
UNDERWRITER
Lincoln Life is the principal underwriter for the variable annuity contract. We
may not offer a Contract continuously or in every state. Lincoln Life retains no
underwriting commission from the sale of the Variable Annuity Contracts.
PURCHASE OF SECURITIES BEING OFFERED
The variable annuity contract is offered to the public through Lincoln Life's
Internet Service Center. There are no special purchase plans for any class of
prospective buyers. However, under certain limited circumstances described in
the prospectus, the Surrender Charges may be waived.
There are exchange privileges between Subaccounts. (See The Contract in the
Prospectus.) No exchanges are permitted between the VAA and other separate
accounts.
CALCULATION OF PERFORMANCE DATA
A. MONEY MARKET FUNDED SUBACCOUNTS:
Standardized performance data is not included because, as of the date hereof,
the Contract has not yet been sold. Nonstandardized performance data will be
accompanied by standard performance data once available.
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 will be 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.
B-2
<PAGE>
B. OTHER SUBACCOUNTS:
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 or more years.
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.
HISTORICAL FUND/SERIES PERFORMANCE ADJUSTED FOR CONTRACT AND VAA FEES AND
CHARGES. Returns are provided for years before the Fund and Series were
available investment options under the Contract. Returns for those periods
reflect an adjusted return as if those Funds and Series were available under the
Contract, and reflect the deduction of the annuity asset charge, and the VAA
investment advisory fee.
Tables 1A, 1B, 2A and 2B below assume a hypothetical investment of $1,000 at the
beginning of the period via the Subaccount investing in the applicable Fund or
Series and Withdrawal of the investment on 12/31/97. For Tables 1A and 1B, the
adjusted returns shown reflect the annuity asset charges, the VAA investment
advisory fee, and the Surrender Charge. For Tables 2A and 2B, the adjusted
returns shown reflect the annuity asset charge and the VAA investment advisory
fee but not the Surrender Charge. THIS INFORMATION DOES NOT INDICATE OR
REPRESENT FUTURE PERFORMANCE.
TABLE 1A
SUBACCOUNT "ADJUSTED" AVERAGE ANNUAL
TOTAL RETURNS (STANDARDIZED)
<TABLE>
<CAPTION>
10-years
1-year ending 5-years ending ending
Subaccounts 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Bond 6.32% 6.73% 8.26%
- -----------------------------------------------------------------------------------------
Growth and Income 27.28% 19.14% 15.12%
- -----------------------------------------------------------------------------------------
International 3.16% 11.97% 7.25%
- -----------------------------------------------------------------------------------------
Managed 18.42% 13.36% 11.70%
- -----------------------------------------------------------------------------------------
Global Asset Allocation 16.16% 13.72% 11.87%
- -----------------------------------------------------------------------------------------
Social Awareness 33.76% 22.87% 18.36%
- -----------------------------------------------------------------------------------------
Special Opportunities 24.66% 17.51% 15.60%
- -----------------------------------------------------------------------------------------
Aggressive Growth 21.89% N/A 17.57%
- -----------------------------------------------------------------------------------------
Capital Appreciation 27.10% N/A 21.51%
- -----------------------------------------------------------------------------------------
Equity-Income 19.79% N/A 14.36%
- -----------------------------------------------------------------------------------------
Trend-Series 18.13% N/A 10.74%
- -----------------------------------------------------------------------------------------
Decatur Total Return Series 27.52% N/A 25.15%
- -----------------------------------------------------------------------------------------
Global Bond Series -1.82% N/A 6.10%
- -----------------------------------------------------------------------------------------
Money Market 2.30% 3.75% 4.86%
- -----------------------------------------------------------------------------------------
</TABLE>
The length of the periods and the last day of each period used in the table
above 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 table
above relate to the Contract form containing the highest level of charges.
B-3
<PAGE>
TABLE 1B
HYPOTHETICAL SUBACCOUNT CUMULATIVE TOTAL RETURNS (REFLECTING DEDUCTION OF
APPLICABLE SURRENDER CHARGES)
<TABLE>
<CAPTION>
10-years
1-year ending 5-years ending ending
Subaccounts 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Bond 6.32% 38.47% 121.05%
- -----------------------------------------------------------------------------------------
Growth and Income 27.28% 140.05% 308.77%
- -----------------------------------------------------------------------------------------
International 3.16% 76.03% 59.49%
- -----------------------------------------------------------------------------------------
Managed 18.42% 87.19% 202.38%
- -----------------------------------------------------------------------------------------
Global Asset Allocation 16.16% 90.16% 206.81%
- -----------------------------------------------------------------------------------------
Social Awareness 33.76% 180.00% 410.18%
- -----------------------------------------------------------------------------------------
Special Opportunities 24.66% 124.02% 326.25%
- -----------------------------------------------------------------------------------------
Aggressive Growth 21.89% N/A 90.80%
- -----------------------------------------------------------------------------------------
Capital Appreciation 27.10% N/A 117.67%
- -----------------------------------------------------------------------------------------
Equity-Income 19.79% N/A 70.83%
- -----------------------------------------------------------------------------------------
Trend-Series 18.13% N/A 18.54%
- -----------------------------------------------------------------------------------------
Decatur Total Return Series 27.52% N/A 45.40%
- -----------------------------------------------------------------------------------------
Global Bond Series -1.82% N/A 10.38%
- -----------------------------------------------------------------------------------------
Money Market 2.30% 20.19% 60.72%
- -----------------------------------------------------------------------------------------
</TABLE>
The length of the periods and the last day of each period used in the table
above are set out in the table headings. The cumulative total return for Table
2B for each period was determined by the following formula --
P (1 + C) = ERV
Where: P = a hypothetical Purchase Payment of $1,000
C = cumulative total return for the period
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 period in
question
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 above relate to the
contract form containing the highest level of charges.
B-4
<PAGE>
TABLE 2A
HYPOTHETICAL SUBACCOUNT AVERAGE TOTAL RETURNS (NON-STANDARDIZED)
<TABLE>
<CAPTION>
10-years
1-year ending 5-years ending ending
Subaccounts 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Bond 8.49% 6.73% 8.26%
- -----------------------------------------------------------------------------------------
Growth and Income 29.88% 19.14% 15.12%
- -----------------------------------------------------------------------------------------
International 5.27% 11.97% 7.25%
- -----------------------------------------------------------------------------------------
Managed 20.84% 13.36% 11.70%
- -----------------------------------------------------------------------------------------
Global Asset Allocation 18.53% 13.72% 11.87%
- -----------------------------------------------------------------------------------------
Social Awareness 36.49% 22.87% 18.36%
- -----------------------------------------------------------------------------------------
Special Opportunities 27.21% 17.51% 15.60%
- -----------------------------------------------------------------------------------------
Aggressive Growth 24.38% N/A 17.57%
- -----------------------------------------------------------------------------------------
Capital Appreciation 29.69% N/A 21.51%
- -----------------------------------------------------------------------------------------
Equity-Income 22.24% N/A 14.36%
- -----------------------------------------------------------------------------------------
Trend-Series 20.54% N/A 10.74%
- -----------------------------------------------------------------------------------------
Decatur Total Return Series 30.13% N/A 25.15%
- -----------------------------------------------------------------------------------------
Global Bond Series 0.19% N/A 6.10%
- -----------------------------------------------------------------------------------------
Money Market 4.39% 3.75% 4.86%
- -----------------------------------------------------------------------------------------
</TABLE>
The length of the periods and the last day of each period used in the table
above 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 --
n
P (1 + T) = CV Where: P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return for the period in question
n = number of years
CV =Contract 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; and 2) all applicable nonrecurring charges are deducted
at the end of the period in question. Surrender Charges are not deducted. The
performance figures shown in the table above relate to the Contract form
containing the highest level of charges.
B-5
<PAGE>
TABLE 2B
HYPOTHETICAL SUBACCOUNT CUMULATIVE TOTAL RETURNS (NON-STANDARDIZED)
<TABLE>
<CAPTION>
10-years
1-year ending 5-years ending ending
Subaccounts 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Bond 8.49% 38.47% 121.05%
- -----------------------------------------------------------------------------------------
Growth and Income 29.88% 140.05% 308.77%
- -----------------------------------------------------------------------------------------
International 5.27% 76.03% 59.49%
- -----------------------------------------------------------------------------------------
Managed 20.84% 87.19% 202.38%
- -----------------------------------------------------------------------------------------
Global Asset Allocation 18.53% 90.16% 206.81%
- -----------------------------------------------------------------------------------------
Social Awareness 36.49% 180.00% 410.18%
- -----------------------------------------------------------------------------------------
Special Opportunities 27.21% 124.02% 326.25%
- -----------------------------------------------------------------------------------------
Aggressive Growth 24.38% N/A 90.80%
- -----------------------------------------------------------------------------------------
Capital Appreciation 29.69% N/A 117.67%
- -----------------------------------------------------------------------------------------
Equity-Income 22.24% N/A 70.83%
- -----------------------------------------------------------------------------------------
Trend-Series 20.54% N/A 18.54%
- -----------------------------------------------------------------------------------------
Decatur Total Return Series 30.13% N/A 45.40%
- -----------------------------------------------------------------------------------------
Global Bond Series 0.19% N/A 10.38%
- -----------------------------------------------------------------------------------------
Money Market 4.39% 20.19% 60.72%
- -----------------------------------------------------------------------------------------
</TABLE>
The length of the periods and the last day of the period used in the table above
are set out in the table headings. The cumulative total return for Table 2B for
each period was determined by the following formula --
P (1 + C) = CV
Where: P = a hypothetical Purchase Payment of $1,000
C = cumulative total return for the period
CV =contract value (as of the end of the period in question) of a hypothetical
$1,000 Purchase Payment made at the beginning of the period in question
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. Surrender Charges are not deducted. The
performance figures above relate to the Contract form containing the highest
level of charges.
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 within
14 days after the Annuity Commencement Date. The monthly anniversary of the
Annuity Commencement Date will become the date on which all future Annuity
Payouts will be calculated. Amounts shown in the tables are based on the 1983(a)
Individual Mortality Table 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
B-6
<PAGE>
(annualized) exceeds 5%, the payment will increase at a rate equal to the amount
of such excess. Conversely, if the actual rate is less than 5%, Annuity Payouts
will decrease. If the assumed rate of interest were to be increased, Annuity
Payouts would start at a higher level but would decrease more rapidly or
increase more slowly.
Lincoln Life may use sex distinct annuity tables in Contracts 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 on the monthly anniversary of the annuity
commencement date.
The value of each Subaccount Annuity Unit was arbitrarily established. The
Annuity Unit value for each Subaccount at the end of any Valuation Date is
determined as follows:
1. The total value of Fund or Series shares held in the Subaccount is
calculated by multiplying the number of shares by the net asset value at end
of Valuation Period plus any dividend or other distribution.
2. The liabilities of the Subaccount, including daily charges and taxes, are
subtracted
3. The result is divided by the number of Annuity Units in the Subaccount at
the beginning of Valuation Period, and adjusted by a factor to neutralize
the assumed investment return in the annuity table.
The value of the Annuity Units is determined as of the monthly anniversary of
the Annuity Commencement Date 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.
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
B-7
<PAGE>
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, 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.
TAX ON DISTRIBUTIONS FROM TRADITIONAL IRAS
IRS 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 will be subject to a 10% penalty tax if made before age 59 1/2
unless certain other exceptions apply. Failure to meet certain minimum
distribution requirements will result in a 50% excise tax.
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.
All participants in a Traditional IRA and a Roth IRA receive an IRA Disclosure.
This document explains the tax rules that apply to IRAs in greater detail.
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 annuity 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, Presidents 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
B-8
<PAGE>
in the United States and overseas. Lipper is recognized as the leading source of
data on open-end and closed-end funds. Lipper currently tracks the performance
of over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
MOODY'S insurance claims-paying rating is a system of rating insurance company's
financial strength, market leadership and ability to meet financial obligations.
The purpose of Moody's ratings is to provide investors with a simple system of
gradation by which the relative quality of insurance companies may be noted.
MORNINGSTAR is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
variable annuity contracts.
STANDARD & POOR's CORP. insurance claims-paying ability rating is an assessment
of an operating insurance company's financial capacity to meet obligations under
an insurance policy in accordance with the terms. The likelihood of a timely
flow of funds from the insurer to the trustee for the bondholders is a key
element in the rating determination for such debt issues.
VARDS (Variable Annuity Research Data Service) provides a comprehensive guide to
variable annuity contract features and historical fund performance. The service
also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S 500 INDEX (S&P 500) -- broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks; commonly known as the S&P 500. The selection of stocks, their
relative weightings to reflect differences in the number of outstanding shares
and publication of the index itself are services of Standard & Poor's Corp., a
financial advisory, securities rating and publishing firm.
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.
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:
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.
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 upon
overall assets.
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.
FINANCIAL STATEMENTS
Financial statements for Lincoln Life appear on the following pages.
B-9
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DELAWARE DELAWARE DELAWARE
PERCENT AGGRESSIVE CAPITAL EMERGING EQUITY/ GLOBAL
OF NET GROWTH APPRECIATION GROWTH INCOME BOND
ASSETS COMBINED ACCOUNT BOND ACCOUNT ACCOUNT SERIES SERIES SERIES
<S> <C> <C> <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 $ 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 $ 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 94,237,935 12,405,600
- -------------------------
LIABILITY -
Payable to The Lincoln
National Life
Insurance Company 0.0 258,012 9,083 7,626 12,070 1,491 2,567 342
- -------------------------------------------------------------------------------------------------------------------
- -------------------------
NET ASSETS 100.0% $9,426,807,141 $336,529,141 $278,721,201 $442,449,775 $ 55,454,713 $ 94,235,368 $ 12,405,258
- -------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
- -------------------------
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 $ 62,514,884 $ 10,909,411
- -------------------------
Annuity reserves units 254,392 94,218 489,213 0 450,356 8,169
- -------------------------
Unit value $1.687 $4.632 $1.884 $1.191 $1.461 $1.109
- -------------------------
Value in accumulation
period 334,483,346 277,147,745 437,833,856 54,740,484 91,334,715 12,099,923
- -------------------------
Annuity reserves 429,181 436,433 921,803 -- 657,974 9,060
- -------------------------
------------------------------------------------------------------------
334,912,527 277,584,178 438,755,659 54,740,484 91,992,689 12,108,983
------------------------------------------------------------------------
MULTIFUND WITH GUARANTEED
MINIMUM DEATH BENEFIT
Units in accumulation
period 959,741 245,847 1,963,593 600,523 1,537,440 267,546
- -------------------------
Unit value $1.684 $4.625 $1.881 $1.189 $1.459 $1.107
- -------------------------
Value in accumulation
period 1,616,614 1,137,023 3,694,116 714,229 2,242,679 296,275
- -------------------------
------------------------------------------------------------------------
TOTAL NET ASSETS $336,529,141 $278,721,201 $442,449,775 $ 55,454,713 $ 94,235,368 $ 12,405,258
- -------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
See accompanying notes.
B-10
<PAGE>
<TABLE>
<CAPTION>
EQUITY- GLOBAL ASSET GROWTH AND MONEY SOCIAL SPECIAL
INCOME ALLOCATION INCOME INTERNATIONAL MANAGED MARKET AWARENESS OPPORTUNITIES
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <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)
- -------------------------
- 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) $ 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) 800,339,302 435,502,051 3,491,608,711 461,109,004 847,217,671 87,468,284 1,245,806,391 838,185,104
- -------------------------
LIABILITY -
Payable to The Lincoln
National Life
Insurance Company 21,918 11,944 95,677 12,728 23,189 2,400 34,120 22,857
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------
NET ASSETS $800,317,384 $435,490,107 $3,491,513,034 $461,096,276 $847,194,482 $ 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 $367,650,521 $158,528,476 $356,437,044 $293,362,761 $178,408,049 $ 35,963,168 $249,012,275 $101,002,630
- -------------------------
Annuity reserves units 1,261,113 521,791 3,955,002 502,083 511,247 56,935 524,138 137,167
- -------------------------
Unit value $2.150 $2.720 $9.650 $1.562 $4.714 $2.419 $4.950 $8.249
- -------------------------
Value in accumulation
period 790,308,116 431,188,333 3,439,732,725 458,218,383 841,011,899 86,979,858 1,232,525,060 833,140,183
- -------------------------
Annuity reserves 2,710,910 1,419,239 38,167,051 784,229 2,410,011 137,700 2,594,303 1,131,452
- -------------------------
------------------------------------------------------------------------------------------------
793,019,026 432,607,572 3,477,899,776 459,002,612 843,421,910 87,117,558 1,235,119,363 834,271,635
------------------------------------------------------------------------------------------------
MULTIFUND WITH GUARANTEED
MINIMUM DEATH BENEFIT
Units in accumulation
period 3,400,524 1,061,444 1,412,921 1,342,514 801,564 144,247 2,155,674 472,405
- -------------------------
Unit value $2.146 $2.716 $9.635 $1.560 $4.707 $2.415 $4.942 $8.236
- -------------------------
Value in accumulation
period 7,298,358 2,882,535 13,613,258 2,093,664 3,772,572 348,326 10,652,908 3,890,612
- -------------------------
------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $800,317,384 $435,490,107 $3,491,513,034 $461,096,276 $847,194,482 $ 87,465,884 $1,245,772,271 $838,162,247
- -------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
B-11
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DELAWARE DELAWARE DELAWARE
AGGRESSIVE CAPITAL EMERGING EQUITY/ GLOBAL
GROWTH BOND APPRECIATION GROWTH INCOME BOND
COMBINED ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss):
- Dividends from investment income $ 6,121,206 -- -- -- $ 83,162 $ 927,675 $494,003
- ---------------------------------------
- Dividends from
net realized gains
on investments 267,954,608 11,726,195 -- 10,124,652 299,383 1,352,669 74,664
- ---------------------------------------
- Mortality and expense
guarantees
Multifund without guaranteed minimum
death benefit (80,275,735) (2,825,672) (2,659,895) (3,610,961) (366,412) (458,296) (116,911)
- ---------------------------------------
Multifund with guaranteed minimum death
benefit (173,716) (5,312) (3,518) (10,978) (2,351) (5,913) (1,183)
- --------------------------------------- -------------- ----------- ----------- ----------- ---------- ---------- --------
- ---------------------------------------
NET INVESTMENT
INCOME (LOSS) 193,626,363 8,895,211 (2,663,413) 6,502,713 13,782 1,816,135 450,573
- ---------------------------------------
Net realized and unrealized
gain (loss) on investments:
- Net realized gain on investments 31,377,925 1,833,384 472,812 519,282 347,282 110,909 78,937
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 1,537,087,130 45,524,778 23,051,142 65,783,116 6,225,004 8,012,160 (414,693)
- --------------------------------------- -------------- ----------- ----------- ----------- ---------- ---------- --------
- ---------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 1,568,465,055 47,358,162 23,523,954 66,302,398 6,572,286 8,123,069 (335,756)
- --------------------------------------- -------------- ----------- ----------- ----------- ---------- ---------- --------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,762,091,418 $56,253,373 $20,860,541 $72,805,111 $6,586,068 $9,939,204 $114,817
- --------------------------------------- -------------- ----------- ----------- ----------- ---------- ---------- --------
-------------- ----------- ----------- ----------- ---------- ---------- --------
- ---------------------------------------
</TABLE>
See accompanying notes.
B-12
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
EQUITY ASSET GROWTH MONEY
INCOME ALLOCATION AND INCOME INTERNATIONAL MANAGED MARKET
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss):
- Dividends from investment income -- -- $ 614 -- -- $4,614,946
- ---------------------------------------
- Dividends from
net realized gains
on investments 11,974,504 26,564,476 84,750,368 21,503,545 17,963,870 --
- ---------------------------------------
- Mortality and expense
guarantees
Multifund without guaranteed minimum
death benefit (6,295,520) (3,863,550) (30,199,424) (4,696,227) (7,718,728) (926,159)
- ---------------------------------------
Multifund with guaranteed minimum death
benefit (24,515) (9,509) (42,543) (8,173) (12,486) (2,842)
- --------------------------------------- ------------ ----------- ------------ ----------- ------------ ----------
- ---------------------------------------
NET INVESTMENT
INCOME (LOSS) 5,654,469 22,691,417 54,509,015 16,799,145 10,232,656 3,685,945
- ---------------------------------------
Net realized and unrealized
gain (loss) on investments:
- Net realized gain on investments 258,445 508,189 6,554,616 6,993,977 5,361,324 --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 150,387,800 38,745,607 697,915,930 (1,827,392) 127,206,619 --
- --------------------------------------- ------------ ----------- ------------ ----------- ------------ ----------
- ---------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 150,646,245 39,253,796 704,470,546 5,166,585 132,567,943 --
- --------------------------------------- ------------ ----------- ------------ ----------- ------------ ----------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $156,300,714 $61,945,213 $758,979,561 $21,965,730 $142,800,599 $3,685,945
- --------------------------------------- ------------ ----------- ------------ ----------- ------------ ----------
------------ ----------- ------------ ----------- ------------ ----------
- ---------------------------------------
<CAPTION>
SOCIAL SPECIAL
AWARENESS OPPORTUNITIES
ACCOUNT ACCOUNT
<S> <C> <C>
- ---------------------------------------
Net Investment Income
(Loss):
- Dividends from investment income $ 1,569 ($ 763)
- ---------------------------------------
- Dividends from
net realized gains
on investments 36,165,750 45,454,532
- ---------------------------------------
- Mortality and expense
guarantees
Multifund without guaranteed minimum
death benefit (9,262,463) (7,275,517)
- ---------------------------------------
Multifund with guaranteed minimum death
benefit (32,096) (12,297)
- --------------------------------------- ------------ ------------
- ---------------------------------------
NET INVESTMENT
INCOME (LOSS) 26,872,760 38,165,955
- ---------------------------------------
Net realized and unrealized
gain (loss) on investments:
- Net realized gain on investments 762,828 7,575,940
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 252,909,838 123,567,221
- --------------------------------------- ------------ ------------
- ---------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 253,672,666 131,143,161
- --------------------------------------- ------------ ------------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $280,545,426 $169,309,116
- --------------------------------------- ------------ ------------
------------ ------------
- ---------------------------------------
</TABLE>
B-13
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DELAWARE DELAWARE
AGGRESSIVE CAPITAL EMERGING EQUITY/
GROWTH APPRECIATION GROWTH INCOME
COMBINED ACCOUNT BOND ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1996 $4,727,923,295 $137,078,088 $265,308,954 $127,109,396 $ -- $ --
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 310,746,941 924,278 14,088,247 6,445,235 (81,542) 45,153
- ---------------------------------------
- Net realized gain (loss) on
investments 19,985,015 738,003 (371,046) 164,449 (14,135) 11,020
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 505,243,452 24,903,548 (10,488,612) 22,742,026 49,846 937,378
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 835,975,408 26,565,829 3,228,589 29,351,710 (45,831) 993,551
- ---------------------------------------
Net increase from unit transactions 1,021,967,132 75,358,876 44,758 108,077,232 23,349,339 12,769,503
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
TOTAL INCREASE IN NET ASSETS 1,857,942,540 101,924,705 3,273,347 137,428,942 23,303,508 13,763,054
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1996 6,585,865,835 239,002,793 268,582,301 264,538,338 23,303,508 13,763,054
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 193,626,363 8,895,211 (2,663,413) 6,502,713 13,782 1,816,135
- ---------------------------------------
- Net realized gain on investments 31,377,925 1,833,384 472,812 519,282 347,282 110,909
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 1,537,087,130 45,524,778 23,051,142 65,783,116 6,225,004 8,012,160
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 1,762,091,418 56,253,373 20,860,541 72,805,111 6,586,068 9,939,204
- ---------------------------------------
Net increase (decrease) from unit
transactions 1,078,849,888 41,272,975 (10,721,641) 105,106,326 25,565,137 70,533,110
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,840,941,306 97,526,348 10,138,900 177,911,437 32,151,205 80,472,314
- --------------------------------------- -------------- ------------ ------------ ------------ ----------- -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $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>
- ---------------------------------------
NET ASSETS AT JANUARY 1, 1996 $ --
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 77,642
- ---------------------------------------
- Net realized gain (loss) on
investments 7,815
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 430,516
- --------------------------------------- -----------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 515,973
- ---------------------------------------
Net increase from unit transactions 7,939,048
- --------------------------------------- -----------
- ---------------------------------------
TOTAL INCREASE IN NET ASSETS 8,455,021
- --------------------------------------- -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1996 8,455,021
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 450,573
- ---------------------------------------
- Net realized gain on investments 78,937
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (414,693)
- --------------------------------------- -----------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 114,817
- ---------------------------------------
Net increase (decrease) from unit
transactions 3,835,420
- --------------------------------------- -----------
- ---------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,950,237
- --------------------------------------- -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $12,405,258
- --------------------------------------- -----------
-----------
- ---------------------------------------
</TABLE>
See accompanying notes.
B-14
<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>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1996 $239,790,191 $255,711,056 $1,854,088,512 $358,203,920 $609,161,457 $78,753,630
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 7,611,827 19,874,693 137,125,012 492,324 57,121,081 3,428,270
- ---------------------------------------
- Net realized gain (loss) on
investments 532,812 954,000 7,374,542 2,393,084 3,421,787 --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 55,461,900 18,296,226 225,053,722 31,230,726 10,510,800 --
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 63,606,539 39,124,919 369,553,276 34,116,134 71,053,668 3,428,270
- ---------------------------------------
Net increase from unit transactions 154,889,435 27,985,344 257,472,199 46,129,254 18,294,765 10,920,163
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
TOTAL INCREASE IN NET ASSETS 218,495,974 67,110,263 627,025,475 80,245,388 89,348,433 14,348,433
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1996 458,286,165 322,821,319 2,481,113,987 438,449,308 698,509,890 93,102,063
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 5,654,469 22,691,417 54,509,015 16,799,145 10,232,656 3,685,945
- ---------------------------------------
- Net realized gain on investments 258,445 508,189 6,554,616 6,993,977 5,361,324 --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 150,387,800 38,745,607 697,915,930 (1,827,392) 127,206,619 --
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 156,300,714 61,945,213 758,979,561 21,965,730 142,800,599 3,685,945
- ---------------------------------------
Net increase (decrease) from unit
transactions 185,730,505 50,723,575 251,419,486 681,238 5,883,993 (9,322,124)
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 342,031,219 112,668,788 1,010,399,047 22,646,968 148,684,592 (5,636,179)
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $800,317,384 $435,490,107 $3,491,513,034 $461,096,276 $847,194,482 $87,465,884
- --------------------------------------- ------------ ------------ -------------- ------------ ------------ -----------
------------ ------------ -------------- ------------ ------------ -----------
- ---------------------------------------
<CAPTION>
SOCIAL SPECIAL
AWARENESS OPPORTUNITIES
ACCOUNT ACCOUNT
<S> <C> <C>
- ---------------------------------------
NET ASSETS AT JANUARY 1, 1996 $ 302,255,392 $500,462,699
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 21,087,918 42,506,803
- ---------------------------------------
- Net realized gain (loss) on
investments 428,694 4,343,990
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 90,089,795 36,025,581
- --------------------------------------- -------------- ------------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 111,606,407 82,876,374
- ---------------------------------------
Net increase from unit transactions 226,269,776 52,467,440
- --------------------------------------- -------------- ------------
- ---------------------------------------
TOTAL INCREASE IN NET ASSETS 337,876,183 135,343,814
- --------------------------------------- -------------- ------------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1996 640,131,575 635,806,513
- ---------------------------------------
Changes from operations:
- Net investment income (loss) 26,872,760 38,165,955
- ---------------------------------------
- Net realized gain on investments 762,828 7,575,940
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 252,909,838 123,567,221
- --------------------------------------- -------------- ------------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 280,545,426 169,309,116
- ---------------------------------------
Net increase (decrease) from unit
transactions 325,095,270 33,046,618
- --------------------------------------- -------------- ------------
- ---------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 605,640,696 202,355,734
- --------------------------------------- -------------- ------------
- ---------------------------------------
NET ASSETS AT DECEMBER 31, 1997 $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-16
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
B-17
<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-18
<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-19
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
----------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH ACCOUNT
Accumulation Units:
Contract purchases 78,002,840 $ 121,767,920 98,305,494 $ 128,159,029
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (51,130,371) (80,454,253) (40,474,949) (53,011,052)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
26,872,469 41,313,667 57,830,545 75,147,977
Annuity Reserves:
Transfers from accumulation units and
between accounts 6,975 11,855 187,292 246,263
Annuity payments (34,725) (52,883) (26,469) (35,009)
Receipt (reimbursement) of mortality
guarantee
adjustment 208 336 (260) (355)
- --------------------------------------- ------------ -------------- ------------ --------------
(27,542) (40,692) 160,563 210,899
BOND ACCOUNT
Accumulation Units:
Contract purchases 16,929,287 75,416,109 19,495,617 81,335,083
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (19,453,329) (86,077,372) (19,537,780) (81,314,773)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
(2,524,042) (10,661,263) (42,163) 20,310
Annuity Reserves:
Transfers from accumulation units and
between accounts (3,807) (16,201) 20,646 72,918
Annuity payments (10,322) (45,383) (14,803) (48,134)
Receipt (reimbursement) of mortality
guarantee
adjustment 260 1,206 (78) (336)
- --------------------------------------- ------------ -------------- ------------ --------------
(13,869) (60,378) 5,765 24,448
CAPITAL APPRECIATION ACCOUNT
Accumulation Units:
Contract purchases 94,806,791 169,229,394 98,616,139 141,597,465
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (34,148,668) (64,259,997) (23,013,157) (33,832,749)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
60,658,123 104,969,397 75,602,982 107,764,716
Annuity Reserves:
Transfers from accumulation units and
between accounts 138,925 229,233 252,282 358,307
Annuity payments (53,115) (92,786) (33,426) (45,539)
Receipt of mortality guarantee
adjustment 266 482 (169) (252)
- --------------------------------------- ------------ -------------- ------------ --------------
86,076 136,929 218,687 312,516
DELAWARE EMERGING GROWTH SERIES
Accumulation Units:
Contract purchases 44,648,765 49,459,951 30,391,549 30,078,694
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (21,599,335) (23,894,814) (6,883,462) (6,729,355)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
23,049,430 25,565,137 23,508,087 23,349,339
Annuity Reserves:
Transfers from accumulation units and
between accounts -- -- -- --
Annuity payments -- -- -- --
Receipt of mortality guarantee
adjustment -- -- -- --
- --------------------------------------- ------------ -------------- ------------ --------------
-- -- -- --
</TABLE>
B-20
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
DELAWARE EQUITY/INCOME SERIES
Accumulation Units:
Contract purchases 63,329,518 86,279,609 13,194,259 13,803,232
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (11,448,700) (16,269,211) (1,022,753) (1,086,940)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
51,880,818 70,010,398 12,171,506 12,716,292
Annuity Reserves:
Transfers from accumulation units and
between accounts 419,174 561,795 49,346 54,319
Annuity payments (17,670) (39,841) (1,027) (1,108)
Receipt of mortality guarantee
adjustment 533 758 0 0
- --------------------------------------- ------------ -------------- ------------ --------------
402,037 522,712 48,319 53,211
DELAWARE GLOBAL BOND SERIES
Accumulation Units:
Contract purchases 11,055,192 11,820,716 8,540,427 8,841,232
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (7,482,823) (7,984,605) (935,839) (911,425)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
3,572,369 3,836,111 7,604,588 7,929,807
Annuity Reserves:
Transfers from accumulation units and
between accounts 0 9,011 9,537
Annuity payments (687) (755) (177) (257)
Receipt (reimbursement) of mortality
guarantee
adjustment 58 64 (36) (39)
- --------------------------------------- ------------ -------------- ------------ --------------
(629) (691) 8,798 9,241
EQUITY-INCOME ACCOUNT
Accumulation Units:
Contract purchases 148,013,646 291,732,249 140,613,459 214,658,603
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (51,494,858) (106,299,468) (37,898,146) (60,482,903)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
96,518,788 185,432,781 102,715,313 154,175,700
Annuity Reserves:
Transfers from accumulation units and
between accounts 347,399 651,161 636,113 968,086
Annuity payments (186,468) (354,641) (168,185) (254,362)
Receipt of mortality guarantee
adjustment 574 1,204 7 11
- --------------------------------------- ------------ -------------- ------------ --------------
161,505 297,724 467,935 713,735
GLOBAL ASSET ALLOCATION ACCOUNT
Accumulation Units:
Contract purchases 43,648,559 113,967,396 36,839,595 78,403,293
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (23,852,183) (63,439,313) (23,604,273) (50,316,084)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
19,796,376 50,528,083 13,235,322 28,087,209
Annuity Reserves:
Transfers from accumulation units and
between accounts 116,384 304,669 (5,442) (10,658)
Annuity payments (43,608) (111,483) (42,349) (90,846)
Receipt (reimbursement) of mortality
guarantee adjustment 865 2,306 (160) (361)
- --------------------------------------- ------------ -------------- ------------ --------------
73,641 195,492 (47,951) (101,865)
</TABLE>
B-21
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
GROWTH AND INCOME ACCOUNT
Accumulation Units:
Contract purchases 83,798,971 747,652,912 94,595,773 650,786,764
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (55,049,623) (497,930,628) (56,557,630) (394,499,393)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
28,749,348 249,722,284 38,038,143 256,287,371
Annuity Reserves:
Transfers from accumulation units and
between accounts 478,419 4,399,621 510,180 3,004,447
Annuity payments (323,198) (2,844,717) (339,756) (1,883,645)
Receipt of mortality guarantee
adjustment 15,141 142,298 8,746 64,026
- --------------------------------------- ------------ -------------- ------------ --------------
170,362 1,697,202 179,170 1,184,828
INTERNATIONAL ACCOUNT
Accumulation Units:
Contract purchases 97,406,729 158,472,222 112,601,196 163,360,279
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (96,731,431) (157,730,517) (80,079,799) (117,493,077)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
675,298 741,705 32,521,397 45,867,202
Annuity Reserves:
Transfers from accumulation units and
between accounts 40,514 62,938 282,552 399,875
Annuity payments (79,562) (125,126) (95,015) (137,742)
Receipt (reimbursement) of mortality
guarantee
adjustment 1,121 1,721 (56) (81)
- --------------------------------------- ------------ -------------- ------------ --------------
(37,927) (60,467) 187,481 262,052
MANAGED ACCOUNT
Accumulation Units:
Contract purchases 29,884,020 131,576,753 35,504,608 129,898,876
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (28,660,099) (125,696,264) (30,307,976) (111,630,287)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
1,223,921 5,880,489 5,196,632 18,268,589
Annuity Reserves:
Transfers from accumulation units and
between accounts 78,381 364,128 96,225 352,325
Annuity payments (76,380) (356,231) (81,051) (297,057)
Receipt of mortality guarantee
adjustment (948) (4,393) (7,523) (29,092)
- --------------------------------------- ------------ -------------- ------------ --------------
1,053 3,504 7,651 26,176
MONEY MARKET ACCOUNT
Accumulation Units:
Contract purchases 66,162,439 160,091,004 63,610,822 143,349,355
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (70,044,121) (169,385,979) (58,757,847) (132,358,398)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
(3,881,682) (9,294,975) 4,852,975 10,990,957
Annuity Reserves:
Transfers from accumulation units and
between accounts 7,761 18,708 60,600 8,458
Annuity payments (19,581) (46,466) (90,926) (80,073)
Reimbursement of mortality guarantee
adjustment 252 609 354 821
- --------------------------------------- ------------ -------------- ------------ --------------
(11,568) (27,149) (29,972) (70,794)
</TABLE>
B-22
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
SOCIAL AWARENESS ACCOUNT
Accumulation Units:
Contract purchases 116,822,936 515,505,656 94,393,886 308,894,873
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (41,297,975) (191,229,425) (24,955,052) (83,338,067)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
75,524,961 324,276,231 69,438,834 225,556,806
Annuity Reserves:
Transfers from accumulation units and
between accounts 245,103 1,042,822 243,625 805,720
Annuity payments (47,144) (221,176) (29,485) (93,573)
Receipt of mortality guarantee
adjustment (541) (2,607) 232 823
- --------------------------------------- ------------ -------------- ------------ --------------
197,418 819,039 214,372 712,970
SPECIAL OPPORTUNITIES ACCOUNT
Accumulation Units:
Contract purchases 27,528,360 207,693,807 33,491,123 193,907,939
- ---------------------------------------
Terminated contracts and transfers to
annuity reserves (23,658,971) (174,636,099) (24,879,192) (141,723,304)
- --------------------------------------- ------------ -------------- ------------ --------------
- ---------------------------------------
3,869,389 33,057,708 8,611,931 52,184,635
Annuity Reserves:
Transfers from accumulation units and
between accounts 16,851 122,454 64,182 383,208
Annuity payments (17,468) (130,953) (15,361) (91,944)
Receipt (reimbursement) of mortality
guarantee
adjustment (325) (2,591) (1,335) (8,459)
- --------------------------------------- ------------ -------------- ------------ --------------
(942) (11,090) 47,486 282,805
Net increase from unit transactions $1,078,849,888 $1,021,967,132
-------------- --------------
-------------- --------------
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1996.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
<S> <C> <C>
- ---------------------------------------------------------------------
Aggressive Growth Account $ 58,843,415 $ 8,810,278
Bond Account 29,568,626 26,421,791
Capital Appreciation Account 115,710,320 2,416,893
Delaware Emerging Growth Account 31,578,512 6,016,238
Delaware Equity/Income Account 74,096,287 1,755,451
Delaware Global Bond Account 9,050,116 4,747,538
Equity-Income Account 199,002,879 1,116,564
Global Asset Allocation Account 84,015,034 2,593,701
Growth and Income Account 371,927,469 20,288,417
International Account 62,203,083 43,024,731
Managed Account 65,238,488 23,868,218
Money Market Account 74,513,188 75,918,140
Social Awareness Account 361,412,606 2,906,076
Special Opportunities Account 129,418,873 47,647,789
- --------------------------------------- -------------- ------------
$1,666,578,896 $267,531,825
- --------------------------------------- -------------- ------------
-------------- ------------
</TABLE>
B-23
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
6. DAILY VALUATION CALCULATIONS
Effective October 1996, the daily unit value calculation process was transferred
from the Company to the Delaware Group, an affiliate of the Company. Costs
associated with the calculation of the unit value are paid by the Company.
7. CHANGE IN MANAGEMENT
Effective August 29, 1996, Clay Finlay Inc., Subadvisor of the Lincoln National
International Fund Inc., accepted an offer to sell their ownership interest in
the firm to United Asset Management, a New York Stock Exchange ("NYSE") listed
company. In October 1996, variable contractholders, via proxy solicitation,
instructed the Company to vote to retain Clay Finlay as the Subadvisor of the
Lincoln National International Fund.
The shares were voted as follows:
- 91.56% for retaining Clay Finlay,
- 3.26% against retaining Clay Finlay,
- 5.18% abstained
8. ADDITIONAL INVESTMENT OPTIONS
Effective May 1996, three investment options were added to the Variable Account.
The options include the Delaware Group Premium Funds, Inc. which consist of the
Equity/Income Series, Emerging Growth Series and the Global Bond Series.
B-24
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of The Lincoln National Life Insurance Company and
Contract Owners of Lincoln National Variable Annuity Account C
We have audited the accompanying statement of assets and liability of
Lincoln National Variable Annuity Account C (Variable Account) as of
December 31, 1997, and the related statement of operations for the
year then ended, and the statement of changes in net assets for each
of the two years in the period then ended. These financial statements
are the responsibility of the Variable Account's management. Our
responsibility is to express an opinion on these financial statements
based on our 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. Our procedures included
confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lincoln
National Variable Annuity Account C at December 31, 1997, the results
of its operations for the year then ended, and the changes in its net
assets for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
[SIG]
Fort Wayne, Indiana
April 6, 1998
B-25
<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 servicing 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 agreements the stream of variable coupon
payments generated from the bonds, and in turn,
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 servicing 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.
[LOGO]
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.
[LOGO]
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
(b) LIST OF EXHIBITS
(1) Resolution of the Board of Directors of the Lincoln National Life
Insurance Company establishing Separate Account C is
incorporated herein by reference to Registration Statement on
Form N-4 (File No. 33-25990) filed on April 22, 1998.
(2) None.
(3) Not Applicable.
(4) Variable annuity contract.
(5) Application.
(6) (a) Articles of Incorporation of Lincoln National Life Insurance
Company are hereby incorporated by reference to Registration
Statement on Form S-6 (333-40745) filed November 21, 1997.
(b) Bylaws of Lincoln National Life Insurance Company are hereby
incorporated by reference to Registration Statement on
Form S-6 (333-40745) filed on November 21, 1997.
(7) Not applicable.
(8) (a) Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc. and Lincoln National
Life Insurance Company is incorporated herein by reference
to the Registration Statement on Form S-6 (333-40745)
filed on November 21, 1997.
(b) Fund Participation Agreement between Lincoln National
Aggressive Growth Fund, Inc. and Lincoln National Life
Insurance Company
(c) Fund Participation Agreement between Lincoln National
Bond Fund, Inc. and Lincoln National Life Insurance Company
(d) Fund Participation Agreement between Lincoln National
Capital Appreciation Fund, Inc. and Lincoln National Life
Insurance Company
(e) Fund Participation Agreement between Lincoln National
Equity-Income Fund, Inc. and Lincoln National Life
Insurance Company
(f) Fund Participation Agreement between Lincoln National
Global Asset Allocation Fund, Inc. and Lincoln National
Life Insurance Company
(g) Fund Participation Agreement between Lincoln National
Growth and Income Fund, Inc. and Lincoln National Life
Insurance Company
(h) Fund Participation Agreement between Lincoln National
International Fund, Inc. and Lincoln National Life
Insurance Company
(i) Fund Participation Agreement between Lincoln National
Managed Fund, Inc. and Lincoln National Life Insurance
Company
(j) Fund Participation Agreement between Lincoln National
Money Market Fund, Inc. and Lincoln National Life Insurance
Company
(k) Fund Participation Agreement between Lincoln National
Social Awareness Fund, Inc. and Lincoln National Life
Insurance Company
(l) Fund Participation Agreement between Lincoln National
Special Opportunities Fund, Inc. and Lincoln National Life
Insurance Company
(m) Fund Participation Agreement between Delaware Group
Premium Fund, Inc. and Lincoln National Life and Delaware
Distributors, LP incorporated herein by reference to
Registration Statement on Form N-4. (File No. 33-25990)
filed on April 22, 1998.
(n) Amendment to Fund Participation Agreement between Delaware
Group Premium Fund, Inc. and Lincoln National Life and
Delaware Distributors, LP dated May 1, 1998.
(9) Opinion and Consent of Mary Jo Ardington, Counsel
(10) Consent of Ernst & Young LLP, Independent Auditors
(11) Not applicable.
(12) Not applicable.
(13) Schedule of Computation
(14) Not applicable.
(15) (a) Organizational Chart of Lincoln National Life Insurance
Holding Company System incorporated herein by reference
to Registrant's initial registration statement filed
on April 23, 1998.
(b) Memorandum Concerning Books and Records incorporated
herein by reference to Registration Statement on
Form N-4 (File No. 33-25990) filed on April 22, 1998.
<PAGE>
Item 25.
- --------
DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Positions and Offices with Lincoln National
Name Life Insurance Company
- ---- ----------------------
<S> <C>
Jon A. Boscia** Director
Thomas L. Clagg* Vice President and Associate General Counsel
Kelly D. Clevenger* Vice President
Jeffrey K. Dellinger* Vice President
Donald E. Keller* Vice President
H. Thomas Mc Meekin** Director
Reed P. Miller* Vice President
Stephen H. Lewis* Senior Vice President
Lawrence T. Rowland*** Executive Vice President
Keith J. Ryan* Senior Vice President, Asst. Treasurer and Chief Financial Officer
Gabriel L. Shaheen* President, Chief Executive Officer and Director
Richard C. Vaughan** Director
Roy V. Washington* Vice President
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Assistant Vice President and Secretary
</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.
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 May 4, 1998, there were 425,455 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 (Lincoln Life) provides that Lincoln Life 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
<PAGE>
interests of, or not opposed to the best interests of, Lincoln Life.
Certain additional conditions apply to indemnification in criminal
proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of Lincoln Life in connection with suits by,
or in the rights of, Lincoln Life.
Please refer to Article VII of the By-Laws of Lincoln Life (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
<PAGE>
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29.
- --------
PRINCIPAL UNDERWRITER
(a) Lincoln National Variable Annuity Fund A (Group); Lincoln National
Variable Annuity Fund A (Individual); Lincoln Life Flexible Premium
Variable Life Account D; Lincoln National Variable Annuity Account E;
Lincoln Life Flexible Premium Variable Life Account F; Lincoln
Life Flexible Premium Variable Life Account G; Lincoln National
Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life
Account K; Lincoln Life Flexible Premium Variable Life Account M;
Lincoln Life Variable Annuity Account N; Lincoln Life Flexible
Premium Variable Life Account R; Lincoln National Variable Annuity
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, (2) a post card or similar written
communication affixed to or included in the Prospectus that the applicant
can remove to send for a Statement of Additional Information; or (3) a
prompt for an e-mail request for the Statement of Additional Information
through its Internet Service Center.
(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 e-mailed request to Lincoln Life at the address
listed in the Prospectus, or through its Internet Service Center.
(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.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf, in the City of Fort Wayne, and State of Indiana on
this 17th day of July, 1998.
LINCOLN NATIONAL VARIABLE ANNUITY
ACCOUNT C (e-Annuity),
(Registrant)
By /s/ Stephen H. Lewis
-----------------------------------
Stephen H. Lewis,
Senior Vice President, Lincoln Life
(Signature and Title)
By THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY (Lincoln Life)
(Depositor)
By /s/ Gabriel L. Shaheen
-----------------------------------
Gabriel L. Shaheen
Chief Executive Officer
(Name and title of officer of Depositor)
(b) As required by the Securities Act of 1993, this Registration
Statement has been signed by the Following persons in the capacities and on
the dates indicated.
/s/ Gabriel L. Shaheen President, Chief July 17, 1998
- ------------------------------ Executive Officer --------------
Gabriel L. Shaheen and Director
(Principal Executive
Officer)
- ------------------------------ Director --------------
Jon A. Boscia
Executive Vice President
- ------------------------------ and Director --------------
Lawrence T. Rowland
/s/ Richard C. Vaughan Director July 17, 1998
- ------------------------------ --------------
Richard C. Vaughan
/s/ H. Thomas McMeekin Director July 17, 1998
- ------------------------------ --------------
H. Thomas McMeekin
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT C
SIGNATURES (Continued)
/s/ Keith J. Ryan Senior Vice President, July 17, 1998
- ------------------------------ Chief Financial Officer --------------
Keith J. Ryan and Assistant Treasurer
(Principal Financial
Officer)
<PAGE>
EXHIBIT INDEX
4 Contract
5 Application
8 (b) Fund Participation Agreement between Lincoln National Aggreesive
Growth Fund, Inc. and Lincoln National Life Insurance Company
(c) Fund Participation Agreement between Lincoln National Bond Fund,
Inc. and Lincoln National Life Insurance Company
(d) Fund Participation Agreement between Lincoln National Capital
Appreciation Fund, Inc. and Lincoln National Life Insurance Company
(e) Fund Participation Agreement between Lincoln National Equity-Income
Fund, Inc. and Lincoln National Life Insurance Company
(f) Fund Participation Agreement between Lincoln National Global Asset
Allocation Fund, Inc. and Lincoln National Life Insurance Company
(g) Fund Participation Agreement between Lincoln National Growth and
Income Fund, Inc. and Lincoln National Life Insurance Company
(h) Fund Participation Agreement between Lincoln National International
Fund, Inc. and Lincoln National Life Insurance Company
(i) Fund Participation Agreement between Lincoln National Managed Fund,
Inc. and Lincoln National Life Insurance Company
(j) Fund Participation Agreement between Lincoln National Money Market
Fund, Inc. and Lincoln National Life Insurance Company
(k) Fund Participation Agreement between Lincoln National Social
Awareness Fund, Inc. and Lincoln National Life Insurance Company
(l) Fund Participation Agreement between Lincoln National Special
Opportunities Fund, Inc. and Lincoln National Life Insurance Company
(n) Amendment to Fund Participation Agreement between Delaware Group
Premium Fund, Inc. and Lincoln National Life and Delaware Distributors, LP
dated May 1, 1998
9 Opinion and Consent of Mary Jo Ardington, Associate Counsel
10 Opinion and Consent of Ernst & Young LLP, Independent Auditors
13 Schedule of Performance Calculation
<PAGE>
LINCOLN NATIONAL
LIFE INSURANCE CO.
A PART OF LINCOLN NATIONAL CORPORATION
ANNUITY CONTRACT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
BENEFIT PAYMENT OPTIONS
NON-PARTICIPATING
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
SURRENDER CHARGE WILL BE DEDUCTED) BY DELIVERING OR MAILING IT TO THE HOME
OFFICE OF LNL, OR BY CANCELING THE CONTRACT THROUGH LNL'S INTERNET SERVICE
CENTER. THE PURCHASE PAYMENT WILL BE INVESTED IN THE LINCOLN NATIONAL MONEY
MARKET FUND DURING THIS FREE LOOK PERIOD. UPON CANCELLATION, LNL WILL RETURN THE
VALUE OF ANY PAYMENTS MADE TO THE VARIABLE ACCOUNT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE VARIABLE AND ARE NOT
GUARANTEED AS TO FIXED DOLLAR AMOUNT (SEE SECTIONS 2 AND 3).
Signed for the Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
JON A BOSCIA, PRESIDENT NANCY J. ALFORD, VICE PRESIDENT
Form 28977
Page 1
<PAGE>
TABLE OF CONTENTS
ARTICLE
DEFINITIONS
1 PURCHASE PAYMENTS, OPTIONS, AND BENEFITS
2 ANNUITY PAYOUT OPTION BENEFITS
3 BENEFICIARY
4 GENERAL PROVISIONS
5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION
Form 28977
Page 2
<PAGE>
CONTRACT DATA
CONTRACT NUMBER: XX-0123456
CONTRACT OWNER INFORMATION
<TABLE>
<CAPTION>
PRIMARY JOINT
------- -----
<S> <C> <C>
CONTRACT OWNER: Abraham Lincoln Mary Lincoln
CONTRACT OWNER ADDRESS: 1080 Spruce Street 1080 Spruce Street
Indianapolis, IN 46520 Indianapolis, IN 46520
CONTRACT OWNER SSN/TAX ID: 123-45-6789 234-56-7890
ANNUITANT INFORMATION
ANNUITANT: Abraham Lincoln DATE OF BIRTH: 2/17/1938
SEX: Male
Contingent Annuitant: Mary Lincoln DATE OF BIRTH: 4/12/1938
SEX: Female
CONTRACT INFORMATION
TYPE OF CONTRACT: Non-Qualified
EFFECTIVE DATE: July 1, 1998
MATURITY DATE July 1, 2048
PRODUCT: [eAnnuity]
PURCHASE PAYMENT: $1,500.00
PURCHASE PAYMENT FREQUENCY: Monthly
PURCHASE PAYMENT ALLOCATION: 25% Lincoln National Managed Fund, Inc.
75% Lincoln National Growth and Income Fund, Inc.
BENEFICIARY INFORMATION
Beneficiary Name: Todd Lincoln
Relationship: son
</TABLE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY CONTACT INFORMATION
Lincoln National Life Insurance Company
P.O. Box 2340
Fort Wayne, IN 46801
URL: http:\\www.[annuitynet].com
Form 28977
Page 3
<PAGE>
VARIABLE ACCOUNT
There are currently [fourteen] Subaccounts in the Variable Account available to
the Owner. The Owner may direct Purchase Payments under the Contract to any of
the available Subaccounts, subject to limitations. The amounts allocated to
each Subaccount will be invested at net asset value in the shares of one of the
regulated investment companies (the Funds or Series). The Funds or Series are:
1. [Lincoln National Growth and Income Fund, Inc.]
2. [Lincoln National Bond Fund, Inc.]
3. [Lincoln National Money Market Fund, Inc.]
4. [Lincoln National Managed Fund, Inc.]
5. [Lincoln National Special Opportunities Fund, Inc.]
6. [Lincoln National Global Asset Allocation Fund, Inc.]
7. [Lincoln National Equity Income Fund, Inc.]
8. [Lincoln National Aggressive Growth Fund, Inc.]
9. [Lincoln National Capital Appreciation Fund, Inc.]
10. [Lincoln National Social Awareness Fund, Inc.]
11. [Lincoln National International Fund, Inc.]
12. [Delaware Group Premium Fund, Inc. Trend Series]
13. [Delaware Group Premium Fund, Inc. Decatur Total Return Series]
14. [Delaware Group Premium Fund, Inc. Global Bond Series]
15. [Other Funds or Series made available by LNL]
See Section 2.03 for provisions governing any limitations, substitution or
elimination of Funds or Series.
Form 28977
Page 4
<PAGE>
ARTICLE 1
DEFINITIONS
Account or Variable Account -- Lincoln National Variable Annuity Account C, the
segregated investment account into which the Lincoln National Life Insurance
Company sets aside and invests the assets attributable to this variable annuity
Contract. The Variable Account is a unit investment trust registered with the
SEC under the Investment Company Act of 1940.
Accumulation Unit -- A unit of measure used to calculate the Contract Value
during the accumulation period and in other ancillary computations.
Annuitant -- The person upon whose life the annuity benefit payments made after
the Annuity Commencement Date will be based.
Annuity Commencement Date -- The date when the funds are withdrawn for payment
of annuity benefits under the Annuity Payment Option selected.
Annuity Payment Option - Any of the forms of annuity benefit payments allowed
under this Contract.
Annuity Unit -- A unit of measure, used after the Annuity Commencement Date, to
calculate the amount of variable annuity benefit payments.
Beneficiary -- The person or entity designated by the Owner to receive the Death
Benefit, if any, payable upon the death of the Owner.
Code -- The Internal Revenue Code (IRC) of 1986, as amended.
Contract -- The agreement between LNL and the Owner in which LNL provides a
variable annuity.
Contract Surrender Value -The Contract Value less any applicable Surrender
Charges.
Contract Value -- The sum of the values of all the Accumulation Units
attributable to this Contract at a given time.
Contract Year -- Each one year period from the anniversary of the effective date
on the Contract Data page to the anniversary of that date in the following year.
Death Benefit -- The amount payable to the Owner's designated Beneficiary upon
death of the Owner.
Fund - Any of the mutual funds into which Purchase Payments are allocated.
Home Office -- The principal office of LNL located at 1300 South Clinton Street,
Fort Wayne, Indiana 46802, or an institution designated by LNL.
Individual Retirement Annuity (IRA) -- A retirement plan qualified for special
tax treatment under the Code, including traditional IRAs under section 408 and
Roth IRAs under section 408A.
Internet Service Center - The Internet site LNL maintains specifically for this
Contract to provide variable annuity contract information and other information
to current and prospective annuity Contract Owners and through which various
transactions may be performed. Certain of these transactions may require faxed
or mailed signatures. The URL for the Internet Service Center can be found on
the Contract Data page.
LNL -- The Lincoln National Life Insurance Company.
Form 28977
Page 5
<PAGE>
Maturity Date -- The date specified on the Contract Data page. This is the date
at which annuitization will automatically occur. This date may be changed.
Net Asset Value Per Share - The market value of a Fund or Series share
calculated each day by taking the closing market value of all securities owned,
adding the value of all other assets (such as cash), subtracting all
liabilities, and then dividing the result (total net assets) by the number of
shares outstanding.
Owner -- The individual or entity who exercises rights of ownership under this
Contract.
Purchase Payments -- Amounts paid into this Contract.
Series - Any of the underlying portfolios of the [Delaware Group Premium Fund,
Inc.] in which Purchase Payments allocated to the Variable Account are
indirectly invested.
Subaccount -- That portion of the Variable Account which invests in shares of a
particular Fund or Series. There is a separate Subaccount that corresponds to
each Fund and Series.
Surrender Charge -- The charge assessed on premature withdrawals or surrender of
the Contract, calculated according to the Contract provisions.
Valuation Date -- Close of the stock market of each day that the New York Stock
Exchange (NYSE) is open for business.
Valuation Period -- The period commencing at the close of trading on the NYSE
on a particular Valuation Date and ending at the close of trading on the NYSE on
the next succeeding Valuation Date.
ARTICLE 2
PURCHASE PAYMENTS, OPTIONS, AND BENEFITS
2.01 WHERE PAYABLE
All Purchase Payments must be made either to LNL at its Home Office or through
the Internet Service Center.
2.02 AMOUNT AND FREQUENCY
The minimum initial Purchase Payment is $1,000. The minimum subsequent payment
to the Contract at any one time must be at least $100.00. Purchase Payments may
be made until the earliest of the Annuity Commencement Date, the surrender of
the Contract, the Maturity Date, or payment of any Death Benefit. LNL reserves
the right to limit the sum of Purchase Payments made under this Contract to
$5,000,000.
2.03 VARIABLE ACCOUNT
Purchase Payments under the Contract are allocated to the Variable Account. 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 arising from any other part of LNL's business. The
Owner may direct Purchase Payments under the Contract to any of the available
Subaccounts. The amounts allocated to each Subaccount will be invested at net
asset value in the shares of one of the Funds or Series. The Funds and Series
are shown on the Contract Data page.
LNL reserves the right to eliminate the shares of any Fund or Series and
substitute the securities of a different Fund,
Form 28977
Page 6
<PAGE>
Series, investment company or mutual fund if the shares of a Fund or Series are
no longer available for investment, or, if in the judgment of LNL, further
investment in any Fund or Series should become inappropriate in view of the
purposes of the Contract. LNL may add new Subaccounts investing in a new Fund
or Series. LNL will give the Owner notice of the elimination and substitution
of any Fund or Series within fifteen days after such substitution occurs. Such
notice will be posted on the Internet Service Center, and sent to the Owner's
last known e-mail address. Any such elimination, substitution or addition will
be subject to compliance with any applicable regulatory requirements.
LNL will use each Purchase Payment allocated to the Variable Account by the
Owner to buy Accumulation Units in the Subaccount(s) selected by the Owner. The
number of Accumulation Units purchased will be determined by dividing the amount
directed to the Subaccount by the dollar value of an Accumulation Unit in such
Subaccount as of the next valuation of such Subaccount immediately following
LNL's receipt of the Purchase Payment. The number of Accumulation Units held for
an Owner in a Subaccount will not change simply because of a change in the
dollar value of those Units.
2.04 VALUATION OF ACCUMULATION UNITS
The Contract Value at any time prior to the Annuity Commencement Date equals the
sum of the values of the Accumulation Units credited in the Subaccounts under
the Contract.
The value of a Subaccount on any Valuation Date is the number of Accumulation
Units in the Subaccount multiplied by the value of an Accumulation Unit in the
Subaccount at the end of the Valuation Period.
Accumulation Units for each Subaccount are valued separately. Initially, the
value of an Accumulation Unit was
arbitrarily established at the inception of the Subaccount. It may increase or
decrease from Valuation Period to Valuation Period. The Accumulation Unit value
for a Subaccount for any later Valuation Period is determined as follows:
(1) THE TOTAL VALUE OF FUND OR SERIES SHARES HELD IN THE SUBACCOUNT is
calculated by multiplying the number of Fund or Series shares owned by
the Subaccount at the beginning of the Valuation Period by the Net
Asset Value Per Share of the Fund or Series at the end of the
Valuation Period, and adding any dividend or other distribution of the
Fund or Series if an ex-dividend date occurs during the Valuation
Period; MINUS
(2) THE LIABILITIES OF THE SUBACCOUNT AT THE END OF THE VALUATION PERIOD
(such liabilities include daily charges imposed on the Subaccount, and
may include a charge or credit with respect to any taxes paid or
reserved for by LNL that LNL determines are as a result of the
operations from the Variable Account); the result DIVIDED BY
(3) THE OUTSTANDING NUMBER OF ACCUMULATION UNITS IN THE SUBACCOUNT AT THE
BEGINNING OF THE VALUATION PERIOD.
The daily charges imposed on a Subaccount for any Valuation Period represent the
annuity asset charge adjusted for the number of calendar days in the Valuation
Period. On an annual basis the annuity asset charge will not exceed 0.55%. The
Accumulation Unit value and Annuity Unit value 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.
2.05 TRANSFERS
Prior to the earlier of:
(1) the Maturity Date;
(2) surrender of the Contract;
(3) payment of any Death Benefit; or
Form 28977
Page 7
<PAGE>
(4) the Annuity Commencement Date;
the Owner may direct a transfer of assets from one Subaccount to another
Subaccount.
A transfer will result in the purchase of Accumulation Units in one Subaccount
and the redemption of Accumulation Units in the other Subaccount. Such a
transfer will be accomplished at relative Accumulation Unit values as of the
Valuation Date the transfer request is received.
LNL does not currently charge for this service. However, LNL reserves the right
to impose a charge in the future for transfers between Subaccounts. In addition,
LNL reserves the right to refuse a transfer if, in the investment advisor's
judgement, LNL would be unable to invest effectively according to the Fund's or
Series' investment objectives as a result of such a transfer. LNL reserves the
right to revise the transfer privilege at any time.
2.06 WITHDRAWAL OPTION
The Owner may withdraw a part of the surrender value of this Contract, subject
to a Surrender Charge (see section 2.08). The withdrawal will be effective on
the Valuation Date on which LNL receives a request:
(1) in writing at its Home Office; or
(2) through the Internet Service Center.
The minimum withdrawal is $300. Partial withdrawals will not be permitted if
they lower the Contract Value below $1,000. LNL reserves the right to surrender
this Contract if any withdrawal reduces the total Contract Value to a level in
which this Contract may be surrendered in accordance with the terms set forth in
the nonforfeiture law, applicable in the Owner's home state, for individual
deferred annuities. LNL may surrender the Contract for its surrender value.
The request should specify from which Subaccount the withdrawal will be made.
If no Subaccount is specified, LNL will withdraw the amount requested on a
pro-rata basis from each Subaccount. Any cash payment will be mailed or
electronically transferred 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 the Annuity Commencement Date.
2.07 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 LNL receives a written request at its Home Office or a request through the
Internet Service Center. The Contract Surrender Value will be the total
Contract Value on the Valuation Date, less any Surrender Charge.
Payment will be made 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 at its Home Office.
The surrender option is not available after the Annuity Commencement Date.
2.08 SURRENDER CHARGE
The Surrender Charge is calculated as follows:
Form 28977
Page 8
<PAGE>
Surrender
Number of complete Charge (as a
Contract years percentage of
Since initial payment Contract
was invested Value withdrawn)
1 year or less 3%
More than 1 year 2%
More than 2 years 1%
More than 3 years 0%
2.09 WAIVER OF SURRENDER CHARGES
A surrender of this Contract or withdrawal of Contract Value prior to the
Annuity Commencement Date may be subject to a Surrender Charge, except that such
charges do not apply to:
(1) a surrender of the Contract as a result of the death of the Owner; or
in the case of joint Owners, the death of one of the Owners; or
(2) annuitization of the Contract as provided for in Article 3.
The Surrender Charge will only be waived if LNL is in receipt of proof,
acceptable to LNL, of the exception.
If a non-natural person is the Owner of the Contract, the Annuitant will be
considered the Owner of the Contract for purposes of (1) above.
2.10 DEATH OF OWNER
BEFORE THE ANNUITY COMMENCEMENT DATE
ENTITLEMENT
If there is a single Owner, upon the death of the Owner LNL will pay a
Death Benefit to the designated Beneficiary(s). If the designated
Beneficiary is the surviving spouse of the deceased Owner, the designated
Beneficiary may elect to continue the Contract as the new Owner in lieu of
receiving the Death Benefit. If there are no designated Beneficiaries, LNL
will pay a Death Benefit to the Owner's estate. Upon the death of the
designated Beneficiary who continues the Contract as the new Owner, LNL
will pay a Death Benefit to the designated Beneficiary(s) named by the
spouse as new Owner.
If there are joint Owners, upon the death of the first joint Owner, the
surviving joint Owner, as the spouse of the deceased joint Owner, may
either continue the Contract as sole Owner or receive a Death Benefit.
Upon the death of the joint Owner who continues the Contract, LNL will pay
a Death Benefit to the designated Beneficiary(s).
The Death Benefit will be paid if LNL is in receipt of:
(1) proof of death acceptable to LNL;
(2) authorization for payment; and
(3) all claim forms, fully completed.
Proof of death may be:
(1) a certified copy of a death certificate;
Form 28977
Page 9
<PAGE>
(2) a certified copy of the statement of death from the attending
physician;
(3) a certified copy of a decree of a court of competent jurisdiction
as to the findings of death; or
(4) any other proof of death acceptable to LNL.
All Death Benefit payments will be subject to the laws and regulations
governing death benefits.
Notwithstanding any provision of this Contract to the contrary, no payment
of Death Benefits provided under the Contract will be allowed that does not
satisfy the requirements of Code section 72(s) or 401(a)(9), as applicable,
and as amended from time to time.
DETERMINATION OF AMOUNTS
In the case of the death of the Owner, or in the case of joint Owners, one
of the Owners; this Contract provides a Death Benefit equal to the Contract
Value. If the Owner is a corporation or other non-individual person
(non-natural person), the death of the Annuitant will be treated as the
death of the Owner.
PAYMENT OF AMOUNTS
The Death Benefit payable on the death of the Owner, or after the death of
the first joint Owner, or upon the death of the spouse who continues the
Contract, will be distributed to the designated Beneficiary(s) as follows:
(1) The Death Benefit must be completely distributed within five
years of the Owner's date of death; or
(2) The designated Beneficiary may elect, within the one year period
after the Owner's date of death, to receive the Death Benefit in
substantially equal installments over the life of such designated
Beneficiary or over a period not extending beyond the life
expectancy of such designated Beneficiary, provided that such
distributions begin not later than one year after the Owner's
date of death.
If a lump sum settlement is elected, the proceeds will be paid within
seven days of approval by LNL of the claim. This payment may be
postponed as permitted by the Investment Company Act of 1940.
ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Owner dies on or after the Annuity Commencement Date, any remaining
benefits payable will continue to be distributed under the Annuity Payment
Option then in effect. All of the Owner's rights granted by the Contract
will pass to the joint Owner, if any; otherwise to the designated
Beneficiary.
If there is no named Beneficiary at the time of the Owner's death, then the
Owner's rights will pass to the Annuitant, if applicable. If no named
Beneficiary, Annuitant, or joint Annuitant survives the Owner, any
remaining annuity benefit payments will continue to the Owner's estate.
2.11 DEATH OF ANNUITANT
BEFORE THE ANNUITY COMMENCEMENT DATE
If the Annuitant is also the Owner or a joint Owner, then the Death Benefit
paid will be subject to the Contract provisions regarding death of the
Owner. If, based on the provisions of the Contract, the surviving spouse of
the Owner/Annuitant assumes the Contract, then the contingent Annuitant
becomes the Annuitant. If no contingent Annuitant is named, the surviving
spouse becomes the Annuitant.
If an Annuitant who is not the Owner or joint Owner dies, then the
contingent Annuitant, if any, becomes the Annuitant. If no contingent
Annuitant is named, the Owner (or the younger of the joint Owners) becomes
the
Form 28977
Page 10
<PAGE>
Annuitant.
ON OR AFTER THE ANNUITY COMMENCEMENT DATE
On receipt of proof of death, as described in Section 2.10, of the
Annuitant or both joint Annuitants, any remaining annuity benefit payments
under the Annuity Payment Option will be paid to the Owner, if living,
otherwise, to the Beneficiary. If there is no Beneficiary, any remaining
benefit payments will continue to the Annuitant's estate.
ARTICLE 3
ANNUITY PAYOUT OPTION
BENEFITS
3.01 ANNUITY PAYMENTS
An election to receive payments under an Annuity Payment Option must be made
before the Maturity Date.
If an Annuity Payment Option is not chosen before the Maturity Date, payments
will commence to the Owner on the Maturity Date under the Annuity Payment Option
which provides a life annuity with annuity payments guaranteed for 10 years.
The Maturity Date may be deferred upon request (either in writing or through the
Internet Service Center) by the Owner and any Beneficiary who cannot be changed.
Purchase Payments may be made until the new Maturity Date.
3.02 CHOICE OF ANNUITY PAYMENT OPTION
BY OWNER -- Before the Annuity Commencement Date, the Owner may choose or change
any Annuity Payment Option.
BY BENEFICIARY -- At the time proceeds are payable to a Beneficiary, a
Beneficiary may choose or change any Annuity Payment Option that meets the
requirements of Code section 72(s) or 401(a)(9) if proceeds are available to the
Beneficiary in a lump sum. The Beneficiary then becomes the Annuitant.
A choice or change must be in writing to LNL, or through the Internet Service
Center.
After the Annuity Commencement Date, the Annuity Payment Option may not be
changed.
3.03 CHOICE OF ANNUITANT AND ANNUITY COMMENCEMENT DATE
If the Owner is a natural person, then prior to the earlier of:
(1) the Maturity Date;
(2) surrender of the Contract;
(3) payment of any Death Benefit; or
(4) the Annuity Commencement Date;
the Owner may change the Annuitant(s) and the Annuity Commencement Date.
However, the Annuitant(s) must be no older than 85 years upon the Annuity
Commencement Date. After the Annuity Commencement Date, the Annuity Payment
Option may not be changed.
If the Owner is a non-natural person, then prior to the earlier of:
Form 28977
Page 11
<PAGE>
(1) the Maturity Date;
(2) surrender of the Contract;
(3) payment of any Death Benefit; or
(4) the Annuity Commencement Date;
the Owner may add the spouse of the Annuitant as a joint Annuitant and may
change the Annuity Commencement Date. However, the Annuitant(s) must be no older
than 85 years upon the Annuity Commencement Date. After the Annuity Commencement
Date, the Annuity Payment Option may not be changed.
3.04 ANNUITY PAYMENT OPTIONS
(1) Life annuity / life annuity with guaranteed period -- payments will be
made for life with no period certain, for life with a 10 year period
certain, or for life with a 20 year period certain.
(2) Joint life annuity / joint life annuity with guaranteed period --
payments will be made during the joint life of the Annuitant and a
joint Annuitant of the Owner's choice. Payments will be made for life
with no period certain, for life with a 10 year period certain, or for
life with a 20 year period certain. Payments continue for the life of
the survivor at the death of the Annuitant or joint Annuitant.
(3) Other Annuity Payment Options may be offered by LNL from time to time.
At the time an Annuity Payment Option is selected under the provisions of this
Contract, the total Contract Value will be applied to provide a variable annuity
payment.
The amount of annuity payment will depend on the age and sex (except in cases
where unisex rates are required) of the Annuitant as of the Annuity Commencement
Date. Annuity payments will be made once each month. The Contract Value and
Annuity Unit value used to effect benefit payments will be calculated as of the
Annuity Commencement Date and each monthly anniversary of the Annuity
Commencement Date. Payments will be made within fourteen days after the
Annuity Commencement Date and monthly anniversaries.
3.05 DETERMINATION OF THE AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
Article 6 of this Contract illustrates the minimum payment amounts and the age
adjustments that will be used to determine the first monthly payment under a
variable Annuity Payment Option. The tables show the dollar amount of the first
monthly payment that can be purchased with each $1,000 of Contract Value, after
deduction of any applicable premium taxes. Amounts shown use the 1983 'a'
individual annuity mortality table, modified, with an assumed rate of return of
5% per year.
3.06 DETERMINATION OF THE AMOUNT OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS
The first variable annuity payment is sub-divided into components, each of which
represents the product of:
(1) the percentage elected by the Contract Owner of a specific Subaccount;
and
(2) the entire first variable annuity payment.
On the Annuity Commencement Date, the Contract is credited with Annuity Units
for each Subaccount. The number of Annuity Units credited is computed by
dividing the component of the first payment attributable to a specific
Subaccount by the Annuity Unit value for that Subaccount. Each component of each
variable annuity payment after the first payment attributable to a specific
Subaccount will be determined by multiplying the Annuity Unit value for that
Subaccount on the monthly anniversary of the Annuity Commencement Date by the
number of Annuity Units
Form 28977
Page 12
<PAGE>
attributable to that Subaccount. The total variable annuity payment will be the
sum of the payments attributable to each Subaccount. In the absence of transfers
between Subaccounts, the number of Annuity Units attributable to each Subaccount
remains constant, although the Annuity Unit values will vary with the investment
performance of the Funds and Series.
The Annuity Unit value for any Valuation Period for any Subaccount is determined
by multiplying the Annuity Unit value for the immediately preceding Valuation
Period by the product of (A) and (B), where:
(A) is 0.999866337 raised to a power equal to the number of days in the
current Valuation Period; and
(B) is the Accumulation Unit value of the same Subaccount for this
Valuation Period divided by the Accumulation Unit value of the same
Subaccount for the immediately preceding Valuation Period.
LNL will value all assets in the Subaccount in accordance with the provisions of
applicable laws, rules, and regulations. The determination by LNL of the value
of an Accumulation Unit or of an Annuity Unit, consistent with the above
described methodology, will be binding on the Owner(s) and any Beneficiaries.
LNL guarantees that the dollar amount of each payment after the first will not
be affected by variations in mortality experience from mortality assumptions on
which the first payment is based.
After the Annuity Commencement Date, the Owner may direct a transfer of assets
from one Subaccount to another. Such transfers will be limited to three (3) per
Contract Year.
A transfer from one Subaccount to another Subaccount will result in the purchase
of Annuity Units in one Subaccount, and the redemption of Annuity Units in the
other Subaccount. Such a transfer will be accomplished at relative Annuity Unit
values as of the Valuation Date the transfer request is received.
3.07 PROOF OF AGE
Payment will be subject to proof of age acceptable to LNL, such as a certified
copy of a birth certificate.
3.08 EVIDENCE OF SURVIVAL
If payments depend upon the continuing life of an Annuitant, then LNL may
require proof that the Annuitant is alive when each payment is due.
3.09 CHANGE IN ANNUITY PAYMENT OPTION
The Annuity Payment Option may not be changed after the Annuity Commencement
Date.
ARTICLE 4
BENEFICIARY
4.01 DESIGNATION
The Owner may designate a Beneficiary(s). Unless there are joint Owners, the
designated Beneficiary(s) will receive the Death Benefit proceeds upon the death
of the Owner.
If there are joint Owners, the surviving joint Owner will receive the Death
Benefit proceeds upon the death of the first
Form 28977
Page 13
<PAGE>
joint Owner. The surviving joint Owner will be treated as the primary,
designated Beneficiary. Any other Beneficiary designation on record at the time
of death of the first joint Owner will be treated as a contingent Beneficiary.
If the surviving joint Owner, as spouse of the deceased joint Owner, continues
the Contract as the sole Owner in lieu of receiving the Death Benefit proceeds,
then the designated Beneficiary(s) will receive the Death Benefit proceeds upon
the death of the surviving spouse.
Unless otherwise stated in the Beneficiary designation, designated Beneficiaries
will share the Death Benefit equally.
4.02 CHANGE
The Owner may change any designated Beneficiary, unless prohibited by the
previous designation. A change of Beneficiary will then revoke any previous
designation.
A change may be made either by filing a written request, in a form acceptable to
LNL, at its Home Office, or through the Internet Service Center. The change will
become effective upon receipt of the request by LNL.
4.03 DEATH
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
dies before the Owner, that Beneficiary's interest will go to any other named
Beneficiaries, according to their respective interests. If there are no other
named Beneficiaries, benefits will be paid to the contingent Beneficiary(s), if
any. Before the Annuity Commencement Date, if no Beneficiary or contingent
Beneficiary survives the Owner the proceeds will be paid to the Owner's estate.
Once a Beneficiary is entitled to Death Benefit proceeds, the Beneficiary may
name his or her own Beneficiary(s) to receive any remaining benefits due under
the Contract, should the Beneficiary die prior to receipt of all benefits. If
no Beneficiary is named, or if the named Beneficiary predeceases the original
Beneficiary, any remaining benefits will continue to the original Beneficiary's
estate. This designation must be made to the LNL Home Office or through the
Internet Service Center.
ARTICLE 5
GENERAL PROVISIONS
5.01 THE CONTRACT
The Contract, the application, and any riders attached to the Contract
constitute the entire 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.
LNL reserves the right to unilaterally change the Contract for the purpose of
keeping the Contract in compliance with federal or state law.
Any changes, modifications, or waivers must be in writing. No representative or
person other than the above named officers has authority to change or modify
this Contract or waive any of its provisions. All terms used in this Contract
will have their usual and customary meaning except when specifically defined.
5.02 THE INTERNET SERVICE CENTER
The Internet Service Center is maintained to provide information to current and
prospective customers and to enable various transactions. For security LNL may
issue the Owner a PIN or password. The Owner is responsible for any use
Form 28977
Page 14
<PAGE>
of this PIN or password. For legal reasons certain transactions require a
document with a signature (faxed or mailed). E-mailed requests for transactions
that require a signature will not be processed. Detailed instructions on how to
perform various transactions such as transferring funds from one Subaccount to
another Subaccount, changing the Beneficiary or making a withdrawal can be found
at the Internet Service Center. These procedures must be followed. The Owner
agrees to receive all required documents through the Internet Service Center.
Documents will be considered to be delivered to the Owner when they are placed
in the Owner's personal folder at the Internet Service Center.
5.03 OWNERSHIP
The Owner is the person who has the ability to exercise the rights within this
Contract.
The Owner may name only his or her spouse as a joint Owner. Joint Owner(s) will
be treated as having equal, undivided interests in the Contract, including
rights of survivorship. Either joint Owner, independently of the other, may
exercise any ownership rights in the Contract.
Before the Annuity Commencement Date, the Owner has the right to change the
Annuitant at any time by notifying LNL of the change in writing or through the
Internet Service Center. The Annuitant may not be changed in a Contract owned by
a non-natural person. The Owner may also name a contingent Annuitant by
notifying LNL in writing or through the Internet Service Center. The contingent
Annuitant designation is no longer applicable after the Annuity Commencement
Date.
5.04 ASSIGNMENTS
If used with an Individual Retirement Annuity, the Contract will not be
transferable. It may not be sold, assigned, discounted or pledged as collateral
for a loan or as security for the performance of an obligation or for any other
purpose.
5.05 INCONTESTABILITY
LNL will not contest this Contract.
5.06 MISSTATEMENT OF AGE AND/OR SEX
If the age and/or sex of the Annuitant has been misstated, the benefits
available under this Contract will be those which the Purchase Payments would
have purchased using the correct age and/or sex. Any underpayment already made
by LNL will be made up immediately and any overpayments already made by LNL will
be charged against the annuity payments falling due after the correction is
made.
5.07 NONPARTICIPATING
The Contract is nonparticipating and will not share in the surplus earnings of
LNL.
5.08 VOTING RIGHTS
LNL will vote the Fund and Series shares held in the VAA at meetings of the
various Funds and Series. The votes will be cast according to the instructions
of Owners with interests in a Fund or Series. An Owner may give instructions
for a number of votes equal to the Owner's percentage interest in a subaccount
of the total number of votes attributable to the
Form 28977
Page 15
<PAGE>
subaccount, fractional shares will be recognized.
Ownership of this Contract will not entitle any person to vote at any meeting of
shareholders of LNL.
5.09 OWNERSHIP OF THE ASSETS
LNL will have exclusive and absolute ownership and control of its assets,
including all assets in the Variable Account.
5.10 REPORTS
LNL will send a report to the Owner at least once each Contract Year. The
report will be mailed electronically to the last e-mail address known to LNL.
The report will include a statement of the number of units credited to the
Variable Account under this Contract and the dollar value of such units. The
information in the report will be as of a date not more than one month prior to
the date of e-mailing the report. In addition, LNL will e-mail to the Owner at
least once in each Contract Year a report of the investments held in the
Subaccounts under this Contract. These reports will also be available through
the Internet Service Center.
5.11 PREMIUM TAX
State and local government premium tax, if applicable, will be deducted from
Purchase Payments or Contract Value when incurred by LNL or at another time of
LNL's choosing.
5.12 MAXIMUM ISSUE AGE
This Contract will not be issued to Owners or joint Owners over the age of 85.
Form 28977
Page 16
<PAGE>
ARTICLE 6
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>
- ----------------------------------------------------------------------------------------------
MALE MALE MALE FEMALE FEMALE FEMALE
WITH NO WITH 120 WITH 240 WITH NO WITH 120 WITH 240
PERIOD MONTHS MONTHS PERIOD MONTHS MONTH
AGE CERTAIN CERTAIN CERTAIN CERTAIN CERTAIN CERTAIN
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
60 $6.23 $6.09 $5.70 $5.68 $5.62 $5.43
61 $6.36 $6.20 $5.76 $5.78 $5.71 $5.49
62 $6.49 $6.31 $5.82 $5.88 $5.80 $5.56
63 $6.64 $6.43 $5.87 $5.99 $5.90 $5.62
64 $6.79 $6.56 $5.93 $6.11 $6.00 $5.68
- ----------------------------------------------------------------------------------------------
65 $6.96 $6.69 $5.99 $6.23 $6.11 $5.75
66 $7.14 $6.82 $6.04 $6.37 $6.23 $5.82
67 $7.34 $6.96 $6.09 $6.51 $6.35 $5.88
68 $7.54 $7.11 $6.14 $6.67 $6.48 $5.94
69 $7.77 $7.26 $6.19 $6.84 $6.62 $6.01
- ----------------------------------------------------------------------------------------------
70 $8.01 $7.42 $6.23 $7.02 $6.77 $6.07
71 $8.26 $7.58 $6.27 $7.22 $6.92 $6.12
72 $8.52 $7.74 $6.31 $7.43 $7.08 $6.18
73 $8.81 $7.91 $6.34 $7.67 $7.25 $6.23
74 $9.11 $8.07 $6.37 $7.92 $7.43 $6.27
- ----------------------------------------------------------------------------------------------
75 $9.44 $8.24 $6.40 $8.20 $7.61 $6.31
76 $9.79 $8.41 $6.42 $8.49 $7.79 $6.35
77 $10.17 $8.58 $6.44 $8.81 $7.98 $6.38
78 $10.57 $8.75 $6.46 $9.15 $8.18 $6.41
79 $11.01 $8.91 $6.47 $9.52 $8.37 $6.43
- ----------------------------------------------------------------------------------------------
80 $11.47 $9.07 $6.48 $9.93 $8.56 $6.45
81 $11.97 $9.22 $6.49 $10.37 $8.76 $6.47
82 $12.50 $9.37 $6.50 $10.85 $8.94 $6.48
83 $13.07 $9.51 $6.50 $11.37 $9.12 $6.49
84 $13.68 $9.64 $6.51 $11.94 $9.30 $6.50
- ----------------------------------------------------------------------------------------------
85 $14.33 $9.76 $6.51 $12.55 $9.46 $6.50
- ----------------------------------------------------------------------------------------------
</TABLE>
Form 28977
Page 17
<PAGE>
JOINT AND SURVIVOR ANNUITIES (1 MALE AND 1 FEMALE)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
WITH NO WITH 120 WITH 240
JOINT PERIOD MONTHS MONTHS
AGE CERTAIN CERTAIN CERTAIN
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
60 $5.24 $5.24 $5.20
61 $5.31 $5.31 $5.26
62 $5.39 $5.38 $5.33
63 $5.47 $5.46 $5.39
64
- --------------------------------------------------------------------------
$5.56 $5.55 $5.46
65 $5.65 $5.64 $5.53
66 $5.75 $5.74 $5.61
67 $5.86 $5.84 $5.68
68 $5.98 $5.96 $5.75
69 $6.10 $6.08 $5.83
- --------------------------------------------------------------------------
70 $6.24 $6.20 $5.90
71 $6.38 $6.34 $5.97
72 $6.54 $6.48 $6.04
73 $6.70 $6.64 $6.11
74 $6.89 $6.80 $6.17
- --------------------------------------------------------------------------
75 $7.08 $6.97 $6.23
76 $7.29 $7.15 $6.28
77 $7.52 $7.34 $6.32
78 $7.77 $7.53 $6.36
79 $8.03 $7.73 $6.40
- --------------------------------------------------------------------------
80 $8.32 $7.94 $6.43
81 $8.63 $8.15 $6.45
82 $8.96 $8.37 $6.47
83 $9.32 $8.58 $6.49
84 $9.71 $8.79 $6.49
- --------------------------------------------------------------------------
85 $10.13 $8.99 $6.50
- --------------------------------------------------------------------------
</TABLE>
AGE ADJUSTMENT TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
YEAR OF ADJUSTMENT YEAR OF ADJUSTMENT
BIRTH TO AGE BIRTH TO AGE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Before 1920 +2 1960-1969 -3
1920-1929 +1 1970-1979 -4
1930-1939 0 1980-1989 -5
1940-1949 -1 1990-1999 -6
1950-1959 -2 ETC. ETC.
- ---------------------------------------------------------------------------
</TABLE>
Form 28977
Page 18
<PAGE>
ANNUITY
CONTRACT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
BENEFIT PAYMENT OPTIONS
NON-PARTICIPATING
If you have any questions concerning
this Contract, please contact
Lincoln National Life by
mail or through the
Internet Service Center
LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 2340
FORT WAYNE, INDIANA 46801
URL: http:\\www.[annuitynet].com
Form 28977
Page 19
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
eANNUITY APPLICATION
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNER JOINT CONTRACT OWNER: (MAY ONLY BE SPOUSE, EXCEPT IN OR)
----------------------------------------- -----------------------------------------
Full Legal Name Full Legal Name
NOTE: MAXIMUM ----------------------------------------- -----------------------------------------
AGE OF CONTRACT Street Address Street Address
OWNER IS 85
----------------------------------------- -----------------------------------------
Street Address(continued) Street Address(continued)
----------------------------------------- -----------------------------------------
City State ZIP City State ZIP
----------------------------------------- -----------------------------------------
email address mail address
Social Security # Social Security #
------------------------ ------------------------
Date of Birth: Date of Birth:
--------------------------- ---------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUITANT(s)
---------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY BENEFICIARY SOCIAL SECURITY # CONTINGENT BENEFICIARY(S) SOCIAL SECURITY #
------------------- ----------------- ------------------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT TYPE
---------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOCATION After the free look period, please allocate my initial purchase payment of $__________ as follows:
THIS ALLOCATION LINCOLN NATIONAL FUNDS DELAWARE SERIES
WILL APPLY TO % Growth and Income % Global Asset Allocation % Trend
FUTURE PRUCHASE % Bond % Equity Income % Decatur Total Return
PAYMENTS UNLESS % Money Market % Aggressive Growth % Global Bond
OTHERWISE % Managed % Capital Appreciation
SPECIFIED THROUGH % Special Opportunities % Social Awareness
THE INTERNET % International
SERVICE CENTER
- ------------------------------------------------------------------------------------------------------------------------------------
REPLACEMENTS
Will the proposed contract replace any existing annuity or insurance contract (including any Lincoln National Life
contracts) which have been, or are being, reduced in premium amount, placed on paid-up, or surrendered? ____ Existing
company _______________________________________________ Address ___________________________________________ Policy number
__________________ Approximate amount $________________
- ------------------------------------------------------------------------------------------------------------------------------------
SUITABILITY FINANCIAL OBJECTIVES:
Number of dependents ____ ___ Long term growth
Total family income $_________________________ ___ Maximum capital appreciation
Estimated net worth $_________________________ ___ Preservation of capital
___ Income
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Form 28978 Page 1
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
eANNUITY APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET SERVICE CENTER AND TELEPHONE AUTHORIZATION
I hereby consent to receive all documents, including, without limitation, the annuity contract, required in connection with
the variable annuity through the Internet Service Center. I hereby authorize and direct Lincoln National Life Insurance
Company to accept any instructions received through the Internet Service Center or by telephone from any person who can
furnish proper identification. The undersigned agrees that LNL is not liable for any loss arising from following any such
instructions.
INITIAL OF CONTRACT OWNER:_______________
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC BANK DRAFT
TO:
------------------------------------------- -------------------------------------------
Bank Name ABA NUMBER
------------------------------------------- -------------------------------------------
Bank street address City State ZIP
Automatic bank draft start date: $
----------- ---------------------------- -------------
Checking account number Monthly amount
I/We hereby request and authorize you to pay and charge to my/our account checks or electronic fund transfer
debits processed by and payable to the order of Lincoln Life, P.O. Box 2348, Fort Wayne, IN 46801-2348, provided
there are sufficient collected funds in said account to pay the same upon presentation. It will not be necessary
for any officer or employee of Lincoln Life to sign such checks. I/We agree that your rights in respect to each
such check shall be the same as if it were a check drawn on you and signed personally by me/us. This authority is
to remain in effect until revoked by me/us, and until you actually receive such notice I/we agree that you shall
be fully protected in honoring any such check or electronic fund transfer debit. In addition to regular bank
draft I/We authorize such ad hoc drafts as are requested through the Internet Service Center. I/We further agree
that if any such check or electronic fund transfer debit be dishonored, whether with or without cause and whether
intentionally or inadvertently, you shall be under no liability whatsoever even though such dishonor results in
the forfeiture of insurance or investment loss to me/us.
------------------------------------------------ -----------------------------------------------
Signature(s) EXACTLY as shown on bank records Signature(s) EXACTLY as shown on bank records
Date Date
------------------------------ ----------------- ------------------------------ -----------------
Print full legal name(s) Print full legal name(s)
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES
Under penalty of perjury the Contract Owner certifies that the social security (or taxpayer ID) number is correct
as it appears in this application. I acknowledge receipt of a Prospectus. I agree to accept the copy of the
application (without original signature) delivered to me with the LNL contract as a binding, valid contract.
Documents will be considered delivered when LNL places them in the Contract Owner's personal folder at the
Internet Service Center. I UNDERSTAND ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE BASED ON THE
INVESTMENT EXPERIENCE OF A VARIABLE ACCOUNT AND SO ARE VARIABLE AND ARE NOT GUARANTEED TO A FIXED DOLLAR AMOUNT.
Application signed at:
--------------------------------------------------------
Date Date
------------------------------ ----------------- ----------------------------------- -----------------
Signature of Contract Owner Signature of Joint Contract Owner
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Form 28978 Page 2
</TABLE>
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Aggressive Growth Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule
1 to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
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WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
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1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
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1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of the
Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
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a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
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<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does
not respond within 10 days of a request by the Company, then the Company shall
be relieved of the obligation to obtain the prior written permission of the
Fund.
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<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party reasonably
needs such information for purposes of preparing a report or other filing to be
filed with or submitted to a regulatory agency. If a party requests any such
information before it has been filed, the other party will provide the requested
information if then available and in the version then available at the time of
such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements,
7
<PAGE>
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
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The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend Schedule
3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
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ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek reimbursement from the Fund for the reasonable costs
and expenses of resolving the conflict . After reserving that right
the Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the
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matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the
60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sec.
1-16. The place of arbitration shall be Fort Wayne, Indiana. The
Arbitrator is not empowered to award damages in excess of compensatory
damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
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(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature for the Fund or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
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(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any
sub-investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another
investment company for the corresponding shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not egistered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of(i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing inthe
Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail
to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the Company
shall have suffered a material adverse change in its business or
financial condition; or (2) the Company shall have been the subject of
material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations of the Fund;
or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1) the
Fund shall have suffered a material adverse change in its business or
financial condition; or (2) the Fund shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents thereto
or unless this Agreement is assigned to an affiliate of the Company or
the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of the
Company, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Company so
elects to make additional Fund shares available, the owners of the
Existing Contracts or the Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the Existing
Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Aggressive Growth Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------------------------
Title: President
--------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
---------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
--------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Aggressive Growth Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
Lincoln National Variable Annuity Account C
- -------------------------------------------
Lincoln Life Flexible Premium Variable Life Account K
- -----------------------------------------------------
Lincoln National Variable Annuity Account L
- -------------------------------------------
Lincoln Life Variable Annuity Account Q
- ---------------------------------------
Lincoln National Variable Annuity Account 53
- --------------------------------------------
Various Non-registered Separate Accounts
- ----------------------------------------
21
<PAGE>
SCHEDULE 2
Lincoln National Aggressive Growth Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
Multi Fund Variable Annuity
- ---------------------------
eAnnuity
- --------
Multi Fund Variable Life
- ------------------------
GVA I, II, III
- --------------
Group Multi Fund
- ----------------
Multi Fund - Non-registered
- ---------------------------
Director
- --------
22
<PAGE>
Schedule 3
Lincoln National Aggressive Growth Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL BOND FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998, by and
between Lincoln National Bond Fund, Inc. a corporation organized under the laws
of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE CO., an
Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly
authorized by the Company on the date set forth on Schedule 1, sets aside and
invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company in 1988,
the Company succeeded to all the legal rights and responsibilities of Lincoln
National Pension Insurance Company, the signatory to the original Agreement to
Purchase Shares, which this Agreement amends and restates.
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the
Company orders on behalf of the Account, executing such orders on a daily basis
in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of
receiving redemption and purchase requests from the Account (but
not from the general account of the Company), and receipt on any
Business Day by the Company as such limited agent of the Fund
prior to the time prescribed in the current Fund Prospectus
(which as of the date of execution of this Agreement is 4 p.m.,
E.S.T.) shall constitute receipt by the Fund on that same
Business Day, provided that the Fund receives notice of such
redemption or purchase request by 9:00 a.m., E.S.T. on the next
following Business Day. For purposes of this Agreement,
"Business Day" shall mean any day on which the New York Stock
exchange is open for trading.
(b) The Company shall pay for the shares on the same day
that it places an order with the Fund to purchase those Fund
shares for an Account. Payment for Fund shares will be made by
the Account or the Company in Federal Funds transmitted to the
Fund by wire to be received by 11:00 a.m., E.S.T. on the day the
Fund is properly notified of the purchase order for shares. The
Fund will confirm receipt of each trade and these confirmations
will be received by the Company via Fax or Email by 3:00 p.m.
E.S.T. If Federal Funds are not received on time, such funds
will be invested, and shares purchased thereby will be issued, as
soon as practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company
by wire on the same day the Fund is notified of the redemption
order of shares, except that the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section
22(e) of the 1940 Act. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed;
the Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any shares. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions
3
<PAGE>
as are payable on any shares in the form of additional shares of that Fund. The
Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share available to the Company by 7:00 p.m., E.S.T. each Business Day, and
in any event, as soon as reasonably practicable after the net asset value per
share is calculated, and shall calculate such net asset value in accordance with
the then currently effective Fund Prospectus. The Fund shall not be liable for
any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company to the
Fund.
1.8. (a) The Company may withdraw the Account's investment in
the Fund only: (i) as necessary to facilitate Contract owner
requests; (ii) upon a determination by a majority of the Fund
Board, or a majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of
(x) any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite
vote of the Contractowners having an interest in the Fund to
substitute the shares of another investment company for shares in
accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other
legal precedent of general application; or (v) at the Company's
sole discretion, pursuant to an order of the SEC under Section
26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under
the 1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to
Participating Insurance Companies and their separate accounts. The Fund will
not sell Fund shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be
4
<PAGE>
issued in compliance in all material respects with all applicable Federal and
state laws and (c) that the Company will require of every person distributing
the Contracts that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and validly existing under applicable law and that it has legally and validly
authorized each Account as a separate account under Section 27-1-5-1 of the
Indiana Insurance Code, and has registered or, prior to the issuance of any
Contracts, will register each Account (unless exempt therefrom) as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
separate account for its Contracts, and that it will maintain such registrations
for so long as any Contracts issued under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
5
<PAGE>
2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in
each case in a form suitable for printing, as determined by
the Company. The Fund shall be responsible for the costs of
printing and distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material. The
Company will provide the appropriate Contractowner names and
addresses to the Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each
piece of sales literature or other promotional material in which the Fund is
named. No such material shall be used, except with the prior written permission
of the Fund. The Fund agrees to respond to any request for approval on a prompt
and timely basis. Failure of the Fund to respond within 10 days of the request
by the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond
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<PAGE>
within 10 days of a request by the Company, then the Company shall be relieved
of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus, as such Registration
Statement and Prospectus may be amended or supplemented from time to time, or in
published reports of the Account which are in the public domain or approved in
writing by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved in writing by the Company,
except with the prior written permission of the Company. The Company agrees to
respond to any request for permission on a prompt and timely basis. If the
Company fails to respond within 10 days of a request by the Fund, then the Fund
is relieved of the obligation to obtain the prior written permission of the
Company.
3.7. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy
of all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a
party requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports,
7
<PAGE>
market letters, form letters, seminar texts, or reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII,
the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII,
the Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely
fashion from such Contract owners;
(b) vote Fund shares attributable to Contract owners for
which no instructions have been received in the same
proportion as Fund shares of such Series for which
instructions have been received in timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or
on behalf of the Account that are not attributable to Contract
owners in the same proportion as Fund shares of such Series
for which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
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<PAGE>
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or
separate booklets containing disclosure for the Contracts and for underlying
funds other than those of the Fund, then the Fund shall pay only its
proportionate share of the total cost to distribute the booklet to existing
Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect for
so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by applicable
securities laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the
Fund must comply, the Company shall arrange with the Fund to
amend Schedule 3, pursuant to the requirements of Article XI.
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(b) Should the Fund become aware of any restrictions which
may be appropriate for inclusion in Schedule 3, the Company shall
be informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the
Fund (the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with
that determination, the Company shall, at its sole cost and
expense, take whatever steps are necessary to remedy the material
irreconcilable conflict. These steps could include: (i)
withdrawing the assets allocable to some or all of the affected
Accounts from the Fund and reinvesting such assets in a different
investment vehicle, or submitting the question of whether such
segregation should be implemented to a vote of all affected
Contractowners and, as appropriate, segregating the assets of any
particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or
more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected Contractowners the
option of making such a change; and (ii) establishing a new
registered mutual fund or management separate account; or (iii)
taking such other action as is necessary to remedy or eliminate
the material irreconcilable conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with the
Board, reserving its right to dispute the determination as
between just the Company and the Fund and to seek reimbursement
from the Fund for the reasonable costs and expenses of resolving
the conflict . After reserving that right the Company, although
disagreeing with the Board that it (the Company) was responsible
for the conflict, shall take the necessary steps, under protest,
to remedy the conflict, substantially in accordance with
paragraph (a) just above, for the protection of Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45 days
after the Board's determination the Company elects to press the
dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through
negotiation by individuals from each party who are authorized to
settle the matter. If the matter has not been amicably resolved
within 60 days from the date of the Company's notice of its
intent to press the dispute, then before either party shall
undertake to litigate the dispute it shall be submitted to
non-binding arbitration conducted expeditiously in accordance
with the CPR Rules for Non-Administered Arbitration of Business
Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if one
party has requested the other party to seek an amicable
resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to
select an arbitrator the parties cannot agree upon the
arbitrator, then he or she will be selected from the CPR Panels
of Neutrals. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. Sec. 1-16. The place of
arbitration shall be Fort Wayne, Indiana. The Arbitrator is not
empowered to award damages in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another
was responsible for the conflict, then the Board shall notify the
Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other Participating
Insurance Company as applicable, shall, at its sole cost and
expense, take whatever steps are necessary to eliminate the
conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all
or part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict. However, in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract, if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Fund and each person who controls or is associated with
the Fund (other than another Participating Insurance Company) within the meaning
of such terms under the federal securities laws and any officer, trustee,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid with the prior written consent of the Company in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
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<PAGE>
(d) arise as a result of any failure by the Company to
provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely
basis in accordance with the procedures set forth in Article I;
or
(f) arise as a result of the Company's providing the Fund
with inaccurate information, which causes the Fund to calculate
its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and
hold harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Fund Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify shall
not apply if such statement or omission or alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund for
use in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the Fund
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
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<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund
(other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control) or
wrongful conduct of the Fund or persons under its control with
respect to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment
or supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement
or omission was made in reliance upon information furnished in
writing by the Fund to the Company (or a person authorized in
writing to do so on behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to
comply with the diversification requirements specified in
Sections 2.4 and 6.1 in Article VI of this Agreement; and (ii) to
provide the Company with accurate information sufficient for it
to calculate its accumulation and/or annuity unit values in
timely fashion as required by law and by the Contracts
Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
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<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties; or
(b) at the option of the Company if shares of the Fund are
not available to meet the requirements of the Contracts as
determined by the Company. Prompt notice of the election to
terminate for such cause shall be furnished by the Company.
Termination shall be effective ten days after the giving of
notice by the Company; or
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<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related to
the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable
law) and written approval of the Company, to substitute the
shares of another investment company for the corresponding shares
of the Fund in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if the
Company reasonably believes, based on an opinion of its counsel,
that the Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Section 817(h) of
the Code and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes
that the Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine,
in its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have
been the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and operations
of the Fund; or
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<PAGE>
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that:
(1) the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been
the subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or
the Accounts to another insurance company pursuant to an
assumption reinsurance agreement) unless the non-assigning party
consents thereto or unless this Agreement is assigned to an
affiliate of the Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination, or sooner if required
by law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund will, at the
option of the Company, continue to make available additional
Fund shares for so long after the termination of this Agreement
as the Company desires, pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the Company so elects to
make additional Fund shares available, the owners of the Existing
Contracts or the Company, whichever shall have legal authority to
do so, shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing
Contracts.
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<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in
effect except for Section 10.1(a) and thereafter either the Fund
or the Company may terminate the Agreement, as so continued
pursuant to this Section 10.3, upon prior written notice to the
other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be
for more than six months.
(c) The parties agree that this Section 10.3 shall not
apply to any termination made pursuant to Article VII, and the
effect of such Article VII termination shall be governed by the
provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
Lincoln National Bond Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
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ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL BOND FUND, INC.
Signature:
------------------------------------------------------------
Name: KELLY D. CLEVENGER
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Title: PRESIDENT
----------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
------------------------------------------------------------
Name: STEPHEN H. LEWIS
-----------------------------------------------------------------
Title: SENIOR VICE PRESIDENT, LINCOLN NATIONAL LIFE INSURANCE COMPANY
----------------------------------------------------------------
20
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AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July,
1998, by and between Lincoln National Capital Appreciation Fund, Inc. a
corporation organized under the laws of Maryland (the "Fund"), and THE
LINCOLN NATIONAL LIFE INSURANCE CO., an Indiana insurance corporation (the
"Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement as in effect at the time this
Agreement is executed and such other separate accounts that may be added to
Schedule 1 from time to time in accordance with the provisions of Article XI
of this Agreement (each such account referred to as the "Account";
collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively referred to as
"Variable Insurance Products," the owners of such products being referred to as
"Product owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange
Commission (the "SEC") and the SEC has declared effective a registration
statement (referred to herein as the "Fund Registration Statement" and the
prospectus contained therein, or filed pursuant to Rule 497 under the 1933 Act,
referred to herein as the "Fund Prospectus") on Form N-lA to register itself as
an open-end management investment company (File No. 811-3212) under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund shares
(File No. 2-80743) under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Company has filed a registration statement with the
SEC to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts and/or variable life insurance policies described in Schedule
2 to this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
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WHEREAS, each Account, a validly existing separate account, duly
authorized by the Company on the date set forth on Schedule 1, sets aside and
invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company and the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which
the Company orders on behalf of the Account, executing such orders on a daily
basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by
the Company on behalf of the Account at the then applicable net asset value
per share on Business Days as defined in Section 1.4 of this Agreement, and
the Fund shall use its best efforts to calculate AND DELIVER such net asset
value by 7:00 p.m., E.S.T., on each such Business Day. Notwithstanding any
other provision in this Agreement to the contrary, the Board of Directors of
the Fund (the "Fund Board") may suspend or terminate the offering of shares,
if such action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Fund Board acting in good
faith and in light of its fiduciary duties under Federal and any applicable
state laws, suspension or termination is necessary and in the best interests
of the shareholders (it being understood that "shareholders" for this
purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any
full or fractional shares of the Fund held by the Account or the Company,
executing such requests at the net asset value on a daily basis (LL will
expect same day redemption wires unless unusual circumstances evolve which
cause the Fund to have to redeem securities) in accordance with Section 1.4
of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund
may delay redemption of Fund shares to the extent permitted by the 1940 Act,
any rules, regulations or orders thereunder, or the then currently effective
Fund Prospectus.
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1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the
Company shall be the agent of the Fund for the limited purpose of
receiving redemption and purchase requests from the Account (but not
from the general account of the Company), and receipt on any Business
Day by the Company as such limited agent of the Fund prior to the
time prescribed in the current Fund Prospectus (which as of the date
of execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same
day that it places an order with the Fund to purchase those Fund
shares for an Account. Payment for Fund shares will be made by the
Account or the Company in Federal Funds transmitted to the Fund by
wire to be received by 11:00 a.m., E.S.T. on the day the Fund is
properly notified of the purchase order for shares. The Fund will
confirm receipt of each trade and these confirmations will be
received by the Company via Fax or Email by 3:00 p.m. E.S.T. If
Federal Funds are not received on time, such funds will be invested,
and shares purchased thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by
wire on the same day the Fund is notified of the redemption order of
shares, except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940 Act.
The Fund shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds if securities must
be redeemed; the Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Fund shares will be recorded in
an appropriate ledger for the Account or the appropriate subaccount of the
Account.
1.6. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income dividends or capital gain distributions
payable on any shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any shares in the form of additional shares of that Fund. The Company reserves
the right, on its behalf and on behalf of the Account, to revoke this election
and to receive all such dividends in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and distributions.
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1.7. The Fund shall use its best efforts to make the
net asset value per share available to the Company by 7:00 p.m., E.S.T. each
Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share is calculated, and shall calculate such net asset
value in accordance with the then currently effective Fund Prospectus. The
Fund shall not be liable for any information provided to the Company pursuant
to this Agreement which information is based on incorrect information
supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's
investment in the Fund only: (i) as necessary to facilitate Contract
owner requests; (ii) upon a determination by a majority of the Fund
Board, or a majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (x)
any Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon requisite vote
of the Contractowners having an interest in the Fund to substitute
the shares of another investment company for shares in accordance
with the terms of the Contracts; (iv) as required by state and/or
federal laws or regulations or judicial or other legal precedent of
general application; or (v) at the Company's sole discretion,
pursuant to an order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the
arrangement contemplated by this Agreement is not exclusive and that
the Fund shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be invested
in other investment companies.
(c) The Company shall not, without prior notice
to the Fund (unless otherwise required by applicable law), take any
action to operate the Accounts as management investment companies
under the 1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to
Participating Insurance Companies and their separate accounts. The Fund will
not sell Fund shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts
are registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be 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
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a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and
has registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a separate account for its
Contracts, and that it will maintain such registrations for so long as any
Contracts issued under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The Fund further represents and warrants that it is a corporation
duly organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund further represents and warrants
that it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies,
fees and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
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ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of
the current Fund Prospectus as the Company may reasonably request. If requested
by the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund and the Fund
shall provide such Statement free of charge to the Company and to any
outstanding or prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the
Company a camera-ready copy of the Fund's shareholder reports and
other communications to shareholders (except proxy material), in each
case in a form suitable for printing, as determined by the Company.
The Fund shall be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material. The Company
will provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use,
each piece of sales literature or other promotional material in which the Fund
is named. No such material shall be used, except with the prior written
permission of the Fund. The Fund agrees to respond to any request for
approval on a prompt and timely basis. Failure of the Fund to respond
within 10 days of the request by the Company shall relieve the Company of the
obligation to obtain the prior written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
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3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus, as such Registration
Statement and Prospectus may be amended or supplemented from time to time, or in
published reports of the Account which are in the public domain or approved in
writing by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved in writing by the Company,
except with the prior written permission of the Company. The Company agrees to
respond to any request for permission on a prompt and timely basis. If the
Company fails to respond within 10 days of a request by the Fund, then the Fund
is relieved of the obligation to obtain the prior written permission of the
Company.
3.7. The Fund will provide to the Company at least one complete
copy of all Fund Registration Statements, Fund Prospectuses, Statements of
Additional Information, annual and semi-annual reports and other reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements to
any of the above, that relate to the Fund or Fund shares, within 20 days after
the filing of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts Prospectuses,
Statements of Additional Information, Annual and Semi-annual Reports, sales
literature and other promotional materials, and all amendments or supplements to
any of the above, that relate to the Contracts, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of
draft versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a
party requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, computer net site, signs or billboards, motion
pictures or other public media), sales literature (I.E., any written
communication distributed or made generally available to customers or the
public, in print or electronically, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts
of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements,
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prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1 Subject to applicable law and the requirements of Article
VII, the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of
Article VII, the Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners
for which no instructions have been received in the same proportion
as Fund shares of such Series for which instructions have been
received in timely fashion; and
(c) vote Fund shares held by the Company on its own
behalf or on behalf of the Account that are not attributable to
Contract owners in the same proportion as Fund shares of such Series
for which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing
Fund Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
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The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account Prospectuses
and SAIs for existing Contractowners. The Company shall have the final decision
on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration
Statements under the 1933 Act and the Account's Registration Statement under
the 1940 Act from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable law.
The Company shall register and qualify the Contracts for sale to the extent
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under
the 1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by applicable
securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will describe
the circumstances under which a Contract could be treated as a modified
endowment contract (or policy).
6.5. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board
of Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of
any applicable state-mandated investment restrictions with which the
Fund must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions
which may be appropriate for inclusion in Schedule 3, the Company
shall be informed immediately of the substance of those restrictions.
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ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of
the Fund (the "Board") any potential or existing conflicts between the
interests of Product Owners of all separate accounts investing in the Fund,
and to assist the Board in carrying out its responsibilities under Section
6e-3(T) of the 1940 Act, by providing all information reasonably necessary
for the Board to consider any issues raised, including information as to a
decision to disregard voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested
Board Members, determines that a material irreconcilable conflict exists, the
Board shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to
the Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense, take
whatever steps are necessary to remedy the material irreconcilable
conflict. These steps could include: (i) withdrawing the assets
allocable to some or all of the affected Accounts from the Fund and
reinvesting such assets in a different investment vehicle, or
submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contractowners the option of making such a
change; and (ii) establishing a new registered mutual fund or
management separate account; or (iii) taking such other action as is
necessary to remedy or eliminate the material irreconcilable conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest with the
Board, reserving its right to dispute the determination as between
just the Company and the Fund and to seek reimbursement from the Fund
for the reasonable costs and expenses of resolving the conflict .
After reserving that right the Company, although disagreeing with the
Board that it (the Company) was responsible for the conflict, shall
take the necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for the
protection of Contractowners.
(c) As between the Company and the Fund, if within
45 days after the Board's determination the Company elects to press
the dispute, it shall so notify the Board in writing. The parties
shall then attempt to resolve the matter amicably through negotiation
by individuals from each party who are authorized to settle the
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matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or
another was responsible for the conflict, then the Board shall notify
the Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other Participating Insurance
Company as applicable, shall, at its sole cost and expense, take
whatever steps are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall
constitute a waiver of any right of action which the Company may have
against other Participating Insurance Companies for reimbursement of
all or part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the
disinterested members of the Board shall determine whether or not any
proposed action adequately remedies any irreconcilable conflict. However, in
no event will the Fund be required to establish a new funding medium for any
variable contract, nor will the Company be required to establish a new
funding medium for any Contract, if in either case an offer to do so has been
declined by a vote of a majority of affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund and each person who controls or is
associated with the Fund (other than another Participating Insurance Company)
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Company in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in the
Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact by or on
behalf of the Company (other than statements or representations
contained in the Fund Registration Statement, Fund Prospectus or
sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its control with respect to
the sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Fund
Registration Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company; or
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(d) arise as a result of any failure by the Company
to provide the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company
of this Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares on a
timely basis in accordance with the procedures set forth in Article
I; or
(f) arise as a result of the Company's providing the
Fund with inaccurate information, which causes the Fund to calculate
its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify
and hold harmless the Company and each person who controls or is associated with
the Company within the meaning of such terms under the federal securities laws
and any officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the Fund Registration Statement, Fund Prospectus (or any amendment
or supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto)
or sales literature for the Fund or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
13
<PAGE>
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact made by the
Fund (other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the Distributor or
the Fund or persons under their control) or wrongful conduct of the
Fund or persons under its control with respect to the sale or
distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Fund to the Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the terms of
this Agreement (including, but not by way of limitation, a failure,
whether unintentional or in good faith or otherwise: (i) to comply
with the diversification requirements specified in Sections 2.4 and
6.1 in Article VI of this Agreement; and (ii) to provide the Company
with accurate information sufficient for it to calculate its
accumulation and/or annuity unit values in timely fashion as required
by law and by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of
this Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party
entitled to indemnification ("indemnified party") under this Article VIII of
notice of the commencement of any action, if a claim in respect thereof is to be
made by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement thereof
as soon as practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Article
VIII, except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give such notice. The indemnifying party, upon
the request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties; or
(b) at the option of the Company if shares of the Fund
are not available to meet the requirements of the Contracts
as determined by the Company. Prompt notice of the
election to terminate for such cause shall be furnished by
the Company. Termination shall be effective ten days after
the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory
body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the
Account, the administration of the Contracts or the purchase
of Fund shares;
(d) at the option of the Company upon institution of
formal proceedings against the Fund, the investment advisor
or any sub-investment advisor, by the NASD, the SEC, or any
state securities or insurance commission or any other
regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by
applicable law) and written approval of the Company, to
substitute the shares of another investment company for the
corresponding shares of the Fund in accordance with the
terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in
accordance with applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the
interests of (i) any Product owners or (ii) the
interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases
to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably believes,
based on an opinion of its counsel, that the Fund may
fail to so qualify; or
(i) at the option of the Company if the Fund fails to
meet the diversification requirements specified in
Section 817(h) of the Code and any regulations
thereunder; or
(j) at the option of the Fund if the Contracts cease
to qualify as annuity contracts or life insurance
policies, as applicable, under the Code, or if the Fund
reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of the Fund if the Fund shall
determine, in its sole judgment exercised in good faith,
that either (1) the Company shall have suffered a
material adverse change in its business or financial
condition; or (2) the Company shall have been the subject
of material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations
of the Fund; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith,
that: (1) the Fund shall have suffered a material adverse
change in its business or financial condition; or (2) the
Fund shall have been the subject of material adverse
publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(m) automatically upon the assignment of this
Agreement (including, without limitation, any transfer of
the Contracts or the Accounts to another insurance
company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or unless
this Agreement is assigned to an affiliate of the Company
or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon
the provisions of Article VII or the provisions of
Section 10.1(a) of this Agreement, such prior written
notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon
the provisions of Section 10.1(c) or 10.1(d) of this
Agreement, such prior written notice shall be given at
least ninety (90) days before the effective date of
termination, or sooner if required by law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund
will, at the option of the Company, continue to make
available additional Fund shares for so long after the
termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the
Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the
Company, whichever shall have legal authority to do so,
shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the
Existing Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available
after such termination, the provisions of this Agreement
shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this Section
10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for
more than six months.
(c) The parties agree that this Section 10.3 shall
not apply to any termination made pursuant to Article
VII, and the effect of such Article VII termination shall
be governed by the provisions set forth or incorporated
by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through new or existing Separate Accounts
investing in the Fund. The provisions of this Agreement shall be equally
applicable to each such separate account and each such class of contracts or
policies, unless the context otherwise requires. Any such amendment must be
signed by the parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
Lincoln National Capital Appreciation Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Capital Appreciation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Capital Appreciation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
EANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
22
<PAGE>
SCHEDULE 3
Lincoln National Capital Appreciation Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified
if it is invested in a minimum of three different countries at all
times, and has invested no more than 50 percent of total assets in
any one second-tier country and no more than 25 percent of total
assets in any one third-tier country. First-tier countries are:
Germany, the United Kingdom, Japan, the United States, France,
Canada, and Australia. Second-tier countries are all countries not in
the first or third tier. Third-tier countries are countries
identified as "emerging" or "developing" by the International Bank
for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a
minimum of three countries. The name of the fund must accurately
describe the FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Equity-Income Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule
1 to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively referred to as
"Variable Insurance Products," the owners of such products being referred to as
"Product owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange
Commission (the "SEC") and the SEC has declared effective a registration
statement (referred to herein as the "Fund Registration Statement" and the
prospectus contained therein, or filed pursuant to Rule 497 under the 1933 Act,
referred to herein as the "Fund Prospectus") on Form N-lA to register itself as
an open-end management investment company (File No. 811-3212) under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund shares
(File No. 2-80743) under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Company has filed a registration statement with the
SEC to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts and/or variable life insurance policies described in Schedule
2 to this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly
authorized by the Company on the date set forth on Schedule 1, sets aside and
invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company and the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which
the Company orders on behalf of the Account, executing such orders on a daily
basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by
the Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any
full or fractional shares of the Fund held by the Account or the Company,
executing such requests at the net asset value on a daily basis (LL will expect
same day redemption wires unless unusual circumstances evolve which cause the
Fund to have to redeem securities) in accordance with Section 1.4 of this
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
2
<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be
the agent of the Fund for the limited purpose of receiving redemption
and purchase requests from the Account (but not from the general
account of the Company), and receipt on any Business Day by the
Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are
not received on time, such funds will be invested, and shares
purchased thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company will
be made in Federal Funds transmitted to the Company by wire on the
same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940 Act.
The Fund shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds if securities must
be redeemed; the Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income dividends or capital gain distributions
payable on any shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any shares in the form of additional shares of that Fund. The Company reserves
the right, on its behalf and on behalf of the Account, to revoke this election
and to receive all such dividends in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and distributions.
3
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset
value per share available to the Company by 7:00 p.m., E.S.T. each Business Day,
and in any event, as soon as reasonably practicable after the net asset value
per share is calculated, and shall calculate such net asset value in accordance
with the then currently effective Fund Prospectus. The Fund shall not be liable
for any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company to the
Fund.
1.8. (a) The Company may withdraw the Account's investment in the Fund
only: (i) as necessary to facilitate Contract owner requests; (ii)
upon a determination by a majority of the Fund Board, or a majority
of disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (x) any Product Owners or (y)
the interests of the Participating Insurance Companies investing in
the Fund; (iii) upon requisite vote of the Contractowners having an
interest in the Fund to substitute the shares of another investment
company for shares in accordance with the terms of the Contracts;
(iv) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application; or (v) at
the Company's sole discretion, pursuant to an order of the SEC under
Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1.The Company represents and warrants (a) that the Contracts
are registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
<PAGE>
a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and
has registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The Fund further represents and warrants that it is a corporation
duly organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund further represents and warrants
that it will make every effort to continue to qualify and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund and the Fund
shall provide such Statement free of charge to the Company and to any
outstanding or prospective Contract owner who requests such Statement.
3.3.(a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b)The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each
piece of sales literature or other promotional material in which the Fund is
named. No such material shall be used, except with the prior written permission
of the Fund. The Fund agrees to respond to any request for approval on a prompt
and timely basis. Failure of the Fund to respond within 10 days of the request
by the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond within 10 days of a request by the Company, then the
Company shall be relieved of the obligation to obtain the prior written
permission of the Fund.
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3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus, as such Registration
Statement and Prospectus may be amended or supplemented from time to time, or in
published reports of the Account which are in the public domain or approved in
writing by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved in writing by the Company,
except with the prior written permission of the Company. The Company agrees to
respond to any request for permission on a prompt and timely basis. If the
Company fails to respond within 10 days of a request by the Fund, then the Fund
is relieved of the obligation to obtain the prior written permission of the
Company.
3.7. The Fund will provide to the Company at least one complete
copy of all Fund Registration Statements, Fund Prospectuses, Statements of
Additional Information, annual and semi-annual reports and other reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements to
any of the above, that relate to the Fund or Fund shares, within 20 days after
the filing of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts Prospectuses,
Statements of Additional Information, Annual and Semi-annual Reports, sales
literature and other promotional materials, and all amendments or supplements to
any of the above, that relate to the Contracts, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments or supplements
to any of the above, to the extent that the other party reasonably needs such
information for purposes of preparing a report or other filing to be filed with
or submitted to a regulatory agency. If a party requests any such information
before it has been filed, the other party will provide the requested information
if then available and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other
public media), sales literature (I.E., any written communication distributed
or made generally available to customers or the public, in print or
electronically, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
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prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article
VII, the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion from
such Contract owners;
(b) vote Fund shares attributable to Contract owners for which no
instructions have been received in the same proportion as Fund shares of
such Series for which instructions have been received in timely fashion;
and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners
in the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and
distributing Fund Prospectuses and SAIs to existing Contractowners. (If for
this purpose the Company decided to print the Fund Prospectuses and SAIs in a
booklet or separate booklets containing disclosure for the Contracts and for
underlying funds other than those of the Fund, then the Fund shall pay only
its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
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The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account
Prospectuses and SAIs for existing Contractowners. The Company shall have
the final decision on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under
the 1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund shares are sold the continuous offering of Fund shares as
described in the then currently effective Fund Prospectus. The Fund shall
register and qualify Fund shares for sale to the extent required by applicable
securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will describe
the circumstances under which a Contract could be treated as a modified
endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of any applicable
state-mandated investment restrictions with which the Fund must
comply, the Company shall arrange with the Fund to amend Schedule 3,
pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may be
appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
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ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the
Fund (the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested
Board Members, determines that a material irreconcilable conflict exists, the
Board shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the Company
and a reasonable opportunity for the Company to appear before it and
present its case, determines that the Company is responsible for said
conflict, and if the Company agrees with that determination, the
Company shall, at its sole cost and expense, take whatever steps are
necessary to remedy the material irreconcilable conflict. These steps
could include: (i) withdrawing the assets allocable to some or all of
the affected Accounts from the Fund and reinvesting such assets in a
different investment vehicle, or submitting the question of whether
such segregation should be implemented to a vote of all affected
Contractowners and, as appropriate, segregating the assets of any
particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other
action as is necessary to remedy or eliminate the material
irreconcilable conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and
the Fund and to seek reimbursement from the Fund for the reasonable
costs and expenses of resolving the conflict . After reserving that
right the Company, although disagreeing with the Board that it (the
Company) was responsible for the conflict, shall take the necessary
steps, under protest, to remedy the conflict, substantially in
accordance with paragraph (a) just above, for the protection of
Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals
from each party who are authorized to settle the
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matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the
60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a waiver
of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict. However, in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract, if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund and each person who controls or is
associated with the Fund (other than another Participating Insurance Company)
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Company in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in the
Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund Registration Statement, Fund
Prospectus or sales literature or other promotional material of the
Fund or any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company; or
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(d) arise as a result of any failure by the Company to provide the
services and furnish the materials or to make any payments under the
terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify
and hold harmless the Company and each person who controls or is associated with
the Company within the meaning of such terms under the federal securities laws
and any officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto)
or sales literature for the Fund or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
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(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact made by the Fund (other than
statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Fund to the Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and
by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party
entitled to indemnification ("indemnified party") under this Article VIII of
notice of the commencement of any action, if a claim in respect thereof is to be
made by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement thereof
as soon as practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Article
VIII, except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give such notice. The indemnifying party, upon
the request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the
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indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
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(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any
sub-investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an interest
in the Fund (unless otherwise required by applicable law) and written
approval of the Company, to substitute the shares of another
investment company for the corresponding shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of disinterested Fund
Board members, that an irreconcilable material conflict exists among
the interests of (i) any Product owners or (ii) the interests of the
Participating Insurance Companies investing in the Fund; or
(h) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in its
sole judgment exercised in good faith, that either (1) the Company
shall have suffered a material adverse change in its business or
financial condition; or (2) the Company shall have been the subject
of material adverse publicity which is likely to have a
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material adverse impact upon the business and operations of the Fund;
or
(l) at the option of the Company, if the Company shall determine,
in its sole judgment exercised in good faith, that: (1) the Fund
shall have suffered a material adverse change in its business or
financial condition; or (2) the Fund shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the provisions
of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1(c) or 10.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective
date of termination, or sooner if required by law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund will, at the option of the
Company, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the
Company so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall have
legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the
Existing Contracts.
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(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through new or existing Separate Accounts
investing in the Fund. The provisions of this Agreement shall be equally
applicable to each such separate account and each such class of contracts or
policies, unless the context otherwise requires. Any such amendment must be
signed by the parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party(ies) at the address of such party(ies) set
forth below or at such other address as such party(ies) may from time to time
specify in writing to the other party.
If to the Fund:
Lincoln National Equity-Income Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
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ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
LINCOLN NATIONAL EQUITY-INCOME FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
20
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SCHEDULE 1
Lincoln National Equity-Income Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
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SCHEDULE 2
Lincoln National Equity- Income Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
EANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
22
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SCHEDULE 3
Lincoln National Equity-Income Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if
it is invested in a minimum of three different countries at all
times, and has invested no more than 50 percent of total assets in
any one second-tier country and no more than 25 percent of total
assets in any one third-tier country. First-tier countries are:
Germany, the United Kingdom, Japan, the United States, France,
Canada, and Australia. Second-tier countries are all countries not in
the first or third tier. Third-tier countries are countries
identified as "emerging" or "developing" by the International Bank
for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a
minimum of three countries. The name of the fund must accurately
describe the FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED And RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998, by and
between Lincoln National Global Asset Allocation Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule 1
to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
2
<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
3
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of the
Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to
Section 1.9 hereof) and the cash value of the Contracts may be
invested in other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
<PAGE>
a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a camera-
ready copy of the Fund's shareholder reports and other communications
to shareholders (except proxy material), in each case in a form
suitable for printing, as determined by the Company. The Fund shall
be responsible for the costs of printing and distributing these
materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does
not respond within 10 days of a request by the Company, then the Company shall
be relieved of the obligation to obtain the prior written permission of the
Fund.
6
<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements,
7
<PAGE>
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
8
<PAGE>
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend Schedule
3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
9
<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek reimbursement from the Fund for the reasonable costs
and expenses of resolving the conflict . After reserving that right
the Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the
10
<PAGE>
matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the 60-
day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sec.
1-16. The place of arbitration shall be Fort Wayne, Indiana. The
Arbitrator is not empowered to award damages in excess of compensatory
damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
11
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
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<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature for the Fund or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
13
<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its business
or financial condition; or (2) the Company shall have been the
subject of material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations of the Fund;
or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if
the Company so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall have
legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the
Existing Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Global Asset Allocation Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Global Asset Allocation Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Global Asset Allocation Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
MULTI FUND VARIABLE ANNUITY
EANNUITY
MULTI FUND VARIABLE LIFE
GROUP MULTI FUND
MULTI FUND - NON-REGISTERED
22
<PAGE>
SCHEDULE 3
Lincoln National Global Asset Allocation Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National Growth and Income Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule
1 to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-lA to register itself as an open-end
management investment company (File No. 811-3212) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No. 2-80743)
under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC
to register under the 1933 Act (unless exempt therefrom) certain variable
annuity contracts and/or variable life insurance policies described in Schedule
2 to this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company in 1988,
the Company succeeded to all the legal rights and responsibilities of Lincoln
National Pension Insurance Company, the signatory to the original Agreement to
Purchase Shares, which this Agreement amends and restates.
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the
Company orders on behalf of the Account, executing such orders on a daily basis
in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the
Company on behalf of the Account at the then applicable net asset value per
share on Business Days as defined in Section 1.4 of this Agreement, and the Fund
shall use its best efforts to calculate AND DELIVER such net asset value by 7:00
p.m., E.S.T., on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of shares, if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Fund Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of
receiving redemption and purchase requests from the Account (but
not from the general account of the Company), and receipt on any
Business Day by the Company as such limited agent of the Fund
prior to the time prescribed in the current Fund Prospectus
(which as of the date of execution of this Agreement is 4 p.m.,
E.S.T.) shall constitute receipt by the Fund on that same
Business Day, provided that the Fund receives notice of such
redemption or purchase request by 9:00 a.m., E.S.T. on the next
following Business Day. For purposes of this Agreement,
"Business Day" shall mean any day on which the New York Stock
exchange is open for trading.
(b) The Company shall pay for the shares on the same day
that it places an order with the Fund to purchase those Fund
shares for an Account. Payment for Fund shares will be made by
the Account or the Company in Federal Funds transmitted to the
Fund by wire to be received by 11:00 a.m., E.S.T. on the day the
Fund is properly notified of the purchase order for shares. The
Fund will confirm receipt of each trade and these confirmations
will be received by the Company via Fax or Email by 3:00 p.m.
E.S.T. If Federal Funds are not received on time, such funds
will be invested, and shares purchased thereby will be issued, as
soon as practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company
by wire on the same day the Fund is notified of the redemption
order of shares, except that the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section
22(e) of the 1940 Act. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed;
the Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions
3
<PAGE>
as are payable on any shares in the form of additional shares of that Fund. The
Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product
Owners or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the
Contractowners having an interest in the Fund to substitute the
shares of another investment company for shares in accordance with
the terms of the Contracts; (iv) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
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2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the
Company will require of every person distributing the Contracts that the
Contracts be offered and sold in compliance in all material respects with all
applicable Federal and state laws. The Company further represents and warrants
that it is an insurance company duly organized and validly existing under
applicable law and that it has legally and validly authorized each Account as a
separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
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2.7. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy, and electronic version, of the current Fund
Prospectus suitable for printing and other assistance as is reasonably necessary
in order for the Company to have a new Contracts Prospectus printed together
with the Fund Prospectus in one document. See Article V for a detailed
explanation of the responsibility for the cost of printing and distributing Fund
prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the
Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece
of sales literature or other promotional material in which the Fund is named.
No such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond
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within 10 days of a request by the Company, then the Company shall be relieved
of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports,
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market letters, form letters, seminar texts, or reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports
and proxy materials, and any other material constituting sales literature
or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners
in the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
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The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds
other than those of the Fund, then the Fund shall pay only its proportionate
share of the total cost to distribute the booklet to existing Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the
Fund must comply, the Company shall arrange with the Fund to
amend Schedule 3, pursuant to the requirements of Article XI.
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(b) Should the Fund become aware of any restrictions which
may be appropriate for inclusion in Schedule 3, the Company shall
be informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear
before it and present its case, determines that the Company is
responsible for said conflict, and if the Company agrees with that
determination, the Company shall, at its sole cost and expense, take
whatever steps are necessary to remedy the material irreconcilable
conflict. These steps could include: (i) withdrawing the assets
allocable to some or all of the affected Accounts from the Fund and
reinvesting such assets in a different investment vehicle, or
submitting the question of whether such segregation should be
implemented to a vote of all affected Contractowners and, as
appropriate, segregating the assets of any particular group (i.e.,
variable annuity Contractowners, variable life insurance
policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option
of making such a change; and (ii) establishing a new registered
mutual fund or management separate account; or (iii) taking such
other action as is necessary to remedy or eliminate the material
irreconcilable conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving
its right to dispute the determination as between just the Company
and the Fund and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict . After
reserving that right the Company, although disagreeing with the
Board that it (the Company) was responsible for the conflict, shall
take the necessary steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just above, for the
protection of Contractowners.
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(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute,
it shall so notify the Board in writing. The parties shall then
attempt to resolve the matter amicably through negotiation by
individuals from each party who are authorized to settle the
matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne,
Indiana. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the
Company immediately of that determination. The Fund shall assure
the Company that it (the Fund) or that other Participating Insurance
Company as applicable, shall, at its sole cost and expense, take
whatever steps are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against
other Participating Insurance Companies for reimbursement of all or
part of the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict. However, in no event will the
Fund be required to establish a new funding medium for any variable contract,
nor will the Company be required to establish a new funding medium for any
Contract, if in either case an offer to do so has been declined by a vote of a
majority of affected Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund (or a person
authorized in writing to do so on behalf of the Fund) for use in the
Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution
of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Company; or
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(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis
in accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished
in writing by the Company to the Fund for use in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature for the Fund or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
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(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the Distributor or
the Fund or persons under their control) or wrongful conduct of the
Fund or persons under its control with respect to the sale or
distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's
Registration Statement, Contracts Prospectus or sales literature or
other promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Fund to the Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and
by the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
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indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
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(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with
applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its
business or financial condition; or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Fund; or
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(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, if the Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
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(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to
this Section 10.3, upon prior written notice to the other party,
such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for more than
six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set
forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Growth and Income Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
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ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.
Signature:
----------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------
Title: President
--------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
----------------------------------------
Name: Stephen H. Lewis
---------------------------------------------
Title: Senior Vice President, Lincoln National
Life Insurance Company
--------------------------------------------
20
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998,
by and between Lincoln National International Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in Schedule
1 to this Agreement as in effect at the time this Agreement is executed and such
other separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
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<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
3
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of the
Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
<PAGE>
a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case
in a form suitable for printing, as determined by the Company. The
Fund shall be responsible for the costs of printing and distributing
these materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does
not respond within 10 days of a request by the Company, then the Company shall
be relieved of the obligation to obtain the prior written permission of the
Fund.
6
<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements,
7
<PAGE>
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
8
<PAGE>
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend Schedule
3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
9
<PAGE>
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination,
the Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek reimbursement from the Fund for the reasonable costs
and expenses of resolving the conflict . After reserving that right
the Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the
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<PAGE>
matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the
60-day period set out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sec.
1-16. The place of arbitration shall be Fort Wayne, Indiana. The
Arbitrator is not empowered to award damages in excess of compensatory
damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
11
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
12
<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature for the Fund or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
13
<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the
Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of anystate or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any
sub-investment advisor, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another
investment company for the corresponding shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail
to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the Company
shall have suffered a material adverse change in its business or
financial condition; or (2) the Company shall have been the subject of
material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations of the Fund;
or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1) the
Fund shall have suffered a material adverse change in its business or
financial condition; or (2) the Fund shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents thereto
or unless this Agreement is assigned to an affiliate of the Company or
the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1,
no termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of the
Company, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Company so
elects to make additional Fund shares available, the owners of the
Existing Contracts or the Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the Existing
Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National International Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL INTERNATIONAL FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
---------------------------------------------------------------
Title: President
--------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
---------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
--------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National International Fund, Inc.
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of July 1, 1998
Lincoln National Variable Annuity Account C
- -------------------------------------------
Lincoln Life Flexible Premium Variable Life Account K
- -----------------------------------------------------
Lincoln Life Variable Annuity Account N
- ---------------------------------------
Lincoln Life Variable Annuity Account Q
- ---------------------------------------
Lincoln National Variable Annuity Account 53
- --------------------------------------------
Various Non-registered Separate Accounts
- ----------------------------------------
21
<PAGE>
SCHEDULE 2
Lincoln National International Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of July 1, 1998
Multi Fund Variable Annuity
- ---------------------------
eAnnuity
- --------
Multi Fund Variable Life
- ------------------------
Accru ChoicePlus
- ----------------
Group Multi Fund
- ----------------
Multi Fund - Non-registered
- ---------------------------
Director
- --------
22
<PAGE>
Schedule 3
Lincoln National International Fund, Inc.
State-mandated Investment Restrictions
Applicable to the Fund
As of July 1, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 331/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or a global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and no more than 25 percent of total assets in any one third-tier
country. First-tier countries are: Germany, the United Kingdom, Japan, the
United States, France, Canada, and Australia. Second-tier countries are all
countries not in the first or third tier. Third-tier countries are
countries identified as "emerging" or "developing" by the International
Bank for Reconstruction and Development ("World Bank") or International
Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a minimum
of three countries. The name of the fund must accurately describe the
FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL MANAGED FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998, by and
between Lincoln National Managed Fund, Inc. a corporation organized under the
laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE CO., an
Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company in 1988,
the Company succeeded to all the legal rights and responsibilities of Lincoln
National Pension Insurance Company, the signatory to the original Agreement to
Purchase Shares, which this Agreement amends and restates.
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
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1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of the
Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
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ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies)
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otherwise complies with the insurance laws or regulations of any state. The
Company alone shall be responsible for informing the Fund of any investment
restrictions imposed by state insurance law and applicable to the Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a camera-
ready copy of the Fund's shareholder reports and other communications
to shareholders (except proxy material), in each case in a form
suitable for printing, as determined by the Company. The Fund shall
be responsible for the costs of printing and distributing these
materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such
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Registration Statement and Prospectus may be amended or supplemented from time
to time, or in reports or proxy statements for the Fund, or in sales literature
or other promotional material approved by the Fund, except with the prior
written permission of the Fund. The Fund agrees to respond to any request for
permission on a prompt and timely basis. If the Fund does not respond within 10
days of a request by the Company, then the Company shall be relieved of the
obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of all
Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of all
Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of
the above, to the extent that the other party reasonably needs such information
for purposes of preparing a report or other filing to be filed with or submitted
to a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
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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 requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and
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<PAGE>
notices required by any Federal or state securities law, all taxes on the
issuance or transfer of Fund shares, and any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or
separate booklets containing disclosure for the Contracts and for underlying
funds other than those of the Fund, then the Fund shall pay only its
proportionate share of the total cost to distribute the booklet to existing
Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
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<PAGE>
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek
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reimbursement from the Fund for the reasonable costs and expenses of
resolving the conflict . After reserving that right the Company,
although disagreeing with the Board that it (the Company) was
responsible for the conflict, shall take the necessary steps, under
protest, to remedy the conflict, substantially in accordance with
paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the matter. If the matter
has not been amicably resolved within 60 days from the date of the
Company's notice of its intent to press the dispute, then before
either party shall undertake to litigate the dispute it shall be
submitted to non-binding arbitration conducted expeditiously in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if
one party has requested the other party to seek an amicable resolution
and the other party has failed to participate, the requesting party
may initiate arbitration before expiration of the 60-day period set
out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C.
Sec. 1-16. The place of arbitration shall be Fort Wayne, Indiana.
The Arbitrator is not empowered to award damages in excess of
compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
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7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
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(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify
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<PAGE>
shall not apply if such statement or omission or alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund for use in
the Fund Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature for the Fund or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to
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<PAGE>
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 law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
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(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another
investment company for the corresponding shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the Fund may fail
to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
16
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(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the Company
shall have suffered a material adverse change in its business or
financial condition; or (2) the Company shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1) the
Fund shall have suffered a material adverse change in its business or
financial condition; or (2) the Fund shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents thereto
or unless this Agreement is assigned to an affiliate of the Company or
the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to the other party
of its intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of the
Company, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Company desires,
pursuant to the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Company so
elects to
17
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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) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Managed Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
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If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL MANAGED FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
--------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
--------------------------------------------------------------
20
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL MONEY MARKET FUND, INC.
THIS AGREEMENT, made and entered into this 7th day of June, 1998, by and
between Lincoln National Money Market Fund, Inc. a corporation organized under
the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE INSURANCE CO.,
an Indiana insurance corporation (the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this Agreement, the
applicable provisions of the 1940 Act and the then currently effective Fund
Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of
Fund shares to the extent permitted by the 1940 Act, any rules, regulations or
orders thereunder, or the then currently effective Fund Prospectus.
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<PAGE>
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any shares in
the form of additional shares of that Fund. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
3
<PAGE>
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (I) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contract
owners having an interest in the Fund to substitute the shares of
another investment company for shares in accordance with the terms of
the Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as
4
<PAGE>
a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a separate account for its Contracts,
and that it will maintain such registrations for so long as any Contracts issued
under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a camera-
ready copy of the Fund's shareholder reports and other communications
to shareholders (except proxy material), in each case in a form
suitable for printing, as determined by the Company. The Fund shall
be responsible for the costs of printing and distributing these
materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does
not respond within 10 days of a request by the Company, then the Company shall
be relieved of the obligation to obtain the prior written permission of the
Fund.
6
<PAGE>
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of
the above, to the extent that the other party reasonably needs such information
for purposes of preparing a report or other filing to be filed with or submitted
to a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements,
7
<PAGE>
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts and for underlying funds other
than those of the Fund, then the Fund shall pay only its proportionate share of
the total cost to distribute the booklet to existing Contractowners.)
8
<PAGE>
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
9
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ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek reimbursement from the Fund for the reasonable costs
and expenses of resolving the conflict . After reserving that right
the Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the
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<PAGE>
matter. If the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to press the
dispute, then before either party shall undertake to litigate the
dispute it shall be submitted to non-binding arbitration conducted
expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator; PROVIDED,
HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate,
the requesting party may initiate arbitration before expiration of
the 60-day period set out just above. If within 45 days of the
commencement of the process to select an arbitrator the parties
cannot agree upon the arbitrator, then he or she will be selected
from the CPR Panels of Neutrals. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Sec. 1-16. The place
of arbitration shall be Fort Wayne, Indiana. The Arbitrator is not
empowered to award damages in excess of compensatory damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
11
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
12
<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto)
or sales literature for the Fund or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
13
<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or
(ii) the interests of the Participating Insurance Companies investing
in the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its business
or financial condition; or (2) the Company shall have been the
subject of material adverse publicity which is likely to have a
16
<PAGE>
material adverse impact upon the business and operations of the Fund;
or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund will, at the option of
the Company, continue to make available additional Fund shares for
so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if
the Company so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall have
legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the
Existing Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Money Market Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL MONEY MARKET FUND, INC.
Signature:
---------------------------------------------------------
Name: Kelly D. Clevenger
--------------------------------------------------------------
Title: President
-------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
---------------------------------------------------------
Name: Stephen H. Lewis
--------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
-------------------------------------------------------------
20
<PAGE>
SCHEDULE 1
Lincoln National Money Market Fund
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of June 7, 1998
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT Q
LINCOLN LIFE FLEXIBLE VARIABLE LIFE ACCOUNT R
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT 53
21
<PAGE>
SCHEDULE 2
Lincoln National Money Market Fund, Inc.
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of June 7, 1998
MULTI FUND VARIABLE ANNUITY
EANNUITY
EMANCIPATOR LIFE
VUL I
ACCRU CHOICEPLUS
GROUP MULTI FUND
SVUL I
MULTI FUND - NON-REGISTERED
22
<PAGE>
SCHEDULE 3
Lincoln National Money Market Fund
State-mandated Investment Restrictions
Applicable to the Fund
As of June 7, 1998
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account:
BORROWING. The borrowing limit for any FUND is 33 1/3 percent of total assets.
Entering into a reverse repurchase agreement shall be considered "borrowing" as
that term is used herein.
FOREIGN INVESTMENTS - DIVERSIFICATION
The diversification guidelines to be followed by international and global FUNDS
are as follows:
a. An international FUND or global FUND is sufficiently diversified if it is
invested in a minimum of three different countries at all times, and has
invested no more than 50 percent of total assets in any one second-tier
country and not more than 25 percent of total assets in any one third-
tier country. First-tier countries are: Germany, the United Kingdom,
Japan, the United States, France, Canada, and Australia. Second-tier
countries are all countries not in the first or third tier. Third-tier
countries are countries identified as "emerging" or "developing" by the
International Bank for Reconstruction and Development ("World Bank") or
International Finance Corporation.
b. A regional FUND is sufficiently diversified if it is invested in a
minimum of three countries. The name of the fund must accurately
describe the FUND.
c. The name of the single country FUND must accurately describe the FUND.
d. An index FUND must substantially mirror the index.
23
<PAGE>
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July,
1998, by and between Lincoln National Social Awareness Fund, Inc. a
corporation organized under the laws of Maryland (the "Fund"), and THE
LINCOLN NATIONAL LIFE INSURANCE CO., an Indiana insurance corporation (the
"Company"), on its own behalf and on behalf of each separate account of
the Company named in Schedule 1 to this Agreement as in effect at the time
this Agreement is executed and such other separate accounts that may be added
to Schedule 1 from time to time in accordance with the provisions of Article
XI of this Agreement (each such account referred to as the "Account";
collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and was established for the purpose of serving
as the investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively referred to
as "Variable Insurance Products," the owners of such products being referred
to as "Product owners") to be offered by insurance companies which have
entered into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, the Fund filed with the Securities and Exchange
Commission (the "SEC") and the SEC has declared effective a registration
statement (referred to herein as the "Fund Registration Statement" and the
prospectus contained therein, or filed pursuant to Rule 497 under the 1933
Act, referred to herein as the "Fund Prospectus") on Form N-lA to register
itself as an open-end management investment company (File No. 811-3212) under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund
shares (File No. 2-80743) under the Securities Act of 1933, as amended (the
"1933 Act"); and
WHEREAS, the Company has filed a registration statement with
the SEC to register under the 1933 Act (unless exempt therefrom) certain
variable annuity contracts and/or variable life insurance policies described
in Schedule 2 to this Agreement as in effect at the time this Agreement is
executed and such other variable annuity contracts and variable life
insurance policies which may be added to Schedule 2 from time to time in
accordance with Article XI of this Agreement (such policies and contracts
shall be referred to herein collectively as the "Contracts," each such
registration statement for a class or classes of contracts listed on Schedule
2 being referred to as the "Contracts Registration Statement" and the
prospectus for each such class or classes being referred to herein as the
"Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract
Owners"); and
<PAGE>
WHEREAS, each Account, a validly existing separate account,
duly authorized by the Company on the date set forth on Schedule 1, sets
aside and invests assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered
each Account with the SEC as a unit investment trust under the 1940 Act
before any Contracts are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares on behalf of each
Account to fund its Contracts and the Fund is authorized to sell such shares
to unit investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company
in 1988, the Company succeeded to all the legal rights and responsibilities
of Lincoln National Pension Insurance Company, the signatory to the original
Agreement to Purchase Shares, which this Agreement amends and restates; and
NOW, THEREFORE, in consideration of their mutual promises, the
Company and the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase
by the Company on behalf of the Account at the then applicable net asset
value per share on Business Days as defined in Section 1.4 of this Agreement,
and the Fund shall use its best efforts to calculate AND DELIVER such net
asset value by 7:00 p.m., E.S.T., on each such Business Day. Notwithstanding
any other provision in this Agreement to the contrary, the Board of Directors
of the Fund (the "Fund Board") may suspend or terminate the offering of
shares, if such action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Fund Board acting in good
faith and in light of its fiduciary duties under Federal and any applicable
state laws, suspension or termination is necessary and in the best interests
of the shareholders (it being understood that "shareholders" for this
purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any
full or fractional shares of the Fund held by the Account or the Company,
executing such requests at the net asset value on a daily basis (LL will
expect same day redemption wires unless unusual circumstances evolve which
cause the Fund to have to redeem securities) in accordance with Section 1.4
of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the
Company shall be the agent of the Fund for the limited
purpose of receiving redemption and purchase requests
from the Account (but not from the general account of
the Company), and receipt on any Business Day by the
Company as such limited agent of the Fund prior to the
time prescribed in the current Fund Prospectus (which as
of the date of execution of this Agreement is 4 p.m.,
E.S.T.) shall constitute receipt by the Fund on that
same Business Day, provided that the Fund receives
notice of such redemption or purchase request by 9:00
a.m., E.S.T. on the next following Business Day. For
purposes of this Agreement, "Business Day" shall mean
any day on which the New York Stock exchange is open for
trading.
(b) The Company shall pay for the shares on the same
day that it places an order with the Fund to purchase
those Fund shares for an Account. Payment for Fund
shares will be made by the Account or the Company in
Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is
properly notified of the purchase order for shares. The
Fund will confirm receipt of each trade and these
confirmations will be received by the Company via Fax or
Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and
shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the
Company by wire on the same day the Fund is notified of
the redemption order of shares, except that the Fund
reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of
the 1940 Act. The Fund shall not bear any responsibility
whatsoever for the proper disbursement or crediting of
redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Fund shares will be recorded in
an appropriate ledger for the Account or the appropriate subaccount of the
Account.
1.6. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income dividends or capital gain
distributions payable on any shares. The Company, on its behalf and on
behalf of the Account, hereby elects to receive all such dividends and
distributions
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as are payable on any shares in the form of additional shares of that Fund.
The Company reserves the right, on its behalf and on behalf of the Account,
to revoke this election and to receive all such dividends in cash. The Fund
shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net
asset value per share available to the Company by 7:00 p.m., E.S.T. each
Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share is calculated, and shall calculate such net asset
value in accordance with the then currently effective Fund Prospectus. The
Fund shall not be liable for any information provided to the Company pursuant
to this Agreement which information is based on incorrect information
supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment
in the Fund only: (i) as necessary to facilitate
Contract owner requests; (ii) upon a determination by a
majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any
Product Owners or (y) the interests of the Participating
Insurance Companies investing in the Fund; (iii) upon
requisite vote of the Contractowners having an interest
in the Fund to substitute the shares of another
investment company for shares in accordance with the
terms of the Contracts; (iv) as required by state and/or
federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the
Company's sole discretion, pursuant to an order of the
SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that
the Fund shares may be sold to other insurance companies
(subject to Section 1.9 hereof) and the cash value of
the Contracts may be invested in other investment
companies.
(c) The Company shall not, without prior notice to the
Fund (unless otherwise required by applicable law), take
any action to operate the Accounts as management
investment companies under the 1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to
Participating Insurance Companies and their separate accounts. The Fund will
not sell Fund shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales. No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts
are registered under
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<PAGE>
the 1933 Act or will be so registered before the issuance thereof, (b) that
the Contracts will be issued in compliance in all material respects with all
applicable Federal and state laws and (c) that the Company will require of
every person distributing the Contracts that the Contracts be offered and
sold in compliance in all material respects with all applicable Federal and
state laws. The Company further represents and warrants that it is an
insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has
registered or, prior to the issuance of any Contracts, will register each
Account (unless exempt therefrom) as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a separate account for its
Contracts, and that it will maintain such registrations for so long as any
Contracts issued under them are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund
is and shall remain registered under the 1940 Act for so long as the Fund
shares are sold. The Fund further represents and warrants that it is a
corporation duly organized and in good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently
qualifies as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund further
represents and warrants that it will make every effort to continue to qualify
and to maintain such qualification (under Subchapter M or any successor or
similar provision), and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply
with Section 817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and
at the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies,
fees and expenses, and operations are and shall at all times remain in
material compliance with the laws of the state of Maryland, to the extent
required to perform this Agreement; and with any state- mandated investment
restrictions set forth on Schedule 3, as amended from time to time by the
Company in accordance with Section 6.6. The Fund, however, makes no
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies
with the insurance laws or regulations of any state. The Company alone shall
be responsible for informing the Fund of any investment restrictions imposed
by state insurance law and applicable to the Fund.
5
<PAGE>
2.7. The Fund represents and warrants that it has and
maintains a fidelity bond in accordance with Rule 17g-1 under the 1940 Act.
The Fund will immediately notify the Company in the event the fidelity bond
coverage should lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies
of the current Fund Prospectus as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund at its expense shall
provide to the Company a camera-ready copy, and electronic version, of the
current Fund Prospectus suitable for printing and other assistance as is
reasonably necessary in order for the Company to have a new Contracts
Prospectus printed together with the Fund Prospectus in one document. See
Article V for a detailed explanation of the responsibility for the cost of
printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund and the Fund
shall provide such Statement free of charge to the Company and to any
outstanding or prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the
Company a camera-ready copy of the Fund's shareholder
reports and other communications to shareholders (except
proxy material), in each case in a form suitable for
printing, as determined by the Company. The Fund shall
be responsible for the costs of printing and
distributing these materials to Contract owners.
(b) The Fund at its expense shall be responsible for
preparing, printing and distributing its proxy material.
The Company will provide the appropriate Contractowner
names and addresses to the Fund for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use,
each piece of sales literature or other promotional material in which the
Fund is named. No such material shall be used, except with the prior written
permission of the Fund. The Fund agrees to respond to any request for
approval on a prompt and timely basis. Failure of the Fund to respond within
10 days of the request by the Company shall relieve the Company of the
obligation to obtain the prior written permission of the Fund.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund, except with the prior written permission of the Fund. The Fund agrees
to respond to any request for permission on a prompt and timely basis. If the
Fund does not respond
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<PAGE>
within 10 days of a request by the Company, then the Company shall be
relieved of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. If the Company fails to respond within 10 days
of a request by the Fund, then the Fund is relieved of the obligation to
obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one
complete copy of all Fund Registration Statements, Fund Prospectuses,
Statements of Additional Information, annual and semi-annual reports and
other reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments or supplements to any of the above, that relate to the Fund or
Fund shares, within 20 days after the filing of such document with the SEC or
other regulatory authorities.
3.8. The Company will provide to the Fund at least one
complete copy of all Contracts Registration Statements, Contracts
Prospectuses, Statements of Additional Information, Annual and Semi-annual
Reports, sales literature and other promotional materials, and all amendments
or supplements to any of the above, that relate to the Contracts, within 20
days after the filing of such document with the SEC or other regulatory
authorities.
3.9. Each party will provide to the other party copies of
draft versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a
party requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, computer net site, signs or billboards, motion
pictures or other public
7
<PAGE>
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 requirements of Article
VII, the Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article
VII, the Company shall:
(a) vote Fund shares attributable to Contract
owners in accordance with instructions or proxies
received in timely fashion from such Contract owners;
(b) vote Fund shares attributable to Contract
owners for which no instructions have been received in
the same proportion as Fund shares of such Series for
which instructions have been received in timely fashion;
and
(c) vote Fund shares held by the Company on its
own behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion as
Fund shares of such Series for which instructions have
been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except
as may otherwise be provided in Section 1.4 and Article VII of this
Agreement, the Company shall not bear any of the expenses for the cost of
registration and qualification of the Fund shares under Federal and any state
securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement, the preparation of all statements and notices
required by any Federal or state securities law, all taxes on the issuance or
transfer of Fund shares, and any expenses permitted to be paid or assumed by
the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
8
<PAGE>
The Fund is responsible for the cost of printing and
distributing Fund Prospectuses and SAIs to existing Contractowners. (If for
this purpose the Company decided to print the Fund Prospectuses and SAIs in a
booklet or separate booklets containing disclosure for the Contracts and for
underlying funds other than those of the Fund, then the Fund shall pay only
its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
The Company is responsible for the cost of printing and
distributing Fund prospectuses and SAIs for new sales; and Account
Prospectuses and SAIs for existing Contractowners. The Company shall have
the final decision on choice of printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and
Section 817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration
Statements under the 1933 Act and the Account's Registration Statement under
the 1940 Act from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable law.
The Company shall register and qualify the Contracts for sale to the extent
required by applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement
under the 1933 Act and the 1940 Act from time to time as required in order to
effect for so long as Fund shares are sold the continuous offering of Fund
shares as described in the then currently effective Fund Prospectus. The
Fund shall register and qualify Fund shares for sale to the extent required
by applicable securities laws of the various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably possible that such Contract would be deemed a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
describe the circumstances under which a Contract could be treated as a
modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. (a) When appropriate in order to inform the Fund of
any applicable state-mandated investment restrictions with
which the Fund must comply, the Company shall arrange
with the Fund to amend Schedule 3, pursuant to the
requirements of Article XI.
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<PAGE>
(b) Should the Fund become aware of any restrictions
which may be appropriate for inclusion in Schedule 3,
the Company shall be informed immediately of the
substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors
of the Fund (the "Board") any potential or existing conflicts between the
interests of Product Owners of all separate accounts investing in the Fund,
and to assist the Board in carrying out its responsibilities under Section
6e-3(T) of the 1940 Act, by providing all information reasonably necessary
for the Board to consider any issues raised, including information as to a
decision to disregard voting instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of
disinterested Board Members, determines that a material irreconcilable
conflict exists, the Board shall give prompt notice to all Participating
Insurance Companies.
(a) If a majority of the whole Board, after notice to
the Company and a reasonable opportunity for the Company
to appear before it and present its case, determines
that the Company is responsible for said conflict, and
if the Company agrees with that determination, the
Company shall, at its sole cost and expense, take
whatever steps are necessary to remedy the material
irreconcilable conflict. These steps could include: (i)
withdrawing the assets allocable to some or all of the
affected Accounts from the Fund and reinvesting such
assets in a different investment vehicle, or submitting
the question of whether such segregation should be
implemented to a vote of all affected Contractowners
and, as appropriate, segregating the assets of any
particular group (i.e., variable annuity Contractowners,
variable life insurance policyowners, or variable
Contractowners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or
offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new
registered mutual fund or management separate account;
or (iii) taking such other action as is necessary to
remedy or eliminate the material irreconcilable conflict.
(b) If the Company disagrees with the Board's
determination, the Company shall file a written protest
with the Board, reserving its right to dispute the
determination as between just the Company and the Fund
and to seek reimbursement from the Fund for the
reasonable costs and expenses of resolving the conflict.
After reserving that right the Company, although
disagreeing with the Board that it (the Company) was
responsible for the conflict, shall take the necessary
steps, under protest, to remedy the conflict,
substantially in accordance with paragraph (a) just
above, for the protection of Contractowners.
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<PAGE>
(c) As between the Company and the Fund, if within 45
days after the Board's determination the Company elects
to press the dispute, it shall so notify the Board in
writing. The parties shall then attempt to resolve the
matter amicably through negotiation by individuals from
each party who are authorized to settle the matter. If
the matter has not been amicably resolved within 60 days
from the date of the Company's notice of its intent to
press the dispute, then before either party shall
undertake to litigate the dispute it shall be submitted
to non-binding arbitration conducted expeditiously in
accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator;
PROVIDED, HOWEVER, that if one party has requested the
other party to seek an amicable resolution and the other
party has failed to participate, the requesting party
may initiate arbitration before expiration of the 60-day
period set out just above.
If within 45 days of the commencement of the process
to select an arbitrator the parties cannot agree upon
the arbitrator, then he or she will be selected from the
CPR Panels of Neutrals. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C.
Sec. 1-16. The place of arbitration shall be Fort
Wayne, Indiana. The Arbitrator is not empowered to
award damages in excess of compensatory damages.
(d) If the Board shall determine that the Fund or
another was responsible for the conflict, then the Board
shall notify the Company immediately of that
determination. The Fund shall assure the Company that
it (the Fund) or that other Participating Insurance
Company as applicable, shall, at its sole cost and
expense, take whatever steps are necessary to eliminate
the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall
constitute a waiver of any right of action which the
Company may have against other Participating Insurance
Companies for reimbursement of all or part of the costs
and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of
the Company's decision to disregard Contractowner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company shall withdraw (without charge or penalty) the Account's
investment in the Fund, if the Fund so elects.
7.4. For purposes of this Article, a majority of the
disinterested members of the Board shall determine whether or not any
proposed action adequately remedies any irreconcilable conflict. However, in
no event will the Fund be required to establish a new funding medium for any
variable contract, nor will the Company be required to establish a new
funding medium for any Contract, if in either case an offer to do so has been
declined by a vote of a majority of affected Contractowners.
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<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Fund and each person who controls or is
associated with the Fund (other than another Participating Insurance Company)
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any
and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid with the prior written consent of the Company in
settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the Contracts Registration Statement,
Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading in light
of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if
such statement or omission or such alleged statement or
alleged omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Fund (or a person authorized in writing
to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
by or on behalf of the Company (other than statements or
representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful
conduct of the Company or persons under its control with
respect to the sale or distribution of the Contracts or
Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the
Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund or
any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances in which they were made, if such statement
or omission was made in reliance upon and in conformity
with
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<PAGE>
information furnished to the Fund by or on behalf
of the Company; or
(d) arise as a result of any failure by the Company
to provide the services and furnish the materials or to
make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company
of this Agreement, including but not limited to any
failure to transmit a request for redemption or purchase
of Fund shares on a timely basis in accordance with the
procedures set forth in Article I; or
(f) arise as a result of the Company's providing the
Fund with inaccurate information, which causes the Fund
to calculate its Net Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the
federal securities laws and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid with the prior written
consent of the Fund in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the Fund Registration Statement, Fund
Prospectus (or any amendment or supplement thereto) or
sales literature or other promotional material of the
Fund, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that
this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity
with information furnished in writing by the Company to
the Fund for use in the Fund Registration Statement,
Fund Prospectus (or any amendment or supplement thereto)
or sales literature for the Fund or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
13
<PAGE> (b) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
made by the Fund (other than statements or
representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the
Distributor or the Fund or persons under their control)
or wrongful conduct of the Fund or persons under its
control with respect to the sale or distribution of the
Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the
Contract's Registration Statement, Contracts Prospectus
or sales literature or other promotional material for
the Contracts (or any amendment or supplement thereto),
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading in light
of the circumstances in which they were made, if such
statement or omission was made in reliance upon
information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on
behalf of the Fund); or
(d) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including, but not by way of
limitation, a failure, whether unintentional or in good
faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4
and 6.1 in Article VI of this Agreement; and (ii) to
provide the Company with accurate information sufficient
for it to calculate its accumulation and/or annuity unit
values in timely fashion as required by law and by the
Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of
this Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party
entitled to indemnification ("indemnified party") under this Article VIII of
notice of the commencement of any action, if a claim in respect thereof is to
be made by the indemnified party against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, provided that the
omission to so notify the indemnifying party will not relieve it from any
liability under this Article VIII, except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give such
notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the
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indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the state of
Indiana, without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant, and the terms hereof shall be limited,
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties; or
(b) at the option of the Company if shares of the Fund
are not available to meet the requirements of the
Contracts as determined by the Company. Prompt notice
of the election to terminate for such cause shall be
furnished by the Company. Termination shall be
effective ten days after the giving of notice by the
Company; or
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(c) at the option of the Fund upon institution of
formal proceedings against the Company by the NASD, the
SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts,
the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of
formal proceedings against the Fund, the investment
advisor or any sub-investment advisor, by the NASD, the
SEC, or any state securities or insurance commission or
any other regulatory body; or
(e) upon requisite vote of the Contract owners having
an interest in the Fund (unless otherwise required by
applicable law) and written approval of the Company, to
substitute the shares of another investment company for
the corresponding shares of the Fund in accordance with
the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in
accordance with applicable Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an
irreconcilable material conflict exists among the
interests of (i) any Product owners or (ii) the
interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if the Fund ceases
to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably
believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails
to meet the diversification requirements specified in
Section 817(h) of the Code and any regulations
thereunder; or
(j) at the option of the Fund if the Contracts cease
to qualify as annuity contracts or life insurance
policies, as applicable, under the Code, or if the Fund
reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of the Fund if the Fund shall
determine, in its sole judgment exercised in good faith,
that either (1) the Company shall have suffered a
material adverse change in its business or financial
condition; or (2) the Company
16
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shall have been the subject of material adverse
publicity which is likely to have a material adverse
impact upon the business and operations of the Fund; or
(l) at the option of the Company, if the Company
shall determine, in its sole judgment exercised in good
faith, that: (1) the Fund shall have suffered a material
adverse change in its business or financial condition;
or (2) the Fund shall have been the subject of material
adverse publicity which is likely to have a material
adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this
Agreement (including, without limitation, any transfer
of the Contracts or the Accounts to another insurance
company pursuant to an assumption reinsurance agreement)
unless the non-assigning party consents thereto or
unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in
Section 10.1, no termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to the
other party of its intent to terminate, which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon
the provisions of Article VII or the provisions of
Section 10.1(a) of this Agreement, such prior written
notice shall be given in advance of the effective date
of termination as required by such provisions; and
(b) in the event that any termination is based upon
the provisions of Section 10.1(c) or 10.1(d) of this
Agreement, such prior written notice shall be given at
least ninety (90) days before the effective date of
termination, or sooner if required by law or regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this
Agreement pursuant to Section 10.1 of this Agreement,
the Fund will, at the option of the Company, continue to
make available additional Fund shares for so long after
the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all
Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the
Company so elects to make additional Fund shares
available, the owners of the Existing Contracts or the
Company, whichever shall have legal authority to do so,
shall be permitted to reallocate investments in the
Fund, redeem investments in the Fund and/or invest in
the Fund upon the making of additional purchase payments
under the Existing
17
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Contracts.
(b) If Fund shares continue to be made available
after such termination, the provisions of this Agreement
shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate
the Agreement, as so continued pursuant to this Section
10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for
more than six months.
(c) The parties agree that this Section 10.3 shall
not apply to any termination made pursuant to Article
VII, and the effect of such Article VII termination
shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the
Contracts and to add new classes of variable annuity contracts and variable
life insurance policies to be issued by the Company through new or existing
Separate Accounts investing in the Fund. The provisions of this Agreement
shall be equally applicable to each such separate account and each such class
of contracts or policies, unless the context otherwise requires. Any such
amendment must be signed by the parties and must bear an effective date for
that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party(ies) at the address of such party(ies)
set forth below or at such other address as such party(ies) may from time to
time specify in writing to the other party.
If to the Fund:
Lincoln National Social Awareness Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or
more counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.5. Each party represents that the execution and delivery
of this Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate or trust action,
as applicable, by such party, and when so executed and delivered this
Agreement will be the valid and binding obligation of such party enforceable
in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of
its effective date, hereby supersedes any and all prior agreements to
purchase shares between Lincoln Life and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
officer on the date specified below.
LINCOLN NATIONAL SOCIAL AWARENESS FUND, INC.
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<PAGE>
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
20
<PAGE>
AMENDED And RESTATED
FUND PARTICIPATION AGREEMENT
(FORMER TITLE: "AGREEMENT TO PURCHASE SHARES")
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE CO.
AND
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.
THIS AGREEMENT, made and entered into this 1st day of July, 1998, by and
between Lincoln National Special Opportunities Fund, Inc. a corporation
organized under the laws of Maryland (the "Fund"), and THE LINCOLN NATIONAL LIFE
INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own
behalf and on behalf of each separate account of the Company named in
Schedule 1 to this Agreement as in effect at the time this Agreement is executed
and such other separate accounts that may be added to Schedule 1 from time to
time in accordance with the provisions of Article XI of this Agreement (each
such account referred to as the "Account"; collectively, the "Accounts").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-lA to register itself as an open-end management
investment company (File No. 811-3212) under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Fund shares (File No. 2-80743) under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act (unless exempt therefrom) certain variable annuity
contracts and/or variable life insurance policies described in Schedule 2 to
this Agreement as in effect at the time this Agreement is executed and such
other variable annuity contracts and variable life insurance policies which may
be added to Schedule 2 from time to time in accordance with Article XI of this
Agreement (such policies and contracts shall be referred to herein collectively
as the "Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
<PAGE>
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account
with the SEC as a unit investment trust under the 1940 Act before any Contracts
are issued by that Account; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares on behalf of each Account to
fund its Contracts and the Fund is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, pursuant to Articles of Merger approved by the Company in 1988, the
Company succeeded to all the legal rights and responsibilities of Lincoln
National Pension Insurance Company, the signatory to the original Agreement to
Purchase Shares, which this Agreement amends and restates.
NOW, THEREFORE, in consideration of their mutual promises, the Company and
the Fund agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares which the Company
orders on behalf of the Account, executing such orders on a daily basis in
accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make shares available for purchase by the Company
on behalf of the Account at the then applicable net asset value per share on
Business Days as defined in Section 1.4 of this Agreement, and the Fund shall
use its best efforts to calculate AND DELIVER such net asset value by 7:00 p.m.,
E.S.T., on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of shares, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Fund Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis (LL will expect same day
redemption wires unless unusual circumstances evolve which cause the Fund to
have to redeem securities) in accordance with Section 1.4 of this
2
<PAGE>
Agreement, the applicable provisions of the 1940 Act and the then currently
effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay
redemption of Fund shares to the extent permitted by the 1940 Act, any rules,
regulations or orders thereunder, or the then currently effective Fund
Prospectus.
1.4 (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving
redemption and purchase requests from the Account (but not from the
general account of the Company), and receipt on any Business Day by
the Company as such limited agent of the Fund prior to the time
prescribed in the current Fund Prospectus (which as of the date of
execution of this Agreement is 4 p.m., E.S.T.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund
receives notice of such redemption or purchase request by 9:00 a.m.,
E.S.T. on the next following Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York
Stock exchange is open for trading.
(b) The Company shall pay for the shares on the same day that it
places an order with the Fund to purchase those Fund shares for an
Account. Payment for Fund shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be
received by 11:00 a.m., E.S.T. on the day the Fund is properly
notified of the purchase order for shares. The Fund will confirm
receipt of each trade and these confirmations will be received by the
Company via Fax or Email by 3:00 p.m. E.S.T. If Federal Funds are not
received on time, such funds will be invested, and shares purchased
thereby will be issued, as soon as practicable.
(c) Payment for shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on
the same day the Fund is notified of the redemption order of shares,
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. The Fund shall
not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds if securities must be redeemed; the
Company alone shall be responsible for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on any
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions
3
<PAGE>
as are payable on any shares in the form of additional shares of that Fund. The
Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share available to the Company by 7:00 p.m., E.S.T. each Business Day, and in
any event, as soon as reasonably practicable after the net asset value per share
is calculated, and shall calculate such net asset value in accordance with the
then currently effective Fund Prospectus. The Fund shall not be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company to the Fund.
1.8. (a) The Company may withdraw the Account's investment in the
Fund only: (i) as necessary to facilitate Contract owner requests;
(ii) upon a determination by a majority of the Fund Board, or a
majority of disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of (x) any Product Owners
or (y) the interests of the Participating Insurance Companies
investing in the Fund; (iii) upon requisite vote of the Contractowners
having an interest in the Fund to substitute the shares of another
investment company for shares in accordance with the terms of the
Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application; or (v) at the Company's sole discretion, pursuant to an
order of the SEC under Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive and that the Fund
shares may be sold to other insurance companies (subject to Section
1.9 hereof) and the cash value of the Contracts may be invested in
other investment companies.
(c) The Company shall not, without prior notice to the Fund
(unless otherwise required by applicable law), take any action to
operate the Accounts as management investment companies under the
1940 Act.
1.9. The Fund agrees that Fund shares will be sold only to Participating
Insurance Companies and their separate accounts. The Fund will not sell Fund
shares to any insurance company or separate account unless an agreement
complying with Article VII of this Agreement is in effect to govern such sales.
No Fund shares will be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
4
<PAGE>
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts that the Contracts be
offered and sold in compliance in all material respects with all applicable
Federal and state laws. The Company further represents and warrants that it is
an insurance company duly organized and validly existing under applicable law
and that it has legally and validly authorized each Account as a separate
account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered
or, prior to the issuance of any Contracts, will register each Account (unless
exempt therefrom) as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a separate account for its Contracts, and that it
will maintain such registrations for so long as any Contracts issued under them
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with Section
817(h) of the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall notify
the Fund immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with any state- mandated investment restrictions set
forth on Schedule 3, as amended from time to time by the Company in accordance
with Section 6.6. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. The Company alone shall be responsible for informing the Fund of
any investment restrictions imposed by state insurance law and applicable to the
Fund.
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<PAGE>
2.7. The Fund represents and warrants that it has and maintains a fidelity
bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately
notify the Company in the event the fidelity bond coverage should lapse at any
time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Fund shall provide the Company with as many copies of the current
Fund Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Fund at its expense shall provide to the Company a
camera-ready copy, and electronic version, of the current Fund Prospectus
suitable for printing and other assistance as is reasonably necessary in order
for the Company to have a new Contracts Prospectus printed together with the
Fund Prospectus in one document. See Article V for a detailed explanation of the
responsibility for the cost of printing and distributing Fund prospectuses.
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund and the Fund shall provide
such Statement free of charge to the Company and to any outstanding or
prospective Contract owner who requests such Statement.
3.3. (a) The Fund at its expense shall provide to the Company a camera-
ready copy of the Fund's shareholder reports and other communications
to shareholders (except proxy material), in each case in a form
suitable for printing, as determined by the Company. The Fund shall
be responsible for the costs of printing and distributing these
materials to Contract owners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will
provide the appropriate Contractowner names and addresses to the Fund
for this purpose.
3.4. The Company shall furnish to the Fund, prior to its use, each piece of
sales literature or other promotional material in which the Fund is named. No
such material shall be used, except with the prior written permission of the
Fund. The Fund agrees to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement or
Fund Prospectus, as such Registration Statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund,
except with the prior written permission of the Fund. The Fund agrees to respond
to any request for permission on a prompt and timely basis. If the Fund does
not respond
6
<PAGE>
within 10 days of a request by the Company, then the Company shall be relieved
of the obligation to obtain the prior written permission of the Fund.
3.6. The Fund shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus, as such Registration Statement
and Prospectus may be amended or supplemented from time to time, or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written permission of the Company. The Company agrees to respond to any request
for permission on a prompt and timely basis. If the Company fails to respond
within 10 days of a request by the Fund, then the Fund is relieved of the
obligation to obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, within 20 days after the filing
of such document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, within 20 days after the filing of such
document with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports,
7
<PAGE>
market letters, form letters, seminar texts, or reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
4.1 Subject to applicable law and the requirements of Article VII, the
Fund shall solicit voting instructions from Contract owners;
4.2 Subject to applicable law and the requirements of Article VII, the
Company shall:
(a) vote Fund shares attributable to Contract owners in
accordance with instructions or proxies received in timely fashion
from such Contract owners;
(b) vote Fund shares attributable to Contract owners for which
no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in
timely fashion; and
(c) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Contract owners in
the same proportion as Fund shares of such Series for which
instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
8
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The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company decided to print the Fund Prospectuses and SAIs in a booklet or separate
booklets containing disclosure for the Contracts
and for underlying funds other than those of the Fund, then the Fund shall pay
only its proportionate share of the total cost to distribute the booklet to
existing Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. (a) When appropriate in order to inform the Fund of any
applicable state-mandated investment restrictions with which the Fund
must comply, the Company shall arrange with the Fund to amend
Schedule 3, pursuant to the requirements of Article XI.
9
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(b) Should the Fund become aware of any restrictions which may
be appropriate for inclusion in Schedule 3, the Company shall be
informed immediately of the substance of those restrictions.
ARTICLE VlI. POTENTIAL CONFLICTS
7.1. The Company agrees to report to the Board of Directors of the Fund
(the "Board") any potential or existing conflicts between the interests of
Product Owners of all separate accounts investing in the Fund, and to assist the
Board in carrying out its responsibilities under Section 6e-3(T) of the 1940
Act, by providing all information reasonably necessary for the Board to consider
any issues raised, including information as to a decision to disregard voting
instructions of variable contract owners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the
Company and a reasonable opportunity for the Company to appear before
it and present its case, determines that the Company is responsible
for said conflict, and if the Company agrees with that determination,
the Company shall, at its sole cost and expense, take whatever steps
are necessary to remedy the material irreconcilable conflict. These
steps could include: (i) withdrawing the assets allocable to some or
all of the affected Accounts from the Fund and reinvesting such assets
in a different investment vehicle, or submitting the question of
whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of
any particular group (i.e., variable annuity Contractowners, variable
life insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contractowners the option of
making such a change; and (ii) establishing a new registered mutual
fund or management separate account; or (iii) taking such other action
as is necessary to remedy or eliminate the material irreconcilable
conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its
right to dispute the determination as between just the Company and the
Fund and to seek reimbursement from the Fund for the reasonable costs
and expenses of resolving the conflict . After reserving that right
the Company, although disagreeing with the Board that it (the Company)
was responsible for the conflict, shall take the necessary steps,
under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
10
<PAGE>
(c) As between the Company and the Fund, if within 45 days after
the Board's determination the Company elects to press the dispute, it
shall so notify the Board in writing. The parties shall then attempt
to resolve the matter amicably through negotiation by individuals from
each party who are authorized to settle the matter. If the matter
has not been amicably resolved within 60 days from the date of the
Company's notice of its intent to press the dispute, then before
either party shall undertake to litigate the dispute it shall be
submitted to non-binding arbitration conducted expeditiously in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if
one party has requested the other party to seek an amicable resolution
and the other party has failed to participate, the requesting party
may initiate arbitration before expiration of the 60-day period set
out just above.
If within 45 days of the commencement of the process to select an
arbitrator the parties cannot agree upon the arbitrator, then he or
she will be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sec.
1-16. The place of arbitration shall be Fort Wayne, Indiana. The
Arbitrator is not empowered to award damages in excess of compensatory
damages.
(d) If the Board shall determine that the Fund or another was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company
that it (the Fund) or that other Participating Insurance Company as
applicable, shall, at its sole cost and expense, take whatever steps
are necessary to eliminate the conflict.
(e) Nothing in Sections 7.2(b) or 7.2(c) shall constitute a
waiver of any right of action which the Company may have against other
Participating Insurance Companies for reimbursement of all or part of
the costs and expenses of resolving the conflict.
7.3. If a material irreconcilable conflict arises because of the Company's
decision to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall withdraw (without charge or penalty) the Account's investment in the Fund,
if the Fund so elects.
7.4. For purposes of this Article, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict. However, in no event will the Fund be
required to establish a new funding medium for any variable contract, nor will
the Company be required to establish a new funding medium for any Contract, if
in either case an offer to do so has been declined by a vote of a majority of
affected Contractowners.
11
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each person who controls or is associated with the
Fund (other than another Participating Insurance Company) within the meaning of
such terms under the federal securities laws and any officer, trustee, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid with the
prior written consent of the Company in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Fund (or a person authorized in
writing to do so on behalf of the Fund) for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in the
Fund Registration Statement, Fund Prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or on behalf
of the Company; or
12
<PAGE>
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under
the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net
Asset Values incorrectly.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each person who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid with the prior written consent of the Fund in settlement
of, any action, suit or proceeding or any claim asserted), to which they or any
of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
supplement thereto) or sales literature or other promotional material
of the Fund, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature for the Fund or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
13
<PAGE>
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by the Fund (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the Fund or
persons under their control) or wrongful conduct of the Fund or
persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Fund to the
Company (or a person authorized in writing to do so on behalf of the
Fund); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether
unintentional or in good faith or otherwise: (i) to comply with the
diversification requirements specified in Sections 2.4 and 6.1 in
Article VI of this Agreement; and (ii) to provide the Company with
accurate information sufficient for it to calculate its accumulation
and/or annuity unit values in timely fashion as required by law and by
the Contracts Prospectuses); or
(e) arise out of any material breach by the Fund of this
Agreement.
This indemnification will be in addition to any liability which the Fund may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article VIII, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the
14
<PAGE>
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the state of Indiana,
without giving effect to the principles of conflicts of law.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written
notice to the other parties; or
(b) at the option of the Company if shares of the Fund are not
available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of the election to terminate for such
cause shall be furnished by the Company. Termination shall be
effective ten days after the giving of notice by the Company; or
15
<PAGE>
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares;
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the investment advisor or any sub-
investment advisor, by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the Fund (unless otherwise required by applicable law)
and written approval of the Company, to substitute the shares of
another investment company for the corresponding shares of the Fund
in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) any Product owners or (ii)
the interests of the Participating Insurance Companies investing in
the Fund; or
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or
under any successor or similar provision, or if the Company
reasonably believes, based on an opinion of its counsel, that the
Fund may fail to so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code
and any regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; or
(k) at the option of the Fund if the Fund shall determine, in
its sole judgment exercised in good faith, that either (1) the
Company shall have suffered a material adverse change in its business
or financial condition; or (2) the Company shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Fund;
or
16
<PAGE>
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that: (1)
the Fund shall have suffered a material adverse change in its
business or financial condition; or (2) the Fund shall have been the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company; or
(m) automatically upon the assignment of this Agreement
(including, without limitation, any transfer of the Contracts or the
Accounts to another insurance company pursuant to an assumption
reinsurance agreement) unless the non-assigning party consents
thereto or unless this Agreement is assigned to an affiliate of the
Company or the Fund, as the case may be.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to the other party of its
intent to terminate, which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of
this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days before
the effective date of termination, or sooner if required by law or
regulation.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement, the Fund will, at the
option of the Company, continue to make available additional Fund
shares for so long after the termination of this Agreement as the
Company desires, pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, if the Company so elects to make additional
Fund shares available, the owners of the Existing Contracts or the
Company, whichever shall have legal authority to do so, shall be
permitted to reallocate investments in the Fund, redeem investments
in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts.
17
<PAGE>
(b) If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.1(a) and thereafter either the Fund or the
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be for more than six months.
(c) The parties agree that this Section 10.3 shall not apply to
any termination made pursuant to Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth
or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through new or existing Separate Accounts investing
in the Fund. The provisions of this Agreement shall be equally applicable to
each such separate account and each such class of contracts or policies, unless
the context otherwise requires. Any such amendment must be signed by the
parties and must bear an effective date for that amendment.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Lincoln National Special Opportunities Fund, Inc.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Kelly D. Clevenger
If to the Company:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
Attn: Steven M. Kluever
18
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
ARTICLE XIV. PRIOR AGREEMENTS
This Amended and Restated Fund Participation Agreement, as of its effective
date, hereby supersedes any and all prior agreements to purchase shares between
Lincoln Life and the Fund.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND, INC.
Signature:
-----------------------------------------------------------
Name: Kelly D. Clevenger
----------------------------------------------------------------
Title: President
---------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. (Company)
Signature:
-----------------------------------------------------------
Name: Stephen H. Lewis
----------------------------------------------------------------
Title: Senior Vice President, Lincoln National Life Insurance Company
---------------------------------------------------------------
20
<PAGE>
AMENDMENT TO
SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of May 1, 1998
Lincoln National Variable Annuity Account C
Lincoln Life Flexible Premium Variable Life Account K
Lincoln Life Flexible Premium Variable Life Account M
Lincoln Life Variable Annuity Account N
Lincoln Life Variable Annuity Account Q
Lincoln Life Flexible Premium Variable Life Account R
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule I 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: /s/ David K. Downes
----------------------------------
David K. Downes,
Senior Vice President, Chief Operating
Officer and Chief Financial Officer
LINCOLN NATIONAL LIFE INSURANCE CO.
Date: By: /s/ Kelly D. Clevenger
----------------------------------
Kelly D. Clevenger,
Vice President
DELAWARE DISTRIBUTORS, LP (Distributor)
Date: By: /s/ Bruce D. Barton
----------------------------------
Bruce D. Barton,
President and CEO
<PAGE>
AMENDMENT TO
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
As of May 1, 1998
Multi Fund Variable Annuity Contracts
e-Annuity Variable Annuity Contracts
Multi Fund Variable Annuity Group Contracts
Multi Fund Variable Life Insurance Contracts
Accru Choice Plus Variable Annuity Contracts
VUL I and SVULI Variable Life Insurance Contracts
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule I 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: /s/ David K. Downes
----------------------------------
David K. Downes,
Senior Vice President, Chief Operating
Officer and Chief Financial Officer
LINCOLN NATIONAL LIFE INSURANCE CO.
Date: By: /s/ Kelly D. Clevenger
----------------------------------
Kelly D. Clevenger,
Vice President
DELAWARE DISTRIBUTORS, LP (Distributor)
Date: By: /s/ Bruce D. Barton
----------------------------------
Bruce D. Barton,
President and CEO
<PAGE>
Writer's Direct Dial: 219/455-5135
Telefax Number: 219/455-3917
July 17, 1998
VIA EDGAR
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
Re: Lincoln National Variable Annuity Account C
(File No. 333-50817)
Ladies and Gentlemen:
I have made such examination of law and have examined such records and documents
as I have deemed necessary to render the opinion expressed below.
I am of the opinion that upon acceptance by Lincoln National Variable Annuity
Account C (the "Account"), a segregated account of The Lincoln National Life
Insurance Company (Lincoln Life), of contributions from a person pursuant to an
insurance contract issued in accordance with the prospectus contained in the
registration statement on Form N-4, and upon compliance with applicable law,
such person will have a legally issued interest in his or her individual account
with the Account, and the securities issued will represent binding obligations
of Lincoln Life.
I consent to the filing of this Opinion as an exhibit to the Account's
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4.
Sincerely,
/s/ Mary Jo Ardington
Mary Jo Ardington
Counsel
<PAGE>
Exhibit 10
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Pre-Effective Amendment No. 1 to the Registration Statement (Form N-4
No. 333-50817) and the related Statement of Additional Information pertaining
to Lincoln National Variable Annuity Account C (e-Annuity) 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 (e-Annuity).
/s/ Ernst & Young LLP
Fort Wayne, Indiana
July 14, 1998
<PAGE>
Exhibit 13
Lincoln National Life Account C
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
STANDARDIZED PERFORMANCE
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/lifetime period in question (or fractional
portion thereof).
The formula assumes that:
all recurring fees have been charged to Contract Owner accounts;
all applicable non-recurring charges are deducted at the end of
the period in question;
there will be a complete redemption at the end of the period in
question;
The performance figures shown in the table above relate to the
contract form containing the highest level of charges.
<PAGE>
SEPARATE ACCOUNT C - STANDARDIZED 1 YEAR RETURNS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ONE YEAR RETURNS PERIOD ENDING 12/31/97:
- ------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social
Bond Income Opportunity Market Managed Allocation Awareness
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $1,084.92 $1,298.82 $1,272.07 $1,043.87 $1,208.38 $1,185.32 $1,364.91
Surrender Charge $21.70 $25.98 $25.44 $20.88 $24.17 $23.71 $27.30
Final Value $1,063.22 $1,272.85 $1,246.63 $1,022.99 $1,184.21 $1,161.61 $1,337.61
ANNUAL RETURN 6.322% 27.285% 24.663% 2.299% 18.421% 16.161% 33.761%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
national Appreciat. Income Growth Growth Income Bond
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $1,052.68 $1,296.92 $1,222.40 $1,243.78 $1,205.44 $1,301.26 $1,001.85
Surrender Charge $21.05 $25.94 $24.45 $24.88 $24.11 $26.03 $20.04
Final Value $1,031.63 $1,270.99 $1,197.95 $1,218.90 $1,181.33 $1,275.23 $981.81
ANNUAL RETURN 3.163% 27.099% 19.795% 21.890% 18.133% 27.523% (1.819%)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Annual Return:
Final Value = 1000 * (31-Dec-97 Unit Value/31-Dec-96 Unit Value) - Surrender
Charge
Annual Return = (Final Value / 1000) - 1
UNIT VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social Inter-
Date Bond Income Opportunity Market Managed Allocation Awareness national
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 4.497495 7.826530 6.830424 2.438638 4.084582 2.370777 3.737837 1.515106
31-Dec-97 4.879424 10.165287 8.688760 2.545625 4.935734 2.810127 5.101816 1.594926
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
Capital LN Equity Aggressive DE Emer. DE Equity DE Global
Date Appreciat. Income Growth Growth Income Bond
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
31-Dec-96 1.678335 1.397515 1.534010 0.993375 1.128649 1.112874
31-Dec-97 2.176674 1.708316 1.907971 1.197452 1.468663 1.114935
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT C - STANDARDIZED 5 YEAR RETURNS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS PERIOD ENDING 12/31/97:
- ------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social
Bond Income Opportunity Market Managed Allocation Awareness
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $1,383.37 $2,391.22 $2,238.56 $1,201.97 $1,867.60 $1,901.70 $2,798.04
Surrender Charge $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Final Value $1,383.37 $2,391.22 $2,238.56 $1,201.97 $1,867.60 $1,901.70 $2,798.04
ANNUAL RETURN 6.706% 19.048% 17.488% 3.748% 13.307% 13.718% 22.849%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS PERIOD ENDING 12/31/97:
- ------------------------------------------------------------------------------------------------------------
Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
national Appreciat. Income Growth Growth Income Bond
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $1,760.32
Surrender Charge $0.00
Final Value $1,760.32
ANNUAL RETURN 11.974%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Annual Return:
Final Value Year Five = 1000 * (31-Dec-97 Unit Value/31-Dec-92 Unit Value) -
Surrender Charge
Annual Return = (Final Value Year Five/ 1000)^(1/5) - 1
For those funds whose inception date is after 12/31/92, no 5 year return is
given.
UNIT VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social
Date Bond Income Opportunity Market Managed Allocation Awareness
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-92 3.527201 4.251092 3.881410 2.117873 2.642818 1.477693 1.823356
31-Dec-93 3.936043 4.771873 4.567123 2.160971 2.927197 1.723805 2.055977
31-Dec-94 3.742666 4.801761 4.487338 2.227597 2.8521 1.68135 2.045629
31-Dec-95 4.426214 6.586407 5.880524 2.337804 3.657565 2.066329 2.912033
31-Dec-96 4.497495 7.826530 6.830424 2.438638 4.084582 2.370777 3.737837
31-Dec-97 4.879424 10.165287 8.688760 2.545625 4.935734 2.810127 5.101816
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
Date national Appreciat. Income Growth Growth Income Bond
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-92 0.906042
31-Dec-93 1.253378
31-Dec-94 1.285995 1.020229 1.049749 0.899032
31-Dec-95 1.391829 1.40828 1.20084 1.306769
31-Dec-96 1.515106 1.678335 1.397515 1.534010 0.993375 1.128649 1.112874
31-Dec-97 1.594926 2.176674 1.708316 1.907971 1.197452 1.468663 1.114935
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT C - STANDARDIZED 10 YEAR/LIFETIME RETURNS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
TEN YEAR/LIFETIME RETURNS PERIOD ENDING 12/31/97:
- ------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social
Bond Income Opportunity Market Managed Allocation Awareness
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $2,211.19 $4,071.61 $4,265.55 $1,607.56 $3,019.91 $3,071.54 $5,101.82
Surrender Charge $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Final Value $2,211.19 $4,071.61 $4,265.55 $1,607.56 $3,019.91 $3,071.54 $5,101.82
Period 10.000 10.000 10.000 10.000 10.000 10.000 9.666
ANNUAL RETURN 8.259% 15.074% 15.611% 4.862% 11.686% 11.876% 18.364%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
TEN YEAR/LIFETIME RETURNS PERIOD ENDING 12/31/97:
- ------------------------------------------------------------------------------------------------------------
Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
national Appreciat. Income Growth Growth Income Bond
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $1,594.93 $2,176.67 $1,708.32 $1,907.97 $1,197.45 $1,468.66 $1,114.94
Surrender Charge $0.00 $0.00 $0.00 $0.00 $11.97 $14.69 $11.15
Final Value $1,594.93 $2,176.67 $1,708.32 $1,907.97 $1,185.48 $1,453.98 $1,103.79
Period 6.668 3.992 3.992 3.992 1.668 1.668 1.668
ANNUAL RETURN 7.251% 21.513% 14.357% 17.568% 10.736% 25.149% 6.097%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Annual Return:
Final Value = 1000 * (31-Dec-97 Unit Value/31-Dec-87 Unit Value) - Surrender
Charge***
Annual Return = (Final Value Year Ten/ 1000)^(1/time since inception) - 1
***For those funds whose inception date is after 12/31/87, substitute '1'
(inception date's unit value) for '31-Dec-87 Unit Value' in formula for
Final Value.
UNIT VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As.
Date Bond Income Opportunity Market Managed Allocation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-87 2.206691 2.496626 2.036963 1.583530 1.634398 0.914892 02-May-88
31-Dec-88 2.366544 2.690590 2.085515 1.688430 1.772750 1.008797 02-May-89
31-Dec-89 2.660957 3.184154 2.747954 1.829107 2.047551 1.178004 02-May-90
31-Dec-90 2.811317 3.199773 2.539872 1.962132 2.105939 1.182748 02-May-91
31-Dec-91 3.277415 4.161590 3.634078 2.061240 2.549914 1.390845 02-May-92
31-Dec-92 3.527201 4.251092 3.881410 2.117873 2.642818 1.477693 02-May-93
31-Dec-93 3.936043 4.771873 4.567123 2.160971 2.927197 1.723805 02-May-94
31-Dec-94 3.742666 4.801761 4.487338 2.227597 2.8521 1.68135 02-May-95
31-Dec-95 4.426214 6.586407 5.880524 2.337804 3.657565 2.066329 02-May-96
31-Dec-96 4.497495 7.826530 6.830424 2.438638 4.084582 2.370777 02-May-97
31-Dec-97 4.879424 10.165287 8.688760 2.545625 4.935734 2.810127 31-Dec-97
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Social Inter- Capital LN Equity
Date Awareness national Appreciat. Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-87 1.000000
31-Dec-88 1.185644
31-Dec-89 1.330718
31-Dec-90 1.569740 01-May-91 1.000000
31-Dec-91 1.703843 01-May-92 0.962001
31-Dec-92 1.848086 01-May-93 1.056134
31-Dec-93 2.069484 01-May-94 1.28562 03-Jan-94 1.000000 03-Jan-94 1.000000 03-Jan-94
31-Dec-94 2.311803 01-May-95 1.30152 03-Jan-95 1.017567 03-Jan-95 1.051196 03-Jan-95
31-Dec-95 3.133516 01-May-96 1.456325 03-Jan-96 1.305692 03-Jan-96 1.411379 03-Jan-96
31-Dec-96 4.024542 01-May-97 1.528578 03-Jan-97 1.539651 03-Jan-97 1.682432 03-Jan-97
31-Dec-97 5.101816 31-Dec-97 1.594926 31-Dec-97 2.176674 31-Dec-97 1.708316 31-Dec-97
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Aggressive DE Emer. DE Equity DE Global
Date Growth Growth Income Bond
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-87
31-Dec-88
31-Dec-89
31-Dec-90
31-Dec-91
31-Dec-92
31-Dec-93 1.000000
31-Dec-94 0.889102
31-Dec-95 1.191137 01-May-96 1.000000 01-May-96 1.000000 01-May-96 1.000000
31-Dec-96 1.391643 01-May-97 0.918599 01-May-97 1.200033 01-May-97 1.074137
31-Dec-97 1.907971 31-Dec-97 1.197452 31-Dec-97 1.468663 31-Dec-97 1.114935
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NON-STANDARDIZED QUOTATIONS
This schedule presents the formulas and calculations employed in producing
the performance quotations set out in the SAI, under the heading,
ANON-STANDARDIZED INVESTMENT RESULTSCSUN-ACCOUNTS OF ACCOUNT C@. Amount
and Compound Growth Rate calculations are shown for all base periods
disclosed.
The formula for calculating the current Amount of an originally
invested $1,000 for a particular base period is:
CP = (X/Y) * $1,000, where:
CP = Amount at End of Base Period
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
The formula for calculating the Compound Growth Rate for a particular
base period is:
GR = (X/Y) ^ (1/N) - 1, where:
GR = Annualized Return
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
N = Number of Years of Fund Performance Being Evaluated
<PAGE>
NON-STANDARDIZED PERFORMANCE - SEPARATE ACCOUNT C
AMOUNT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As.
Years Start Date End Date Bond Income Opportunity Market Managed Allocation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 31-Dec-96 31-Dec-97 1,085 1,299 1,272 1,044 1,208 1,185
2 31-Dec-95 31-Dec-97 1,102 1,543 1,478 1,089 1,349 1,360
3 31-Dec-94 31-Dec-97 1,304 2,117 1,936 1,143 1,731 1,671
4 31-Dec-93 31-Dec-97 1,240 2,130 1,902 1,178 1,686 1,630
5 31-Dec-92 31-Dec-97 1,383 2,391 2,239 1,202 1,868 1,902
10/Life* See Below 31-Dec-97 2,211 4,072 4,266 1,608 3,020 3,072
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Social Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
Years Awareness national Appreciat. Income Growth Growth Income Bond
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,365 1,053 1,297 1,222 1,244 1,205 1,301 1,002
2 1,752 1,146 1,546 1,423 1,460
3 2,494 1,240 2,134 1,627 2,122
4 2,481 1,273
5 2,798 1,760
10/Life* 5,102 1,595 2,177 1,708 1,908 1,197 1,469 1,115
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Amount = (End Date Unit Value / Start Date Unit Value) * 1,000
*use period of 10 if fund's inception date is before 12/31/87; otherwise, use
life
COMPOUND GROWTH RATE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As.
Years Start Date End Date Bond Income Opportunity Market Managed Allocation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 31-Dec-96 31-Dec-97 8.49% 29.88% 27.21% 4.39% 20.84% 18.53%
2 31-Dec-95 31-Dec-97 4.99% 24.23% 21.55% 4.35% 16.17% 16.62%
3 31-Dec-94 31-Dec-97 9.24% 28.40% 24.64% 4.55% 20.06% 18.67%
4 31-Dec-93 31-Dec-97 5.52% 20.81% 17.44% 4.18% 13.95% 13.00%
5 31-Dec-92 31-Dec-97 6.71% 19.05% 17.49% 3.75% 13.31% 13.72%
10/Life* See Below 31-Dec-97 8.26% 15.07% 15.61% 4.86% 11.69% 11.88%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Social Inter- Capital LN Equity Aggressive DE Emer. DE Equity DE Global
Years Awareness national Appreciat. Income Growth Growth Income Bond
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 36.49% 5.27% 29.69% 22.24% 24.38% 20.54% 30.13% 0.19%
2 32.36% 7.05% 24.32% 19.27% 20.83%
3 35.61% 7.44% 28.74% 17.62% 28.51%
4 25.51% 6.21%
5 22.85% 11.97%
10/Life* 18.36% 7.25% 21.51% 14.36% 17.57% 11.40% 25.91% 6.74%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
One Year Return = (31-Dec-97 Unit Value/31-Dec-96 Unit Value) - 1
Two Year Return = (31-Dec-97 Unit Value/31-Dec-95 Unit Value)^(1/2) - 1
Three Year Return = (31-Dec-97 Unit Value/31-Dec-94 Unit Value)^(1/3) - 1
Four Year Return = (31-Dec-97 Unit Value/31-Dec-93 Unit Value)^(1/4) - 1
Five Year Return = (31-Dec-97 Unit Value/31-Dec-92 Unit Value)^(1/5) - 1
Ten Year/Life Return** = (31-Dec-97 Unit Value/Start Date Unit
Value)^(1/period) - 1
*use period of 10 if fund's inception date is before 12/31/87; otherwise, use
life
**set start date at 31-Dec-87 if fund's actual inception date is before
12/31/87; otherwise, set start date at fund's actual inception date
<PAGE>
NON-STANDARDIZED PERFORMANCE - SEPARATE ACCOUNT C
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social Inter-
Unit Values Bond Income Opportunity Market Managed Allocation Awareness national
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-97 4.879424 10.165287 8.688760 2.545625 4.935734 2.810127 5.101816 1.594926
31-Dec-96 4.497495 7.826530 6.830424 2.438638 4.084582 2.370777 3.737837 1.515106
31-Dec-95 4.426214 6.586407 5.880524 2.337804 3.657565 2.066329 2.912033 1.391829
31-Dec-94 3.742666 4.801761 4.487338 2.227597 2.852100 1.681350 2.045629 1.285995
31-Dec-93 3.936043 4.771873 4.567123 2.160971 2.927197 1.723805 2.055977 1.253378
31-Dec-92 3.527201 4.251092 3.881410 2.117873 2.642818 1.477693 1.823356 0.906042
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
Capital LN Equity Aggressive DE Emer. DE Equity DE Global
Unit Values Appreciat. Income Growth Growth Income Bond
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
31-Dec-97 2.176674 1.708316 1.907971 1.197452 1.468663 1.114935
31-Dec-96 1.678335 1.397515 1.534010 0.993375 1.128649 1.112874
31-Dec-95 1.408280 1.200840 1.306769
31-Dec-94 1.020229 1.049749 0.899032
31-Dec-93
31-Dec-92
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Growth & Special Money Global As. Social Inter- Capital
10/Life Returns Bond Income Opportunity Market Managed Allocation Awareness national
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Start Date** 31-Dec-87 31-Dec-87 31-Dec-87 31-Dec-87 31-Dec-87 31-Dec-87 02-May-88 01-May-91
Unit Value 2.206691 2.496626 2.036963 1.583530 1.634398 0.914892 1.000000 1.000000
Period (years)* 10.000 10.000 10.000 10.000 10.000 10.000 9.666 6.668
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
LN Equity Aggressive DE Emer. DE Equity DE Global
10/Life Returns Appreciat. Income Growth Growth Income Bond
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Start Date** 03-Jan-94 03-Jan-94 03-Jan-94 01-May-96 01-May-96 01-May-96
Unit Value 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000
Period (years)* 3.992 3.992 3.992 1.668 1.668 1.668
- --------------------------------------------------------------------------------------------------
</TABLE>
*use period of 10 if fund's inception date is before 12/31/87; otherwise, use
life
**set start date at 31-Dec-87 if fund's actual inception date is before
12/31/87; otherwise, set start date at fund's actual inception date
