<PAGE>
As filed with the Securities and Exchange Commission on April 22, 1999
Registration No. 33-25990
811-3214
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29
(Check appropriate box or boxes.)
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
-------------------------------------------
(Exact Name of Registrant)
LINCOLN NATIONAL LIFE INSURANCE COMPANY
-------------------------------------------
(Name of Depositor)
1300 South Clinton Street
Fort Wayne, Indiana 46802
-------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (219)455-2000
Jack D. Hunter, Esq.
200 East Berry Street
Fort Wayne, Indiana 46802
Telephone No. (219)455-2000
-------------------------------------------
(Name and Address of Agent for Service)
Copies of all communications to:
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, D.C. 20004-2415
Attention: Kimberly J. Smith, Esq.
Approximate Date of Public Offering: Continuous
----------
It is proposed that this filing will become effective:
----- immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1999 pursuant to paragraph (b) of Rule 485
-----
----- 60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
-----
Title of Securities Being Registered:
Units of Interest Under Variable Annuity Contracts
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Home Office:
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
This Prospectus describes individual variable annuity contracts that are issued
by Lincoln National Life Insurance Company (LINCOLN LIFE). They are for use with
nonqualified and qualified retirement plans. Generally, you do not pay federal
income tax on the contract's growth until it is paid out. The contracts are
designed to accumulate CONTRACT VALUE and to provide retirement income that you
cannot outlive or for an agreed upon time. These benefits may be a variable or
fixed amount or a combination of both. If the annuitant dies before the ANNUITY
COMMENCEMENT DATE, we will pay your BENEFICIARY a DEATH BENEFIT.
This Prospectus offers three types of contracts. They are a single premium
deferred annuity, a flexible premium deferred annuity and a periodic premium
deferred annuity.
The minimum PURCHASE PAYMENTS for each contract are:
1. Single premium deferred contract: $1,000 for Roth IRAs, IRAs and SEPs;
$3,000 for all others;
2. Flexible premium deferred contract (Multi-Fund 2,3,4,): $1,000 for Roth
IRAs, IRAs and SEPs; $3,000 for all others (minimum $100 subsequent PURCHASE
PAYMENT); and
3. Periodic premium deferred contract (Multi-Fund 1): $600 per CONTRACT YEAR
(minimum $25 per PURCHASE PAYMENT).
You choose whether your CONTRACT VALUE accumulates on a variable or a fixed
(guaranteed) basis or both. If you put all your PURCHASE PAYMENTS into the fixed
account, we guarantee your principal and a minimum interest rate. WE LIMIT
WITHDRAWALS AND TRANSFERS FROM THE FIXED SIDE OF THE CONTRACT. SEE THE FIXED
SIDE OF THE CONTRACT.
All PURCHASE PAYMENTS for benefits on a variable basis will be placed in Lincoln
National Variable Annuity Account C (VARIABLE ANNUITY ACCOUNT [VAA]). The VAA is
a segregated investment account of LINCOLN LIFE. If you put all or some of your
PURCHASE PAYMENTS into one or more of the contract's SUBACCOUNTS you take all
the investment risk on the CONTRACT VALUE and the retirement income. If the
SUBACCOUNTS you select make money, your CONTRACT VALUE goes up; if they lose
money, it goes down. How much it goes up or down depends on the performance of
the funds and series you select. WE DO NOT GUARANTEE HOW ANY OF THE SUBACCOUNTS
WILL PERFORM. ALSO, NEITHER THE U.S. GOVERNMENT NOR ANY FEDERAL AGENCY INSURES
OR GUARANTEES YOUR INVESTMENT IN THE CONTRACT.
The available funds and series are listed below:
Lincoln National Aggressive Growth Fund
Lincoln National Bond Fund
Lincoln National Capital Appreciation Fund
Lincoln National Equity Income Fund
Lincoln National Global Asset Allocation Fund
Lincoln National Growth and Income Fund
Lincoln National International Fund
Lincoln National Managed Fund
Lincoln National Money Market Fund
Lincoln National Social Awareness Fund
Lincoln National Special Opportunities Fund
Delaware Group Premium Fund --
Delaware Growth & Income (formerly known as
Decatur Total Return) Series
Global Bond Series
Trend Series
This Prospectus gives you information about the contracts that you should know
before you decide to buy a contract and make PURCHASE PAYMENTS. You should also
review the Prospectuses for the funds and series that are attached, and keep the
Prospectuses for reference.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THIS CONTRACT
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
You can obtain a current Statement of Additional Information (SAI) about the
contracts which has more information. Its terms are made part of this
Prospectus. For a free copy, write: Lincoln National Life Insurance Company,
P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). The
SAI and other information about LINCOLN LIFE and the VAA are also available on
the SEC's web site (http://www.sec.gov). There is a table of contents for the
SAI on the last page of this Prospectus.
May 1, 1999
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
- ----------------------------------------------------------
Special terms 2
- ----------------------------------------------------------
Expense tables 3
- ----------------------------------------------------------
Summary 5
- ----------------------------------------------------------
Condensed financial information 7
- ----------------------------------------------------------
Investment results 9
- ----------------------------------------------------------
Financial statements 9
- ----------------------------------------------------------
Lincoln National Life Insurance Company 9
- ----------------------------------------------------------
Variable annuity account (VAA) 9
- ----------------------------------------------------------
Fixed side of the contract 9
- ----------------------------------------------------------
Investments of the variable annuity account 10
- ----------------------------------------------------------
Description of the funds and series 10
- ----------------------------------------------------------
Charges and other deductions 12
- ----------------------------------------------------------
<CAPTION>
PAGE
- ----------------------------------------------------------
<S> <C>
The contracts 15
- ----------------------------------------------------------
Annuity payouts 19
- ----------------------------------------------------------
Federal tax matters 20
- ----------------------------------------------------------
Voting rights 24
- ----------------------------------------------------------
Distribution of the contracts 24
- ----------------------------------------------------------
Return privilege 24
- ----------------------------------------------------------
State regulation 24
- ----------------------------------------------------------
Restrictions under the Texas Optional
Retirement Program 24
- ----------------------------------------------------------
Records and reports 25
- ----------------------------------------------------------
Other information 25
- ----------------------------------------------------------
Statement of additional information
table of contents for the VAA 27
- ----------------------------------------------------------
</TABLE>
SPECIAL TERMS
(We have italicized the special terms that have special meaning throughout this
Prospectus)
ACCOUNT OR VARIABLE ANNUITY ACCOUNT (VAA) -- The segregated investment account,
Lincoln National Variable Annuity Account C, into which LINCOLN LIFE sets aside
and invests the assets for the variable side of the contract offered in this
Prospectus.
ACCUMULATION UNIT -- A measure used to calculate CONTRACT VALUE for the variable
side of the CONTRACT before the ANNUITY COMMENCEMENT DATE.
ANNUITANT -- The person on whose life the ANNUITY BENEFIT PAYMENTS made after an
ANNUITY COMMENCEMENT DATE are based.
ANNUITY COMMENCEMENT DATE -- The VALUATION DATE when funds are withdrawn or
converted into ANNUITY UNITS or fixed dollar payout for payment of retirement
income benefits under the ANNUITY PAYOUT option you select.
ANNUITY PAYOUT OPTION -- An amount paid at regular intervals after the ANNUITY
COMMENCEMENT DATE under one of several options available to the ANNUITANT and/or
any other payee. This amount may be paid on a variable or fixed basis, or a
combination of both.
ANNUITY UNIT -- A measure used to calculate the amount of ANNUITY PAYOUTS for
the variable side of the contract after the ANNUITY COMMENCEMENT DATE.
BENEFICIARY -- The person you designate to receive any DEATH BENEFIT paid if the
annuitant dies before the ANNUITY COMMENCEMENT DATE.
CONTRACTOWNER (you, your, owner) -- The person who has the ability to exercise
the rights within the CONTRACT (decides on investment allocations, transfers,
payout option, designates the BENEFICIARY, etc.). Usually, but not always, the
owner is the ANNUITANT.
CONTRACT VALUE -- At a given time before the ANNUITY COMMENCEMENT DATE, the
value of all ACCUMULATION UNITS for a contract plus the value of the fixed side
of the contract.
CONTRACT YEAR -- Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
DEATH BENEFIT -- An amount payable to your designated BENEFICIARY if the
annuitant dies before the ANNUITY COMMENCEMENT DATE. An enhanced guaranteed
minimum death benefit (EGMDB) is also available.
LINCOLN LIFE (we, us, our) -- Lincoln National Life Insurance Company.
PURCHASE PAYMENTS -- Amounts paid into the contract.
SUBACCOUNT -- The portion of the VAA that reflects investments in ACCUMULATION
and ANNUITY UNITS of a class of a particular fund or series available under the
contracts. There is a separate SUBACCOUNT which corresponds to each fund or
SERIES.
VALUATION DATE -- Each day the New York Stock Exchange (NYSE) is open for
trading.
VALUATION PERIOD -- The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (VALUATION
DATE) and ending at the close of such trading on the next VALUATION DATE.
2
<PAGE>
EXPENSE TABLES
SUMMARY OF CONTRACT OWNER EXPENSES:
<TABLE>
<S> <C>
The maximum surrender charge (contingent deferred sales charge) as a
percentage of CONTRACT VALUE (for single premium and periodic premium
contracts), or of PURCHASE PAYMENTS (for flexible premium contracts), 7% (SINGLE AND
surrendered/withdrawn: FLEXIBLE)
8% (PERIODIC)
</TABLE>
The surrender charge percentage is reduced over time. The later the redemption
occurs, the lower the surrender charge with respect to that surrender or
withdrawal. We may reduce or waive these charges in certain situations.
See Charges and other deductions -- Surrender charges.
ANNUAL CONTRACT FEE:
Periodic and flexible premium Multi-Fund 2 contract only: $25
VAA ANNUAL EXPENSES:
(as a percentage of average account value):
<TABLE>
<CAPTION>
WITH EGMDB WITHOUT EGMDB
<S> <C> <C>
Mortality and expense risk charge 1.00% 1.00%
Enhanced guaranteed minimum DEATH BENEFIT
charge .30% --
--- ---
Total annual charge for each VAA SUBACCOUNT 1.30% 1.00%
</TABLE>
ANNUAL EXPENSES OF THE FUNDS AND SERIES FOR THE YEAR ENDED DECEMBER 31, 1998:
(as a percentage of each fund's or series' average net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES + EXPENSES = EXPENSES
<C> <S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
1. Aggressive Growth .73 .08 .81
- -----------------------------------------------------------------------------------------
2. Bond .44 .13 .57
- -----------------------------------------------------------------------------------------
3. Capital Appreciation .75 .08 .83
- -----------------------------------------------------------------------------------------
4. Equity-Income .72 .07 .79
- -----------------------------------------------------------------------------------------
5. Global Asset Allocation .72 .19 .91
- -----------------------------------------------------------------------------------------
6. Growth and Income .31 .04 .35
- -----------------------------------------------------------------------------------------
7. International .79 .14 .93
- -----------------------------------------------------------------------------------------
8. Managed .36 .03 .39
- -----------------------------------------------------------------------------------------
9. Money Market .48 .11 .59
- -----------------------------------------------------------------------------------------
10. Social Awareness .34 .04 .38
- -----------------------------------------------------------------------------------------
11. Special Opportunities .36 .06 .42
- -----------------------------------------------------------------------------------------
Delaware Growth & Income (formerly known
as Decatur Total Return)* .60 .11 .71
12.
- -----------------------------------------------------------------------------------------
13. Global Bond* (after waiver) .68 .17 .85
- -----------------------------------------------------------------------------------------
14. Trend* (after waiver) .75 .10 .85
- -----------------------------------------------------------------------------------------
</TABLE>
*The investment adviser for the Delaware Growth & Income Series (formerly
Decatur Total Return Series) and the Trend Series is Delaware Management
Company, Inc. ("DMC"). The investment advisor for the Global Bond Series is
Delaware International Advisers Ltd. Effective May 1, 1999 through October 31,
1999 the investment advisers for the series of the Delaware Group Premium Fund
have VOLUNTARILY agreed to waive their management fees and reimburse each series
for expenses to the extent that total expenses will not exceed 0.80% for the
Delaware Growth & Income Series, 0.85% for the Trend Series and the Global Bond
Series. In addition the management fees for Delaware Growth & Income will not
exceed 0.60%. The fee ratios shown above have been restated, if necessary, to
reflect the new voluntary limitations which took effect on May 1, 1999. The
declaration of a VOLUNTARY expense limitation does not bind the investment
advisers to declare future expense limitations with respect to the fund.
Pursuant to a vote of the fund's shareholders on March 17, 1999, a new
management fee structure based on average daily net assets was approved. The
above ratios have been restated to reflect the new management fee structure,
which took effect on May 1, 1999. Without the reimbursements or waivers total
expenses for each series for year ending 12/31/98 would have been -- Global
Bond, 0.92%, Trend, 0.85%.
3
<PAGE>
EXAMPLES
(expenses of the SUBACCOUNTS and the funds and series):
If you surrender your contract at the end of the time period shown, you would
pay the following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------------------------ ------------------------ ------------------------
SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER.
- ----------------------------------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Aggressive Growth 93 92 91 101 121 118 116 146 148 146 143 194 244 250 244 273
- ----------------------------------------------------------------------------- --------------------------------------------------
2. Bond 91 89 89 99 112 109 107 138 134 132 129 180 214 221 214 243
- ----------------------------------------------------------------------------- --------------------------------------------------
3. Capital Appreciation 94 92 92 102 121 118 117 147 149 147 145 195 246 252 246 220
- ----------------------------------------------------------------------------- --------------------------------------------------
4. Equity-Income 93 92 91 101 120 117 116 146 147 145 142 193 242 247 242 271
- ----------------------------------------------------------------------------- --------------------------------------------------
5. Global Asset
Allocation 94 93 92 102 123 121 119 149 153 151 149 199 255 260 255 283
- ----------------------------------------------------------------------------- --------------------------------------------------
6. Growth and Income 89 87 87 97 107 104 102 133 125 122 120 172 196 201 196 225
- ----------------------------------------------------------------------------- --------------------------------------------------
7. International 95 93 93 103 124 121 120 150 154 152 150 200 257 262 257 285
- ----------------------------------------------------------------------------- --------------------------------------------------
8. Managed 90 88 88 98 109 106 104 135 129 126 123 176 203 209 203 233
- ----------------------------------------------------------------------------- --------------------------------------------------
9. Money Market 91 90 89 99 114 111 109 140 137 134 132 183 220 226 220 249
- ----------------------------------------------------------------------------- --------------------------------------------------
10. Social Awareness 89 88 87 97 108 105 103 134 127 124 121 174 199 204 199 228
- ----------------------------------------------------------------------------- --------------------------------------------------
11. Special
Opportunities 90 88 88 98 109 106 104 135 129 126 123 176 203 209 203 233
- ----------------------------------------------------------------------------- --------------------------------------------------
12. Delaware Growth &
Income (formerly
Decatur Total
Return) 93 91 90 101 118 115 113 144 143 141 138 189 234 239 234 263
- ----------------------------------------------------------------------------- --------------------------------------------------
13. Global Bond 94 92 92 102 122 119 117 147 150 148 146 196 248 254 248 277
- ----------------------------------------------------------------------------- --------------------------------------------------
14. Trend 93 92 91 101 121 118 116 146 148 146 143 194 244 250 244 273
- ----------------------------------------------------------------------------- --------------------------------------------------
</TABLE>
If you do not surrender your contract, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------------------------ ------------------------ ------------------------
SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER. SGL MF2 MF3&4 PER.
- ----------------------------------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Aggressive Growth 21 22 21 19 66 68 66 59 113 116 113 101 244 250 244 218
- ----------------------------------------------------------------------------- --------------------------------------------------
2. Bond 19 19 19 16 57 59 57 50 99 102 99 86 214 221 214 187
- ----------------------------------------------------------------------------- --------------------------------------------------
3. Capital Appreciation 22 22 22 19 67 68 67 59 115 117 115 102 246 252 246 220
- ----------------------------------------------------------------------------- --------------------------------------------------
4. Equity-Income 21 22 21 19 66 67 66 58 112 115 112 100 242 247 242 216
- ----------------------------------------------------------------------------- --------------------------------------------------
5. Global Asset
Allocation 22 23 22 20 69 71 69 62 119 121 119 106 255 260 255 229
- ----------------------------------------------------------------------------- --------------------------------------------------
6. Growth and Income 17 17 17 14 52 54 52 44 90 92 90 77 196 201 196 168
- ----------------------------------------------------------------------------- --------------------------------------------------
7. International 23 23 23 20 70 71 70 62 120 122 120 107 257 262 257 231
- ----------------------------------------------------------------------------- --------------------------------------------------
8. Managed 18 18 18 15 54 56 54 47 93 96 93 80 203 209 203 176
- ----------------------------------------------------------------------------- --------------------------------------------------
9. Money Market 19 20 19 17 59 61 59 51 102 104 102 89 220 226 220 194
- ----------------------------------------------------------------------------- --------------------------------------------------
10. Social Awareness 17 18 17 15 53 55 53 45 91 94 91 78 199 204 199 172
- ----------------------------------------------------------------------------- --------------------------------------------------
11. Special
Opportunities 18 18 18 15 54 56 54 47 93 96 93 80 203 209 203 176
- ----------------------------------------------------------------------------- --------------------------------------------------
12. Delaware Growth &
Income (formerly
Decatur Total
Return) 20 21 20 18 63 65 63 55 108 111 108 96 234 239 234 208
- ----------------------------------------------------------------------------- --------------------------------------------------
13. Global Bond 22 22 22 19 67 69 67 60 116 118 116 103 248 254 248 222
- ----------------------------------------------------------------------------- --------------------------------------------------
14. Trend 21 22 21 19 66 68 66 59 113 116 113 101 244 250 244 218
- ----------------------------------------------------------------------------- --------------------------------------------------
</TABLE>
We provide these examples to help you understand the direct and indirect costs
and expenses of the contract. The examples assume that an enhanced DEATH BENEFIT
is in effect. Without this benefit, expenses would be lower.
For more information, see Charges and other deductions in this Prospectus, and
the Prospectuses for the funds and series. Premium taxes may also apply,
although they do not appear in the examples. We also reserve the right to impose
a charge on transfers between SUBACCOUNTS and to and from the fixed account.
Currently, there is no charge. THESE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE.
4
<PAGE>
SUMMARY
WHAT KIND OF CONTRACT AM I BUYING? It is an individual annuity contract between
you and LINCOLN LIFE. It may provide for a fixed annuity and/or a variable
annuity. This Prospectus describes the variable side of the contract. See The
contracts.
WHAT IS THE VARIABLE ANNUITY ACCOUNT (VAA)? It is a separate account we
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to one or more SUBACCOUNTS, according
to your investment choices. VAA assets are not chargeable with liabilities
arising out of any other business which LINCOLN LIFE may conduct. See Variable
annuity account (VAA). REMEMBER THAT PARTICIPANTS IN THE VAA BENEFIT FROM ANY
GAIN, AND TAKE A RISK OF ANY LOSS, IN THE VALUE OF THE SECURITIES IN THE FUNDS'
OR SERIES' PORTFOLIOS.
WHAT ARE MY INVESTMENT CHOICES? Based upon your instruction, the VAA applies
your PURCHASE PAYMENTS to buy fund and series shares in one or more of the
investment funds of the SUBACCOUNTS: Aggressive Growth, Bond, Capital
Appreciation, Delaware Growth & Income (formerly known as Decatur Total Return),
Equity-Income, Global Asset Allocation, Global Bond, Growth and Income,
International, Managed, Money Market, Social Awareness, Special Opportunities,
Trend.
In turn, each fund or series holds a portfolio of securities consistent with its
investment policy. See Investment of the variable annuity accounts and
Description of the funds and series.
WHO INVESTS MY MONEY? The investment advisor for the Lincoln National funds is
Lincoln Investment Management, Inc. (Lincoln Investment), Fort Wayne, Indiana.
The investment advisor for the Trend Series and Delaware Growth & Income
(formerly known as Decatur Total Return) Series is DMC, and the investment
manager of the Global Bond Series is DIAL, an affiliate of Delaware Management,
Philadelphia, Pennsylvania. Each is an indirect subsidiary of Lincoln National
Corporation (LNC), and registered as an investment advisor with the SEC. See
Investments of the variable annuity account -- Investment advisors.
HOW DOES THE CONTRACT WORK? If we approve your application, we will send you a
contract. When you make PURCHASE PAYMENTS during the accumulation phase, you buy
ACCUMULATION UNITS. If you decide to receive retirement income payments, your
ACCUMULATION UNITS are converted to ANNUITY UNITS. Your retirement income
payments will be based on the number of ANNUITY UNITS you received and the value
of each ANNUITY UNIT on payout days. See The contracts.
WHAT CHARGES DO I PAY UNDER THE CONTRACT? If you withdraw CONTRACT VALUE, you
pay a surrender charge from 0% to 8%, depending upon how many CONTRACT YEARS
have elapsed (single premium and periodic premium), or how many CONTRACT YEARS
the PURCHASE PAYMENT has been in the contract (flexible premium), and which type
of contract you choose. We may waive surrender charges in certain situations.
See Charges and other deductions -- Surrender charges.
We will deduct any applicable premium tax from PURCHASE PAYMENTS or CONTRACT
VALUE at the time the tax is incurred or at another time we choose.
We charge an annual contract fee of $25 under the periodic and the flexible
premium Multi-Fund 2 contracts.
We apply an annual charge totaling 1.30% of net asset value of the VAA. This
charge includes 1.00% as a mortality and expense risk charge. If the enhanced
DEATH BENEFIT is not in effect, the annual charge is 1.00%. See Charges and
other deductions.
Each fund and series pays a management fee based on its average daily net asset
value. See Investments of the variable annuity account -- Investment Advisor.
Each fund and series also has additional operating expenses. These are described
in the Prospectuses for the fund or series.
WHAT PURCHASE PAYMENTS DO I MAKE, AND HOW OFTEN? Subject to the minimum and
maximum payment amounts for each type of contract, your payments may be
flexible. See The contracts -- Purchase Payments.
HOW WILL MY ANNUITY PAYOUTS BE CALCULATED? If you decide to annuitize, you
select an annuity option and start receiving retirement income payments from
your contract as a fixed option or variable option or a combination of both. See
Annuity options.
WHAT HAPPENS IF THE ANNUITANT DIES BEFORE I ANNUITIZE? If the enhanced DEATH
BENEFIT is in effect, your BENEFICIARY will receive the CONTRACT VALUE. If the
enhanced DEATH BENEFIT is not in effect, your BENEFICIARY will receive the
greater of the guaranteed minimum death benefit or the CONTRACT VALUE. Your
BENEFICIARY has options as to how the DEATH BENEFIT is paid. See death benefit
before the annuity commencement date.
MAY I TRANSFER CONTRACT VALUE BETWEEN SUBACCOUNTS AND BETWEEN THE FIXED SIDE OF
THE CONTRACT? Yes, with certain limits. See The Contracts - transfers between
SUBACCOUNTS on or before the annuity commencement date; transfers following the
annuity commencement date; and transfers to and from the general account on or
before the annuity commencement date.
5
<PAGE>
MAY I SURRENDER THE CONTRACT OR MAKE A WITHDRAWAL? Yes, subject to contract
requirements and to the restrictions of any qualified retirement plan for which
the contract was purchased. See The contracts -- Surrenders and withdrawals. If
you surrender the contract or make a withdrawal, certain charges may apply. See
Charges and other deductions. A portion of surrender/withdrawal proceeds may be
taxable. In addition, if you decide to take a distribution before age 59 1/2, a
10% Internal Revenue Service (IRS) tax penalty may apply. A surrender or a
withdrawal also may be subject to 20% withholding. See Federal tax matters.
DO I GET A FREE LOOK AT THIS CONTRACT? Yes. you can cancel the contract within
ten days (in some states longer) of the date you first receive the contract. You
need to return the contract, postage prepaid, to our home office. In most states
you assume the risk of any market drop on PURCHASE PAYMENTS you allocate to the
variable side of the contract. See Return privilege.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR THE VAA
ACCUMULATION UNIT VALUES
The following information relating to ACCUMULATION UNIT values including the
enhanced guaranteed minimum death benefit charge where applicable and number of
ACCUMULATION UNITS for each of the 10 years in the period ended December 31,
1998 comes from the VAA'S financial statements. It should be read along with the
VAA'S financial statements and notes which are all included in the SAI.
<TABLE>
<CAPTION>
1998* 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
without
with EGMDB EGMDB
Aggressive Growth subaccount
Accumulation unit value
- - Beginning of period $ 1.684 1.687 1.384 1.196 .896 1.000 1.000**
- - End of period $ 1.559 1.567 1.687 1.384 1.196 .896 1.000**
Number of accumulation units
- - End of period (000's omitted) 1,953 204,322 199,221 172,630 114,518 67,547 110
- ----------------------------------------------------------------------------------------------------------------------------------
Bond subaccount
Accumulation unit value
- - Beginning of period $ 4.625 4.632 4.283 4.228 3.585 3.780 3.398
- - End of period $ 5.002 5.024 4.632 4.283 4.228 3.585 3.780
Number of accumulation units
- - End of period (000's omitted) 1,160 70,180 60,078 62,709 62,644 57,900 62,765
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation subaccount
Accumulation unit value
- - Beginning of period $ 1.881 1.884 1.520 1.294 1.017 1.000 1.000**
- - End of period $ 2.562 2.574 1.884 1.520 1.294 1.017 1.000**
Number of accumulation units
- - End of period (000's omitted) 4,553 284,822 234,328 174,073 98,067 52,125 110
- ----------------------------------------------------------------------------------------------------------------------------------
Equity-Income subaccount
Accumulation unit value
- - Beginning of period $ 2.146 2.150 1.663 1.391 1.046 1.000 1.000**
- - End of period $ 2.388 2.399 2.150 1.663 1.391 1.046 1.000**
Number of accumulation units
- - End of period (000's omitted) 5,898 395,691 371,051 275,632 171,817 75,383 110
- ----------------------------------------------------------------------------------------------------------------------------------
Global Asset Allocation subaccount
Accumulation unit value
- - Beginning of period $ 2.716 2.720 2.302 2.013 1.642 1.689 1.453
- - End of period $ 3.042 3.056 2.720 2.302 2.013 1.642 1.689
Number of accumulation units
- - End of period (000's omitted) 1,888 155,191 159,590 140,242 126,558 122,061 92,778
- ----------------------------------------------------------------------------------------------------------------------------------
Growth and Income subaccount
Accumulation unit value
- - Beginning of period $ 9,635 9,650 7.453 6.292 4.593 4.579 4.084
- - End of period $ 11.444 11.497 9.650 7.453 6.292 4.593 4.579
Number of accumulation units
- - End of period (000's omitted) 2,252 353,739 357,850 332,885 291,063 253,621 226,072
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989
<S> <C> <C> <C> <C>
- ----------------------------------------------- --------------------
Aggressive Growth subaccount
Accumulation unit value
- - Beginning of period
- - End of period trading began in 1994.
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
Bond subaccount
Accumulation unit value
- - Beginning of period 3.181 2.737 2.591 2.312
- - End of period 3.398 3.181 2.737 2.591
Number of accumulation units
- - End of period (000's omitted) 52,842 46,830 40,983 37,671
- ----------------------------------------------- --------------------
Capital Appreciation subaccount
Accumulation unit value
- - Beginning of period
- - End of period trading began in 1994.
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
Equity-Income subaccount
Accumulation unit value
- - Beginning of period
- - End of period trading began in 1994.
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
Global Asset Allocation subaccount
Accumulation unit value
- - Beginning of period 1.378 1.174 1.175 1.005
- - End of period 1.453 1.378 1.174 1.175
Number of accumulation units
- - End of period (000's omitted) 67,873 57,199 50,149 39,835
- ----------------------------------------------- --------------------
Growth and Income subaccount
Accumulation unit value
- - Beginning of period 4.050 3.125 3.126 2.611
- - End of period 4.084 4.050 3.125 3.126
Number of accumulation units
- - End of period (000's omitted) 188,659 144,515 114,974 96,161
- ----------------------------------------------- --------------------
</TABLE>
* The EGMDB became available in June 1997, the first full year was 1998.
** These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of
the subaccounts through December 31.
7
<PAGE>
<TABLE>
<CAPTION>
1998* 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
without
with EGMDB EGMDB
International subaccount
Accumulation unit value
- - Beginning of period $ 1.560 1,562 1.488 1.368 1.271 1.243 .901
- - End of period $ 1.765 1.773 1.562 1.488 1.368 1.271 1.243
Number of accumulation units
- - End of period (000's omitted) 2,375 275,657 294,705 294,570 261,509 248,639 129,551
- ----------------------------------------------------------------------------------------------------------------------------------
Managed subaccount
Accumulation unit value
- - Beginning of period $ 4.707 4.714 3.913 3.515 2.747 2.827 2.558
- - End of period $ 5.236 5.260 4.714 3.913 3.515 2.747 2.827
Number of accumulation units
- - End of period (000's omitted) 1,775 178,768 179,210 178,496 172,789 167,184 162,485
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market subaccount
Accumulation unit value
- - Beginning of period $ 2.415 2.419 2.324 2.235 2.137 2.079 2.044
- - End of period $ 2.505 2.517 2.419 2.324 2.235 2.137 2.079
Number of accumulation units
- - End of Period (000's omitted) 644 46,571 36,107 40,057 35,136 37,106 39,763
- ----------------------------------------------------------------------------------------------------------------------------------
Social Awareness subaccount
Accumulation unit value
- - Beginning of period $ 4.942 4.950 3.638 2.843 2.005 2.021 1.796
- - End of period $ 5.848 5.875 4.950 3.638 2.843 2.005 2.021
Number of accumulation units
- - End of period (000's omitted) 5,136 304,204 251,168 175,970 106,204 83,069 69,006
- ----------------------------------------------------------------------------------------------------------------------------------
Special Opportunities subaccount
Accumulation unit value
- - Beginning of period $ 8.236 8.249 6.505 5.618 4.303 4.392 3.740
- - End of period $ 8.681 8.721 8.249 6.505 5.618 4.303 4.392
Number of accumulation units
- - End of period (000's omitted) 899 98,734 101,475 97,744 88,993 73,673 62,314
- ----------------------------------------------------------------------------------------------------------------------------------
Trend subaccount
Accumulation unit value
- - Beginning of period $ 1.189 1.191 0.991 1.000 **
- - End of period $ 1.362 1.368 1.191 0.991 ** trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 1,522 63,364 46,558 23,508
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Growth & Income subaccount (formerly
known as Decatur Total Return)
Accumulation unit value
- - Beginning of period $ 1.459 1.461 1.126 1.000 **
- - End of period $ 1.603 1.611 1.461 1.126 ** trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 4,111 90,935 64,052 12,220
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond subaccount
Accumulation unit value
- - Beginning of period $ 1.107 1.109 1.111 1.000 **
- - End of period $ 1.179 1.184 1.109 1.111 ** trading began in 1996
Number of accumulation units
- - End of period (000's omitted) 373 12,869 11,177 7,613
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989
- ----------------------------------------------- --------------------
<S> <C> <C> <C> <C>
International subaccount
Accumulation unit value
- - Beginning of period .990 1.000**
trading began in
- - End of period .901 .990** 1991.
Number of accumulation units
- - End of period (000's omitted) 50,718 21,088
- ----------------------------------------------- --------------------
Managed subaccount
Accumulation unit value
- - Beginning of period 2.492 2.065 2.015 1.737
- - End of period 2.558 2.492 2.065 2.015
Number of accumulation units
- - End of period (000's omitted) 139,606 115,929 104,011 95,285
- ----------------------------------------------- --------------------
Money Market subaccount
Accumulation unit value
- - Beginning of period 1.996 1.907 1.783 1.651
- - End of period 2.044 1.996 1.907 1.783
Number of accumulation units
- - End of Period (000's omitted) 46,993 77,812 57,377 53,287
- ----------------------------------------------- --------------------
Social Awareness subaccount
Accumulation unit value
- - Beginning of period 1.750 1.285 1.357 1.042
- - End of period 1.796 1.750 1.285 1.357
Number of accumulation units
- - End of period (000's omitted) 50,838 30,735 19,486 7,127
- ----------------------------------------------- --------------------
Special Opportunities subaccount
Accumulation unit value
- - Beginning of period 3.519 2.481 2.710 2.054
- - End of period 3.740 3.519 2.481 2.710
Number of accumulation units
- - End of period (000's omitted) 51,056 37,798 33,837 27,789
- ----------------------------------------------- --------------------
Trend subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
Delaware Growth & Income subaccount (formerly
known as Decatur Total Return)
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
Global Bond subaccount
Accumulation unit value
- - Beginning of period
- - End of period
Number of accumulation units
- - End of period (000's omitted)
- ----------------------------------------------- --------------------
</TABLE>
* The EGMDB became available in June 1997, the first full year was 1998.
** These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of
the subaccounts through December 31.
ADDITIONAL INFORMATION FOR THE MONEY MARKET SUBACCOUNT:
Seven-day yield: 3.16%; Length of base period-7 days; Date of last day of base
period: December 31, 1998.
Seven-day yield including EGMDB: 2.89%; Length of base period-7 days: Date of
last day of base period: December 31, 1998.
8
<PAGE>
INVESTMENT RESULTS
At times the VAA may advertise the Money Market SUBACCOUNT's yield. The yield
refers to the income generated by an investment in the SUBACCOUNT over a seven-
day period. This income is then annualized. The process of annualizing results
when the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. THE YIELD FIGURE IS BASED ON HISTORICAL EARNINGS
AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The VAA advertises the annual performance of the SUBACCOUNTs for the funds and
series on both a standardized and nonstandardized basis.
The standardized calculation measures average annual total return. This is based
on a hypothetical $1,000 payment made at the beginning of a one-year, a
five-year, and a 10-year period. This calculation reflects all fees and charges
that are or could be imposed on all CONTRACTOWNER accounts.
The nonstandardized calculation compares changes in ACCUMULATION UNIT values
from the beginning of the most recently completed calendar year to the end of
that year. It may also compare changes in ACCUMULATION UNIT values over shorter
or longer time periods. This calculation reflects mortality and expense risk
fees. It also reflects management fees and other expenses of the FUND. It does
not include surrender charges or the account charge; if included, they would
decrease the performance.
For additional information about performance calculations, please refer to the
SAI.
FINANCIAL STATEMENTS
The financial statements of the VAA and the statutory-basis financial statements
of LINCOLN LIFE are located in the SAI. You may obtain a free copy by writing
Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana
46801 or calling 1-800-4LINCOLN (454-6265).
LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN LIFE was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are owned
by Lincoln National Corp. (LNC) which is also organized under Indiana law. LNC's
primary businesses are insurance and financial services.
VARIABLE ANNUITY ACCOUNT (VAA)
On June 3, 1981, the VAA was established as an insurance company separate
account under Indiana law. It is registered with the SEC as a unit investment
trust under the provisions of the Investment Company Act of 1940 (1940 Act). The
SEC does not supervise the VAA or LINCOLN LIFE. The VAA is a segregated
investment account, meaning that its assets may not be charged with liabilities
resulting from any other business that we may conduct. Income, gains and losses,
whether realized or not, from assets allocated to the VAA are, in accordance
with the applicable annuity contracts, credited to or charged against the VAA.
They are credited or charged without regard to any other income, gains or losses
of LINCOLN LIFE. The VAA satisfies the definition of separate account under the
federal securities laws. We do not guarantee the investment performance of the
VAA. Any investment gain or loss depends on the investment performance of the
funds and series. YOU ASSUME THE FULL INVESTMENT RISK FOR ALL AMOUNTS PLACED IN
THE VAA.
The VAA is used to support other annuity contracts offered by LINCOLN LIFE in
addition to the contracts described in this prospectus. The other annuity
contracts supported by the VAA invest in the same portfolios of the funds and
series as the contracts described in this Prospectus. These other annuity
contracts may have different charges that could affect performance of the
SUBACCOUNT.
FIXED SIDE OF THE CONTRACT
PURCHASE PAYMENTS allocated to the fixed side of the contract become part of
LINCOLN LIFE'S general account, and DO NOT participate in the investment
experience of the VAA. The general account is subject to regulation and
supervision by the Indiana Department of Insurance as well as the insurance laws
and regulations of the jurisdictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, LINCOLN LIFE has not
registered interests in the general account as a security under the Securities
Act of 1933 and has not registered the general account as an investment company
under the 1940 Act. Accordingly, neither the general account nor any interests
in it are regulated under the 1933 Act or the 1940 Act. LINCOLN LIFE has been
advised that the staff of the SEC has not made a review of the disclosures which
are included in this prospectus which relate to our general account and to the
fixed account under the contract. These disclosures, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the
9
<PAGE>
accuracy and completeness of statements made in prospectuses. This prospectus is
generally intended to serve as a disclosure document only for aspects of the
contract involving the VAA, and therefore contains only selected information
regarding the fixed side of the contract. Complete details regarding the fixed
side of the contract are in the contract.
PURCHASE PAYMENTS allocated to the fixed side of the contract are guaranteed to
be credited with a minimum interest rate, specified in the contract, of at least
3.0%. A PURCHASE PAYMENT allocated to the fixed side of the contract is credited
with interest beginning on the next calendar day following the date of receipt
if all data is complete. LINCOLN LIFE may vary the way in which it credits
interest to the fixed side of the contract from time to time.
ANY INTEREST IN EXCESS OF 3% WILL BE DECLARED IN ADVANCE IN LINCOLN LIFE'S SOLE
DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3% WILL
BE DECLARED.
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT
You decide the SUBACCOUNT(S) to which you allocate PURCHASE PAYMENTS. There is a
separate SUBACCOUNT which corresponds to each fund and series. You may change
your allocations without penalty or charges. Shares of the funds and series will
be sold at net asset value (See the Appendix to the funds' Prospectuses for an
explanation of net asset value) to the VAA in order to fund the contracts. The
funds and series are required to redeem their shares at net asset value upon our
request. We reserve the right to add, delete or substitute funds and series.
INVESTMENT ADVISOR
Lincoln Investment (owned by LNC) is the advisor for each of the Lincoln
National funds and is primarily responsible for the investment decisions
affecting the funds. The services it provides are explained in the Prospectuses
of the funds. Under an advisory agreement with each fund, Lincoln Investment
provides portfolio management and investment advice to that fund, subject to the
supervision of the fund's Board of Directors.
Additionally, Lincoln Investment currently has six sub-advisory agreements in
which the sub-advisor may perform some or substantially all of the investment
advisory services required by those respective funds.
No additional compensation from the assets of those funds will be assessed as a
result of the sub-advisory agreements.
Following is a chart that shows the fund names and the sub-advisors under
Lincoln Investment (the advisor):
<TABLE>
<CAPTION>
SUB-ADVISOR FUND
<S> <C>
- ---------------------------------------------------
Delaware
International
Advisers, Ltd. International
- ---------------------------------------------------
Fidelity Management
Trust Co. Equity-Income
- ---------------------------------------------------
Janus Capital Corp. Capital Appreciation
- ---------------------------------------------------
Putnam Investment
Management, Inc. Aggressive Growth;
Global Asset Allocation
- ---------------------------------------------------
Vantage Investment
Advisors Growth and Income; Managed
(for stock portfolio);
Social Awareness; and
Special Opportunities
- ---------------------------------------------------
</TABLE>
The Bond and Money Market Funds do not have sub-advisors.
DMC, an indirect subsidiary of LNC, is the advisor for the Trend Series and
Delaware Growth & Income (formerly known as Decatur Total Return) Series and is
primarily responsible for the investment decisions affecting these series. DIAL,
an affiliate of DMC, furnishes investment management services to the Global Bond
series.
Additional information about DMC and DIAL may be found in the Delaware Group
Premium Fund, Inc. Prospectus enclosed in this booklet under Management of the
Fund.
DESCRIPTION OF THE FUNDS AND SERIES
Following are brief summaries of the investment objectives and policies of the
funds. The year in which each fund started trading is in parentheses. There is
more detailed information in the current Prospectuses for the funds, which are
included in this booklet.
All of the funds with the exception of the Special Opportunities Fund are
diversified, open-end management investment companies. Diversified means not
owning too great a percentage of the securities of any one company. An open-end
company is one which, in this case, permits LINCOLN LIFE to sell its shares back
to the fund or series when you make a withdrawal, surrender the contract or
transfer from one fund to another. Management investment company is the legal
term for a mutual fund. The Special Opportunities Fund is open-end, but is
non-diversified. Non-diversified means the fund may own a larger percentage of
the securities of particular companies than will a diversified company. These
definitions are very general. The precise
10
<PAGE>
legal definitions for these terms are contained in the 1940 Act. PLEASE BE
ADVISED THAT THERE IS NO ASSURANCE THAT ANY OF THE FUNDS OR SERIES WILL ACHIEVE
ITS STATED OBJECTIVES.
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios managed by the advisor. The
investment results of the funds, however, may be higher or lower than the other
portfolios that are managed by the advisor. There can be no assurance, and no
representation is made, that the investment results of any of the funds will be
comparable to the investment results of any other portfolio managed by the
advisor.
FUNDS
1. Aggressive Growth Fund (1994) -- The investment objective is to maximize
capital appreciation. The fund invests in stocks of smaller, lesser-known
companies which have a chance to grow significantly in a short time.
2. Bond Fund (1981) -- The investment objective is maximum current income
consistent with prudent investment strategy. The fund invests primarily in
medium-and long-term corporate and government bonds.
3. Capital Appreciation Fund (1994) -- The investment objective is long-term
growth of capital in a manner consistent with preservation of capital. The
fund primarily buys stocks in a large number of companies of all sizes if
the companies are competing well and if their products or services are in
high demand. It may also buy some money market securities and bonds,
including junk (high-risk) bonds.
4. Equity-Income Fund (1994) -- The investment objective is to achieve
reasonable income by investing primarily in income-producing equity
securities. The fund invests mostly in high-income stocks and some
high-yielding bonds (including junk bonds).
5. Global Asset Allocation Fund (1987) -- The investment objective is
long-term total return consistent with preservation of capital. The fund
allocates its assets among several categories of equity and fixed-income
securities, both of U.S. and foreign issuers.
6. Growth and Income Fund (1981) -- The investment objective is long-term
capital appreciation. The fund buys stocks of established companies.
7. International Fund (1991) -- The investment objective is long-term capital
appreciation. The fund trades in securities issued outside the United
States--mostly stocks, with an occasional bond or money market security.
8. Managed Fund (1983) -- The investment objective is maximum long-term total
return (capital gains plus income) consistent with prudent investment
strategy. The fund invests in a mix of stocks, bonds, and money market
securities, as determined by an investment committee.
9. Money Market Fund (1981) -- The investment objective is maximum current
income consistent with the preservation of capital. The fund invests in
short-term obligations issued by U.S. corporations; the U.S. Government;
and federally-chartered banks and U.S. branches of foreign banks.
10. Social Awareness Fund (1988) -- The investment objective is long-term
capital appreciation. The fund buys stocks of established companies which
adhere to certain specific social criteria.
11. Special Opportunities Fund (1981) -- The investment objective is maximum
capital appreciation. The fund primarily invests in mid-size companies
whose stocks have significant growth potential. Current income is a
secondary consideration.
SERIES
Following are brief summaries of the investment objectives and policies of the
three series being offered by Delaware Group Premium Fund, Inc. More detailed
information may be obtained from the current Prospectus for those series, which
is included in this booklet. PLEASE BE ADVISED THAT THERE IS NO ASSURANCE THAT
ANY OF THE SERIES WILL ACHIEVE ITS STATED OBJECTIVES.
1. Delaware Growth & Income (formerly known as 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. Delaware Growth & Income (formerly known as
Decatur Total Return) invests, but not exclusively, in common stocks and
income-producing securities convertible into common stocks, consistent
with the series' objective.
2. Trend Series -- Seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These securities will have
been judged to be responsive to changes in the market place and to have
fundamental characteristics to support growth. Income is not an objective.
3. Global Bond Series -- Seeks current income consistent with preservation of
principal by investing primarily in fixed income securities that may also
provide the potential for capital appreciation. This series is a global
fund. As such, at least 65% of the series' assets will be invested in
fixed income
11
<PAGE>
securities of issuers organized or having a majority of their assets in or
deriving a majority of their operating income in at least three different
countries, one of which may be the United States.
Shares of the funds and series are sold to LINCOLN LIFE for investment of the
assets of the VAA and of Lincoln Life Flexible Premium Variable Life Account K,
for variable life insurance contracts. Shares of some, but not all, of the funds
are also sold to LINCOLN LIFE for investment of the assets of Lincoln Life
Flexible Premium Variable Life Accounts D and G, also to fund variable life
insurance contracts. In addition, shares of the Delaware Group Premium Fund,
Inc. are sold to separate accounts of life insurance companies other than
LINCOLN LIFE. See Other information. Shares of the funds and series are not sold
directly to the general public.
We will purchase shares of the funds and series at net asset value and direct
them to the appropriate SUBACCOUNTs of the VAA. We will redeem sufficient shares
of the appropriate funds and series to pay ANNUITY PAYOUTS, DEATH BENEFITS,
surrender/withdrawal proceeds or for purposes described in the contract. If you
desire to transfer all or part of your investment from one SUBACCOUNT to
another, we may redeem shares held in the first and purchase shares for the
other SUBACCOUNT. The shares are retired, but they may be reissued later.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
All of the investment objectives of the funds and series are fundamental which
means that no changes may be made without the affirmative vote of a majority of
the outstanding voting securities of each respective fund or series. The extent
to which the particular investment policies, practices or restrictions for each
fund or series are fundamental or nonfundamental depends on the particular fund
or series. If they are nonfundamental, they may be changed by the Board of
Directors of the funds or series without shareholder approval.
You are urged to consult the Prospectuses in this booklet and SAIs for each
individual fund or series for additional information regarding the fundamental
and non-fundamental policies, practices and restrictions of each of the funds
and series.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
All dividend and capital gain distributions of the funds and series are
automatically reinvested in shares of the distributing funds and series at their
net asset value on the date of distribution. Dividends are not paid out to
CONTRACTOWNERs as additional units, but are reflected in changes in unit values.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, within the law, to make additions, deletions and
substitutions for the funds and series held by the VAA. (We may substitute
shares of another series or of other funds for shares already purchased, or to
be purchased in the future, under the contract. This substitution might occur if
shares of a fund and series should no longer be available, or if investment in
any fund's and series' shares should become inappropriate, in the judgement of
our management, for the purposes for the contract.) We cannot substitute shares
of one fund for another without approval by the SEC. We will also notify you.
CHARGES AND OTHER DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
There are no front-end deductions for sales charges made from PURCHASE PAYMENTS.
However, we will deduct premium taxes, when applicable.
ACCOUNT CHARGE
There is no account charge for single premium deferred contracts and flexible
premium deferred contracts, Multi-Fund-Registered Trademark- 3 and 4. For
periodic and flexible premium, Multi-Fund-Registered Trademark- 2 deferred
contracts, we will deduct $25 from the CONTRACT VALUE on the last VALUATION DATE
of each CONTRACT YEAR to compensate us for the administrative services provided
to you; this $25 account charge will also be deducted from the CONTRACT VALUE
upon surrender. Administrative services include processing applications; issuing
contracts; processing purchase and redemptions of fund shares; maintaining
records; administering ANNUITY PAYOUTS; providing accounting, valuation,
regulatory and reporting services.
SURRENDER CHARGES
There are charges associated with the surrender of a contract or the withdrawal
of CONTRACT VALUE (or of PURCHASE PAYMENTS, for flexible contracts) before the
ANNUITY COMMENCEMENT DATE. The surrender charges associated with surrender or
withdrawal are paid to us to compensate us for the loss we experience on
contract distribution costs when CONTRACTOWNERS surrender or withdraw before
distribution costs have been recovered. Charges are the same for
surrenders/withdrawals except that, for the first withdrawal in a CONTRACT YEAR,
up to 15% of CONTRACT VALUE (PURCHASE PAYMENTS for flexible contracts) may be
withdrawn free of charges. This 15% withdrawal exception does not apply to a
surrender of a contract.
A. PERIODIC PREMIUM DEFERRED CONTRACT
For the first withdrawal in a CONTRACT YEAR in excess of 15%, for any subsequent
withdrawals in the same CONTRACT YEAR, or for surrender of the contract, there
will be
12
<PAGE>
a surrender charge of 8% for years 1-5; 4% in years 6-10; and no charge after
the contract has been in force for 10 years. In addition, as explained
previously, an account charge will be deducted for a surrender.
Surrender charges will be waived in the event of the death of the ANNUITANT. If
between the effective date of the contract and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled [as defined in
Section 22(e)(3) of the tax code], surrender charges will also be waived. In
addition, for 403(b) and 457 contracts only, surrender charges will be waived in
the event the ANNUITANT: (1) has terminated employment with the employer that
sponsored the contract; and (2) has been in the contract for at least five years
(the five year date beginning either November 1, 1991 or the date of the
contract, whichever is later); and (3) is at least age 55.
B. SINGLE PREMIUM DEFERRED CONTRACT OR NONRECURRING LUMP SUM PAYMENT TO PERIODIC
PREMIUM DEFERRED CONTRACT
For a single premium deferred contract or a nonrecurring lump sum payment made
to a periodic premium deferred contract, the surrender/withdrawal charges (when
applicable as described previously) will be:
<TABLE>
<CAPTION>
CONTRACT YEAR in which
surrender/withdrawal
occurs
<S> <C>
- ---------------------------------------------------
1 2 3 4 5 6 7 8+
Charge as a percent of
proceeds withdrawn 7% 6 5 4 3 2 1 0
</TABLE>
Investment gains attributable to a nonrecurring lump sum payment made to a
periodic premium deferred contract will be subject to surrender charges of 8% in
years 1-5, 4% in years 6-10, and no charge after the contract has been in force
for 10 years.
Lump sum payments may be deposited into a periodic premium deferred contract
within 12 months of the effective date of the contract. After the 12-month
period, a new contract must be established for a lump sum payment.
For periodic premium deferred contracts under which a nonrecurring lump sum has
been received, withdrawals will be made first from any amount subject to the
lowest charge until that amount is gone.
Surrender charges will be waived in the event of the death of the ANNUITANT. If
between the effective date of the contract and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled, surrender charges
will also be waived.
C. FLEXIBLE PREMIUM DEFERRED CONTRACT
For a flexible premium deferred contract, the surrender/withdrawal charges (when
applicable as described previously) will be:
<TABLE>
<CAPTION>
Completed CONTRACT YEARS
between date of PURCHASE
PAYMENTS and date of
surrender/withdrawal*
<S> <C>
- ---------------------------------------------------
0 1 2 3 4 5 6 7+
Charge as a percent of
total PURCHASE
PAYMENTS
surrendered/withdrawn
in a CONTRACT YEAR 7% 6 5 4 3 2 1 0
</TABLE>
* The surrender charge is calculated separately for each CONTRACT YEAR'S
PURCHASE PAYMENTS.
For the first withdrawal of PURCHASE PAYMENTS in each CONTRACT YEAR, up to 15%
of PURCHASE PAYMENTS will be free of these charges. In addition, as explained
previously, an account charge will be deducted for a surrender on
Multi-Fund-Registered Trademark- 2 flexible premium contracts.
Surrender charges will be waived in the event of the death of the ANNUITANT. If
between the effective date of the contract and the ANNUITANT'S 65th birthday,
the ANNUITANT should become totally and permanently disabled, surrender charges
will also be waived.
The surrender charge is calculated separately for each CONTRACT YEAR'S PURCHASE
PAYMENTS to which a charge applies. (FOR PURPOSES OF CALCULATING THIS CHARGE, WE
ASSUME THAT PURCHASE PAYMENTS ARE WITHDRAWN ON A FIRST IN-FIRST OUT BASIS, AND
THAT ALL PURCHASE PAYMENTS ARE WITHDRAWN BEFORE ANY EARNINGS ARE WITHDRAWN.) The
surrender charges associated with surrender or withdrawal are paid to us to
compensate us for the loss we experience on contract distributions costs when
CONTRACTOWNERS surrender or withdraw before distribution costs have been
recovered.
ADDITIONAL INFORMATION
Participants in the Texas Optional Retirement Program should refer to
Restrictions under the Texas Optional Retirement Program, later in this
Prospectus booklet.
The charges associated with surrender/withdrawal are paid to us to compensate us
for the cost of distributing the contracts. As required by the National
Association Securities Dealers, in no event will the aggregate surrender charges
under a contract exceed 8.5% of your total PURCHASE PAYMENTS.
The surrender and account charges described previously may be reduced or
eliminated for any particular contract. However these charges will be reduced
only to the extent that we anticipate lower distribution and/or administrative
expenses or that we perform fewer sales or administrative services than those
originally contemplated in establishing the level of those charges. Lower
distribution and administrative expenses may be the result of economies
associated with (1) the use of mass enrollment procedures, (2) the performance
of administrative or sales functions by the employer, (3) the use
13
<PAGE>
by an employer of automated techniques in submitting deposits or information
related to deposits on behalf of its employees, or (4) any other circumstances
which reduce distribution or administrative expenses. The exact amount of
surrender and account charges applicable to a particular contract will be stated
in that contract.
For example, in certain circumstances, a holder of an annuity contract issued by
Lincoln Life may exchange it for a contract. In this circumstance, the surrender
charge applicable to such contract in the future will be calculated as if (i)
the date of purchase of the contract is the date the original annuity contract
was purchased and (ii) each PURCHASE PAYMENT had been made on the actual date of
such payment, whether under the annuity contract or the contract. An exchange of
an annuity contract for a contract may or may not be advantageous, based on all
of the circumstances, including a comparison of contractual terms and conditions
such as investment options and charges and deductions other than surrender
charges. Generally speaking, an exchange would not involve an exchange fee or be
subject to taxes. We may pay a commission to the agent assisting on the
exchange. Additional information on exchanges, as well as a copy of the
prospectus for the annuity contract, is available upon request.
DEDUCTIONS FROM THE VAA FOR ASSUMPTION OF MORTALITY AND EXPENSE RISKS
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 1.002% of the daily net asset value, to compensate us for our assumption
of certain risks described below. This charge is made up of two parts: (1) our
assumption of mortality risks (0.900%) and (2) our assumption of expense risks
(0.102%). The level of this charge is guaranteed not to change.
Our assumption of mortality risks guarantees that the ANNUITY PAYOUTS made to
our CONTRACTOWNERS will not be affected by annuitants receiving annuity payouts
live longer than we assumed when we calculated our guaranteed rates. We assume
this mortality risk through guaranteed annuity rates incorporated into the
contract which we cannot change. We also assume the risk that the charges for
administrative expenses, which, we cannot change, will be insufficient to cover
actual administrative costs.
If the mortality and expense risk charge proves insufficient to cover
underwriting and administrative costs in excess of the charges made for
administrative expenses, we will absorb the loss. However, if the amount
deducted proves more than sufficient, we will keep the profit.
DEDUCTIONS FOR PREMIUM TAXES
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the contracts or the VAA will be deducted from the CONTRACT
VALUE when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation, or by judicial action. These premium taxes will
generally depend upon the law of your state of residence. The tax ranges from
0.5% to 4.0%.
DEDUCTION FOR THE ENHANCED GUARANTEED MINIMUM DEATH BENEFIT (EGMDB)
When the EGMDB becomes effective, we will begin deducting from the VAA an
amount, computed daily, which is equal to an annual rate of 0.30% of the daily
net asset value. This charge will start at the beginning of the next VALUATION
PERIOD. This charge will continue for all future CONTRACT YEARS unless the owner
elects to discontinue the EGMDB. If the EGMDB is discontinued, the 0.30% annual
charge will stop at the end of the VALUATION PERIOD when the EGMDB is
terminated. See The contracts -- Death benefit before the annuity commencement
date.
OTHER CHARGES AND DEDUCTIONS
There are deductions from and expenses paid out of the assets of the eleven
funds and the three series that are described later in this booklet in the
Appendix to the funds' Prospectuses and in the Prospectus for the series
respectively.
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THE CONTRACTS
PURCHASE OF CONTRACTS
If you wish to purchase a contract, you must apply for it through one of our
authorized sales representatives. The completed application is sent to us and we
decide whether to accept or reject it. If the application is accepted, a
contract is prepared and executed by our legally authorized officers. The
contract is then sent to you through your sales representative. See Distribution
of the contracts.
Once a completed application and all other information necessary for processing
a purchase order are received, an initial PURCHASE PAYMENT will be priced no
later than two business days after we receive the order. While attempting to
finish an incomplete application, we may hold the initial PURCHASE PAYMENT for
no more than five business days. If the incomplete application cannot be
completed within those five days, the PURCHASE PAYMENT will be returned
immediately (unless you have authorized us to keep it until the application is
complete). Once the application is complete, the initial PURCHASE PAYMENT must
be priced within two business days.
WHO CAN INVEST
To apply for a periodic premium deferred contract, you must be of legal age in a
state where the contracts may be lawfully sold and also be eligible to
participate in any of the qualified or nonqualified plans for which the
contracts are designed. The ANNUITANT cannot be older than age 74.
To apply for a flexible premium deferred contract, a single premium deferred
contract or to make a nonrecurring lump sum payment to a periodic premium
deferred contract, you must meet the same requirements as for an application of
a periodic premium deferred contract, except that the ANNUITANT cannot be older
than age 84.
PURCHASE PAYMENTS
PURCHASE PAYMENTS are payable to us at a frequency and in an amount selected by
you in the application. The minimum PURCHASE PAYMENT for a single premium
deferred contract is $3,000 ($1,000 for IRAs and SEPs). The minimum initial
PURCHASE PAYMENT for a flexible premium deferred contract is $3,000 ($1,000 for
IRAs and SEPs), and additional PURCHASE PAYMENTS must be at least $100. For a
periodic premium deferred contract, the minimum amount of any scheduled PURCHASE
PAYMENT is $25, and the scheduled PURCHASE PAYMENTS must total at least $600 per
year. PURCHASE PAYMENTS in any one CONTRACT YEAR which exceed twice the amount
of PURCHASE PAYMENTS made in the first CONTRACT YEAR may be made only with our
permission. PURCHASE PAYMENTS in total may not exceed $1 million for each
ANNUITANT. If you stop making PURCHASE PAYMENTS, the contract will remain in
force as a paid-up contract as long as the total CONTRACT VALUE is at least
$600. Payments may be resumed at any time until the ANNUITY COMMENCEMENT DATE,
the maturity date, the surrender of the contract, or payment of any DEATH
BENEFIT, whichever comes first.
VALUATION DATE
ACCUMULATION and ANNUITY UNITS will be valued once daily as of the close of
trading (currently 4:00 p.m., New York time) on each day that the NYSE is open
for trading (VALUATION DATE). On any date other than a VALUATION DATE, the
ACCUMULATION UNIT value and the ANNUITY UNIT value will not change.
ALLOCATION OF PURCHASE PAYMENTS
PURCHASE PAYMENTS are placed into the VAA'S SUBACCOUNTS, each of which invests
in shares of its corresponding fund or series, according to your instructions.
The minimum amount of any PURCHASE PAYMENT which can be put into any one
SUBACCOUNT is $20 under periodic premium deferred contracts, $1,000 under single
premium deferred contracts and $100 under flexible premium deferred contracts.
Upon allocation to a SUBACCOUNT, PURCHASE PAYMENTS are converted into
ACCUMULATION UNITS. The number of ACCUMULATION UNITS credited is determined by
dividing the amount allocated to each SUBACCOUNT by the value of an ACCUMULATION
UNIT for that SUBACCOUNT on the VALUATION DATE on which the PURCHASE PAYMENT is
received at the home office if received before 4:00 p.m., New York time. If the
PURCHASE PAYMENT is received at or after 4:00 p.m., New York time, we will use
the ACCUMULATION UNIT value computed on the next VALUATION DATE. The number of
ACCUMULATION UNITS determined in this way shall not be changed by any subsequent
change in the value of an ACCUMULATION UNIT. However, the dollar value of an
ACCUMULATION UNIT will vary depending not only upon how well the investments
perform, but also upon the related expenses of the VAA and the underlying funds
and series.
VALUATION OF ACCUMULATION UNITS
PURCHASE PAYMENTS allocated to the VAA are converted into ACCUMULATION UNITS.
This is done by dividing each PURCHASE PAYMENT by the value of an ACCUMULATION
UNIT for the VALUATION PERIOD during which the PURCHASE PAYMENT is allocated to
the VAA. The ACCUMULATION UNIT value for each SUBACCOUNT was or will be
established at the inception of the SUBACCOUNT. It may increase or decrease from
VALUATION PERIOD to VALUATION PERIOD. The ACCUMULATION UNIT value for a
SUBACCOUNT for a later VALUATION PERIOD is determined as follows:
(1) The total value of the fund or series shares held in the SUBACCOUNT is
calculated by multiplying the number of fund or series shares owned by
the SUBACCOUNT at the beginning of the VALUATION PERIOD by the net asset
value per share of the fund or series at the end of the VALUATION
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PERIOD, and adding any dividend or other distribution of the fund or
series if an ex-dividend date occurs during the VALUATION PERIOD; minus
(2) The liabilities of the SUBACCOUNT at the end of the VALUATION PERIOD;
these liabilities include daily charges imposed on the SUBACCOUNT, and
may include a charge or credit with respect to any taxes paid or
reserved for by us that we determine result from the operations of the
VAA; and
(3) Dividing the result by the number of SUBACCOUNT units outstanding at the
beginning of the VALUATION PERIOD.
The daily charges imposed on a SUBACCOUNT for any VALUATION PERIOD are equal to
the daily mortality and expense risk charge multiplied by the number of calendar
days in the VALUATION PERIOD. Because a different daily charge is made for
contracts with the EGMDB than for those without, each of the two types of
contracts will have different corresponding ACCUMULATION UNIT values on any
given day.
TRANSFERS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment from one SUBACCOUNT to
another. A transfer involves the surrender of ACCUMULATION UNITS in one
SUBACCOUNT and the purchase of ACCUMULATION UNITS in the other SUBACCOUNT. A
transfer will be done using the respective ACCUMULATION UNIT values as of the
VALUATION DATE immediately following receipt of the transfer request.
Transfers between SUBACCOUNTS are restricted to once every 30 days; although, we
reserve the right to waive this 30-day period. The minimum amount which may be
transferred between SUBACCOUNTS is $500 or the entire amount in the SUBACCOUNT,
if less than $500. If the transfer from a SUBACCOUNT would leave you with less
than $100 in the SUBACCOUNT, we may transfer the total balance of the
SUBACCOUNT. (We have the right to reduce these minimum amounts.)
A transfer may be made by writing to the home office or, if a Telephone Exchange
Authorization form (available from us) is on file with us, by a toll-free
telephone call. In order to prevent unauthorized or fraudulent telephone
transfers, we may require a CONTRACTOWNER to provide certain identifying
information before we will act upon their instructions. We may also assign the
CONTRACTOWNER a Personal Identification Number (PIN) to serve as identification.
We will not be liable for following telephone instructions we reasonably believe
are genuine. Telephone tranfer requests may be recorded and written confirmation
of all transfer requests will be mailed to the CONTRACTOWNER on the next
VALUATION DATE.
Telephone transfers will be processed on the VALUATION DATE that they are
received when they are received at our customer service center before 4:00 PM
New York time.
You may also transfer all or any part of the CONTRACT VALUE from the
SUBACCOUNT(S) to the fixed side of the contract. Transfers from the fixed side
of the contract to the various SUBACCOUNT(S) are allowed subject to the
following restrictions: (1) the sum of the percentages of the fixed value
transferred is limited to 25% of the value of the fixed side in any 12 month
period; and (2) the minimum amount which can be transferred is $500 or the
amount in the fixed account. We reserve the right to waive any of these
restrictions.
When thinking about a transfer of CONTRACT VALUE, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that a transfer will be made at an inopportune time.
There is no charge to you for a transfer. However, we reserve the right to
impose a charge in the future for any transfers.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment in one SUBACCOUNT to
another SUBACCOUNT or to the fixed side of the contract. Those transfers will be
limited to three times per CONTRACT YEAR. HOWEVER, AFTER THE ANNUITY
COMMENCEMENT DATE, NO TRANSFERS ARE ALLOWED FROM THE FIXED SIDE OF THE CONTRACT
TO THE SUBACCOUNTS.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
You may designate a BENEFICIARY during the life of the ANNUITANT and change the
BENEFICIARY by filing a written request with the home office. Each change of
BENEFICIARY revokes any previous designation. We reserve the right to request
that you send us the contract for endorsement of a change of BENEFICIARY.
If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the enhanced
guaranteed minimum death benefit (EGMDB) is not in effect, a DEATH BENEFIT equal
to the CONTRACT VALUE will be paid to your designated BENEFICIARY.
An optional EGMDB is available for nonqualified, Roth IRA and IRA flexible
premium deferred annuity contracts, for ANNUITANTS up to age 75. (Please check
with your representative for availability to current CONTRACTOWNERS.) The EGMDB
will take effect on the VALUATION DATE when the EGMDB election form is approved
at our home office, if before 4:00 p.m. New York time. The OWNER may discontinue
the EGMDB at any time. If discontinued, the EGMDB will terminate on the
VALUATION DATE written notice is received at our home office, if before 4:00
p.m. New York time. If after 4:00 p.m. New York time, the EGMDB election or
termination will be
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effective with the next VALUATION DATE. The OWNER may not reelect the EGMDB once
it is discontinued. As of the annuity commencement date the EGMDB will be
discontinued and the charge for the EGMDB will stop. See Charges and other
deductions -- Deduction for the EGMDB.
If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the EGMDB is in
effect, the DEATH BENEFIT paid to your designated BENEFICIARY will be the
greater of:
1. the CONTRACT VALUE at the end of the VALUATION PERIOD when the death claim is
approved for payment by LINCOLN LIFE, or
2. the higher of:
(a) the CONTRACT VALUE at the end of the VALUATION PERIOD when the EGMDB
becomes effective and;
(b) the highest CONTRACT VALUE, at the end of the VALUATION PERIOD, on any
contract anniversary date up to and including age 75 following election
of the EGMDB;
increased by PURCHASE PAYMENTS and decreased by any withdrawals, annuitizations,
and premium taxes incurred after the contract anniversary or EGMDB effective
date the highest CONTRACT VALUE occurred.
The CONTRACT VALUE available upon death is the value of the contract at the end
of the VALUATION PERIOD during which the death claim is approved for payment by
LINCOLN LIFE. The approval of the death claim payment will occur after receipt
of: (1) proof, satisfactory to us, of the death of the ANNUITANT; (2) written
authorization for payment; and (3) our receipt of all required claim forms fully
completed.
The EGMDB may not be elected on or after the ANNUITY COMMENCEMENT DATE.
At any time during a 60-day period the BENEFICIARY may elect to receive payment
either in the form of a lump sum settlement or an ANNUITY PAYOUT.
If a lump sum settlement is requested and the amount of the settlement is
$10,000 or more, a SecureLine-Registered Trademark- account will be established
in the name of the BENEFICIARY for that amount. If the lump sum amount is less
than $10,000, it will be sent to the BENEFICIARY. In either event, the proceeds
will be disbursed within seven days of receipt of satisfactory claim
documentation, as discussed previously, subject to the laws and regulations
governing payment of DEATH BENEFITS. If an election has not been made by the end
of the 60-day period, a lump sum settlement will be made at that time using
SecureLine-Registered Trademark- if the amount is $10,000 or more; if the amount
is under $10,000 it will be sent to the BENEFICIARY. This payment may be
postponed as permitted by the 1940 Act.
SecureLine-Registered Trademark- is an interest-bearing checking account
established in the name of the BENEFICIARY which is administered by State Street
Bank and Trust Company of Boston, MA. Once the SecureLine-Registered Trademark-
account is established, only the BENEFICIARY can authorize checks to be drawn on
the account.
ANNUITY PAYOUTS will be made in accordance with applicable laws and regulations
governing payment of DEATH BENEFITS.
Unless otherwise provided in the BENEFICIARY designation, one of the following
procedures will take place on the death of a BENEFICIARY:
1. If any BENEFICIARY dies before the ANNUITANT, that BENEFICIARY's interest
will go to any other beneficiaries named, according to their respective
interests. There are no restrictions on the BENEFICIARY's use of the
proceeds; and/or
2. If no BENEFICIARY survives the ANNUITANT, the proceeds will be paid to the
CONTRACTOWNER or to his/her estate, as applicable.
JOINT/CONTINGENT OWNERSHIP
If joint owners are named in the application, the joint owners shall be treated
as having equal undivided interests in the contract. Either owner, independently
of the other, may exercise any ownership rights in this contract. Only the
spouse can be a joint owner on Multi-Fund-Registered Trademark- 4, flexible
premium deferred annuity contracts.
A contingent owner may exercise ownership rights in this contract only after the
CONTRACTOWNER dies.
DEATH OF CONTRACTOWNER
If the CONTRACTOWNER of a nonqualified contract dies before the ANNUITY
COMMENCEMENT DATE, then, in compliance with the tax code, the cash surrender
value (CONTRACT VALUE less any applicable charges, fees, and taxes) of the
contract will be paid as follows:
1. Upon the death of a NON-ANNUITANT CONTRACTOWNER, the proceeds shall be paid
to any surviving joint or contingent owner(s). If no joint or contingent
owner has been named, then the cash surrender value shall be paid to the
ANNUITANT named in the contract; and
2. Upon the death of a CONTRACTOWNER, who is also the ANNUITANT, the death will
be treated as death of the ANNUITANT and the provisions of this contract
regarding death of ANNUITANT will control. If the recipient of the proceeds
is the surviving spouse of the CONTRACTOWNER, the contract may be continued
in the name of that spouse as the new CONTRACTOWNER.
The tax code requires that any distribution be paid within five years of the
death of the CONTRACTOWNER unless the BENEFICIARY begins receiving, within one
year of the CONTRACTOWNER's death, the distribution in the form of a life
annuity or an annuity for a period certain not exceeding the BENEFICIARY's life
expectancy.
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SURRENDERS AND WITHDRAWALS
Before the ANNUITY COMMENCEMENT DATE, we will allow the surrender of the
CONTRACT or a withdrawal of the CONTRACT VALUE upon your written request,
subject to the rules below. A surrender/withdrawal after the ANNUITY
COMMENCEMENT DATE depends upon the annuity option selected.
The amount available upon surrender/withdrawal is the cash surrender value at
the end of the VALUATION PERIOD during which the written request for
surrender/withdrawal is received at the home office. Unless a request for
withdrawal specifies otherwise, withdrawals will be made from all SUBACCOUNTS
within the VAA and from the general account in the same proportion that the
amount of withdrawal bears to the total CONTRACT VALUE. The minimum amount which
can be withdrawn is $100, and the remaining CONTRACT VALUE must be at least
$300. Where permitted by contract, surrender/withdrawal payments will be mailed
within seven days after we receive a valid written request at the home office.
The payment may be postponed as permitted by the 1940 Act. You may specify that
the charges be deducted from the amount you request withdrawn or from the
remaining CONTRACT VALUE.
Contract proceeds from the VAA will be paid within seven days, except (i) when
the NYSE is closed (except weekends and holidays); (ii) times when market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect contract owners.
There are charges associated with surrender of a contract or withdrawal of
CONTRACT VALUE before the ANNUITY COMMENCEMENT DATE. See Charges and other
deductions.
The tax consequences of a surrender/withdrawal are discussed later in this
booklet. See Federal tax matters.
Special restrictions on surrenders/withdrawals apply if your contract is
purchased as part of a retirement plan of a public school system or Section
501(c)(3) organization under Section 403(b) of the tax code. Beginning January
1, 1989, in order for a contract to retain its tax-qualified status, Section
403(b) prohibits a withdrawal from a Section 403(b) contract of post-1988
contributions (and earnings on those contributions) pursuant to a salary
reduction agreement. However, this restriction does not apply if the ANNUITANT
attains age (a) 59 1/2 (b) separates from service, (c) dies, (d) becomes totally
and permanently disabled and/or (e) experiences financial hardship (in which
event the income attributable to those contributions may not be withdrawn).
Pre-1989 contributions and earnings through December 31, 1988, are not subject
to the previously stated restriction.
If the total CONTRACT VALUE is less than $600, and if no PURCHASE PAYMENTS have
been made for at least two years, we reserve the right to terminate the
contract.
DELAY OF PAYMENTS
Contract proceeds from the VAA will be paid within seven days, except (i) when
the NYSE is closed (except weekends and holidays); (ii) times when the market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect CONTRACTOWNERS.
REINVESTMENT PRIVILEGE
You may elect to make a reinvestment purchase with any part of the proceeds of a
surrender/withdrawal, and we will recredit the surrender/withdrawal charges
previously deducted. This election must be made within 30 days of the date of
the surrender/withdrawal, and the repurchase must be of a contract covered by
this Prospectus. In the case of a qualified contract, a representation must be
made that the proceeds being used to make the purchase have retained their
tax-favored status under an arrangement for which the contracts offered by this
Prospectus are designed. The number of ACCUMULATION UNITS which will be credited
when the proceeds are reinvested will be based on the value of the ACCUMULATION
UNIT(S) on the next VALUATION DATE. This computation will occur following
receipt of the proceeds and request for reinvestment at the home office. You may
utilize the reinvestment privilege only once. For tax reporting purposes, we
will treat a surrender/withdrawal and a subsequent reinvestment purchase as
separate transactions. You should consult a tax advisor before you request a
surrender/withdrawal or subsequent reinvestment purchase.
AMENDMENT OF CONTRACT
We reserve the right to amend the contract to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified in writing of any changes, modifications or waivers.
COMMISSIONS
For the flexible premium deferred annuity Multi-Fund-Registered Trademark- 2 and
3 contracts, the maximum commission which could be paid to dealers is equal to
5.25% on each PURCHASE PAYMENT; plus up to 0.10% of the value of PURCHASE
PAYMENTS in the VARIABLE ANNUITY ACCOUNT while the EGMDB is in effect. For
flexible premium deferred annuity Multi-Fund-Registered Trademark- 4 contracts,
the maximum commission which could be paid to dealers is equal to 4.50% on each
PURCHASE PAYMENT; plus an annual continuing commission up to .40% of the value
of the contract PURCHASE PAYMENTS invested for at least 15 months; plus up to
0.10% of the value of PURCHASE PAYMENTS in the VARIABLE ANNUITY ACCOUNT while
the EGMDB is in effect.
For the periodic premium deferred annuity contract, the maximum commission which
could be paid to dealers is 9% on the total PURCHASE PAYMENTS received during
the first CONTRACT YEAR and 5.25% on each PURCHASE PAYMENT in renewal CONTRACT
YEARS (or an equivalent schedule).
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OWNERSHIP
As CONTRACTOWNER, you have all rights under the contract. According to Indiana
law, the assets of the VAA are held for the exclusive benefit of all
CONTRACTOWNERS and their designated BENEFICIARIES. The assets of the VAA are not
chargeable with liabilities arising from any other business that we may conduct.
Contracts used for qualified plans may not be assigned or transferred except as
permitted by the Employee Retirement Income Security Act (ERISA) of 1974 and
upon written notification to us. We assume no responsibility for the validity or
effect of any assignment. Consult your tax advisor about the tax consequences of
an assignment.
CONTRACTOWNER QUESTIONS
The obligations to purchasers under the contracts are those of LINCOLN LIFE.
Your questions and concerns should be directed to us at 1-800-4LINCOLN
(454-6265).
ANNUITY PAYOUTS
When you apply for a contract, you may select any ANNUITY COMMENCEMENT DATE
permitted by law. (PLEASE NOTE THE FOLLOWING EXCEPTION: Contracts issued under
qualified employee pension and profit-sharing trusts [described in Section
401(a) and tax exempt under Section 501(a) of the tax code] and qualified
annuity plans [described in Section 403(a) of the tax code], including H.R. 10
trusts and plans covering self-employed individuals and their employees, provide
for ANNUITY PAYOUTS to start at the date and under the option specified in the
plan.)
The contract provides that all or part of the CONTRACT VALUE may be used to
purchase an annuity. Optional forms of payout of annuities (annuity options) are
available, each of which is payable on a variable basis, a fixed basis or a
combination of both. We may choose to make other annuity options available in
the future.
You may elect ANNUITY PAYOUTS in monthly, quarterly, semiannual or annual
installments. If the payouts from any SUBACCOUNT would be or become less than
$50, we have the right to reduce their frequency until the payouts are at least
$50 each. Following are explanations of the annuity options available.
ANNUITY OPTIONS
LIFE ANNUITY. This option offers a periodic payout during the lifetime of the
ANNUITANT and ends with the last payout before the death of the ANNUITANT. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a DEATH BENEFIT for BENEFICIARIES.
HOWEVER, THERE IS THE RISK UNDER THIS OPTION THAT THE ANNUITANT WOULD RECEIVE NO
PAYOUTS IF DEATH OCCURS BEFORE THE DATE SET FOR THE FIRST PAYOUT; ONLY ONE
PAYOUT IF DEATH OCCURS BEFORE THE SECOND SCHEDULED PAYOUT, AND SO ON.
LIFE INCOME ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic
payouts during a guaranteed period, usually 10 or 20 years, and then continues
throughout the lifetime of the ANNUITANT. The guaranteed period is selected by
the CONTRACTOWNER.
JOINT LIFE ANNUITY. This option offers a periodic payout during the joint
lifetime of the annuitant and a designated joint annuitant. The payouts continue
during the lifetime of the survivor.
JOINT LIFE ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic
payouts during a guaranteed 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 guaranteed period is
selected by the CONTRACTOWNER.
JOINT-AND-TWO-THIRDS SURVIVOR ANNUITY. This option provides a periodic payout
during the joint lifetime of the ANNUITANT and a designated joint annuitant.
When one of the joint annuitants dies, the survivor, during their lifetime,
receives two thirds of the periodic payout made when both were alive.
UNIT REFUND LIFE ANNUITY. This option offers a periodic payout during the
lifetime of the ANNUITANT with the guarantee that upon death a payout will be
made of the value of the number of ANNUITY UNITS (see Variable annuity payouts)
equal to the excess, if any, of: (a) the total amount applied under this option
divided by the ANNUITY UNIT value for the date payouts begin, divided by (b) the
ANNUITY UNITS represented by each payout to the ANNUITANT multiplied by the
number of payouts paid before death. The value of the number of ANNUITY UNITS is
computed on the date the death claim is approved for payment by the home office.
GENERAL INFORMATION
Under the options listed above, you may not make withdrawals. Other options may
be made available by us. Options are only available to the extent they are
consistent with the requirements of the contract and Section 72(s) of the tax
code, if applicable. The mortality and expense risk charge will be assessed on
all variable ANNUITY PAYOUTS, including options that do not have a life
contingency and therefore no mortality risk.
The ANNUITY COMMENCEMENT DATE is usually on or before the ANNUITANT'S 85th
birthday; however you may change the ANNUITY COMMENCEMENT DATE, change the
annuity option, or change the allocation of the investment among SUBACCOUNTS up
to 30 days before the scheduled ANNUITY COMMENCEMENT DATE, upon written notice
to the home office. You must give us at least 30 days notice before the date on
which you want payouts to begin. If proceeds become available to a BENEFICIARY
in a lump
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sum, the BENEFICIARY may choose any ANNUITY PAYOUT option.
Unless you select another option, the contract automatically provides for a life
with a 10 year guaranteed period annuity (on a fixed, variable or combination
fixed and variable basis, in proportion to the account allocation at the time of
annuitization), except when a joint life payout is required by law. Under any
option providing for guaranteed payouts, the number of payouts which remain
unpaid at the date of the ANNUITANT'S death (or surviving ANNUITANT'S death in
the case of a joint life annuity) will be paid to your BENEFICIARY as payouts
become due.
The contract contains no provision under which an ANNUITANT or a BENEFICIARY may
surrender their contract or make a withdrawal and receive a lump-sum settlement
once ANNUITY PAYOUTS have begun. See Surrenders and withdrawals. Options are
only available to the extent they are consistent with the requirements of
Section 72(s) of the tax code, if applicable.
VARIABLE ANNUITY PAYOUTS
Variable ANNUITY PAYOUTS will be determined using:
1. The CONTRACT VALUE on the ANNUITY COMMENCEMENT DATE;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
4. The investment performance of the fund(s) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the contract with a fixed number of ANNUITY UNITS equal to the first
periodic payout divided by the ANNUITY UNIT value; and
3. Calculate the value of the ANNUITY UNITS each month thereafter.
We assume an investment return of 5% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying fund(s) and series perform, relative to the 5% assumed
rate. If the actual net investment rate (annualized) excceds 5%, the annuity
payout will increase at a rate proportional to the amount of such excess.
Conversely, if the actual rate is less than 5% annuity payments will decrease.
There is a more complete explanation of this calculation in the SAI.
FEDERAL TAX MATTERS
INTRODUCTION
The Federal income tax treatment of the CONTRACT is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion DOES NOT include all the Federal income tax rules
that may affect you and your contract. This discussion also DOES NOT address
other Federal tax consequences, or state or local tax consequences, associated
with the contract. As a result, you should always consult a tax adviser about
the application of tax rules to your individual situation.
TAXATION OF NONQUALIFIED ANNUITIES
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan receiving special tax
treatment under the tax code, such as an IRA or a section 403(b) plan.
TAX DEFERRAL ON EARNINGS
The Federal income tax law generally does not tax any increase in your CONTRACT
VALUE until you receive a contract distribution. However, for this general rule
to apply, certain requirements must be satisfied:
- - An individual must own the contract (or the tax law must treat the contract as
owned by an individual).
- - The investments of the VAA must be "adequately diversified" in accordance with
IRS regulations.
- - Your right to choose particular investments for a contract must be limited.
- - The ANNUITY COMMENCEMENT DATE must not occur near the end of the ANNUITANT'S
life expectancy.
CONTRACTS NOT OWNED BY AN INDIVIDUAL
If a contract is owned by an entity (rather than an individual) the tax code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the contract pays tax currently on
the excess of the CONTRACT VALUE over the purchase payments for the contract.
Examples of contracts where the owner pays current tax on the contract's
earnings are contracts issued to a corporation or a trust. Exceptions to this
rule exist. For example, the tax code treats a contract as owned by an
individual if the named owner is a trust or other entity that holds the contract
as an agent for an individual. However, this exception does not apply in the
case of any employer that owns a contract to provide deferred compensation for
its employees.
INVESTMENTS IN THE VAA MUST BE DIVERSIFIED
For a contract to be treated as an annuity for Federal income tax purposes, the
investments of the VAA must be "adequately diversified." IRS regulations define
standards for determining whether the investments of the VAA are adequately
diversified. If the VAA fails to comply with these diversification standards,
you could be required to pay tax currently on the excess of the CONTRACT VALUE
over the contract purchase payments. Although WE do not control the investments
of the underlying investment options, we expect that the underlying investment
options will comply with the IRS
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regulations so that the VAA will be considered "adequately diversified."
RESTRICTIONS
Federal income tax law limits your right to choose particular investments for
the contract. Because the I.R.S. has not issued guidance specifying those
limits, the limits are uncertain and your right to allocate CONTRACT VALUES
among the SUBACCOUNTS may exceed those limits. If so, you would be treated as
the owner of the assets of the VAA and thus subject to current taxation on the
income and gains from those assets. WE do not know what limits may be set by the
I.R.S. in any guidance that it may issue and whether any such limits will apply
to existing contracts. WE reserve the right to modify the contract without your
consent to try to prevent the tax law from considering you as the owner of the
assets of the VAA.
AGE AT WHICH ANNUITY PAYOUTS BEGIN
Federal income tax rules do not expressly identify a particular age by which
ANNUITY PAYOUTS must begin. However, those rules do require that an annuity
contract provide for amortization, through ANNUITY PAYOUTS, of the contract's
PURCHASE PAYMENTS and earnings. If ANNUITY PAYOUTS under the contract begin or
are scheduled to begin on a date past the ANNUITANT'S 85th birthday, it is
possible that the tax law will not treat the contract as an annuity for Federal
income tax purposes. In that event, you would be currently taxable on the excess
of the CONTRACT VALUE over the purchase payments of the contract.
TAX TREATMENT OF PAYMENTS
We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that your contract will be treated as an annuity for Federal income tax purposes
and that the tax law will not tax any increase in your CONTRACT VALUE until
there is a distribution from your contract.
TAXATION OF WITHDRAWALS AND SURRENDERS
You will pay tax on withdrawals to the extent your CONTRACT VALUE exceeds your
purchase payments in the contract. This income (and all other income from your
contract) is considered ordinary income. A higher rate of tax is paid on
ordinary income than on capital gains. You will pay tax on a surrender to the
extent the amount you receive exceeds your purchase payments. In certain
circumstances your purchase payments are reduced by amounts received from your
contract that were not included in income.
TAXATION OF ANNUITY PAYOUTS
The tax code imposes tax on a portion of each ANNUITY PAYOUT (at ordinary income
tax rates) and treats a portion as a nontaxable return of your purchase payments
in the contract. WE will notify you annually of the taxable amount of your
ANNUITY PAYOUT. Once you have recovered the total amount of the purchase payment
in the contract, you will pay tax on the full amount of your ANNUITY PAYOUTS. If
ANNUITY PAYOUTS end because of the ANNUITANT'S death and before the total amount
of the purchase payments in the contract has been received, the amount not
received generally will be deductible.
TAXATION OF DEATH BENEFITS
WE may distribute amounts from your contract because of the death of a
CONTRACTOWNER or an ANNUITANT. The tax treatment of these amounts depends on
whether you or the ANNUITANT dies before or after the ANNUITY COMMENCEMENT DATE.
- - Death prior to the ANNUITY COMMENCEMENT DATE--
- If the beneficiary receives DEATH BENEFITS under an ANNUITY PAYOUT
OPTION, they are taxed in the same manner as annuity payouts.
- If the beneficiary does not receive DEATH BENEFITS under an ANNUITY
PAYOUT OPTION, they are taxed in the same manner as a withdrawal.
- - Death after the ANNUITY COMMENCEMENT DATE--
- If death benefits are received in accordance with the existing ANNUITY
PAYOUT OPTION, they are excludible from income if they do not exceed the
purchase payments not yet distributed from the contract. All ANNUITY
PAYOUTS in excess of the purchase payments not previously received are
includible in income.
- If death benefits are received in a lump sum, the tax law imposes tax on
the amount of death benefits which exceeds the amount of purchase
payments not previously received.
PENALTY TAXES PAYABLE ON WITHDRAWALS, SURRENDERS, OR ANNUITY PAYOUTS
The tax code may impose a 10% penalty tax on any distribution from your contract
which you must include in your gross income. The 10% penalty tax does not apply
if one of several exceptions exists. These exceptions include withdrawals,
surrenders, or ANNUITY PAYOUTS that:
- you receive on or after you reach age 59 1/2,
- you receive because you became disabled (as defined in the tax law),
- a beneficiary receives on or after your death, or
- you receive as a series of substantially equal periodic payments for your
life (or life expectancy).
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SPECIAL RULES IF YOU OWN MORE THAN ONE ANNUITY CONTRACT
In certain circumstances, you must combine some or all of the nonqualified
annuity contracts you own in order to determine the amount of an ANNUITY PAYOUT,
a surrender, or a withdrawal that you must include in income. For example, if
you purchase two or more deferred annuity contracts from the same life insurance
company (or its affiliates) during any calendar year, the tax code treats all
such contracts as one contract. Treating two or more contracts as one contract
could affect the amount of a surrender, a withdrawal or an ANNUITY PAYOUT that
you must include in income and the amount that might be subject to the penalty
tax described above.
LOANS AND ASSIGNMENTS
Except for certain qualified contracts, the tax code treats any amount received
as a loan under a contract, and any assignment or pledge (or agreement to assign
or pledge) any portion of your CONTRACT VALUE, as a withdrawal of such amount or
portion.
GIFTING A CONTRACT
If you transfer ownership of your contract to a person other than your spouse
(or to your former spouse incident to divorce), and receive a payment less than
your contract's value, you will pay tax on your CONTRACT VALUE to the extent it
exceeds your purchase payments not previously received. The new owner's purchase
payments in the contract would then be increased to reflect the amount included
in your income.
CHARGES FOR A CONTRACT'S DEATH BENEFIT
Your contract may have an EGMDB, for which you pay an annual charge, computed
daily. It is possible that the tax law may treat all or a portion of the EGMDB
charge as a contract withdrawal.
LOSS OF INTEREST DEDUCTION
After June 8, 1997 if a contract is issued to a taxpayer that is not an
individual, or if a contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest expenses.
This disallowance does not apply if you pay tax on the annual increase in the
CONTRACT VALUE. Entities that are considering purchasing a contract, or entities
that will benefit from someone else's ownership of a contract, should consult a
tax advisor.
QUALIFIED RETIREMENT PLANS
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with different types of
qualified plans. The Federal income tax rules applicable to those plans are
complex and varied. As a result, this Prospectus does not attempt to provide
more than general information about use of the contract with the various types
of qualified plans. Persons planning to use the contract in connection with a
qualified plan should obtain advice from a competent tax advisor.
TYPES OF QUALIFIED CONTRACTS AND TERMS OF CONTRACTS
Currently, we issue contracts in connection with the following types of
qualified plans:
- Individual Retirement Accounts and Annuities ("Traditional IRAs")
- Roth IRAs
- Rollover IRAs
- Simplified Employee Pensions ("SEPs")
- Savings Incentive Matched Plan for Employees ("SIMPLE 401(k) plans")
- Public school system and tax-exempt organization annuity plans ("403(b)
plans)
- Qualified corporate employee pension and profit-sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
- Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
- Deferred compensation plans of state and local governments and tax-exempt
organizations ("457 plans").
We may issue a contract for use with other types of qualified plans in the
future.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions, regardless of the contract's terms and conditions. In addition, we
are not bound by the terms and conditions of qualified plans to the extent such
terms and conditions contradict the contract, unless we consent.
TAX TREATMENT OF QUALIFIED CONTRACTS
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example,
- Federal tax rules limit the amount of PURCHASE PAYMENTS that can be made,
and the tax deduction or exclusion that may be allowed for the PURCHASE
PAYMENTS. These limits vary depending on the type of qualified plan and
the plan participant's specific circumstances, E.G., the participant's
compensation.
- Under most qualified plans, E.G., 403(b) plans and Traditional IRAs, the
annuitant must begin receiving payments from the contract in certain
minimum amounts by a certain age, typically
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age 70 1/2. However, these "minimum distribution rules" do not apply to
a Roth IRA.
- Loans are allowed under certain types of qualified plans, but Federal
income tax rules prohibit loans under other types of qualified plans.
For example, Federal income tax rules permit loans under some section
403(b) plans, but prohibit loans under Traditional and Roth IRAs. If
allowed, loans are subject to a variety of limitations, including
restrictions as to the loan amount, the loan's duration, and the manner
of repayment. Your contract or plan may not permit loans.
TAX TREATMENT OF PAYMENTS
Federal income tax rules generally include distributions from a qualified
contract in the recipient's income as ordinary income. These taxable
distributions will include purchase payments that were deductible or excludible
from income. Thus, under many qualified contracts the total amount received is
included in income since a deduction or exclusion from income was taken for
purchase payments. There are exceptions. For example, you do not include amounts
received from a Roth IRA in income if certain conditions are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the qualified
plan.
FEDERAL PENALTY TAXES PAYABLE ON DISTRIBUTIONS
The tax code may impose a 10% penalty tax on the amount received from the
qualified contract that must be included in income. The tax code does not impose
the penalty tax if one of several exceptions applies. The exceptions vary
depending on the type of qualified contract you purchase. For example, in the
case of an IRA, exceptions provide that the penalty tax does not apply to a
withdrawal, surrender, OR ANNUITY PAYOUT:
- received on or after the annuitant reaches age 59 1/2,
- received on or after the annuitant's death or because of the annuitant's
disability (as defined in the tax law),
- received as a series of substantially equal periodic payments for the
annuitant's life (or life expectancy), or
- received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
TRANSFERS AND DIRECT ROLLOVERS
In many circumstances, money may be moved between qualified contracts and
qualified plans by means of a rollover or a transfer. Special rules apply to
such rollovers and transfers. If the applicable rules are not followed, you may
suffer adverse Federal income tax consequences, including paying taxes which
might not otherwise have had to be paid. A qualified advisor should always be
consulted before you move or attempt to move funds between any qualified plan or
contract and another qualified plan or contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 401(a) plans, section 403(a) or (b) plans, HR 10
plans, and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs or section 457 plans).
The direct rollover rules require that WE withhold Federal income tax equal to
20% of the eligible rollover distribution from the distribution amount, unless
you elect to have the amount directly transferred to certain qualified plans or
contracts. Before we send a rollover distribution, we will provide the recipient
with a notice explaining these requirements and how the 20% withholding can be
avoided by electing a direct rollover.
THE EGMDB AND IRAS
Pursuant to IRS regulations, IRAs may not invest in life insurance contracts. We
do not believe that these regulations prohibit the EGMDB from being provided
under the contracts when we issue the contracts as Traditional IRAs or Roth
IRAs. However, the law is unclear and it is possible that the presence of the
EGMDB under a contract issued as a Traditional or Roth IRA could result in
increased taxes to you.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the distributee notifies us at or
before the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender, or ANNUITY PAYOUT is requested, we will give the
recipient an explanation of the withholding requirements.
TAX STATUS OF LINCOLN LIFE
Under existing Federal income tax laws, LINCOLN LIFE does not pay tax on
investment income and realized capital gains of the VAA. LINCOLN LIFE does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the taxes.
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CHANGES IN THE LAW
The above discussion is based on the tax code, IRS regulations, and
interpretations existing on the date of this Prospectus. However, Congress, the
IRS, and the courts may modify these authorities, sometimes retroactively.
VOTING RIGHTS
As required by law, we will vote the fund shares held in the VAA at meetings of
shareholders of the funds. The voting will be done according to the instructions
of CONTRACTOWNERS that have interests in any SUBACCOUNTS which invest in the
funds. If the 1940 Act or any regulation under it should be amended or if
present interpretations should change, and if as a result we determine that we
are permitted to vote the fund shares in our own right, we may elect to do so.
The number of votes which the CONTRACTOWNER has the right to cast will be
determined by applying the CONTRACTOWNER'S percentage interest in a SUBACCOUNT
to the total number of votes attributable to the SUBACCOUNT. In determining the
number of votes, fractional shares will be recognized.
Shares held in a SUBACCOUNT for which no timely instructions are received will
be voted by us in proportion to the voting instructions which are received for
all contracts participating in that SUBACCOUNT. Voting instructions to abstain
on any item to be voted on will be applied on a pro-rata basis to reduce the
number of votes eligible to be cast.
Whenever a shareholders meeting is called, we will furnish CONTRACTOWNERS with a
voting interest in a SUBACCOUNT with proxy voting materials, reports, and voting
instruction forms. Since the funds engage in shared funding, other persons or
entities besides LINCOLN LIFE may vote fund shares.
DISTRIBUTION OF THE
CONTRACTS
We are the distributor and principal underwriter of the contracts. They will be
sold by registered representatives who have been licensed by state insurance
departments. The contracts will also be sold by broker-dealers who generally
have been licensed by state insurance departments (or such broker-dealers have
made other arrangements to comply with state insurance laws) to represent us and
who have selling agreements with us. We are registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer and are a member of the
National Association of Securities Dealers (NASD). LINCOLN LIFE will offer
contracts in all states where it is licensed to do business.
RETURN PRIVILEGE
Within the free-look period after you first receive the contract, you may cancel
it for any reason by delivering or mailing it postage prepaid, to the home
office at P.O. Box 2340, 1300 South Clinton Street, Fort Wayne, Indiana, 46801.
A contract canceled under this provision will be void. With respect to the fixed
side of a contract, we will return PURCHASE PAYMENTS. With respect to the VAA,
except as explained in the following paragraph, we will return the CONTRACT
VALUE as of the date of receipt of the cancellation, plus any account charge and
any premium taxes which had been deducted. No surrender charge will be made. A
PURCHASER WHO PARTICIPATES IN THE VAA IS SUBJECT TO THE RISK OF A MARKET LOSS
DURING THE FREE-LOOK PERIOD.
For contracts written in those states whose laws require that we assume this
market risk during the free-look period, a contract may be canceled, subject to
the conditions explained before, except that we will return only the PURCHASE
PAYMENT(S).
STATE REGULATION
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Department of Insurance at all times. A full examination of our operations is
conducted by that Department at least once every five years.
RESTRICTIONS UNDER THE
TEXAS OPTIONAL RETIREMENT
PROGRAM
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a VARIABLE ANNUITY CONTRACT issued under the ORP only upon:
1. Termination of employment in all institutions of higher education as defined
in Texas law;
2. Retirement; or
3. Death.
Accordingly, participants in the ORP will be required to obtain a certificate of
termination from their employer(s) before accounts can be redeemed.
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RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
will mail to you, at your last known address of record at the home office, at
least semiannually after the first CONTRACT YEAR, reports containing information
required by the 1940 Act or any other applicable law or regulation. We have
entered into an agreement with the Delaware Service Company, Inc., 2005 Market
Street, Philadelphia, PA 19203, to provide accounting services to the VAA.
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered by this Prospectus. This
Prospectus does not contain all the information in the Registration Statement,
its amendments and exhibits. Please refer to the Registration Statement for
further information about the VAA, LINCOLN LIFE and the contracts offered.
Statements in this Prospectus about the content of contracts and other legal
instruments are summaries. For the complete text of those contracts and
instruments, please refer to those documents as filed with the SEC.
Lincoln National Flexible Premium Variable Life Accounts D, G and K, segregated
investment accounts of ours registered under the 1940 Act, are authorized to
invest assets in the following funds and series: Bond, Growth and Income,
Managed, Money Market and Special Opportunities (for Account D); Growth and
Income and Special Opportunities (for Account G) and all funds and series for
Account K. Through the VAA and the Variable Life Accounts we are the sole
shareholder in the eleven funds. However, we are not the sole shareholder of
series shares in the Delaware Group Premium Fund, Inc. Collectively, the VAA and
the Variable Life Accounts may be referred to in this booklet and in the SAI as
the VARIABLE ACCOUNTS.
Due to differences in redemption rates, tax treatment or other considerations,
the interests of CONTRACTOWNERs under the Variable Life Accounts could conflict
with those of CONTRACTOWNERS under the VAA. In those cases where assets from
variable life and VARIABLE ANNUITY SEPARATE ACCOUNTS are invested in the same
fund or funds or series (i.e., where mixed funding occurs), the Boards of
Directors of the funds involved will monitor for any material conflicts and
determine what action, if any, should be taken. If it becomes necessary for any
separate account to replace shares of any fund or series with another
investment, that fund or series may have to liquidate securities on a
disadvantageous basis. Refer to the Prospectus for each fund and for the series
fund for more information about mixed funding.
In the future, we may purchase shares in the funds and series for one or more
unregistered segregated investment accounts.
ADVERTISEMENTS/SALES LITERATURE
In marketing the VARIABLE ANNUITY CONTRACTS, we and our various sales
representatives may refer to certain ratings assigned to us under the Rating
System of the A.M. Best Co., Oldwick, New Jersey. The objective of Best's Rating
System is to evaluate the various factors affecting the overall performance of
an insurance company in order to provide Best's opinion about that company's
relative financial strength and ability to meet its contractual obligations. The
procedure includes both a quantitative and qualitative review of the insurance
company. In marketing the contracts and the underlying funds and series, we may
at times use data published by other nationally-known independent statistical
services. These service organizations provide relative measures of such factors
as an insurer's claim-paying ability, the features of particular contracts, and
the comparative investment performance of the funds and series with other
portfolios having similar objectives. A few such services are: Duff & Phelps,
the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS. There is
more information about each of these services under Advertising and sales
literature in the SAI. Marketing materials may employ illustrations of compound
interest and dollar-cost averaging; discuss automatic withdrawal services;
describe our customer base, assets, and our relative size in the industry. They
may also discuss other features of LINCOLN LIFE, the VAA, the funds, the series
and their investment management.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services for individually
sold life insurance and annuities.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits in the date field to
identify the year. If left uncorrected these programs, which were designed and
developed without considering the impact of the upcoming change in the century,
could fail to operate or could produce erroneous results when processing dates
after December 31, 1999. For example, for a bond with a stated maturity date of
July 1, 2000, a computer program could read and store the maturity date as July
1, 1900. This problem is known by many names, such as the "Year 2000 Problem",
"Y2K", and the "Millenium Bug".
The Year 2000 Problem affects virtually all computer programs worldwide. It can
cause a computer system to suddenly stop operating. It can also result in a
computer corrupting vital company records, and the problem could go undetected
for a long time. For our products, if left unchecked it could cause such
problems as
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PURCHASE PAYMENT collection and deposit errors; claim payment difficulties;
accounting errors; erroneous unit values; and difficulties or delays in
processing transfers, surrenders and withdrawals. In a worst case scenario, this
could result in a material disruption to the operations both of LINCOLN LIFE and
of Delaware Service Company (Delaware), the provider of the accounting and
valuation services for the VAA.
However, both companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year 2000.
Both LINCOLN LIFE and Delaware have dedicated Year 2000 teams and steering
committees that are answerable to their counterparts in LNC.
In light of the potential problems discussed above, LINCOLN LIFE, as part of its
Year 2000 updating process, has assumed responsibility for correcting all
high-priority Information Technology (IT) systems which service the VAA.
Delaware is responsible for updating all its high-priority IT systems to support
these vital services. The Year 2000 effort, for both IT and non-IT systems, is
organized into four phases:
- - awareness-raising and inventory of all assets (including third-party agent and
vendor relationships)
- - assessment and high-level planning and strategy
- - remediation of affected systems and equipment; and
- - testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
remediated and tested to demonstrate readiness by June 30, 1999. During the
third and fourth quarters of 1999 additional testing of the environment will
continue. Both companies are currently on schedule to have their high-priority
non-IT systems (elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty include
(but are certainly not limited to) a possible loss of technical resources to
perform the work; failure to identify all susceptible systems; and
non-compliance by third parties whose systems and operations impact LINCOLN
LIFE. In a report dated February 26, 1999, entitled, INVESTIGATING THE IMPACT OF
THE YEAR 2000 TECHNOLOGY PROBLEM, S. Prt. 106-10, the U.S. Senate Special
Committee on the Year 2000 Technology Problem expressed its concern that
"Financial services firms...are particularly vulnerable to...the risk that a
material customer or business partner will fail, as a result of the computer
problems, to meet its obligations".
One important source of uncertainty is the extent to which the key trading
partners of LINCOLN LIFE and of Delaware will be successful in their own
remediation and testing efforts. LINCOLN LIFE and Delaware have been monitoring
the progress of their trading partners; however, the efforts of these partners
are beyond our control.
LINCOLN LIFE and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
LEGAL PROCEEDINGS
LINCOLN LIFE is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of those proceedings are routine
and in the ordinary course of business. In some instances they include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for equitable relief. After consultation with legal counsel
and a review of available facts, it is management's opinion that the ultimate
liability, if any, under these suits will not have a material adverse effect on
the financial position of LINCOLN LIFE.
LINCOLN LIFE is presently defending three lawsuits in which Plaintiffs seek to
represent national classes of policyholders in connection with alleged fraud,
breach of contract and other claims relating to the sale of interest-sensitive
universal and participating whole life insurance policies. As of the date of
this prospectus, the courts have not certified a class in any of the suits.
Plaintiffs seek unspecified damages and penalties for themselves and on behalf
of the putative class. Although the relief sought in these cases is substantial,
the cases are in the preliminary stages of litigation, and it is premature to
make assessments about potential loss, if any. Management is defending these
suits vigorously. The amount of liability, if any, which may ultimately arise as
a result of these suits cannot be reasonably determined at this time.
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STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS FOR THE VAA
ITEM
- --------------------------------------------------
General information and history of Lincoln Life
Special terms
Services
Purchase of securities being offered
Underwriters
Calculation of investment results
For a free copy of the SAI please see page one of this booklet.
ITEM
- --------------------------------------------------
Annuity payouts
Federal tax matters
Determination of accumulation and annuity unit value
Advertising and sales literature/graphics
Financial statements
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THIS PAGE WAS INTENTIONALLY LEFT BLANK.
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LINCOLN NATIONAL
VARIABLE ANNUITY ACCOUNT C (VAA) (REGISTRANT)
LINCOLN NATIONAL
LIFE INSURANCE COMPANY (DEPOSITOR)
STATEMENT OF ADDITIONAL INFORMATION (SAI)
This SAI should be read in conjunction with the Prospectus of the VAA dated May
1, 1999.
You may obtain a copy of the VAA Prospectus on request and without charge.
Please
write the Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne,
Indiana 46801
or call 1-800-4LINCOLN (454-6265).
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
- --------------------------------------------
UNDERWRITERS B-2
- --------------------------------------------
CALCULATION OF INVESTMENT RESULTS B-2
- --------------------------------------------
<CAPTION>
PAGE
- -------------------------------------------------------
<S> <C>
ANNUITY PAYOUTS B-6
- --------------------------------------------
FEDERAL TAX MATTERS B-7
- --------------------------------------------
DETERMINATION OF ACCUMULATION AND
ANNUITY UNIT VALUE B-10
- --------------------------------------------
ADVERTISING AND SALES
LITERATURE/GRAPHICS B-10
- --------------------------------------------
ADVERTISING AND SALES LITERATURE/ GRAPHICS B-12
- --------------------------------------------
FINANCIAL STATEMENTS B-12
- --------------------------------------------
</TABLE>
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1999.
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 LNC, a publicly held insurance
holding company domiciled in Indiana.
SPECIAL TERMS
The special terms used in this SAI are the ones defined in the Prospectus. They
are italicized to make this document more understandable.
SERVICES
INDEPENDENT AUDITORS
The financial statements of the VAA and the statutory-basis financial statements
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 audited by Ernst & Young LLP have been
included in this document in reliance on their reports given on their authority
as experts in accounting and auditing.
KEEPER OF RECORDS
All accounts, books, records and other documents which are required to be
maintained for the VAA are maintained by LINCOLN LIFE. No separate charge
against the assets of the VAA is made by LINCOLN LIFE for this service. We have
entered into an agreement with Delaware Service Co., 2005 Market Street,
Philadelphia, PA 19203, to provide accounting services to the VAA.
PRINCIPAL UNDERWRITER
LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS.
PURCHASE OF SECURITIES BEING OFFERED
The VARIABLE ANNUITY CONTRACTS are offered to the public through licensed
insurance agents who specialize in selling LINCOLN LIFE products; through
independent insurance brokers; and through certain securities broker/dealers
selected by LINCOLN LIFE whose personnel are legally authorized to sell annuity
products. There are no special purchase plans for any class of prospective
buyers. However, under certain limited circumstances described in the Prospectus
under the section Charges and other deductions, the CONTRACT and/or the
SURRENDER CHARGES may be waived.
There are exchange privileges between SUBACCOUNTS, and between the VAA and
LINCOLN LIFE'S General Account (See The Contracts -- Transfer of accumulation
units between SUBACCOUNTS in the Prospectus.) No exchanges are permitted between
the VAA and other separate accounts.
UNDERWRITERS
LINCOLN LIFE has contracted with some broker/dealers, and may contract with
others, to sell the VARIABLE ANNUITY CONTRACTS through certain legally
authorized persons and organizations. These dealers are compensated under a
standard Compensation Schedule.
LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS. We
may not offer a contract continuously or in every state. LINCOLN LIFE retains no
underwriting commissions from the sale of the VARIABLE ANNUITY CONTRACTS.
CALCULATION OF INVESTMENT RESULTS
A. MONEY MARKET FUND SUBACCOUNTS:
1. Seven-day yield: 2.89% including EGMDB, 3.16% not including EGMDB
Length of base period used in computing the yield: 7 days
Last Day in the base period: December 31, 1998
2. The yield reported above and in the table of condensed financial
information in the Prospectus is determined by calculating the change in
unit value for the base period (the 7-day period ended December 31,
1998); 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
B-2
<PAGE>
includes all deductions charged to the CONTRACTOWNER'S account, and
excludes any realized gains and losses from the sale of securities.
B. OTHER SUBACCOUNTS:
1. TOTAL RETURN -- the table below shows, for the various SUBACCOUNTS of
the VAA, an average annual total return as of the stated periods, based
upon a hypothetical initial PURCHASE PAYMENT of $1,000, calculated
according to the formula set out after the table.
The tables below set out performance data for each of the SUBACCOUNTS for
CONTRACTS with and without the EGMDB.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDED DECEMBER 31, 1998
CONTRACTS WITH EGMDB
<TABLE>
<CAPTION>
1-YEAR 5-YEARS 10-YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------
Bond
Commenced Activity on December 21, 1981 -0.56% 4.62% 7.66%
- ---------------------------------------
Growth and Income
Commenced Activity on December 21, 1981 9.23 18.82 15.54
- ---------------------------------------
International
Commenced Activity on May 1, 1991 4.07 6.11 6.79*
- ---------------------------------------
Managed
Commenced Activity on April 29, 1983 2.31 11.90 11.30
- ---------------------------------------
Global Asset Allocation
Commenced Activity on August 3, 1987 3.02 11.27 11.35
- ---------------------------------------
Social Awareness
Commenced Activity on May 2, 1988 8.83 22.35 18.43
- ---------------------------------------
Special Opportunities
Commenced Activity on December 21, 1981 -3.07 13.87 15.12
- ---------------------------------------
Aggressive Growth
Commenced Activity on January 3, 1994 -14.86 6.74* N/A
- ---------------------------------------
Capital Appreciation
Commenced Activity on January 3, 1994 25.22 18.31* N/A
- ---------------------------------------
Equity-Income
Commenced Activity on January 3, 1994 2.32 16.44* N/A
- ---------------------------------------
Trend
Commenced Activity on May 1, 1996 5.33 8.63* N/A
- ---------------------------------------
Delaware Growth & Income
(formerly Decatur Total Return)
Commenced Activity on May 1, 1996 1.07 15.47* N/A
- ---------------------------------------
Global Bond
Commenced Activity on May 1, 1996 -2.14 2.89* N/A
- ---------------------------------------
</TABLE>
* The lifetime of the SUBACCOUNT is less than the complete time period
indicated.
B-3
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDED DECEMBER 31, 1998
CONTRACTS WITHOUT EGMDB
<TABLE>
<CAPTION>
1-YEAR 5-YEARS 10-YEARS
<S> <C> <C> <C>
- -----------------------------------------------------------------
Bond
Commenced Activity on December 21, 1981 -0.25% 4.93% 7.99%
- ---------------------------------------
Growth and Income
Commenced Activity on December 21, 1981 9.56 19.18 15.89
- ---------------------------------------
International
Commenced Activity on May 1, 1991 4.39 6.43 7.67*
- ---------------------------------------
Managed
Commenced Activity on April 29, 1983 2.62 12.24 11.63
- ---------------------------------------
Global Asset Allocation
Commenced Activity on August 3, 1987 3.33 11.61 11.68
- ---------------------------------------
Social Awareness
Commenced Activity on May 2, 1988 9.16 22.72 18.79
- ---------------------------------------
Special Opportunities
Commenced Activity on December 21, 1981 -2.77 13.71 15.47
- ---------------------------------------
Aggressive Growth
Commenced Activity on January 3, 1994 -14.60 7.53* N/A
- ---------------------------------------
Capital Appreciation
Commenced Activity on January 3, 1994 25.61 18.77* N/A
- ---------------------------------------
Equity-Income
Commenced Activity on January 3, 1994 2.63 17.11* N/A
- ---------------------------------------
Trend Series
Commenced Activity on May 1, 1996 5.64 8.94* N/A
- ---------------------------------------
Delaware Growth & Income
(formerly Decatur Total Return)
Commenced Activity on May 1, 1996 1.37 15.79* N/A
- ---------------------------------------
Global Bond Series
Commenced Activity on May 1, 1996 -1.84 3.19* N/A
- ---------------------------------------
</TABLE>
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
The performance shown is for the period from commencement of investment
activity.
B-4
<PAGE>
The length of the periods and the last day of each period used in the above
table are set out in the table headings. The average annual total return for
each period was determined by finding the average annual compounded rate of
return over each period that would equate the initial amount invested to the
ending redeemable value for that period, according to the following formula --
P (1 + T)(n) = ERV
Where: P = a hypothetical initial PURCHASE PAYMENT of $1,000
T = average annual total return for the period in question
n = number of years
ERV = redeemable value (as of the end of the period in question) of a
hypothetical $1,000 PURCHASE PAYMENT made at the beginning of the 1-year,
5-year, or 10-year period in question (or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been charged to
CONTRACTOWNER accounts; 2) all applicable nonrecurring charges are deducted at
the end of the period in question; and 3) there will be a complete redemption at
the end of the period in question. The performance figures shown in the tables
above relate to the contract form containing the highest level of charges.
2. NONSTANDARDIZED PERFORMANCE DATA
The VAA advertises the performance of its various SUBACCOUNTS by observing how
they perform over various time periods -- monthly, year-to-date, yearly (fiscal
year); and over periods of three years and more. Monthly, year-to-date and
yearly performance are computed on a cumulative basis; performance for a
three-year period and for greater periods is computed both on a cumulative and
on an annualized basis.
Cumulative quotations are arrived at by calculating the change in the
ACCUMULATION UNIT value between the first and last day of the base period being
measured, and expressing the difference as a percentage of the unit value at the
beginning of the base period. The calculation reflects the mortality and expense
risk fees under the CONTRACTS and the management fees and other expenses of the
fund and series. The calculation does not include surrender charges or the
account charge, which, if included, would decrease the performance.
Annualized quotations are arrived at by applying a formula which determines the
level rate of return which, if earned over the entire base period, would produce
the cumulative return.
The first table below sets out performance data for each of the SUBACCOUNTS for
CONTRACTS without the EGMDB. The second table below sets out hypothetical
performance data for each of the SUBACCOUNTS for CONTRACTS with the EGMDB. The
hypothetical performance shown in the second table is based on the actual
performance of the SUBACCOUNTS, but reflects the charges that hypothetically
would have been made had the EGMDB been available under the CONTRACTS for the
period indicated.
The tables below set out representative performance quotations, according to the
definitions above, for each of the SUBACCOUNTS, for the following base periods:
1) monthly; 2) year-to-date; 3) yearly; and 4) a three-year period. For all
quotations except 2), the end of the base period is December 31, 1998. For
quotation 2, the end of the base period is November 30, 1998. (The year-to-date
quotation would equal the yearly quotation if the end of the base period
selected for the former were December 31.) In addition, the VAA may advertise by
quotations with base periods of more than three years. These will be calculated
in an identical manner to the method used to calculate the quotation for the
three-year period; the only difference is that the base period utilized in the
formula will be longer.
B-5
<PAGE>
NONSTANDARDIZED PERFORMANCE DATA
SUBACCOUNTS OF ACCOUNT C (CONTRACTS WITHOUT EGMDB)
<TABLE>
<CAPTION>
TYPE OF
PERFORMANCE SUBACCOUNT
DATA AG B CA EI GAA GI I M
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Monthly
(12/31/98) 9.03% 0.23% 16.33% 3.10% 4.23% 6.79% 0.89% 3.60%
Year-to-Date
(11/30/98) -14.82 8.22 17.41 8.25 7.81 11.56 12.52 7.72
Yearly
(12/31/98) -7.13 8.47 36.58 11.61 12.37 19.14 13.51 11.59
3-Year Annualized 9.43 5.92 25.77 19.94 14.94 22.26 9.03 14.38
</TABLE>
<TABLE>
<CAPTION>
TYPE OF
PERFORMANCE SUBACCOUNT
DATA MM SA SO TS DGI GBS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Monthly
(12/31/98) 0.31% 8.56% 4.91% 9.14% 1.38% 0.57%
Year-to-Date
(11/30/98) 3.74 9.34 0.78 5.25 8.74 6.14
Yearly
(12/31/98) 4.06 18.70 5.13 14.87 10.24 6.75
3-Year Annualized 4.04 27.37 15.79 * * *
</TABLE>
Key: AG=Aggressive Growth; B=Bond; CA=Capital Appreciation; EI=Equity-Income;
GAA=Global Asset Allocation; GI=Growth and Income; I=International; M=Managed;
MM=Money Market; SA=Social Awareness; SO=Special Opportunities; TS=Trend Series;
DGI=Delaware Growth & Income (formerly known as Decatur Total Return);
GBS=Global Bond Series
* The lifetime of this SUBACCOUNT is less than the complete period indicated.
Performance quotations with a base period of two years or longer may also be
advertised on an annualized basis.
Performance for contracts with the EGMDB would have been lower.
ANNUITY PAYOUTS
VARIABLE ANNUITY PAYOUTS
Variable ANNUITY PAYOUTS will be determined on the basis of: (1) the value of
the contract on the ANNUITY COMMENCEMENT DATE; (2) the annuity tables contained
in the CONTRACT; (3) the type of ANNUITY OPTION selected; and (4) the investment
performance of the eligible fund(s) selected. In order to determine the amount
of variable ANNUITY PAYOUTS, LINCOLN LIFE makes the following calculation:
first, it determines the dollar amount of the first payout; second, it credits
the ANNUITANT with a fixed number of ANNUITY UNITS based on the amount of the
first payout; and third, it calculates the value of the ANNUITY UNITS each
period thereafter. These steps are explained below.
The dollar amount of the first variable ANNUITY PAYOUT is determined by applying
the total value of the ACCUMULATION UNITS credited under the CONTRACT valued as
of the ANNUITY COMMENCEMENT DATE (less any premium taxes) to the annuity tables
contained in the CONTRACT. The first variable ANNUITY PAYOUT will be paid 14
days after the ANNUITY COMMENCEMENT DATE. This date will become the date on
which all future ANNUITY PAYOUTS will be paid. Amounts shown in the tables are
based on the 1971 Individual Annuity Mortality Tables for the SINGLE PREMIUM,
PERIODIC PREMIUM and FLEXIBLE PREMIUM Multi-Fund 2 and 3 ANNUITY CONTRACTS and
the 1983(a) Individual Mortality Table for FLEXIBLE PREMIUM ANNUITY CONTRACT
Multi-Fund 4 modified, with an assumed investment return at the rate of 5% per
annum. The first ANNUITY PAYOUT is determined by multiplying the benefit per
$1,000 of value shown in the CONTRACT tables by the number of thousands of
dollars of CONTRACT VALUE under the CONTRACT. These annuity tables vary
according to the form of annuity selected and the age of the ANNUITANT at the
ANNUITY COMMENCEMENT DATE. The 5% interest rate stated above is the measuring
point for subsequent ANNUITY PAYOUTS. If the actual Net Investment Rate
(annualized) exceeds 5%, the payment will increase at a rate equal to the amount
of such excess. Conversely, if the actual rate is less than 5%, ANNUITY PAYOUTS
will decrease. If the 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.
B-6
<PAGE>
LINCOLN LIFE may use sex distinct annuity tables in CONTRACTS that are not
associated with employer sponsored plans where not prohibited by law.
At an ANNUITY COMMENCEMENT DATE, the ANNUITANT is credited with ANNUITY UNITS
for each SUBACCOUNT on which variable ANNUITY PAYOUTS are based. The number of
ANNUITY UNITS to be credited is determined by dividing the amount of the first
payout by the value of an ANNUITY UNIT in each SUBACCOUNT selected. Although the
number of ANNUITY UNITS is fixed by this process, the value of such units will
vary with the value of the underlying eligible FUNDS. The amount of the second
and subsequent ANNUITY PAYOUTS is determined by multiplying the CONTRACTOWNER'S
fixed number of ANNUITY UNITS in each SUBACCOUNT by the appropriate ANNUITY UNIT
value for the VALUATION DATE ending 14 days before the date that payment is due.
The value of each SUBACCOUNT ANNUITY UNIT was set initially at $1.00. The
ANNUITY UNIT value for each SUBACCOUNT at the end of any VALUATION DATE is
determined by multiplying the SUBACCOUNT ANNUITY UNIT value for the immediately
preceding VALUATION DATE by the product of:
a. The net investment factor of the SUBACCOUNT for the VALUATION PERIOD for
which the ANNUITY UNIT value is being determined, and
b. A factor to neutralize the assumed investment return in the annuity table.
The value of the ANNUITY UNITS is determined as of a VALUATION DATE 14 days
before the payout date in order to permit calculation of amounts of ANNUITY
PAYOUTS and mailing of checks in advance of their due dates. Such checks will
normally be issued and mailed at least three days before the due date.
PROOF OF AGE, SEX AND SURVIVAL
LINCOLN LIFE may require proof of age, sex or survival of any payee upon whose
age, sex or survival PAYOUTS depend.
FEDERAL TAX MATTERS
GENERAL
The operations of the VAA form a part of, and are taxed with, the operations of
LINCOLN LIFE under the Internal Revenue Code of 1986, as amended (the CODE).
Investment income and realized net capital gains on the assets of the VAA are
reinvested and taken into account in determining the ACCUMULATION and ANNUITY
UNIT values. As a result, such investment income and realized net capital gains
are automatically retained as part of the reserves under the CONTRACT. Under
existing federal income tax law, LINCOLN LIFE believes that VAA investment
income and realized net capital gains are not taxed to the extent they are
retained as part of the reserves under the CONTRACTS. Accordingly, LINCOLN LIFE
does not anticipate that it will incur any federal income tax liability
attributable to the VAA, and therefore it does not intend to make any provision
for such taxes. However, if changes in the federal tax laws or interpretations
thereof result in LINCOLN LIFE'S being taxed on income or gains attributable to
the VAA, then LINCOLN LIFE may impose a charge against the VAA in order to make
provision for payment of such taxes.
TAX STATUS OF NONQUALIFIED CONTRACTS
The CODE (Section 72(s)) provides that CONTRACTS issued after January 18, 1985,
will not be treated as annuity CONTRACTS for purposes of Section 72 unless the
CONTRACT provides that (A) if any CONTRACTOWNER dies on or after the annuity
starting date, but before the time the entire interest in the CONTRACT has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution in effect at the time of the
CONTRACTOWNER'S death; and (B) if any CONTRACTOWNER dies before the annuity
starting date, the entire interest must be distributed within five years after
the death of the CONTRACTOWNER. These requirements are considered satisfied to
the extent that any portion of the CONTRACTOWNER'S interest that is payable to
or for the benefit of a designated BENEFICIARY is distributed over that
designated BENEFICIARY'S life, or a period not extending beyond the designated
BENEFICIARY'S life expectancy, and if that distribution begins within one year
of the CONTRACTOWNER'S death. The designated BENEFICIARY must be a natural
person. CONTRACTS issued after January 18, 1985 contain provisions intended to
comply with these CODE requirements, although regulations interpreting these
requirements have yet to be issued. LINCOLN LIFE intends to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Section 72(s) when clarified by regulation or otherwise.
QUALIFIED CONTRACTS
The rules governing the tax treatment of contributions and distributions under
qualified plans, as set forth in the CODE and applicable rulings and
regulations, are complex and subject to change. These rules also vary according
to the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made herein to provide more than general information about the use
of CONTRACTS with the various types of plans, based on LINCOLN LIFE'S
understanding of the current federal tax laws as interpreted by the Internal
Revenue Service (IRS). Purchasers of CONTRACTS for use with such a plan and plan
participants and BENEFICIARIES should consult counsel and other competent
advisors as to the suitability of the plan and the CONTRACT to their specific
needs, and as to applicable CODE limitations and tax consequences. Participants
under such plans, as well as CONTRACTOWNERS, ANNUITANTS and BENEFICIARIES,
should also be aware that the rights of any person to any benefits
B-7
<PAGE>
under such plans may be subject to the terms and conditions of the plans
themselves regardless of the terms and conditions of the CONTRACT.
Following are brief descriptions of the various types of plans and of the use of
CONTRACTS in connection therewith.
PUBLIC SCHOOL SYSTEMS AND SECTION 501(C)(3) ORGANIZATIONS (403(B))
Payments made to purchase annuity CONTRACTS by public school systems or certain
Section 501(c)(3) organizations for their employees are excludable from the
gross income of the employee to the extent that aggregate payments for the
employee do not exceed the exclusion allowance provided by Section 403(b) of the
CODE, the over-all limits for excludable contributions of Section 415 of the
CODE or the limit on elective contributions. Furthermore, the investment results
of the FUND credited to the account are not taxable until benefits are received
either in the form of ANNUITY PAYOUTS or in a single sum.
If an employee's individual account is surrendered, usually the full amount
received would be includable in income for that year at ordinary rates.
QUALIFIED CORPORATE EMPLOYEE'S PENSION AND PROFIT-SHARING TRUSTS AND QUALIFIED
ANNUITY PLANS
Payments made by a corporate employer and the increments on all payments for
qualified corporate plans are not taxable as income to the employee until
distributed. However, the employee may be required to include these amounts in
gross income before distribution if the qualified plan or trust loses its
qualification. Corporate plans qualified under Sections 401(a) or 403(a) of the
CODE are subject to extensive rules, including limitations on maximum
contributions or benefits.
Distributions of amounts in excess of nondeductible employee contributions
allocated to such distributions are generally taxable as ordinary income. If an
employee or BENEFICIARY receives a LUMP SUM distribution, that is, if the
employee or BENEFICIARY receives in a single tax year the total amounts payable
with respect to that employee and the benefits are paid as a result of the
employee's death or separation from service or after the employee attains
59 1/2, taxable gain may be either eligible for special LUMP SUM averaging
treatment or, if the recipient was age 50 before January 1, 1986, eligible for
taxation at a 20% rate to the extent the distribution reflects payouts made
before January 1, 1974. For plan years beginning after December 31, 1996, tax
exempt organizations (except state or local governments) may have 401(k) plans.
These special tax rules are not available in all cases.
SELF-EMPLOYED INDIVIDUALS (H.R. 10 OR KEOGH)
Under CODE provisions, self-employed individuals may establish plans commonly
known as H.R. 10 or Keogh plans for themselves and their employees. The tax
consequences to participants under such plans depend upon the plan itself. Such
plans are subject to special rules in addition to those applicable to qualified
corporate plans, although certain of these rules have been repealed or modified
effective in 1984. Purchasers of the CONTRACTS to use with H.R. 10 plans should
seek competent advice as to suitability of plan documents and the funding
contracts.
INDIVIDUAL RETIREMENT ANNUITIES (IRA)
Under Section 408 of the CODE, individuals may participate in a retirement
program known as an IRA. An individual may make an annual IRA contribution of up
to the lesser of $2,000 (or $4,000 if IRAs are maintained for both the
individual and the nonworking spouse and they file a joint tax return) or 100%
of compensation. However, IRA contributions may be nondeductible in whole or in
part if (1) the individual or the spouse is an active participant in certain
other retirement programs and (2) the income of the individual (or of the
individual and the spouse) exceeds a specified amount. Distributions from
certain types of retirement plans may be rolled over to an IRA on a tax-deferred
basis if certain requirements are met. Distributions from IRA's are subject to
certain restrictions. Deductible IRA contributions and all earnings will be
taxed as ordinary income when distributed. The failure to satisfy certain CODE
requirements with respect to an IRA results in adverse tax consequences.
ROTH IRAS
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to $2,000 per
year. This limitation is phased out for adjusted gross income between $95,000
and $110,000 in the case of single taxpayers, between $150,000 and $160,000 in
the case of married taxpayers filing joint returns, and between $0 and $15,000
in the case of married taxpayers filing separately. An overall $2,000 annual
limitation continues to apply to all of a taxpayer's IRA contributions,
including Roth IRAs and non-Roth IRAs.
Qualified distributions from Roth IRAs are entirely tax free. A qualified
distribution requires that the individual has held the Roth IRA for at least
five years and, in addition, that the distribution is made either after the
individual reaches age 59 1/2, on the individual's death or disability, or as a
qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor.
B-8
<PAGE>
An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the non-Roth IRA being rolled over that represents
income or a previously deductible IRA contribution. For rollovers in 1998, the
individual may pay that tax ratably in 1998 and over the succeeding three years.
There are no similar limitations on rollovers from a Roth IRA to another Roth
IRA.
DEFERRED COMPENSATION PLANS (457 PLANS)
Under the CODE provisions, employees and independent contractors (participants)
performing services for state and local governments and tax-exempt organizations
may establish deferred compensation plans. Plans of state or local governments
established on August 20, 1996, or later, must hold all assets and income in
trust (or custodial accounts or an ANNUITY CONTRACT) for the exclusive benefit
of participants and their BENEFICIARIES. Section 457 plans that were in
existence before August 20, 1996 are allowed until January 1, 1999 to meet this
requirement. While participants in such plans may be permitted to specify the
form of investment in which their plan accounts will participate, all such
investments are owned by the sponsoring employer and are subject to the claims
of its creditors. The amounts deferred under a plan which meet the requirements
of Section 457 of the CODE are not taxable as income to the participant until
paid or otherwise made available to the participant or BENEFICIARY. Deferrals
are taxed as compensation from the employer when they are actually or
constructively received by the employee. As a general rule, the maximum amount
which can be deferred in any one year is the lesser of $7,500 (as indexed) or
33 1/3% of the participant's includable compensation. However, in the limited
circumstances, up to $15,000 may be deferred in each of the last three years
before retirement.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEP)
An employer may make contributions on behalf of employees to a SEP as provided
by Section 408(k) of the CODE. The contributions and distribution dates are
limited by the CODE provisions. All distributions from the plan will be taxed as
ordinary income. For tax years after 1996, salary reduction SEP's (SAR/SEP) may
no longer be established. However, SAR/SEPs in existence prior to January 1,
1997 may continue to receive contributions.
Any distribution before the employee attains age 59 1/2 (except in the event of
death or disability) or the failure to satisfy certain other CODE requirements
may result in adverse tax consequences.
SAVINGS INCENTIVE MATCHED PLAN FOR EMPLOYEES (SIMPLE)
Employers with 100 or fewer employees who earned $5,000 during the proceeding
year, may establish SIMPLEs. For tax years beginning after December 31, 1996,
SIMPLE plans are available and may be in the form of an IRA or part of a 401(k)
plan. Under a SIMPLE IRA, employees are permitted to make elective contributions
to an IRA, stated as a percentage of the employees compensation, but not to
exceed $6,000 annually as indexed. Such deferrals are not subject to income tax
until withdrawn. WITHDRAWALS made by an employee in the first two years of the
employees participation are subject to a 25% penalty. Later WITHDRAWALS are
subject to penalties applicable to IRAs. Under a SIMPLE 401(k), employee
deferrals are limited to no more than $6,000 annually. Employer contributions
are usually required for each type of SIMPLE.
TAX ON DISTRIBUTIONS FROM QUALIFIED CONTRACTS
The following rules generally apply to distributions from CONTRACTS purchased in
connection with the plans discussed previously, other than deferred compensation
plans and Roth IRAs.
The portion, if any, of any contribution under a CONTRACT made by or on behalf
of an individual which is not excluded from the employee's gross income
(generally, the employee's own nondeductible contributions) constitutes the
investment in the CONTRACT. If a distribution is made in the form of ANNUITY
PAYOUTS, the employee's investment in the CONTRACT (adjusted for certain refund
provisions) divided by the life expectancy (or other period for which ANNUITY
PAYOUTS are expected to be made) constitutes a tax-free return of capital each
year. The dollar amount of ANNUITY PAYOUTS received in any year in excess of
such return is taxable as ordinary income. All distributions will be fully
taxable once the employee is deemed to have recovered the dollar amount of the
investment in the CONTRACT.
If a SURRENDER of or WITHDRAWAL from the CONTRACT is effected and distribution
is made from the plan in a single payout, the proceeds may qualify for special
LUMP SUM distribution treatment under certain qualified plans, as discussed
above. Otherwise, the amount by which the payment exceeds the investment in the
CONTRACT (adjusted for any prior WITHDRAWAL) allocated to that payment, if any,
will be taxed as ordinary income in the year of receipt. Rules generally provide
that all distributions which are not received as an annuity will be taxed as a
pro rata distribution of taxable and nontaxable amounts (rather than as a
distribution first of nontaxable amounts).
Distributions from qualified plans, Keoghs, SEPs, 403(b) plans and IRAs will be
subject to a 10% penalty tax if made before age 59 1/2 unless certain other
exceptions
B-9
<PAGE>
apply. Failure to meet certain minimum distribution requirements for the above
plans, as well as for Section 457 plans, will result in a 50% excise tax.
Various other adverse tax consequences may also be potentially applicable in
certain circumstances to these types of plans.
Upon an employee's death, the taxation of benefits payable to the BENEFICIARY
generally follows these same principles, subject to a variety of special rules.
OTHER CONSIDERATIONS
It should be understood that the foregoing comments about the federal tax
consequences under these CONTRACTS are not exhaustive and that special rules are
provided with respect to other tax situations not discussed herein. Further, the
foregoing discussion does not address any applicable state, local or foreign tax
laws. Finally, in recent years numerous changes have been made in the federal
income tax treatment of CONTRACTS and retirement plans, which are not fully
discussed above. Before an investment is made in any of the CONTRACTS, a
competent tax advisor should be consulted.
DETERMINATION OF
ACCUMULATION AND
ANNUITY UNIT VALUE
A description of the days on which ACCUMULATION and ANNUITY UNITS will be valued
is given in the Prospectus. The New York Stock Exchange's (NYSE) most recent
announcement (which is subject to change) states that in 1998 it will be closed
on New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
It may also be closed on other days.
Since the portfolios of some of the funds and series will consist of securities
primarily listed on foreign exchanges or otherwise traded outside the United
States, those securities may be traded (and the net asset value of those funds
and series and of the VARIABLE ACCOUNT could therefore be significantly
affected) on days when the investor has no access to those funds and series.
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, LINCOLN LIFE may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM evaluates the various factors affecting the overall
performance of an insurance company in order to provide an opinion as to an
insurance company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS insurance company claims paying ability (CPA) service provides
purchasers of insurance company policies and contracts with analytical and
statistical information on the solvency and liquidity of major U.S licensed
insurance companies, both mutual and stock.
EAFE Index is prepared by MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI). It
measures performance of securities in Europe, Australia and the Far East. The
index reflects the movements of world stock markets by representing the
evolution of an unmanaged portfolio. The EAFE Index offers international
diversification with over 1000 companies across 20 different countries.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a publisher
of statistical data covering the investment company industry in the United
States and overseas. Lipper is recognized as the leading source of data on
open-end and closed-end funds. Lipper currently tracks the performance of over
5,000 investment companies and publishes numerous specialized reports, including
reports on performance and portfolio analysis, fee and expense analysis.
MOODY'S insurance claims-paying rating is a system of rating insurance company's
financial strength, market leadership and ability to meet financial obligations.
The purpose of Moody's ratings is to provide investors with a simple system of
gradation by which the relative quality of insurance companies may be noted.
MORNINGSTAR is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
VARIABLE ANNUITY CONTRACTS.
STANDARD & POOR'S CORP. insurance claims-paying ability rating is an assessment
of an operating insurance company's financial capacity to meet obligations under
an insurance policy in accordance with the terms. The likelihood of a timely
flow of funds from the insurer to the trustee for the bondholders is a key
element in the rating determination for such debt issues.
VARDS (Variable Annuity Research Data Service) provides a comprehensive guide to
VARIABLE ANNUITY CONTRACT features and historical fund performance. The service
also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S 500 INDEX (S&P 500) -- Broad-based measurement of changes in
stock-market
B-10
<PAGE>
conditions based on the average performance of 500 widely held common stocks;
commonly known as the S&P 500. The selection of stocks, their relative
weightings to reflect differences in the number of outstanding shares and
publication of the index itself are services of Standard & Poor's Corp., a
financial advisory, securities rating and publishing firm.
STANDARD & POOR'S INDEX (S&P 400) -- Consists of 400 domestic stocks chosen for
market size, liquidity, and industry group representations.
NASDAQ-OTC Price Index -- This index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) -- Price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express
Co. and American Telephone and Telegraph Co. Prepared and published by Dow Jones
& Co., it is the oldest and most widely quoted of all the market indicators. The
average is quoted in points, not dollars.
INTERNET -- As an electronic communications network may be used to provide
information regarding LINCOLN LIFE performance of the SUBACCOUNTS and
advertisement literature.
In its advertisements and other sales literature for the VAA and the eligible
FUNDS, LINCOLN LIFE intends to illustrate the advantages of the CONTRACTS in a
number of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of the
VARIABLE ANNUITY CONTRACT. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the VARIABLE ACCOUNT over the fixed side; and the
compounding effect when a client makes regular contributions to his or her
account.
DOLLAR-COST AVERAGING ILLUSTRATIONS. These illustrations will generally discuss
the price-leveling effect of making regular purchases in the same SUBACCOUNTS
over a period of time, to take advantage of the trends in market prices of the
portfolio securities purchased for those SUBACCOUNTS.
AUTOMATIC WITHDRAWAL SERVICE. A service provided by LINCOLN LIFE, through which
a CONTRACTOWNER may take any distribution allowed by CODE Section 401(a)(9) in
the case of qualified CONTRACTS, or permitted under CODE Section 72 in the case
of nonqualified CONTRACTS, by way of an automatically generated payment.
EARNINGS SWEEP. A service provided by LINCOLN LIFE which allows a client to
designate one of the variable SUBACCOUNTS or the fixed side as a holding
account, and to transfer earnings from that side to any other variable
SUBACCOUNT. The CONTRACTOWNER chooses a specific FUND as the holding account. At
specific intervals, account value in the holding account fund that exceeds a
certain designated baseline amount is automatically transferred to another
specified FUND(S). The minimum account value required for the Earnings Sweep
feature is $10,000.
LINCOLN LIFE'S CUSTOMERS. Sales literature for the VAA, the FUNDS and series may
refer to the number of employers and the number of individual annuity clients
which LINCOLN LIFE serves. As of the date of this SAI, LINCOLN LIFE was serving
over 10,000 organizations and more than 1 million individual 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 1998,
LINCOLN LIFE had statutory admitted assets of over $70 billion.
Sales literature may reference the Multi-Fund newsletter which is a newsletter
distributed quarterly to clients of the VAA. The contents of the newsletter will
be a commentary on general economic conditions and, on some occasions,
referencing matters in connection with the Multi-Fund annuity.
Sales literature and advertisements may reference these and other similar
reports from Best's or other similar publications which report on the insurance
and financial services industries.
The graphs below compare accumulations attributable to contributions to
conventional savings vehicles such as savings accounts at a bank or credit
union, nonqualified CONTRACTS purchased with after tax contributions, and
qualified CONTRACTS purchased with pre-tax contributions under tax-favored
retirement programs.
B-11
<PAGE>
THE POWER OF TAX DEFERRED GROWTH
The hypothetical chart below compares the results of contributing $1,200 per
year ($100 per month) during the time periods illustrated. Each graph assumes a
28% tax rate and an 8% fixed rate of return (before fees
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONVENTIONAL NONQUALIFIED TAX DEFERRED
<S> <C> <C> <C>
Savings annuity contracts annuity
with tax deferred retirement
growth program
10 years $16,049 $18,013 $25,017
15 years $28,143 $33,761 $46,890
20 years $44,145 $56,900 $79,028
10 years $16,193 $17,012
15 years $29,340 $33,761
20 years $47,688 $56,900
</TABLE>
and charges). For tax deferred annuities (TDA), the results are based on
contributing $1,666.66 ($138.88 per month) during the time periods illustrated.
The additional $38.88 per month is the amount of federal taxes paid by those
contributing to the conventional savings accounts or nonqualified CONTRACTS. In
this example, it has been invested by the contributors to the qualified
CONTRACTS. The deduction of fees and charges is also indicated in the graph. The
dotted lines represent the amount remaining after deducting any taxes due and
all fees (including SURRENDER CHARGES). See Charges and other deductions in the
Prospectus for discussion of charges. Additionally, a 10% tax penalty (not
included here) may apply to WITHDRAWALS before age 59 1/2.
The contributions and interest earnings on conventional savings accounts are
usually taxed currently. For nonqualified CONTRACTS contributions are usually
taxed currently, while earnings are not usually subject to income tax until
withdrawn. However, contributions to and earnings on qualified plans are
ordinarily not subject to income tax until withdrawn. Therefore, having greater
amounts re-invested in a qualified or nonqualified plan increases the
accumulation power of savings over time.
As you can see, a tax deferred plan can provide a much higher account value over
a long period of time. Therefore, tax deferral is an important component of a
retirement plan or other long-term financial goals. (The above chart is for
illustrative purposes and should not be construed as representative of actual
results, which may be more or less).
TAX BENEFITS TODAY
When you put a portion of your salary in a tax deferred retirement plan, your
contributions don't appear as taxable income on your W-2 form at the end of the
calendar year. So while you are contributing, you can reduce your taxes and
increase your income after savings and taxes, as compared to saving the same
amount in a plan that is not tax-deferred.
Here's an example: Let's assume you are single, your taxable income is $50,000,
and you are in the 28% tax bracket.
<TABLE>
<CAPTION>
SAVINGS OF
TRADITIONAL PRE-TAX
SAVINGS PLAN DOLLARS
<S> <C> <C>
- --------------------------------------------------------
Your income $ 50,000 $ 50,000
Tax-deferred savings -0- 2,400
Taxable income 50,000 47,600
*Estimated federal income
taxes 10,481 9,809
Income after taxes 39,519 37,791
After-tax savings 2,400 -0-
Remaining income after
savings and taxes 37,119 37,791
</TABLE>
With a tax-deferred plan, you have $672 more spendable income each year because
you are paying less taxes currently.
*The above chart assumes a 28% marginal federal tax rate on conventional
contributions. TDA contributions are generally taxed as ordinary income when
withdrawn. Federal tax penalties generally apply to distributions before age
59 1/2. For illustrative purposes only.
FINANCIAL STATEMENTS
Financial statements of the VAA and the statutory-basis financial statements of
LINCOLN LIFE appear on the following pages.
B-12
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED MULTIFUND EANNUITY
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
ASSETS:
- Investments at market - affiliated
(cost $7,972,899,460) $11,536,124,343 $11,535,734,777 $389,566
- --------------------------------------- --------------- --------------- --------
- ---------------------------------------
- Liability - Payable to The Lincoln
National Life Insurance Company 315,674 315,668 6
- --------------------------------------- --------------- --------------- --------
- ---------------------------------------
NET ASSETS $11,535,808,669 $11,535,419,109 $389,560
- --------------------------------------- --------------- --------------- --------
--------------- --------------- --------
- ---------------------------------------
CONTRACT OWNER RESERVES:
- Reserves for redeemable annuity
contracts $11,467,942,924 $11,467,553,364 $389,560
- ---------------------------------------
- Reserves for annuity contracts on
benefit 67,865,745 67,865,745 --
- --------------------------------------- --------------- --------------- --------
- ---------------------------------------
TOTAL CONTRACT OWNER RESERVES $11,535,808,669 $11,535,419,109 $389,560
- --------------------------------------- --------------- --------------- --------
--------------- --------------- --------
- ---------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED MULTIFUND EANNUITY
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net Investment Income:
- Dividends from investment income $ 292,835,417 $ 292,834,448 $ 969
- ---------------------------------------
- Dividends from net realized gains
on investments 555,694,325 555,694,325 --
- ---------------------------------------
- Mortality and expense guarantees:
Multifund w/o guaranteed minimum death
benefit rider (103,222,614) (103,222,614) --
- ---------------------------------------
Multifund w/ guaranteed minimum death
benefit rider (1,202,827) (1,202,827) --
- ---------------------------------------
eAnnuity (161) -- (161)
- --------------------------------------- -------------- -------------- ---------
- ---------------------------------------
NET INVESTMENT INCOME 744,104,140 744,103,332 808
- ---------------------------------------
Net realized and unrealized gain on
investments:
- Net realized gain on investments 120,104,936 120,104,423 513
- ---------------------------------------
- Net change in unrealized
appreciation on investments 613,207,528 613,201,466 6,062
- --------------------------------------- -------------- -------------- ---------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 733,312,464 733,305,889 6,575
- --------------------------------------- -------------- -------------- ---------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,477,416,604 $1,477,409,221 $7,383
- --------------------------------------- -------------- -------------- ---------
-------------- -------------- ---------
- ---------------------------------------
</TABLE>
See accompanying notes.
C-1
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
COMBINED MULTIFUND EANNUITY
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------------- ------------------------------- ------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1 $ 9,426,807,141 $6,585,865,835 $ 9,426,807,141 $6,585,865,835 $ -- $ --
- ---------------------------------------
Changes from operations:
- Net Investment Income 744,104,140 193,626,363 744,103,332 193,626,363 808 --
- ---------------------------------------
- Net realized gain on investments 120,104,936 31,377,925 120,104,423 31,377,925 513 --
- ---------------------------------------
- Net change in unrealized
appreciation on investments 613,207,528 1,537,087,130 613,201,466 1,537,087,130 6,062 --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 1,477,416,604 1,762,091,418 1,477,409,221 1,762,091,418 7,383 --
- ---------------------------------------
Changes from unit transactions:
Accumulation Units:
- Contract purchases 3,097,926,661 2,840,665,698 3,097,485,458 2,840,665,698 441,203 --
- ---------------------------------------
- Terminated contracts & transfers to
annuity reserves (2,472,732,748) (1,765,287,945) (2,472,673,722) (1,765,287,945) (59,026) --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
625,193,913 1,075,377,753 624,811,736 1,075,377,753 382,177 --
--------------- -------------- --------------- -------------- -------- --------
Annuity Reserves:
- Transfer from accumulation units &
between accounts 12,803,225 7,753,183 12,803,225 7,753,183 -- --
- ---------------------------------------
- Annuity Payments (6,362,862) (4,422,441) (6,362,862) (4,422,441) -- --
- ---------------------------------------
- Receipt (reimbursement) of
mortality guarantee adjustment (49,352) 141,393 (49,352) 141,393 -- --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
6,391,011 3,472,135 6,391,011 3,472,135 -- --
--------------- -------------- --------------- -------------- -------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 631,584,924 1,078,849,888 631,202,747 1,078,849,888 382,177 --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
TOTAL INCREASE IN NET ASSETS 2,109,001,528 2,840,941,306 2,108,611,968 2,840,941,306 389,560 --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
NET ASSETS AT DECEMBER 31 $11,535,808,669 $9,426,807,141 $11,535,419,109 $9,426,807,141 $389,560 $ --
- --------------------------------------- --------------- -------------- --------------- -------------- -------- --------
--------------- -------------- --------------- -------------- -------- --------
- ---------------------------------------
</TABLE>
See accompanying notes.
C-2
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES & ACCOUNT INFORMATION
THE ACCOUNT: Lincoln National Variable Annuity Account C (Variable Account)
is a segregated investment account of The Lincoln National Life Insurance
Company (the Company) and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a unit
investment trust. The Variable Account consists of two products, Multifund
and eAnnuity. The Multifund product is an annuity contract offering a
guaranteed minimum death benefit (GMBD) rider option. Effective August 20,
1998, the eAnnuity product became available to clients of the Company. The
eAnnuity product is an annuity contract that is sold through the internet.
The assets of the Variable Account are owned by the Company. The portion of
the Variable Account's assets supporting the annuity contracts may not be
used to satisfy liabilities arising out of any other business of the Company.
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles for unit
investment trusts.
INVESTMENTS: The Variable Account invests in the Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital
Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln
National Global Asset Allocation Fund, Inc., Lincoln National Growth and
Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc.,
Lincoln National Social Awareness Fund, Inc., Lincoln National Special
Opportunities Fund, Inc., Delaware Premium Trend Series, Delaware Decatur
Total Return Series and the Delaware Global Bond Series (the Funds). The
Funds are registered as open-end investment management companies. Investments
in the Funds are stated at the closing net asset value per share on December
31, 1998, which approximates fair value. The difference between cost and fair
value is reflected as unrealized appreciation and depreciation of
investments.
Investment transactions are accounted for on a trade date basis. The cost of
investments sold is determined by the average cost method.
DIVIDENDS: Dividends paid to the Variable Account are automatically
reinvested in shares of the Funds on the payable date. Dividend income is
recorded on the ex-dividend date.
FEDERAL INCOME TAXES: Operations of the Variable Account form a part of and
are taxed with operations of the Company, which is taxed as a "life insurance
company" under the Internal Revenue Code. The Variable Account will not be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code. Under current federal income tax law, no federal income taxes
are payable with respect to the Variable Account's net investment income and
the net realized gain on investments.
ANNUITY RESERVES: Reserves on contracts not involving life contingencies are
calculated using an assumed investment rate of 5%. Reserves on contracts
involving life contingencies are calculated using a modification of the 1971
Individual Annuitant Mortality Table and an assumed investment rate of 5%.
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATES
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 for the two contract types and the corresponding rider options
within the Variable Account:
- Multifund at a daily rate of .00274525% (1.002% on an annual basis).
- Multifund with GMDB rider at a daily rate of .00356712328% (1.302% on
an annual basis).
- eAnnuity at a daily rate of .001506849% (.55% on an annual basis).
C-3
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATES
CONTINUED
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 1998:
<TABLE>
<CAPTION>
MULTIFUND EANNUITY
<S> <C> <C>
- -----------------------------------------------------------------
Lincoln National Aggressive Growth Fund $ 129,235 $ --
- ---------------------------------------
Lincoln National Bond Fund 1,000,496 --
- ---------------------------------------
Lincoln National Capital Appreciation
Fund 185,757 --
- ---------------------------------------
Delaware Premium Trend Series 32,177 --
- ---------------------------------------
Delaware Decatur Total Return Series 34,344 --
- ---------------------------------------
Delaware Global Bond Series 3,854 --
- ---------------------------------------
Lincoln National Equity-Income Fund 323,811 --
- ---------------------------------------
Lincoln National Global Asset
Allocation Fund 548,996 --
- ---------------------------------------
Lincoln National Growth and Income Fund 4,792,013 --
- ---------------------------------------
Lincoln National International Fund 673,972 --
- ---------------------------------------
Lincoln National Managed Fund 967,950 --
- ---------------------------------------
Lincoln National Money Market Fund 1,080,102 --
- ---------------------------------------
Lincoln National Social Awareness Fund 1,979,511 --
- ---------------------------------------
Lincoln National Special Opportunities
Fund 1,135,573 --
- --------------------------------------- ----------- -----------
- ---------------------------------------
$12,887,791 $ --
- --------------------------------------- ----------- -----------
----------- -----------
</TABLE>
Accordingly, the Company is responsible for all sales, general and
administrative expenses applicable to the Variable Account.
3. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1998:
<TABLE>
<CAPTION>
COMBINED MULTIFUND EANNUITY
---------------------------- ---------------------------- ---------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
COST OF PROCEEDS COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES PURCHASES FROM SALES
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Lincoln National Aggressive Growth Fund $ 75,347,018 $ 20,363,011 $ 75,341,814 $ 20,363,003 $ 5,204 $ 8
- ---------------------------------------
Lincoln National Bond Fund 105,665,569 21,338,689 105,663,423 21,338,685 2,146 4
- ---------------------------------------
Lincoln National Capital Appreciation
Fund 174,016,206 10,672,593 174,003,140 10,667,573 13,066 5,020
- ---------------------------------------
Delaware Premium Trend Series 31,609,927 8,562,625 31,605,848 8,562,621 4,079 4
- ---------------------------------------
Delaware Decatur Total Return Series 60,942,443 5,520,198 60,935,472 5,520,189 6,971 9
- ---------------------------------------
Delaware Global Bond Series 5,451,679 2,430,593 5,449,684 2,430,589 1,995 4
- ---------------------------------------
Lincoln National Equity-Income Fund 133,012,314 32,946,844 133,009,911 32,946,840 2,403 4
- ---------------------------------------
Lincoln National Global Asset
Allocation Fund 68,102,740 28,167,863 68,099,873 28,167,859 2,867 4
- ---------------------------------------
Lincoln National Growth and Income Fund 422,061,343 162,818,227 422,058,978 162,818,223 2,365 4
- ---------------------------------------
Lincoln National International Fund 73,719,170 80,943,004 73,715,753 80,942,998 3,417 6
- ---------------------------------------
Lincoln National Managed Fund 146,271,517 32,556,692 146,268,822 32,556,688 2,695 4
- ---------------------------------------
Lincoln National Money Market Fund 88,996,382 57,149,293 88,640,904 57,122,467 355,478 26,826
- ---------------------------------------
Lincoln National Social Awareness Fund 434,759,913 50,236,632 434,751,254 50,236,625 8,659 7
- ---------------------------------------
Lincoln National Special Opportunities
Fund 142,375,726 72,878,957 142,372,171 72,878,952 3,555 5
- --------------------------------------- -------------- ------------ -------------- ------------ -------- -----------
- ---------------------------------------
$1,962,331,947 $586,585,221 $1,961,917,047 $586,553,312 $414,900 $31,909
- --------------------------------------- -------------- ------------ -------------- ------------ -------- -----------
-------------- ------------ -------------- ------------ -------- -----------
</TABLE>
C-4
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
-----------------------------------------
MULTIFUND EANNUITY
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND
Accumulation Units:
Contract purchases $ 105,561,285 $121,767,920 $5,205 $ --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (92,755,811) (80,454,253) -- --
- --------------------------------------- ------------- ------------ ------ ----
- ---------------------------------------
12,805,474 41,313,667 5,205 --
Annuity Reserves:
Transfers from accum. units & between
accts. 350,018 11,855 -- --
Annuity payments (111,570) (52,883) -- --
Receipt (payment) of mortality
guarantee adj. (74) 336 -- --
- --------------------------------------- ------------- ------------ ------ ----
Fund Total: 238,374 (40,692) -- --
- --------------------------------------- ------------- ------------ ------ ----
13,043,848 41,272,975 5,205 --
LINCOLN NATIONAL BOND FUND
Accumulation Units:
Contract purchases 173,649,541 75,416,109 2,060 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (118,474,365) (86,077,372) -- --
- --------------------------------------- ------------- ------------ ------ ----
- ---------------------------------------
55,175,176 (10,661,263) 2,060 --
Annuity Reserves:
Transfers from accum. units & between
accts. 295,541 (16,201) -- --
Annuity payments (66,581) (45,383) -- --
Receipt (payment) of mortality
guarantee adj. 1,828 1,206 -- --
- --------------------------------------- ------------- ------------ ------ ----
Fund Total: 230,788 (60,378) -- --
- --------------------------------------- ------------- ------------ ------ ----
55,405,964 (10,721,641) 2,060 --
LINCOLN NATIONAL CAPITAL APPRECIATION FUND
Accumulation Units:
Contract purchases 239,059,981 169,229,394 13,068 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (118,923,687) (64,259,997) (5,000) --
- --------------------------------------- ------------- ------------ ------ ----
- ---------------------------------------
120,136,294 104,969,397 8,068 --
Annuity Reserves:
Transfers from accum. units & between
accts. 1,011,628 229,233 -- --
Annuity payments (215,049) (92,786) -- --
Receipt (payment) of mortality
guarantee adj. (3,187) 482 -- --
- --------------------------------------- ------------- ------------ ------ ----
Fund Total: 793,392 136,929 -- --
- --------------------------------------- ------------- ------------ ------ ----
120,929,686 105,106,326 8,068 --
DELAWARE PREMIUM TREND SERIES
Accumulation Units:
Contract purchases 55,716,798 49,459,951 4,080 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (33,204,931) (23,894,814) -- --
- --------------------------------------- ------------- ------------ ------ ----
- ---------------------------------------
22,511,867 25,565,137 4,080 --
Annuity Reserves:
Transfers from accum. units & between
accts. 48,418 -- -- --
Annuity payments (7,936) -- -- --
Receipt (payment) of mortality
guarantee adj. -- -- -- --
- --------------------------------------- ------------- ------------ ------ ----
Series Total: 40,482 -- -- --
- --------------------------------------- ------------- ------------ ------ ----
22,552,349 25,565,137 4,080 --
</TABLE>
C-5
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
----------------------------------------------
MULTIFUND EANNUITY
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
DELAWARE DECATUR TOTAL RETURN SERIES
Accumulation Units:
Contract purchases 90,236,508 86,279,609 6,959 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (41,860,904) (16,269,211) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
48,375,604 70,010,398 6,959 --
Annuity Reserves:
Transfers from accum. Units & between
accts. 506,606 561,795 -- --
Annuity payments (108,990) (39,841) -- --
Receipt (payment) of mortality
guarantee adj. (448) 758 -- --
- --------------------------------------- -------------- -------------- -------- ----
Series Total: 397,168 522,712 -- --
- --------------------------------------- -------------- -------------- -------- ----
48,772,772 70,533,110 6,959 --
DELAWARE GLOBAL BOND SERIES
Accumulation Units:
Contract purchases 8,319,526 11,820,716 1,960 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (5,970,687) (7,984,605) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
2,348,839 3,836,111 1,960 --
Annuity Reserves:
Transfers from accum. units & between
accts. 31,917 -- -- --
Annuity payments (7,766) (755) -- --
Receipt (payment) of mortality
guarantee adj. 78 64 -- --
- --------------------------------------- -------------- -------------- -------- ----
Series Total: 24,229 (691) -- --
- --------------------------------------- -------------- -------------- -------- ----
2,373,068 3,835,420 1,960 --
LINCOLN NATIONAL EQUITY-INCOME FUND
Accumulation Units:
Contract purchases 256,503,981 291,732,249 2,380 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (184,405,391) (106,299,468) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
72,098,590 185,432,781 2,380 --
Annuity Reserves:
Transfers from accum. units & between
accts. 686,673 651,161 -- --
Annuity payments (479,908) (354,641) -- --
Receipt (payment) of mortality
guarantee adj. 3,201 1,204 -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 209,966 297,724 -- --
- --------------------------------------- -------------- -------------- -------- ----
72,308,556 185,730,505 2,380 --
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND
Accumulation Units:
Contract purchases 89,521,952 113,967,396 2,841 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (95,521,824) (63,439,313) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
(5,999,872) 50,528,083 2,841 --
Annuity Reserves:
Transfers from accum. units & between
accts. 490,958 304,669 -- --
Annuity payments (179,454) (111,483) -- --
Receipt (payment) of mortality
guarantee adj. (14,716) 2,306 -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 296,788 195,492 -- --
- --------------------------------------- -------------- -------------- -------- ----
(5,703,084) 50,723,575 2,841 --
</TABLE>
C-6
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
----------------------------------------------
MULTIFUND EANNUITY
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
LINCOLN NATIONAL GROWTH AND INCOME FUND
Accumulation Units:
Contract purchases 696,926,250 747,652,912 2,341 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (709,130,485) (497,930,628) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
(12,204,235) 249,722,284 2,341 --
Annuity Reserves:
Transfers from accum. units & between
accts. 6,311,160 4,399,621 -- --
Annuity payments (3,840,740) (2,844,717) -- --
Receipt (payment) of mortality
guarantee adj. 55,053 142,298 -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 2,525,473 1,697,202 -- --
- --------------------------------------- -------------- -------------- -------- ----
(9,678,762) 251,419,486 2,341 --
LINCOLN NATIONAL INTERNATIONAL FUND
Accumulation Units:
Contract purchases 159,547,703 158,472,222 3,391 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (185,524,256) (157,730,517) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
(25,976,553) 741,705 3,391 --
Annuity Reserves:
Transfers from accum. units & between
accts. 160,319 62,938 -- --
Annuity payments (133,802) (125,126) -- --
Receipt (payment) of mortality
guarantee adj. (14,795) 1,721 -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 11,722 (60,467) -- --
- --------------------------------------- -------------- -------------- -------- ----
(25,964,831) 681,238 3,391 --
LINCOLN NATIONAL MANAGED FUND
Accumulation Units:
Contract purchases 162,635,223 131,576,753 2,641 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (155,726,195) (125,696,264) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
6,909,028 5,880,489 2,641 --
Annuity Reserves:
Transfers from accum. units & between
accts. 605,334 364,128 -- --
Annuity payments (408,409) (356,231) -- --
Receipt (payment) of mortality
guarantee adj. (25,649) (4,393) -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 171,276 3,504 -- --
- --------------------------------------- -------------- -------------- -------- ----
7,080,304 5,883,993 2,641 --
LINCOLN NATIONAL MONEY MARKET FUND
Accumulation Units:
Contract purchases 203,720,196 160,091,004 382,126 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (176,317,955) (169,385,979) (54,026) --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
27,402,241 (9,294,975) 328,100 --
Annuity Reserves:
Transfers from accum. units & between
accts. 62,528 18,708 -- --
Annuity payments (50,178) (46,466) -- --
Receipt (payment) of mortality
guarantee adj. 1,044 609 -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 13,394 (27,149) -- --
- --------------------------------------- -------------- -------------- -------- ----
27,415,635 (9,322,124) 328,100 --
</TABLE>
C-7
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
----------------------------------------------
MULTIFUND EANNUITY
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
LINCOLN NATIONAL SOCIAL AWARENESS FUND
Accumulation Units:
Contract purchases 669,303,972 515,505,656 8,629 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (351,797,764) (191,229,425) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
317,506,208 324,276,231 8,629 --
Annuity Reserves:
Transfers from accum. units & between
accts. 1,857,256 1,042,822 -- --
Annuity payments (558,894) (221,176) -- --
Receipt (payment) of mortality
guarantee adj. (25,388) (2,607) -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 1,272,974 819,039 -- --
- --------------------------------------- -------------- -------------- -------- ----
318,779,182 325,095,270 8,629 --
LINCOLN NATIONAL SPECIAL OPPORTUNITIES FUND
Accumulation Units:
Contract purchases 186,782,542 207,693,807 3,522 --
- ---------------------------------------
Terminated contracts & transfers to
annuity reserves (203,059,467) (174,636,099) -- --
- --------------------------------------- -------------- -------------- -------- ----
- ---------------------------------------
(16,276,925) 33,057,708 3,522 --
Annuity Reserves:
Transfers from accum. units & between
accts. 384,869 122,454 -- --
Annuity payments (193,585) (130,953) -- --
Receipt (payment) of mortality
guarantee adj. (26,299) (2,591) -- --
- --------------------------------------- -------------- -------------- -------- ----
Fund Total: 164,985 (11,090) -- --
- --------------------------------------- -------------- -------------- -------- ----
(16,111,940) 33,046,618 3,522 --
-------------- -------------- -------- ----
Variable Account Total $ 631,202,747 $1,078,849,888 $382,177 $ --
-------------- -------------- -------- ----
-------------- -------------- -------- ----
</TABLE>
C-8
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
5. SUMMARY OF UNITS OUTSTANDING AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACCUMULATION RESERVE UNIT ACCUMULATION RESERVE NET ASSET
UNITS UNITS VALUE AMOUNT AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
MULTIFUND INVESTMENTS
MULTIFUND
Lincoln National Aggressive Growth Fund 204,321,730 401,351 $ 1.567 $ 320,118,792 $ 628,813 $ 320,747,605
Lincoln National Bond Fund 70,180,846 141,922 5.024 352,615,382 713,069 353,328,451
Lincoln National Capital Appreciation
Fund 284,821,773 855,827 2.574 733,000,123 2,202,505 735,202,628
Delaware Premium Trend Series 63,363,770 34,917 1.368 86,706,252 47,780 86,754,032
Delaware Decatur Total Return Series 90,934,980 708,417 1.611 146,455,982 1,140,947 147,596,929
Delaware Global Bond Series 12,869,495 29,923 1.184 15,237,020 35,427 15,272,447
Lincoln National Equity-Income Fund 395,671,340 1,357,383 2.399 949,249,140 3,256,478 952,505,618
Lincoln National Global Asset
Allocation Fund 155,191,452 623,589 3.056 474,321,463 1,905,915 476,227,378
Lincoln National Growth and Income Fund 353,738,892 4,190,720 11.497 4,067,007,338 48,181,558 4,115,188,896
Lincoln National International Fund 275,656,812 507,630 1.773 488,741,223 900,031 489,641,254
Lincoln National Managed Fund 178,767,717 546,451 5.260 940,406,297 2,874,599 943,280,896
Lincoln National Money Market Fund 46,571,447 62,459 2.517 117,212,426 157,196 117,369,622
Lincoln National Social Awareness Fund 304,203,513 758,710 5.875 1,787,245,998 4,457,548 1,791,703,546
Lincoln National Special Opportunities
Fund 98,734,457 156,387 8.721 861,082,577 1,363,879 862,446,456
------------- ---------- --------------- ----------- ---------------
Subtotal 2,535,028,224 10,375,686 11,339,400,013 67,865,745 11,407,265,758
------------- ---------- --------------- ----------- ---------------
MULTIFUND WITH GMDB RIDER
Lincoln National Aggressive Growth Fund 1,953,110 -- 1.559 3,045,683 -- 3,045,683
Lincoln National Bond Fund 1,159,699 -- 5.002 5,800,262 -- 5,800,262
Lincoln National Capital Appreciation
Fund 4,552,867 -- 2.562 11,663,514 -- 11,663,514
Delaware Premium Trend Series 1,522,285 -- 1.362 2,073,881 -- 2,073,881
Delaware Decatur Total Return Series 4,110,801 -- 1.603 6,590,469 -- 6,590,469
Delaware Global Bond Series 372,938 -- 1.179 439,529 -- 439,529
Lincoln National Equity-Income Fund 5,897,743 -- 2.388 14,084,621 -- 14,084,621
Lincoln National Global Asset
Allocation Fund 1,887,853 -- 3.042 5,743,627 -- 5,743,627
Lincoln National Growth and Income Fund 2,251,670 -- 11.444 25,768,885 -- 25,768,885
Lincoln National International Fund 2,375,268 -- 1.765 4,192,172 -- 4,192,172
Lincoln National Managed Fund 1,774,940 -- 5.236 9,294,437 -- 9,294,437
Lincoln National Money Market Fund 644,074 -- 2.505 1,613,600 -- 1,613,600
Lincoln National Social Awareness Fund 5,135,886 -- 5.848 30,035,684 -- 30,035,684
Lincoln National Special Opportunities
Fund 899,280 -- 8.681 7,806,987 -- 7,806,987
------------- ---------- --------------- ----------- ---------------
Subtotal 34,538,414 -- 128,153,351 -- 128,153,351
------------- ---------- --------------- ----------- ---------------
TOTAL MULTIFUND 2,569,566,638 10,375,686 $11,467,553,364 $67,865,745 $11,535,419,109
------------- ---------- --------------- ----------- ---------------
------------- ---------- --------------- ----------- ---------------
</TABLE>
C-9
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
5. SUMMARY OF UNITS OUTSTANDING AT DECEMBER 31, 1998 CONTINUED
<TABLE>
<CAPTION>
ACCUMULATION RESERVE UNIT ACCUMULATION RESERVE NET ASSET
UNITS UNITS VALUE AMOUNT AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
EANNUITY INVESTMENTS
EANNUITY
Lincoln National Aggressive Growth Fund 3,697 -- $ 1.569 $ 5,802 $ -- $ 5,802
Lincoln National Bond Fund 425 -- 5.034 2,140 -- 2,140
Lincoln National Capital Appreciation
Fund 4,421 -- 2.578 11,396 -- 11,396
Delaware Premium Trend Series 3,182 -- 1.371 4,361 -- 4,361
Delaware Decatur Total Return Series 4,472 -- 1.613 7,213 -- 7,213
Delaware Global Bond Series 1,781 -- 1.186 2,112 -- 2,112
Lincoln National Equity-Income Fund 1,054 -- 2.403 2,533 -- 2,533
Lincoln National Global Asset
Allocation Fund 972 -- 3.061 2,977 -- 2,977
Lincoln National Growth and Income Fund 224 -- 11.512 2,577 -- 2,577
Lincoln National International Fund 2,055 -- 1.776 3,649 -- 3,649
Lincoln National Managed Fund 530 -- 5.268 2,790 -- 2,790
Lincoln National Money Market Fund 130,369 -- 2.521 328,646 -- 328,646
Lincoln National Social Awareness Fund 1,623 -- 5.885 9,553 -- 9,553
Lincoln National Special Opportunities
Fund 436 -- 8.736 3,811 -- 3,811
------------- ---------- --------------- ----------- ---------------
TOTAL EANNUITY 155,241 -- $ 389,560 $ -- $ 389,560
------------- ---------- --------------- ----------- ---------------
------------- ---------- --------------- ----------- ---------------
</TABLE>
C-10
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
C-11
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
6. NET ASSETS
The following is a summary of net assets owned at December 31, 1998.
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL
AGGRESSIVE LINCOLN NATIONAL CAPITAL
GROWTH BOND APPRECIATION
MULTIFUND COMBINED FUND FUND FUND
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units: $ 5,668,394,678 $ 240,707,955 $ 193,694,953 $ 437,532,406
- ------------------------------
Annuity reserves 30,988,918 526,430 535,507 1,443,523
- ------------------------------ --------------- ----------------- ----------------- -----------------
- ------------------------------
5,699,383,596 241,234,385 194,230,460 438,975,929
Accumulated net investment
income 2,050,420,076 50,602,463 147,058,465 55,419,837
- ------------------------------
Accumulated net realized gain
on investments 222,396,616 5,382,547 833,071 3,180,935
- ------------------------------
Net unrealized appreciation on
investments 3,563,218,821 26,573,893 17,006,717 249,289,441
- ------------------------------ --------------- ----------------- ----------------- -----------------
- ------------------------------
$11,535,419,109 $ 323,793,288 $ 359,128,713 $ 746,866,142
--------------- ----------------- ----------------- -----------------
--------------- ----------------- ----------------- -----------------
<CAPTION>
DELAWARE DELAWARE DELAWARE
PREMIUM DECATUR GLOBAL
TREND TOTAL RETURN BOND
MULTIFUND FUND SERIES SERIES
<S> <C> <C> <C>
- ------------------------------
Unit Transactions:
Accumulation units: $ 71,426,342 $ 131,102,293 $ 14,114,757
- ------------------------------
Annuity reserves 40,482 973,091 32,779
- ------------------------------ ------------ ------------- ------------
- ------------------------------
71,466,824 132,075,384 14,147,536
Accumulated net investment
income 422,205 8,502,086 1,174,152
- ------------------------------
Accumulated net realized gain
on investments 1,075,013 182,806 79,280
- ------------------------------
Net unrealized appreciation on
investments 15,863,871 13,427,122 311,008
- ------------------------------ ------------ ------------- ------------
- ------------------------------
$ 88,827,913 $ 154,187,398 $ 15,711,976
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
EQUITY- GLOBAL ASSET GROWTH AND LINCOLN NATIONAL
INCOME ALLOCATION INCOME INTERNATIONAL
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units: $ 608,045,410 $ 245,871,859 $ 1,539,803,755 $ 328,257,881
- ------------------------------
Annuity reserves 1,876,636 1,135,835 18,474,437 603,530
- ------------------------------ ----------------- ---------------- ---------------- ----------------
- ------------------------------
609,922,046 247,007,694 1,558,278,192 328,861,411
Accumulated net investment
income 44,041,903 126,701,486 773,372,488 46,363,811
- ------------------------------
Accumulated net realized gain
on investments 9,347,743 7,818,301 82,180,719 25,359,684
- ------------------------------
Net unrealized appreciation on
investments 303,278,547 100,443,524 1,727,126,382 93,248,520
- ------------------------------ ----------------- ---------------- ---------------- ----------------
- ------------------------------
$ 966,590,239 $ 481,971,005 $ 4,140,957,781 $ 493,833,426
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
LINCOLN NATIONAL MONEY SOCIAL SPECIAL
MANAGED MARKET AWARENESS OPPORTUNITIES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ------------------------------
Unit Transactions:
Accumulation units: $ 365,761,102 $ 59,438,618 $ 1,065,903,425 $ 366,733,922
- ------------------------------
Annuity reserves 1,440,086 115,600 3,016,522 774,460
- ------------------------------ ------------------ ------------------ ------------------ ----------------
- ------------------------------
367,201,188 59,554,218 1,068,919,947 367,508,382
Accumulated net investment
income 333,044,085 59,429,004 138,007,245 266,280,846
- ------------------------------
Accumulated net realized gain
on investments 18,316,877 -- 16,256,500 52,383,140
- ------------------------------
Net unrealized appreciation on
investments 234,013,183 -- 598,555,538 184,081,075
- ------------------------------ ------------------ ------------------ ------------------ ----------------
- ------------------------------
$ 952,575,333 $ 118,983,222 $ 1,821,739,230 $ 870,253,443
------------------ ------------------ ------------------ ----------------
------------------ ------------------ ------------------ ----------------
</TABLE>
C-13
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
6. NET ASSETS CONTINUED
The following is a summary of net assets owned at December 31, 1998.
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL
AGGRESSIVE LINCOLN NATIONAL CAPITAL
GROWTH BOND APPRECIATION
EANNUITY COMBINED FUND FUND FUND
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $ 382,177 $5,205 $2,060 $ 8,068
- ---------------------------------------
Annuity reserves -- -- -- --
- --------------------------------------- ------------ ------ ------ -------
- ---------------------------------------
382,177 5,205 2,060 8,068
Accumulated net investment income
(loss) 808 (9) 82 (22)
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 513 -- -- 515
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 6,062 606 (2) 2,835
- --------------------------------------- ------------ ------ ------ -------
- ---------------------------------------
$ 389,560 $5,802 $2,140 $11,396
------------ ------ ------ -------
------------ ------ ------ -------
<CAPTION>
DELAWARE DELAWARE DELAWARE
PREMIUM DECATUR GLOBAL
TREND TOTAL RETURN BOND
EANNUITY FUND SERIES SERIES
<S> <C> <C> <C>
- ---------------------------------------
Unit Transactions:
Accumulation units $4,080 $6,959 $1,960
- ---------------------------------------
Annuity reserves -- -- --
- --------------------------------------- -------- ------ --------
- ---------------------------------------
4,080 6,959 1,960
Accumulated net investment income
(loss) (5) 3 31
- ---------------------------------------
Accumulated net realized gain (loss) on
investments -- -- --
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 286 251 121
- --------------------------------------- -------- ------ --------
- ---------------------------------------
$4,361 $7,213 $2,112
-------- ------ --------
-------- ------ --------
</TABLE>
C-14
<PAGE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
EQUITY- GLOBAL ASSET GROWTH AND LINCOLN NATIONAL
INCOME ALLOCATION INCOME INTERNATIONAL
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $2,380 $2,841 $2,341 $3,391
- ---------------------------------------
Annuity reserves -- -- -- --
- --------------------------------------- ------ ------ ------ ------
- ---------------------------------------
2,380 2,841 2,341 3,391
Accumulated net investment income
(loss) 19 22 20 20
- ---------------------------------------
Accumulated net realized gain (loss) on
investments -- -- (1) 1
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 134 114 217 237
- --------------------------------------- ------ ------ ------ ------
- ---------------------------------------
$2,533 $2,977 $2,577 $3,649
------ ------ ------ ------
------ ------ ------ ------
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
LINCOLN NATIONAL MONEY SOCIAL SPECIAL
MANAGED MARKET AWARENESS OPPORTUNITIES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ---------------------------------------
Unit Transactions:
Accumulation units $2,641 $ 328,100 $8,629 $3,522
- ---------------------------------------
Annuity reserves -- -- -- --
- --------------------------------------- ------ -------- ------ ------
- ---------------------------------------
2,641 328,100 8,629 3,522
Accumulated net investment income
(loss) 50 546 23 28
- ---------------------------------------
Accumulated net realized gain (loss) on
investments (1) -- (1) --
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 100 -- 902 261
- --------------------------------------- ------ -------- ------ ------
- ---------------------------------------
$2,790 $ 328,646 $9,553 $3,811
------ -------- ------ ------
------ -------- ------ ------
</TABLE>
C-15
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
7. INVESTMENTS
The following is a summary of investments owned at December 31, 1998.
<TABLE>
<CAPTION>
Net
Percentage Shares Asset Value of Cost of
MULTIFUND INVESTMENTS of Net Assets Outstanding Value Shares Shares
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Lincoln National Aggressive Growth Fund 2.81% 24,221,811 $ 13.37 $ 323,801,927 $ 297,228,034
Lincoln National Bond Fund 3.11% 28,302,967 12.69 359,138,618 342,131,901
Lincoln National Capital Appreciation
Fund 6.47% 34,304,592 21.77 746,886,442 497,597,001
Delaware Premium Trend Series 0.77% 4,497,738 19.75 88,830,317 72,966,446
Delaware Decatur Total Return Series 1.34% 7,939,839 19.42 154,191,678 140,764,556
Delaware Global Bond Series 0.14% 1,471,199 10.68 15,712,408 15,401,400
Lincoln National Equity-Income Fund 8.38% 44,514,343 21.71 966,616,789 663,338,242
Lincoln National Global Asset
Allocation Fund 4.18% 30,583,360 15.76 481,984,238 381,540,714
Lincoln National Growth and Income Fund 35.90% 89,462,662 46.29 4,141,071,334 2,413,944,952
Lincoln National International Fund 4.28% 30,899,874 15.98 493,846,992 400,598,472
Lincoln National Managed Fund 8.26% 50,213,225 18.97 952,601,474 718,588,291
Lincoln National Money Market Fund 1.03% 11,898,672 10.00 118,986,721 118,986,721
Lincoln National Social Awareness Fund 15.79% 45,224,200 40.28 1,821,788,941 1,223,233,403
Lincoln National Special Opportunities
Fund 7.54% 26,043,689 33.42 870,276,898 686,195,823
- --------------------------------------- ------------- ------------------ -----------------
Multifund Total 100.00% $ 11,535,734,777 $ 7,972,515,956
- --------------------------------------- ------------- ------------------ -----------------
------------- ------------------ -----------------
<CAPTION>
Unrealized
Appreciation/
MULTIFUND INVESTMENTS (Depreciation)
<S> <C>
- ---------------------------------------
Lincoln National Aggressive Growth Fund $ 26,573,893
Lincoln National Bond Fund 17,006,717
Lincoln National Capital Appreciation
Fund 249,289,441
Delaware Premium Trend Series 15,863,871
Delaware Decatur Total Return Series 13,427,122
Delaware Global Bond Series 311,008
Lincoln National Equity-Income Fund 303,278,547
Lincoln National Global Asset
Allocation Fund 100,443,524
Lincoln National Growth and Income Fund 1,727,126,382
Lincoln National International Fund 93,248,520
Lincoln National Managed Fund 234,013,183
Lincoln National Money Market Fund --
Lincoln National Social Awareness Fund 598,555,538
Lincoln National Special Opportunities
Fund 184,081,075
- --------------------------------------- -----------------
Multifund Total $ 3,563,218,821
- --------------------------------------- -----------------
-----------------
</TABLE>
<TABLE>
<CAPTION>
Net
Percentage Shares Asset Value of Cost of
EANNUITY INVESTMENTS of Net Assets Outstanding Value Shares Shares
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Lincoln National Aggressive Growth Fund 1.49% 434 $ 13.37 $ 5,802 $ 5,196
Lincoln National Bond Fund 0.55% 169 12.69 2,140 2,142
Lincoln National Capital Appreciation
Fund 2.93% 523 21.77 11,396 8,561
Delaware Premium Trend Series 1.12% 221 19.75 4,361 4,075
Delaware Decatur Total Return Series 1.85% 371 19.42 7,213 6,962
Delaware Global Bond Series 0.54% 198 10.68 2,112 1,991
Lincoln National Equity-Income Fund 0.65% 117 21.71 2,533 2,399
Lincoln National Global Asset
Allocation Fund 0.76% 189 15.76 2,977 2,863
Lincoln National Growth and Income Fund 0.66% 56 46.29 2,577 2,360
Lincoln National International Fund 0.94% 228 15.98 3,649 3,412
Lincoln National Managed Fund 0.72% 147 18.97 2,790 2,690
Lincoln National Money Market Fund 84.36% 32,865 10.00 328,652 328,652
Lincoln National Social Awareness Fund 2.45% 237 40.28 9,553 8,651
Lincoln National Special Opportunities
Fund 0.98% 114 33.42 3,811 3,550
- --------------------------------------- ------------- ------------------ -----------------
eAnnuity Total 100.00% 389,566 383,504
- --------------------------------------- ------------- ------------------ -----------------
Variable Account Total $ 11,536,124,343 $ 7,972,899,460
------------------ -----------------
------------------ -----------------
<CAPTION>
Unrealized
Appreciation/
EANNUITY INVESTMENTS (Depreciation)
<S> <C>
- ---------------------------------------
Lincoln National Aggressive Growth Fund $ 606
Lincoln National Bond Fund (2)
Lincoln National Capital Appreciation
Fund 2,835
Delaware Premium Trend Series 286
Delaware Decatur Total Return Series 251
Delaware Global Bond Series 121
Lincoln National Equity-Income Fund 134
Lincoln National Global Asset
Allocation Fund 114
Lincoln National Growth and Income Fund 217
Lincoln National International Fund 237
Lincoln National Managed Fund 100
Lincoln National Money Market Fund --
Lincoln National Social Awareness Fund 902
Lincoln National Special Opportunities
Fund 261
- --------------------------------------- --------------
eAnnuity Total 6,062
- --------------------------------------- --------------
Variable Account Total 3,56$3,224,883
--------------
--------------
</TABLE>
C-16
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
C-17
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
8. SUMMARY OF OPERATIONS
The following is a summary of operations for the year ended December 31,
1998.
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL
AGGRESSIVE LINCOLN NATIONAL CAPITAL
GROWTH BOND APPRECIATION
MULTIFUND COMBINED FUND FUND FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income:
- Dividends from Investment Income $ 292,834,448 $ 464,502 $32,055,093 $ 1,265,570
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments 555,694,325 44,781,700 -- 46,655,465
- ---------------------------------------
- Mortality and Expense
Guarantees:
Multifund w/o Guaranteed Minimum
Death Benefit Rider (103,222,614) (3,278,106) (3,098,356) (5,429,144)
- ---------------------------------------
Multifund w/ Guaranteed Minimum
Death Benefit Rider (1,202,827) (32,689) (40,242) (94,240)
- --------------------------------------- -------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INVESTMENT INCOME 744,103,332 41,935,407 28,916,495 42,397,651
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net Realized Gain (Loss) on
Investments 120,104,423 1,928,124 1,075,607 1,915,776
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 613,201,466 (69,643,232) (4,990,554) 139,173,254
- --------------------------------------- -------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 733,305,889 (67,715,108) (3,914,947) 141,089,030
- --------------------------------------- -------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,477,409,221 $(25,779,701) $25,001,548 $183,486,681
- --------------------------------------- -------------- ----------------- ----------------- -----------------
-------------- ----------------- ----------------- -----------------
<CAPTION>
DELAWARE DELAWARE DELAWARE
PREMIUM DECATUR GLOBAL
TREND TOTAL RETURN BOND
MULTIFUND FUND SERIES SERIES
<S> <C> <C> <C>
- ---------------------------------------
Net Investment Income:
- Dividends from Investment Income $ 1,190,539 $ 7,980,785 $ 784,989
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments -- -- --
- ---------------------------------------
- Mortality and Expense
Guarantees:
Multifund w/o Guaranteed Minimum
Death Benefit Rider (682,866) (1,279,578) (134,550)
- ---------------------------------------
Multifund w/ Guaranteed Minimum
Death Benefit Rider (17,708) (60,409) (4,502)
- --------------------------------------- ---------------- ------------- -----------
- ---------------------------------------
NET INVESTMENT INCOME 489,965 6,640,798 645,937
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net Realized Gain (Loss) on
Investments 741,866 60,877 (7,472)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 9,589,020 4,477,583 295,185
- --------------------------------------- ---------------- ------------- -----------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 10,330,886 4,538,460 287,713
- --------------------------------------- ---------------- ------------- -----------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,820,851 $ 11,179,258 $ 933,650
- --------------------------------------- ---------------- ------------- -----------
---------------- ------------- -----------
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
EQUITY- GLOBAL ASSET GROWTH AND LINCOLN NATIONAL
INCOME ALLOCATION INCOME INTERNATIONAL
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income:
- Dividends from Investment Income $19,383,542 $16,722,306 $ 99,872,135 $ 5,764,344
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments 17,384,182 33,490,300 206,716,872 17,818,962
- ---------------------------------------
- Mortality and Expense
Guarantees:
Multifund w/o Guaranteed Minimum
Death Benefit Rider (8,869,781) (4,520,286) (37,424,731) (4,805,222)
- ---------------------------------------
Multifund w/ Guaranteed Minimum
Death Benefit Rider (148,060) (58,511) (262,635) (41,336)
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INVESTMENT INCOME 27,749,883 45,633,809 268,901,641 18,736,748
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net Realized Gain (Loss) on
Investments 8,109,113 4,771,427 55,304,331 13,148,741
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 58,105,303 1,778,746 334,917,537 26,816,492
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 66,214,416 6,550,173 390,221,868 39,965,233
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $93,964,299 $52,183,982 $659,123,509 $58,701,981
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
LINCOLN NATIONAL MONEY SOCIAL SPECIAL
MANAGED MARKET AWARENESS OPPORTUNITIES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ---------------------------------------
Net Investment Income:
- Dividends from Investment Income $ 53,730,133 $ 5,141,348 $ 27,055,150 $ 21,424,012
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments 61,917,176 -- 54,197,749 72,731,919
- ---------------------------------------
- Mortality and Expense
Guarantees:
Multifund w/o Guaranteed Minimum
Death Benefit Rider (8,933,399) (1,025,520) (15,267,074) (8,474,001)
- ---------------------------------------
Multifund w/ Guaranteed Minimum
Death Benefit Rider (85,032) (14,125) (265,969) (77,369)
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INVESTMENT INCOME 106,628,878 4,101,703 65,719,856 85,604,561
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net Realized Gain (Loss) on
Investments 6,891,536 -- 11,779,015 14,385,482
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (15,219,867) -- 179,688,906 (51,786,907)
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (8,328,331) -- 191,467,921 (37,401,425)
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
- ---------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 98,300,547 $ 4,101,703 $257,187,777 $ 48,203,136
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
C-19
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
8. SUMMARY OF OPERATIONS CONTINUED
The following is a summary of operations for the year ended December 31,
1998.
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL
AGGRESSIVE LINCOLN NATIONAL CAPITAL
GROWTH BOND APPRECIATION
EANNUITY COMBINED FUND FUND FUND
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss):
- Dividends from Investment Income $ 969 $ -- $ 86 $ --
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments -- -- -- --
- ---------------------------------------
- Mortality and Expense Guarantees (161) (9) (4) (22)
- --------------------------------------- --------- ----- --- ------
- ---------------------------------------
NET INVESTMENT INCOME (LOSS) 808 (9) 82 (22)
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net realized gain (loss) on
investments 513 -- -- 515
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 6,062 606 (2) 2,835
- --------------------------------------- --------- ----- --- ------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 6,575 606 (2) 3,350
- --------------------------------------- --------- ----- --- ------
- ---------------------------------------
Net increase in net assets resulting
from operations $7,383 $597 $ 80 $3,328
- --------------------------------------- --------- ----- --- ------
--------- ----- --- ------
<CAPTION>
DELAWARE DELAWARE DELAWARE
PREMIUM DECATUR GLOBAL
TREND TOTAL RETURN BOND
EANNUITY FUND SERIES SERIES
<S> <C> <C> <C>
- ---------------------------------------
Net Investment Income (Loss):
- Dividends from Investment Income $ -- $ 11 $ 35
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments -- -- --
- ---------------------------------------
- Mortality and Expense Guarantees (5) (8) (4)
- --------------------------------------- ----- ----- ---------
- ---------------------------------------
NET INVESTMENT INCOME (LOSS) (5) 3 31
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net realized gain (loss) on
investments -- -- --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 286 251 121
- --------------------------------------- ----- ----- ---------
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 286 251 121
- --------------------------------------- ----- ----- ---------
- ---------------------------------------
Net increase in net assets resulting
from operations $ 281 $254 $152
- --------------------------------------- ----- ----- ---------
----- ----- ---------
</TABLE>
C-20
<PAGE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
EQUITY- GLOBAL ASSET GROWTH AND LINCOLN NATIONAL
INCOME ALLOCATION INCOME INTERNATIONAL
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss):
- Dividends from Investment Income $ 23 $ 26 $ 24 $ 26
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments -- -- -- --
- ---------------------------------------
- Mortality and Expense Guarantees (4) (4) (4) (6)
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
NET INVESTMENT INCOME (LOSS) 19 22 20 20
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net realized gain (loss) on
investments -- -- (1) 1
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 134 114 217 237
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 134 114 216 238
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
Net increase in net assets resulting
from operations $153 $136 $236 $258
- --------------------------------------- ----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
LINCOLN NATIONAL LINCOLN NATIONAL LINCOLN NATIONAL
LINCOLN NATIONAL MONEY SOCIAL SPECIAL
MANAGED MARKET AWARENESS OPPORTUNITIES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ---------------------------------------
Net Investment Income (Loss):
- Dividends from Investment Income $ 54 $618 $ 32 $ 34
- ---------------------------------------
- Dividends from Net Realized Gains
on Investments -- -- -- --
- ---------------------------------------
- Mortality and Expense Guarantees (4) (72) (9) (6)
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
NET INVESTMENT INCOME (LOSS) 50 546 23 28
- ---------------------------------------
Net realized and unrealized gain (loss)
on investments:
- Net realized gain (loss) on
investments (1) -- (1) --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 100 -- 902 261
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 99 -- 901 261
- --------------------------------------- ----- ----- ----- -----
- ---------------------------------------
Net increase in net assets resulting
from operations $149 $546 $924 $289
- --------------------------------------- ----- ----- ----- -----
----- ----- ----- -----
</TABLE>
C-21
<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")
(comprised of the Lincoln National Aggressive Growth, Lincoln
National Bond, Lincoln National Capital Appreciation, Delaware
Premium Trend, Delaware Decatur Total Return, Delaware Global Bond,
Lincoln National Equity-Income, Lincoln National Global Asset
Allocation, Lincoln National Growth and Income, Lincoln National
International, Lincoln National Managed, Lincoln National Money
Market, Lincoln National Social Awareness, and Lincoln National
Special Opportunities subaccounts), as of December 31, 1998, and the
related statement of operations for the year then ended and the
statements 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 investments owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our 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, 1998, and the
results of its operations and 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
March 30, 1999
C-22
<PAGE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in these
Prospectuses, in connection with the offers contained in them. If any are given
or made, the information or representations must not be relied upon as having
been authorized by the Variable Account or by the FUND(S) in question. These
Prospectuses do not constitute offers by the FUNDS to sell, or solicitations of
any offers to buy, any of the securities offered by them in any jurisdiction to
any person to whom it is unlawful for the FUNDS to make those offers.
[LOGO]
Fort Wayne, Indiana 46801
- -C- 1998 Lincoln National Life Insurance Co.
Form 1946C-SAI 4/99 May 1999 Y
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $23,830.9 $18,560.7
- ------------------------------------------------------------------------------------
Preferred stocks 236.0 257.3
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 259.3 436.0
- ------------------------------------------------------------------------------------
Affiliated common stocks 322.1 412.1
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,932.9 3,012.7
- ------------------------------------------------------------------------------------
Real estate 473.8 584.4
- ------------------------------------------------------------------------------------
Policy loans 1,606.0 660.5
- ------------------------------------------------------------------------------------
Other investments 434.4 335.5
- ------------------------------------------------------------------------------------
Cash and short-term investments 1,725.4 2,133.0
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 32,820.8 26,392.2
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 33.3 42.4
- ------------------------------------------------------------------------------------
Accrued investment income 432.8 343.5
- ------------------------------------------------------------------------------------
Reinsurance recoverable 171.6 71.1
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 53.7 44.1
- ------------------------------------------------------------------------------------
Federal income taxes recoverable from parent company 64.7 6.9
- ------------------------------------------------------------------------------------
Goodwill 49.5 52.4
- ------------------------------------------------------------------------------------
Other admitted assets 89.3 85.6
- ------------------------------------------------------------------------------------
Separate account assets 36,907.0 31,330.9
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $70,622.7 $58,369.1
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $12,310.6 $ 5,872.9
- ------------------------------------------------------------------------------------
Other policyholder funds 16,647.5 16,360.1
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 897.6 878.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 795.8 720.4
- ------------------------------------------------------------------------------------
Asset valuation reserve 484.5 450.0
- ------------------------------------------------------------------------------------
Interest maintenance reserve 159.7 135.4
- ------------------------------------------------------------------------------------
Other liabilities 504.5 294.7
- ------------------------------------------------------------------------------------
Short-term loan payable to parent company 140.0 120.0
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (789.0) (761.9)
- ------------------------------------------------------------------------------------
Separate account liabilities 36,907.0 31,330.9
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 68,058.2 55,400.7
- ------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National
Corporation) 25.0 25.0
- ------------------------------------------------------------------------------------
Surplus notes due to Lincoln National Corporation 1,250.0 --
- ------------------------------------------------------------------------------------
Paid-in surplus 1,930.1 1,821.8
- ------------------------------------------------------------------------------------
Unassigned surplus (deficit) (640.6) 1,121.6
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,564.5 2,968.4
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $70,622.7 $58,369.1
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $12,737.6 $ 5,589.0 $ 7,268.5
- ----------------------------------------------------------------------------
Net investment income 2,107.2 1,847.1 1,756.3
- ----------------------------------------------------------------------------
Amortization of interest maintenance reserve 26.4 41.5 27.2
- ----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 179.9 99.7 90.9
- ----------------------------------------------------------------------------
Expense charges on deposit funds 134.6 119.3 100.7
- ----------------------------------------------------------------------------
Separate account investment management and administration service fees 396.3 325.5 244.6
- ----------------------------------------------------------------------------
Other income 31.3 21.3 16.8
- ---------------------------------------------------------------------------- --------- --------- ---------
Total revenues 15,613.3 8,043.4 9,505.0
- ----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 13,964.1 4,522.1 5,989.9
- ----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,919.4 3,053.9 3,123.1
- ---------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 16,883.5 7,576.0 9,113.0
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before dividends to policyholders, income taxes
and net realized gain on investments (1,270.2) 467.4 392.0
- ----------------------------------------------------------------------------
Dividends to policyholders 67.9 27.5 27.3
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before federal income taxes and net realized
gain on investments (1,338.1) 439.9 364.7
- ----------------------------------------------------------------------------
Federal income taxes (credit) (141.0) 78.3 83.6
- ---------------------------------------------------------------------------- --------- --------- ---------
Gain (loss) from operations before net realized gain on investments (1,197.1) 361.6 281.1
- ----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding
net transfers to the interest maintenance reserve 46.8 31.3 53.3
- ---------------------------------------------------------------------------- --------- --------- ---------
Net income (loss) $(1,150.3) $ 392.9 $ 334.4
- ---------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- -----------------------------------------------------------------------------
Correction of prior year's asset valuation reserve -- (37.6) --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets -- (57.0) --
- ----------------------------------------------------------------------------- --------- --------- ---------
2,968.4 1,868.0 1,732.9
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income (loss) (1,150.3) 392.9 334.4
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (304.8) (36.2) 38.6
- -----------------------------------------------------------------------------
Nonadmitted assets (17.1) (0.4) (3.0)
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (35.2) (3.9) 0.6
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.4) (0.9) (0.4)
- -----------------------------------------------------------------------------
Asset valuation reserve (34.5) (36.9) (105.5)
- -----------------------------------------------------------------------------
Proceeds from surplus notes from shareholder 1,250.0 -- --
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 108.4 938.4 100.0
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation -- (2.6) --
- -----------------------------------------------------------------------------
Dividends to shareholder (220.0) (150.0) (135.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,564.5 $ 2,968.4 $ 1,962.6
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 13,495.2 $ 6,364.3 $ 8,059.4
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (632.4) (649.2) (767.5)
- -----------------------------------------------------------------------
Investment income received 2,003.9 1,798.8 1,700.6
- -----------------------------------------------------------------------
Separate account investment management and administration service fees 396.3 325.5 244.6
- -----------------------------------------------------------------------
Benefits paid (7,395.8) (5,345.2) (4,050.4)
- -----------------------------------------------------------------------
Insurance expenses paid (2,909.7) (3,193.0) (3,216.8)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) 84.2 (87.0) (72.3)
- -----------------------------------------------------------------------
Dividends to policyholders (12.9) (28.4) (27.7)
- -----------------------------------------------------------------------
Other income received and expenses paid, net 207.0 (8.7) 117.0
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 5,235.8 (822.9) 1,986.9
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 10,926.5 12,142.6 12,542.0
- -----------------------------------------------------------------------
Purchase of investments (16,950.0) (10,345.0) (14,175.4)
- -----------------------------------------------------------------------
Other sources (uses) including reinsured policy loans (778.3) 529.1 (377.2)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (6,801.8) 2,326.7 (2,010.6)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 108.4 -- 100.0
- -----------------------------------------------------------------------
Proceeds from surplus notes from shareholder 1,250.0 -- --
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 140.0 120.0 100.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (120.0) (100.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (220.0) (150.0) (135.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 1,158.4 (130.0) 2.0
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments (407.6) 1,373.8 (21.7)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 2,133.0 759.2 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 1,725.4 $ 2,133.0 $ 759.2
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1998, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health & Casualty
Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC")
and Lincoln Life & Annuity Company of New York ("LLANY").
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Insurance Department"), which practices differ from generally
accepted accounting principles ("GAAP"). The more significant variances from
GAAP are as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or fair value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported directly
in shareholder's equity after adjustments for related amortization of
deferred acquisition costs, additional policyholder commitments and deferred
income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis. Real estate owned and occupied by the Company is
classified as a real estate investment rather than reported as an operating
asset, and investment income and operating expenses include rent for the
Company's occupancy of those properties. Changes between cost and admitted
asset investment amounts are credited or charged directly to unassigned
surplus rather than to a separate surplus account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period in which the asset giving rise to the gain or loss is sold and
valuation allowances are provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
are charged to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
subsidiaries are carried at their statutory-basis net equity and presented
in the balance sheet as affiliated common stocks.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
period of the related policies using assumptions consistent with those used
in computing policy benefit reserves. For universal life insurance, annuity
and other investment-type products, deferred policy acquisition costs, to
the extent recoverable from future gross profits, are amortized generally in
proportion to the present value of expected gross profits from surrender
charges and investment, mortality and expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies consist of the entire premium received.
Under GAAP, premiums received in excess of policy charges are not recognized
as premium revenue.
Premiums and deposits with respect to annuity and other investment-type
contracts are reported as premium revenues; whereas, under GAAP, such
premiums and deposits are treated as liabilities and policy charges
represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Insurance Department to assume such business. Changes to
those amounts are credited or charged directly to unassigned surplus. Under
GAAP, an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity and assumption reinsurance agreements is
accounted for as a purchase for GAAP reporting purposes and the ceding
commission represents the purchase price. Under purchase accounting, assets
acquired and liabilities assumed are reported at fair value at the date of
the transaction and the excess of the purchase price over the sum of the
amounts assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory-basis, the ceding commission is expensed when paid
and reinsurance premiums and benefits are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
SURPLUS NOTES DUE TO LNC
Surplus notes due to LNC are reported as surplus rather than as liabilities.
On a statutory-basis, interest on surplus notes is not accrued until
approval is received from the Indiana Insurance Commissioner whereas under
GAAP, interest would be accrued periodically based on the outstanding
principal and the interest rate.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
A reconciliation of the Company's net income (loss) and capital and surplus
determined on a statutory-basis with amounts determined in accordance with
GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1996
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory-basis $ 2,564.5 $ 2,968.4 $(1,150.3) $ 392.9 $ 334.4
- -------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs,
present value of future profits and
goodwill 3,085.2 958.3 48.5 (98.9) 66.7
----------------------------------------
Policy and contract reserves (2,299.9) (1,672.9) 1,743.4 (48.6) (57.1)
----------------------------------------
Interest maintenance reserve 159.7 135.4 24.4 58.7 (39.7)
----------------------------------------
Deferred income taxes 181.6 (13.0) (218.6) 70.3 1.8
----------------------------------------
Policyholders' share of earnings and
surplus on participating business (132.8) (79.8) 3.2 5.3 (.3)
----------------------------------------
Asset valuation reserve 484.5 450.0 -- -- --
----------------------------------------
Net realized gain (loss) on investments (174.1) (91.5) (116.7) (20.4) 78.7
----------------------------------------
Unrealized gain on investments 1,335.1 1,245.5 -- -- --
----------------------------------------
Nonadmitted assets, including nonadmitted
investments 119.1 61.0 -- -- --
----------------------------------------
Investments in subsidiary companies 490.4 188.8 41.3 (80.5) 29.9
----------------------------------------
Surplus notes and related interest (1,251.5) -- (1.5) -- --
----------------------------------------
Other, net (120.1) (162.5) 103.6 (35.0) (82.6)
---------------------------------------- --------- --------- --------- --------- ---------
Net increase (decrease) 1,877.2 1,019.3 1,627.6 (149.1) (2.6)
- ------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 4,441.7 $ 3,987.7 $ 477.3 $ 243.8 $ 331.8
- ------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount
that would have existed had the new effective yield been applied since the
acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items and are amortized over the
remaining lives of the hedged items as adjustments to investment income or
benefits from the hedged items through the IMR. Any unamortized gains or
losses are recognized when the underlying hedged items are sold. The
premiums paid for interest rate caps and swaptions are deferred and
amoritized to net investment income on a straight-line basis over the term
of the respective derivative.
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity
U.S. government obligations, increased liabilities associated with certain
reinsurance agreements and foreign exchange risk. Moreover, the derivatives
used are designated as a hedge and reduce the indicated risk by having a
high correlation between changes in the value of the derivatives and the
items being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items have
been sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the repurchase price. It is the Company's
policy to take possession of securities with a market value at least equal
to the securities loaned. Securities loaned are recorded at amortized cost
as long as the value of the related collateral is sufficient. The Company's
agreements with third parties generally contain contractual provisions to
allow for additional collateral to be obtained when necessary. The Company
values collateral daily and obtains additional collateral when deemed
appropriate.
GOODWILL
Goodwill, which represents the excess, subject to certain limitations, of
the ceding commission over statutory-basis net assets of business purchased
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
under an assumption reinsurance agreement, is amortized on a straight-line
basis over ten years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Insurance Department. The Company waives deduction of deferred fractional
premiums on the death of life and annuity policy insureds and returns any
premium beyond the date of death, except for policies issued prior to March
1977. Surrender values on policies do not exceed the corresponding benefit
reserves. Additional reserves are established when the results of cash flow
testing under various interest rate scenerios indicate the need for such
reserves. If net premiums exceed the gross premiums on any insurance
in-force, additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and
unreported claims incurred during the year. The Company does not discount
claims and claim adjustment expense reserves. The reserves for unpaid claims
and claim adjustment expenses are estimated using individual case-basis
valuations and statistical analyses. Those estimates are subject to the
effects of trends in claim severity and frequency. Although considerable
variability is inherent in such estimates, management believes that the
reserves for claims and claim adjustment expenses are adequate. The
estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and claims and claim adjustment expenses are
accounted for on bases consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Certain
business is transacted on a funds withheld basis and investment income on
investments managed by the Company are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC and certain LNC subsidiaries.
Pursuant to an intercompany tax sharing agreement with LNC, the Company
provides for income taxes on a separate return filing basis. The tax sharing
agreement also provides that the Company will receive benefit for net
operating losses, capital losses and tax credits which are not usable on a
separate return basis to the extent such items may be utilized in the
consolidated income tax returns of LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
the intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable life
and variable annuity contracts and for which the contractholder, rather than
the Company, bears the investment risk. Separate account assets are reported
at fair value. The operations of the separate accounts are not included in
the accompanying financial statements. Policy administration and investment
management fees charged on separate account policyholder deposits are
included in income from separate account investment management and
administration service fees. Mortality charges on variable universal life
contracts are included in income from expense charges on deposit funds. Fees
charged relative to variable annuity and variable universal life
administration agreements for separate account products sold by other
insurance companies and not recorded on the Company's financial statements
are included in income from separate account investment management and
administration service fees.
RECLASSIFICATION
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation. These reclassifications had no effect on
unassigned surplus or net income previously reported.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Insurance Department. "Prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
ACCOUNTING PRACTICES AND PROCEDURES MANUAL and a variety of other NAIC
publications. "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state and may
change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various
states before it becomes the prescribed statutory-basis of accounting for
insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the state of Indiana must
adopt Codification as the prescribed basis of accounting on which domestic
insurers must report their statutory-basis results to the Insurance
Department. At this time, it is anticipated that Indiana will adopt
Codification, however, based on current guidance, management believes that
the impact of Codification will not be material to the Company's
statutory-basis financial statements.
The Company has received written approval from the Insurance Department to
record surrender charges applicable to separate account liabilities for
variable life and annuity products as a liability in the separate account
financial statements payable to the Company's general account. In the
accompanying financial statements, a corresponding receivable is recorded
with the related income impact recorded in the accompanying Statement of
Operations as a change in reserves or change in premium and other deposit
funds.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,714.3 $ 1,524.4 $ 1,442.2
----------------------------------------------------------------
Preferred stocks 19.7 23.5 9.6
----------------------------------------------------------------
Unaffiliated common stocks 10.6 8.3 6.5
----------------------------------------------------------------
Affiliated common stocks 5.2 15.0 9.5
----------------------------------------------------------------
Mortgage loans on real estate 323.6 257.2 269.3
----------------------------------------------------------------
Real estate 81.4 92.2 114.4
----------------------------------------------------------------
Policy loans 86.5 37.5 35.0
----------------------------------------------------------------
Other investments 26.5 28.2 22.4
----------------------------------------------------------------
Cash and short-term investments 104.7 70.3 48.9
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,372.5 2,056.6 1,957.8
- -------------------------------------------------------------------
Expenses:
Depreciation 19.3 21.0 25.0
----------------------------------------------------------------
Other 246.0 188.5 176.5
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 265.3 209.5 201.5
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 2,107.2 $ 1,847.1 $ 1,756.3
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
amounted to $2,600,000, consisting principally of interest
on bonds in default and mortgage loans. No accrued
investment income was nonadmitted at December 31, 1998.
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Corporate $17,658.4 $ 1,159.8 $ 148.2 $18,670.0
------------------------------------------------
U.S. government 900.7 88.8 3.4 986.1
------------------------------------------------
Foreign government 947.8 59.9 61.2 946.5
------------------------------------------------
Mortgage-backed 4,312.1 171.6 33.4 4,450.3
------------------------------------------------
State and municipal 11.9 .7 -- 12.6
------------------------------------------------ --------- ----------- ----------- ---------
$23,830.9 $ 1,480.8 $ 246.2 $25,065.5
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1997:
Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9
------------------------------------------------
U.S. government 436.3 67.9 -- 504.2
------------------------------------------------
Foreign government 1,202.1 104.9 5.4 1,301.6
------------------------------------------------
Mortgage-backed 3,874.3 215.2 27.1 4,062.4
------------------------------------------------
State and municipal 44.2 .3 -- 44.5
------------------------------------------------ --------- ----------- ----------- ---------
$18,560.7 $ 1,330.5 $ 92.6 $19,798.6
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1998 and 1997 reflects adjustments of
$11,800,000 and $5,500,000, respectively, to decrease
amortized cost as a result of the Securities Valuation
Office of the NAIC ("SVO") designating certain investments
as low or lower quality.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1998, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1999 $ 705.6 $ 712.6
--------------------------------------------------------------------------
In 2000-2003 4,041.9 4,142.8
--------------------------------------------------------------------------
In 2004-2008 6,652.0 6,860.1
--------------------------------------------------------------------------
After 2008 8,119.3 8,899.7
--------------------------------------------------------------------------
Mortgage-backed securities 4,312.1 4,450.3
-------------------------------------------------------------------------- --------- ---------
Total $23,830.9 $25,065.5
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investments in bonds during 1998,
1997 and 1996 were $9,395,000,000, $9,715,000,000 and
$10,996,900,000, respectively. Gross gains during 1998, 1997
and 1996 of $186,300,000, $218,100,000 and $169,700,000,
respectively, and gross losses of $138,000,000, $78,000,000
and $177,000,000, respectively, were realized on those
sales.
At December 31, 1998 and 1997, investments in bonds, with an
admitted asset value of $97,800,000 and $76,200,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
Unrealized gains and losses on investments in unaffiliated
common stocks and preferred stocks are reported directly in
unassigned surplus and do not affect operations. The cost or
amortized cost, gross unrealized gains and losses and the
fair value of investments in unaffiliated common stocks and
preferred stocks are as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
(IN MILLIONS)
--------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Preferred stocks $236.0 $ 8.9 $ 2.4 $242.5
- ----------------------------------------
Unaffiliated common stocks 223.3 62.0 26.0 259.3
- ----------------------------------------
At December 31, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1998 and 1997 reflects adjustments of
$5,800,000 and $4,000,000, respectively, to decrease
amortized cost as a result of the SVO designating certain
investments as low or lower quality.
During 1998, the minimum and maximum lending rates for
mortgage loans were 6.41% and 8.08%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1998, the
Company did not hold any mortgages with interest overdue
beyond one year. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan
over the maximum loan that would be allowed on the land
without the building.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The components of the Company's real estate are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Occupied by the Company:
Land $ 2.5 $ 2.5
--------------------------------------------------------------------------------
Buildings 9.0 8.4
--------------------------------------------------------------------------------
Less accumulated depreciation (1.7) (1.2)
-------------------------------------------------------------------------------- --------- ---------
Net real estate occupied by the Company 9.8 9.7
- -----------------------------------------------------------------------------------
Other:
Land 93.2 124.1
--------------------------------------------------------------------------------
Buildings 413.0 491.6
--------------------------------------------------------------------------------
Other 7.9 8.1
--------------------------------------------------------------------------------
Less accumulated depreciation (50.1) (49.1)
-------------------------------------------------------------------------------- --------- ---------
Net other real estate 464.0 574.7
- ----------------------------------------------------------------------------------- --------- ---------
Net real estate $ 473.8 $ 584.4
- ----------------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 179.7 $ 209.3 $ 69.3
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $27.3,
$54.0 and $(6.7) in 1998, 1997 and 1996, respectively) 50.8 100.2 (12.4)
- ------------------------------------------------------------------------ --------- --------- ---------
128.9 109.1 81.7
Less federal income taxes on realized gains 82.1 77.8 28.4
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 46.8 $ 31.3 $ 53.3
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly owned insurance subsidiaries is
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,221.1 $ 333.9 $ 403.6 $ 1,938.0
- ---------------------------------------------------------
Other assets 40.3 31.3 490.0 270.2
- --------------------------------------------------------- --------- ----------- --------- ---------
Total admitted assets $ 1,261.4 $ 365.2 $ 893.6 $ 2,208.2
- --------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
Insurance reserves $ 1,149.8 $ 266.3 $ 281.8 $ 1,814.5
- ---------------------------------------------------------
Other liabilities 42.0 24.0 553.7 45.1
- ---------------------------------------------------------
Liabilities related to separate accounts -- -- -- 236.9
- ---------------------------------------------------------
Capital and surplus 69.6 74.9 58.1 111.7
- --------------------------------------------------------- --------- ----------- --------- ---------
Total liabilities and capital and surplus $ 1,261.4 $ 365.2 $ 893.6 $ 2,208.2
- --------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 310.4 $ 165.0 $ 150.3 $ 1,402.6
- -----------------------------------------------------------
Expenses 310.6 164.4 139.5 1,656.1
- -----------------------------------------------------------
Net realized gains (losses) (0.3) 0.9 (0.1) (0.7)
- ----------------------------------------------------------- --------- ----------- --------- ---------
Net income (loss) $ (0.5) $ 1.5 $ 10.7 $ (254.2)
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3
- -----------------------------------------------------------
Other assets 36.9 77.3 481.6 130.8
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7
- -----------------------------------------------------------
Other liabilities 48.4 21.7 546.4 5.8
- -----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 164.7
- -----------------------------------------------------------
Capital and surplus 70.7 73.7 54.9 212.9
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0
- -------------------------------------------------------------
Expenses 262.6 244.2 114.6 224.4
- -------------------------------------------------------------
Net realized gains (losses) .1 .6 (.1) (.1)
- ------------------------------------------------------------- --------- --------- ----------- -----------
Net income (loss) $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------- --------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The Company also owns three non-insurance subsidiaries, all
of which were formed or acquired in 1998. AnnuityNet, Inc.
was formed for the distribution of variable annuities over
the internet and is valued on the equity method with an
admitted asset value of $1,500,000 at December 31, 1998.
Lincoln National Insurance Associates was purchased for
$600,000 and is valued on the equity method with an admitted
asset value of $600,000 at December 31, 1998. Sagemark
Consulting, Inc. ("Sagemark") was purchased in 1998 and is a
broker dealer acquired in connection with a reinsurance
transaction completed in 1998. Sagemark is valued on the
equity method with an admitted asset value of $5,700,000 at
December 31, 1998.
The carrying value of all affiliated common stocks, was
$322,100,000 and $412,100,000 at December 31, 1998 and 1997,
respectively. The insurance affiliates are carried at
statutory-basis net equity while other affiliates are
recorded at GAAP basis net equity, adjusted for certain
items which would be non-admitted under statutory accounting
principles. The cost basis of investments in subsidiaries as
of December 31, 1998 and 1997 was $631,100,000 and
$466,200,000, respectively.
During 1998, 1997 and 1996 the Company's insurance
subsidiaries paid dividends of $5,200,000, $15,000,000 and
$10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate in the accompanying
statements of operations differs from the prevailing
statutory tax rate principally due to tax-exempt investment
income, dividends received tax deductions and differences
between statutory accounting and tax return recognition
relative to policy acquisition costs, policy and contract
liabilities and reinsurance ceding commissions.
In 1997 and 1996, federal income taxes incurred totaled
$78,300,000 and $83,600,000, respectively. In 1998, a
federal income tax net operating loss of $103,800,000 and
tax credits of $19,300,000 were incurred and carried back to
recover taxes paid in prior years.
The Company paid $2,300,000, $164,500,000 and $100,400,000
to LNC in 1998, 1997 and 1996, respectively, for federal
income taxes.
Under prior income tax law, one-half of the excess of a life
insurance company's income from operations over its taxable
investment income was not taxed, but was set aside in a
special tax account designated as "Policyholders' Surplus."
The Company has approximately $187,000,000 of untaxed
"Policyholders' Surplus" on which no payment of federal
income taxes will be required unless it is distributed as a
dividend, or under other specified conditions. Barring the
passage of unfavorable legislation, the Company does not
believe that any significant portion of the account will be
taxed in the foreseeable future and no related tax liability
has been recognized. If the entire balance of the account
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
became taxable under the current federal income tax rate,
the tax would be approximately $65,500,000.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other admitted assets", includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future policy
benefits and claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 4,081.8 $ 1,431.0
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 79.9 35.9
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions, excluding assumption reinsurance,
included in the income statement caption, "Premiums and
deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 9,018.9 $ 727.2 $ 241.3
- ----------------------------------------------------------------------
Insurance ceded 877.1 302.9 193.3
- ---------------------------------------------------------------------- --------- --------- ---------
Net amount included in premiums $ 8,141.8 $ 424.3 $ 48.0
- ---------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and settlement
expenses," is net of reinsurance recoveries of
$2,098,800,000, $1,240,500,000 and $787,900,000 for 1998,
1997 and 1996, respectively.
Details underlying the balance sheet caption "Other
policyholder funds" are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Premium deposit funds $16,285.2 $16,201.8
- -----------------------------------------------------------------------------
Undistributed earnings on participating business 348.4 142.0
- -----------------------------------------------------------------------------
Other 13.9 16.3
- ----------------------------------------------------------------------------- --------- ---------
$16,647.5 $16,360.1
--------- ---------
--------- ---------
</TABLE>
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and fees in course of collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 9.5 $ 3.4 $ 6.1
- -----------------------------------------------------------------------
Ordinary renewal (13.7) 11.3 (25.0)
- -----------------------------------------------------------------------
Group life 14.2 .2 14.0
- ----------------------------------------------------------------------- --------- ----- -----------
$ 10.0 $ 14.9 $ (4.9)
--------- ----- -----------
--------- ----- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.2 $ 2.4 $ .8
- ------------------------------------------------------------------------
Ordinary renewal 17.8 3.2 14.6
- ------------------------------------------------------------------------
Group life 10.6 .2 10.4
- ------------------------------------------------------------------------ --------- --- -----
$ 31.6 $ 5.8 $ 25.8
--------- --- -----
--------- --- -----
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance
Consultants, Inc. to write group life and health business.
Direct premiums written related to the agreements amounted
to $11,900,000 and $13,400,000 in 1998 and 1997,
respectively. During 1996, LNC Administrative Services
Corporation, an affiliate, entered into a similar agreement
with the Company with direct premiums written amounting to
$7,000,000 and $7,200,000 in 1998 and 1997, respectively.
Authority granted by the managing general agents agreements
include underwriting, claims adjustment and claims payment
services.
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES
At December 31, 1998, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------
(IN MILLIONS)
----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,659.5 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 2,959.2 5
-----------------------------------------------------------------------------
At market value 35,472.0 63
----------------------------------------------------------------------------- --------- ---
41,090.7 73
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 12,747.3 22
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,625.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 56,463.1 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,683.8
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $54,779.3
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
A reconciliation of the total net annuity reserves and
deposit fund liabilities to the amounts reported in the
Company's 1998 Annual Statement and the Company's Separate
Accounts Annual Statement is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
(IN MILLIONS)
-------------
<S> <C>
Per 1998 Annual Statement:
Exhibit 8, Section B -- Total (net) $ 2,554.6
- ----------------------------------------------------------------
Exhibit 8, Section C -- Total (net) 26.0
- ----------------------------------------------------------------
Exhibit 10, Column 1, Line 19 16,579.6
- ---------------------------------------------------------------- -------------
19,160.2
- ---------------------------------------------------------------- -------------
Per Separate Accounts Annual Statement
Exhibit 6, Column 2, Line 0299999 146.4
- ----------------------------------------------------------------
Page 3, Line 3 35,472.7
- ---------------------------------------------------------------- -------------
35,619.1
- ---------------------------------------------------------------- -------------
Total net annuity reserves and deposit fund liabilities $54,779.3
- ---------------------------------------------------------------- -------------
-------------
</TABLE>
8. CAPITAL AND SURPLUS
In 1998, the Company issued two surplus notes to LNC in return for cash of
$1,250,000,000. The first note for $500,000,000 was issued to LNC in
connection with the CIGNA indemnity reinsurance transaction on January 5,
1998. This note calls for the Company to pay the principal amount of the
notes on or before March 31, 2028 and interest to be paid quarterly at an
annual rate of 6.56%. Subject to approval by the Indiana Insurance
Commissioner, LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the anniversary date of the
note, but not before January 5, 2003. Any payment of interest or
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL AND SURPLUS (CONTINUED)
repayment of principal may be paid only out of the Company's earnings, only
if the Company's surplus exceeds specified levels ($2,315,700,000 at
December 31, 1998), and subject to approval by the Indiana Insurance
Commissioner. No interest payments were approved by the Indiana Insurance
Commissioner as of December 31, 1998 and, thus, no amounts were accrued at
that date.
The second note for $750,000,000 was issued on December 18, 1998 to LNC in
connection with the Aetna indemnity reinsurance transaction. This note calls
for the Company to pay the principal amount of the notes on or before
December 31, 2028 and interest to be paid quarterly at an annual rate of
6.03%. Subject to approval by the Indiana Insurance Commissioner, LNC also
has a right to redeem the note for immediate repayment in total or in part
once per year on the anniversary date of the note, but not before December
18, 2003. Any payment of interest or repayment of principal may be paid only
out of the Company's earnings, only if the Company's surplus exceeds
specified levels ($2,379,600,000 at December 31, 1998), and subject to
approval by the Indiana Insurance Commissioner. No interest payments were
approved by the Indiana Insurance Commissioner as of December 31, 1998 and,
thus, no amounts were accrued at that date.
A summary of the terms of these surplus notes follows:
<TABLE>
<CAPTION>
CURRENT YEAR
PRINCIPAL PRINCIPAL INTEREST
DATE ISSUED AMOUNT OF NOTE OUTSTANDING PAID
------------------------------- -------------- ------------- ------------
<S> <C> <C> <C>
January 5, 1998 $500,000,000 $ 500,000,000 $ 32,300,000
-------------------------------
December 18, 1998 750,000,000 750,000,000 --
-------------------------------
</TABLE>
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1998, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In January 1998, the Company assumed a block of
individual life insurance and annuity business from CIGNA and in October
1998, the Company assumed a block of individual life insurance business from
Aetna (SEE NOTE 10). The statutory accounting regulations do not allow
goodwill to be recognized on indemnity reinsurance transactions and
therefore, the related ceding commission was expensed in the accompanying
Statement of Operations and resulted in the reduction of unassigned surplus.
As a result of these transactions, the Company's statutory-basis unassigned
surplus is negative as of December 31, 1998 and it will be necessary for the
Company to obtain prior approval of the Indiana Insurance Commissioner
before paying any dividends to LNC until such time as statutory-basis
unassigned surplus is positive. It is expected that statutory-basis
unassigned surplus will return to a positive position within two to three
years from the closing of the Aetna transaction assuming a level of
statutory-basis earnings coinciding with recent earnings patterns. If
statutory-basis earnings are less then recent patterns due to adverse
operating conditions or further indemnity reinsurance transactions of this
nature or other factors, or if dividends are approved and paid at amounts
higher than recent history, the statutory-basis unassigned surplus may not
return to a positive position as soon as expected. Although no assurance can
be given, management believes that the approvals for the payment of such
dividends in amounts consistent with those paid in the past can be obtained.
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory-basis financial statements of income or
financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Option issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
As of December 31, 1998, 885,252 and 504,369 shares of LNC common stock were
subject to options granted to Company employees and agents, respectively,
under the stock option incentive plans of which 430,053 and 87,160,
respectively, were exercisable on that date. The exercise prices of the
outstanding options range from $23.50 to $96.41. During 1998, 1997 and 1996,
136,469, 170,789 and 72,405 options were exercised, respectively, and
18,288, 1,846 and 10,950 options were forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1998 and 1997 is a net
liability of $670,100,000 and $516,900,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels and/or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves could be required in the future. Accordingly, this liability may
prove to be deficient or excessive. The Company reviews reserve levels on an
ongoing basis. However, it is management's opinion that such future
development will not materially affect the financial position of the
Company.
During 1997, the Company conducted an in-depth review of loss experience on
its disability income business. As a result of this study, the reserve level
was deemed to be inadequate to meet future obligations if current incident
levels were to continue in the future. In order to address this situation,
the Company strengthened its disability income reserves by $80,000,000 in
1997.
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the long-term nature of group pension annuities and the
resulting inability to exactly match cash flows, a risk exists that future
cash flows from investments will not be reinvested at rates as high as
currently earned by the portfolio. Accordingly, these liabilities may prove
to be deficient or excessive. However, it is management's opinion that such
future
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
development will not materially affect the financial position of the
Company.
LEASES
The Company leases its home office properties through sale-leaseback
agreements. The agreements provide for a 25 year lease period with options
to renew for six additional terms of five years each. The agreements also
provide the Company with the right of first refusal to purchase the
properties during the term of the lease, including renewal periods, at a
price as defined in the agreements. The Company also has the option to
purchase the leased properties at fair market value as defined in the
agreements on the last day of the initial 25-year lease ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1998, 1997 and 1996 was
$34,000,000, $29,300,000 and $26,400,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
1999 $ 18.9
- --------------------------------------
2000 18.4
- --------------------------------------
2001 18.7
- --------------------------------------
2002 18.7
- --------------------------------------
2003 18.6
- --------------------------------------
Thereafter 116.6
- -------------------------------------- ---------
$ 209.9
---------
---------
</TABLE>
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for information technology services for the Fort Wayne operations.
Total costs incurred in 1998 were $54,800,000. Future minimum annual costs
range from $33,600,000 to $56,800,000, however future costs are dependent on
usage and could exceed these amounts.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. Prior to December 31, 1997, the Company
limited its maximum coverage that it retained on an individual to
$3,000,000. Based on a review of the capital and business in-force effective
in January 1998, the Company changed the amount it will retain on an
individual to $10,000,000. Portions of the Company's deferred annuity
business have also been reinsured with other companies to limit its exposure
to interest rate risks. At December 31, 1998, the reserves associated with
these reinsurance arrangements totaled $1,608,500,000. To cover products
other than life insurance, the Company acquires other insurance coverages
with retentions and limits that management believes are appropriate for the
circumstances. The accompanying statutory-basis financial statements reflect
premiums, benefits and policy acquisition expenses net of reinsurance ceded.
The Company remains liable if its reinsurers are unable to meet their
contractual obligations under the applicable reinsurance agreements.
Proceeds from the sale of common stock of American Statements Financial
Corporation ("American States") and proceeds from the January 5, 1998
surplus note, were used to finance an indemnity reinsurance transaction
whereby the Company and LLANY reinsured 100% of a block of individual life
insurance and annuity business from CIGNA Corporation ("CIGNA"). The Company
paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of the
reinsurance agreement and recognized a ceding commission expense of
$1,127,700,000 in 1998, which is included in the Statement of Operations
line item "Underwriting, acquisition, insurance and other expenses." At the
time of closing, this block of business had statutory liabilities of
$4,658,200,000 that became the Company's obligation. The Company also
received assets, measured on a historical statutory basis, equal to the
liabilities.
Pursuant to the terms of the reinsurance agreement, the Company, LLANY and
CIGNA are in the final stages of agreeing to the statutory-basis values of
these assets and liabilities. Any changes to these values that may occur in
future periods will not be material to the Company's financial position.
Subsequent to this transaction, the Company and LLANY announced that they
had reached an agreement to sell the administration rights to a variable
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
annuity portfolio that had been acquired as part of the block of business
assumed on January 2, 1998. This sale closed on October 12, 1998 with an
effective date of August 1, 1998.
In connection with the completion of the CIGNA reinsurance transaction, the
Company recorded a charge of $31,000,000 to cover certain costs of
integrating the existing operations with the new block of business.
On October 1, 1998, the Company and LLANY entered into an indemnity
reinsurance transaction whereby the Company and LLANY reinsured 100% of a
block of individual life insurance business from Aetna, Inc. The Company
paid $856,300,000 to Aetna on October 1, 1998 under the terms of the
reinsurance agreement and recognized a ceding commission expense of
$815,300,000 in 1998, which is included in the Statement of Operations line
item "Underwriting, acquisition, insurance and other expenses." At the time
of closing, this block of business had statutory liabilities of
$2,813,300,000 that became the Company's obligation. The Company also
received assets, measured on a historical statutory basis, equal to the
liabilities. The Company financed this reinsurance transaction with proceeds
from short-term debt borrowings from LNC until the December 18, 1998 surplus
note was approved by the Insurance Department. Subsequent to the Aetna
transaction, the Company and LLANY announced that they had reached an
agreement to retrocede the sponsored life business assumed for $87,600,000.
The retrocession agreement closed on October 14, 1998 with an effective date
of October 1, 1998.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1998, the Company has provided $44,900,000 of
statutory-basis surplus relief to other insurance companies under
reinsurance transactions. The Company has retroceded 100% of this accepted
surplus relief to its off-shore reinsurance affiliates. Generally, such
amounts are offset by corresponding receivables from the ceding company,
which are secured by future profits on the reinsured business. However, the
Company is subject to the risk that the ceding company may become insolvent
and the right of offset would not be permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $43,400,000 and $8,200,000 at December 31, 1998
and 1997, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1998, the Company did not have a material concentration of
financial instruments in a single investee or industry. The Company's
investments in mortgage loans principally involve commercial real estate. At
December 31, 1998, 25% of such mortgages ($980,500,000) involved properties
located in Texas and California. Such investments consist of first mortgage
liens on completed income-producing properties and the mortgage outstanding
on any individual property does not exceed $58,200,000.
At December 31, 1998, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of labor
or services used in the business; or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for claims in excess of $5,000,000. The degree
of applicability of this coverage will depend on the specific facts of each
proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will not have a material adverse affect on the financial position of the
Company.
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
Four lawsuits involving alleged fraud in the sale of interest sensitive
universal life and whole life insurance have been filed as class actions
against the Company, although the court has not certified a class in any of
these cases. Plaintiffs seek unspecified damages and penalties for
themselves and on behalf of the putative class. While the relief sought in
these cases is substantial, it is premature to make assessments about the
potential loss, if any, because the status of the cases ranges from the
early states of litigation to the dismissal and appeals stage. Management
intends to defend these suits vigorously. The amount of liability, if any,
which may arise as a result of these suits cannot be reasonably estimated at
this time.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
GUARANTEES
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-
balance-sheet risks at December 31, 1998 relate to mortgage loan
pass-through certificates. The Company has sold commercial mortgage loans
through grantor trusts which issued pass-through certificates. The Company
has agreed to repurchase any mortgage loans which remain delinquent for 90
days at a repurchase price substantially equal to the outstanding principal
balance plus accrued interest thereon to the date of repurchase. The
outstanding guarantees as of December 31, 1998 and 1997 were $30,900,000 and
$41,600,000, respectively. It is management's opinion that the value of the
properties underlying these commitments is sufficient that in the event of
default the impact would not be material to the Company. Accordingly, both
the carrying value and fair value of these guarantees is zero at December
31, 1998 and 1997.
The Company's wholly owned subsidiary, LNH&C, accepts personal accident
reinsurance programs from other insurance companies. Most of these programs
are presented to LNH&C by independent brokers who represent the ceding
companies. Certain excess of loss personal accident reinsurance programs
created in the London market during 1993 through 1996 have produced and have
potential to produce significant losses. At December 31, 1998 and 1997,
liabilities of $177,400,000 and $186,300,000, respectively, have been
established for such programs. These reserves are based on various estimates
that are subject to considerable uncertainty. Accordingly, this reserve may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the financial position of
the Company.
The Company and LNH&C continue to investigate the personal accident
reinsurance programs to determine if there are additional programs including
certain workers compensation programs, which may produce losses. At this
time, the Company and LNH&C do not have sufficient information to determine
whether or not it is probable that additional losses have been incurred nor
can the Company and LNH&C accurately estimate the ultimate cost or timing of
the outcome on these programs.
DERIVATIVES
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
government obligations, commodity risk, credit risk, increased liabilities
associated with reinsurance agreements and foreign exchange risks. In
addition, the Company is subject to the risks associated with changes in the
value of its derivatives; however, such changes in value generally are
offset by changes in the value of the items
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
being hedged by such contracts. Outstanding derivatives with
off-balance-sheet risks, shown in notional or contract amounts along with
their carrying value and estimated fair values, are as follows:
<TABLE>
<CAPTION>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1998 1998 1997 1997
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,108.8 $4,900.0 $ 9.3 $ .9 $13.9 $ .9
---------------------------------
Swaptions 1,899.5 1,752.0 16.2 2.5 6.9 6.9
---------------------------------
Interest rate swaps 258.3 10.0 -- 9.9 -- (1.8)
---------------------------------
Put options 21.3 -- -- 2.2 -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,287.9 6,662.0 25.5 15.5 20.8 6.0
Foreign currency derivatives:
Forward contracts 1.5 163.1 -- -- 5.4 5.4
---------------------------------
Foreign currency swaps 47.2 15.0 -- .3 -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
48.7 178.1 -- .3 5.4 3.3
Commodity derivatives:
Commodity swaps 8.1 -- -- 2.4 -- --
--------------------------------- -------- -------- -------- ----- -------- ------
$6,344.7 $6,840.1 $25.5 $18.2 $26.2 $ 9.3
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation of the notional or contract amounts for the significant
programs using derivative agreements and contracts at December 31 is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------
(IN MILLIONS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ------------------------------------
New contracts 708.8 -- -- 50.0 218.3 1,080.0
- ------------------------------------
Terminations and maturities (1,500.0) (600.0) -- (50.0) (70.8) --
- ------------------------------------ --------- --------- --- --------- --------- ---------
Balance at end of year $ 4,108.8 $ 4,900.0 $ -- $ -- $ 1,899.5 $ 1,752.0
- ------------------------------------ --------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES
CONTRACTS INTEREST RATE SWAPS
--------------------------------------------
1998 1997 1998 1997
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ -- $ 147.7 $ 10.0 $ --
- -------------------------------------------------------------
New contracts -- 88.3 2,226.6 10.0
- -------------------------------------------------------------
Terminations and maturities -- (236.0) (1,978.3) --
- ------------------------------------------------------------- --- --------- --------- ---------
Balance at end of year $ -- $ -- $ 258.3 $ 10.0
- ------------------------------------------------------------- --- --------- --------- ---------
--- --------- --------- ---------
</TABLE>
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
PUT OPTIONS COMMODITY SWAPS
------------------------------------------------
1998 1997 1998 1997
------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ -- $ -- $ -- $ --
- --------------------------------------------------------------------
New contracts 21.3 -- 8.1 --
- --------------------------------------------------------------------
Terminations and maturities -- -- -- --
- -------------------------------------------------------------------- --------- --- --- ---
Balance at end of year $ 21.3 $ -- $ 8.1 $ --
- -------------------------------------------------------------------- --------- --- --- ---
--------- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES (FOREIGN INVESTMENTS)
------------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------
(IN MILLIONS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------------
New contracts 419.8 833.1 -- -- 39.2 --
- -------------------------------------------
Terminations and maturities (581.4) (921.6) -- (43.9) (7.0) --
- ------------------------------------------- --------- --------- --- --------- --------- ---------
Balance at end of year $ 1.5 $ 163.0 $ -- $ -- $ 47.2 $ 15.0
- ------------------------------------------- --------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
</TABLE>
INTEREST RATE CAP AGREEMENTS
The interest rate cap agreements, which expire in 1999 through 2006, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the effect
of rising interest rates. The premium paid for the interest rate caps is
included in other assets ($9,300,000 as of December 31, 1998) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 1999 through 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of rising
interest rates. The premium paid for the swaptions is included in other
assets ($16,200,000 as of December 31, 1998) and is being amortized over the
terms of the agreements. This amortization is included in net investment
income.
SPREAD LOCK AGREEMENTS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified
government note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity government
security and the price sensitivity of the swap at that time. The purpose of
the Company's spread-lock program is to protect a portion of its fixed
maturity securities against widening of spreads.
FINANCIAL FUTURE CONTRACTS
The Company uses exchange-traded financial futures contracts to hedge
against interest rate risks and to manage duration of a portion of its
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
fixed maturity securities. Financial futures contracts obligate the Company
to buy or sell a financial instrument at a specified future date for a
specified price. They may be settled in cash or through delivery of the
financial instrument. Cash settlements on the change in market values of
financial futures contracts are made daily.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the agreements the stream of variable coupon
payments generated from the bonds, and in turn, receives a fixed payment
from the counterparty at a predetermined interest rate. The net
receipts/payments from interest rate swaps are recorded in net investment
income.
The Company also uses interest rate swap agreements to hedge its exposure to
interest rate fluctuations related to the anticipated purchase of assets to
support newly acquired or assumed blocks of business. Once the assets are
purchased, the gains resulting from the termination of the swap agreements
are applied to the basis of the assets purchased. The gains are recognized
in earnings over the life of the assets.
PUT OPTION
The Company uses put options, combined with various perpetual fixed income
securities, and interest rate swaps to replicate a fixed income, fixed
maturity investment. The put options give the Company the right, but not the
obligation, to sell to the counterparty of the agreement the specified
securities on a specified date at a fixed price.
FOREIGN CURRENCY DERIVATIVES (FOREIGN INVESTMENTS)
The Company uses a combination of foreign exchange forward contracts,
foreign currency options and foreign currency swaps, all of which are traded
over-the-counter, to hedge some of the foreign exchange risk of investments
in fixed maturity securities denominated in foreign currencies. The foreign
currency forward contracts obligate the Company to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give the Company the right, but not the obligation, to buy
or sell a foreign currency at a specific exchange rate during a specified
time period. A foreign currency swap is a contractual agreement to exchange
the currencies of two different countries pursuant to an agreement to
re-exchange the two currencies at the same rate of exchange at a specified
future date.
COMMODITY SWAP
The Company uses a commodity swap to hedge its exposure to fluctuations in
the price of gold, which is the underlying variable in determining the
periodic interest payments associated with a fixed income security. A
commodity swap is a contractual agreement to exchange a certain amount of a
particular commodity for a fixed amount of cash. The Company owns a fixed
income security that meets its coupon payment obligations in gold bullion.
The Company is obligated to pay to the counterparty the gold bullion, and in
return, receives from the counterparty a stream of fixed income payments.
The fixed income payments are the product of the swap notional multiplied by
the fixed rate stated in the swap agreement. The net receipts/payments from
commodity swaps are recorded in net investment income.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$10,000,000, $7,000,000 and $6,900,000 in 1998, 1997 and 1996, respectively.
Deferred losses of $48,200,000 as of December 31, 1998, were the result of:
1) terminated and expired spread-lock agreements and; 2) terminated interest
rate swaps. These losses are included with the related fixed maturity
securities to which the hedge applied and are being amortized over the life
of such securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, swaptions, spread-lock
agreements, financial futures, interest rate swaps, put options and foreign
currency derivatives. However, the Company does not anticipate
nonperformance
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
by any of the counterparties. The credit risk associated with such
agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for
such agreements with each counterparty if the net market value is in the
Company's favor. At December 31, 1998, the exposure was $21,100,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly,
the estimates shown are not necessarily indicative of the amounts that would
be realized in a one-time, current market exchange of all of the Company's
financial instruments.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values are estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit quality and
maturity of the investments. The fair values of unaffiliated common stocks
are based on quoted market prices.
PREFERRED STOCK
Fair values of preferred stock are based on quoted market prices, where
available. For preferred stock not actively traded, fair values are based on
values of issues of comparable yield and quality.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair value of mortgage loans on real estate was established
using a discounted cash flow method based on credit rating, maturity and
future income. The ratings for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are calculated on a
composite discounted cash flow basis using Treasury interest rates
consistent with the maturity durations assumed. These durations are based on
historical experience.
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other investments and cash and
short-term investments in the accompanying statutory-basis balance sheets
approximate their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder funds," include investment type insurance contracts (i.e.,
deposit contracts and guaranteed interest contracts). The fair values for
the deposit contracts and certain guaranteed interest contracts are based on
their approximate surrender values. The fair values for the remaining
guaranteed interest and similar contracts are estimated using discounted
cash flow calculations. These calculations are based on interest rates
currently offered on similar contracts with maturities that are consistent
with those remaining for the contracts being valued.
The remainder of the balance sheet captions "Future policy benefits and
claims" and "Other policyholder funds," that do not fit the definition of
"investment-type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
companies in the insurance industry are monitoring the related actions of
the various rule-making bodies and attempting to determine an appropriate
methodology for estimating and disclosing the "fair value" of their
insurance contract liabilities.
SHORT-TERM DEBT
For short-term debt, the carrying value approximates fair value.
SURPLUS NOTES DUE TO LNC
Fair values for surplus notes are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
GUARANTEES
The Company's guarantees include guarantees related to mortgage loan
pass-through certificates. Based on historical performance where repurchases
have been negligible and the current status, which indicates none of the
loans are delinquent, the fair value liability for the guarantees related to
the mortgage loan pass-through certificates is zero.
DERIVATIVES
The Company employs several different methods for determining the fair value
of its derivative instruments. Fair values for these contracts are based on
current settlement values. These values are based on quoted market prices
for the foreign currency exchange contracts and financial future contracts
and; 2) industry standard models that are commercially available for
interest rate cap agreements, swaptions, spread lock agreements, interest
rate swaps, commodity swaps and put options.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real
estate are based on the difference between the value of the committed
investments as of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the accompanying
statutory-basis balance sheets at fair value. The related liabilities are
also reported at fair value in amounts equal to the separate account assets.
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
1998 1997
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 23,830.9 $ 25,065.5 $ 18,560.7 $ 19,798.6
- -----------------------------------------------
Preferred stocks 236.0 242.5 257.3 268.7
- -----------------------------------------------
Unaffiliated common stocks 259.3 259.3 436.0 436.0
- -----------------------------------------------
Mortgage loans on real estate 3,932.9 4,100.1 3,012.7 3,179.2
- -----------------------------------------------
Policy loans 1,606.0 1,685.9 660.5 648.3
- -----------------------------------------------
Other investments 434.4 434.4 335.5 335.5
- -----------------------------------------------
Cash and short-term investments 1,725.4 1,725.4 2,133.0 2,133.0
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,845.8) (17,486.4) (17,324.2) (16,887.6)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (714.4) (738.2) (1,267.0) (1,294.6)
--------------------------------------------
Short-term debt (140.0) (140.0) (120.0) (120.0)
- -----------------------------------------------
Surplus notes due to LNC (1,250.0) (1,335.1) -- --
- -----------------------------------------------
Derivatives 25.5 18.2 26.2 9.3
- -----------------------------------------------
Investment commitments -- (0.6) -- (0.5)
- -----------------------------------------------
Separate account assets 36,907.0 36,907.0 31,330.9 31,330.9
- -----------------------------------------------
Separate account liabilities (36,907.0) (36,907.0) (31,330.9) (31,330.9)
- -----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In October 1996, the Company and LLANY purchased a block of group
tax-qualified annuity business from UNUM Corporation affiliates. The bulk of
the transaction was completed in the form of an assumption reinsurance
transaction, which resulted in a ceding commission of $71,800,000. The
ceding commission resulted in admissible goodwill of $62,300,000, which is
being amortized on a straight-line basis over 10 years. LLANY was required
by the New York Department of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals of the Company
and its wholly owned subsidiary increased by $3,200,000,000 as a result of
this transaction.
In 1997, LNC contributed 25,000,000 shares of common stock of American
States to the Company. American States is a property casualty insurance
holding company of which LNC owned 83.3%. The contributed common stock was
accounted for as a capital contribution equal to the fair value of the
common stock received by the Company. Subsequently, the American States
common stock owned by the Company, along with all other American States
common stock owned by LNC and its affiliates, was sold. The Company received
proceeds from the sale in the amount of $1,175,000,000. The Company
recognized no gain or loss on the sale of its portion of the common stock
due to the receipt of the stock at fair value. The proceeds from this sale
of stock were used to partially finance the CIGNA indemnity reinsurance
transaction.
S-30
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Life and Annuity Distributors,
Inc. ("LLAD"), has a nearly exclusive general agent's contract with the
Company under which it sells the Company's products and provides the service
that otherwise would be provided by a home office marketing department and
regional offices. For providing these selling and marketing services, the
Company paid LLAD override commissions of $76,700,000 in 1998 and override
commissions and operating expense allowances of $61,600,000 and $56,300,000
in 1997 and 1996, respectively. LLAD incurred expenses of $102,400,000,
$5,500,000 and $15,700,000 in 1998, 1997 and 1996, respectively, in excess
of the override commissions and operating expense allowances received from
the Company, which the Company is not required to reimburse. Effective in
January 1998, the Company and LLAD agreed to increase the override
commission expense and eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1998 and 1997 include the
Company's participation in a short-term investment pool with LNC of
$383,600,000 and $325,600,000, respectively. Related investment income
amounted to $16,800,000, $15,500,000 and $15,300,000 in 1998, 1997 and 1996,
respectively. Short-term loan payable to parent company at December 31, 1998
and 1997 represent notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $92,100,000, $48,500,000 and
$34,100,000 in 1998, 1997 and 1996, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 13.7 $ 11.9 $ 17.9
- ----------------------
Insurance ceded 290.1 100.3 302.8
- ----------------------
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 197.3 $ 245.5
- ------------------------
Future policy benefits
and claims ceded 1,125.0 997.2
- ------------------------
Amounts recoverable on
paid and unpaid losses 84.2 30.4
- ------------------------
Reinsurance payable on
paid losses 6.0 5.3
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,375.4 1,115.4
- ------------------------
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit
aggregating $318,300,000 and $280,900,000 at December 31, 1998 and 1997,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1998 and 1997, LNC had guaranteed $237,000,000 and $229,100,000,
respectively, of these letters of credit. At December 31, 1998, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $122,400,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets held by the Company consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds and are
carried at market value. Substantially all of the separate accounts do not
have any minimum guarantees and the investment risks associated with market
value changes are borne entirely by the policyholder.
Separate account premiums, deposits and other considerations amounted to
$3,953,300,000, $4,821,800,000 and $4,148,700,000 in 1998, 1997
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
and 1996, respectively. Reserves for separate accounts with assets at fair
value were $36,145,900,000 and $30,560,700,000 at
December 31, 1998 and 1997, respectively. All reserves are subject to
discretionary withdrawal at market value.
A reconciliation of transfers to (from) separate accounts is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of the
various separate accounts:
Transfers to separate accounts $ 3,954.9 $ 4,824.0
- ------------------------------------------------------------
Transfers from separate accounts (4,069.8) (2,943.8)
- ------------------------------------------------------------ --------- ---------
Net transfers to (from) separate accounts as reported in the
Summary of Operations $ (114.9) $ 1,880.2
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS
In 1997, certain errors were identified by the Illinois
Insurance Department in the calculation of the AVR as of
December 31, 1996 and 1995. The effects of the AVR errors
also resulted in the need for revisions in the calculation
of certain investment limitation thresholds, the results of
which indicated that additional assets should have been
nonadmitted as of December 31, 1996. As discussed by the
Company with the Indiana and Illinois Insurance Departments,
corrections were made to affected pages of the Company's
NAIC Annual Statement which were refiled with various state
insurance departments. However, due to immateriality of the
corrections in relation to the financial statements taken as
a whole, the audited 1996 and 1995 statutory-basis financial
statements were not corrected and re-issued.
The Company's 1997 NAIC Annual Statement, as filed with
various state insurance departments, also includes the
corrected balances for 1996 and 1995. The following is a
reconciliation of total admitted assets, total liabilities
and capital and surplus as of December 31, 1996 as presented
in the 1997 NAIC Annual Statement (as corrected) to the
accompanying audited financial statements.
<TABLE>
<CAPTION>
TOTAL CAPITAL
ADMITTED TOTAL AND
ASSETS LIABILITIES SURPLUS
---------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1996 as
reported in the accompanying audited
financial statements $50,016.6 $ 48,054.0 $1,962.6
- ----------------------------------------
Effect of AVR errors -- 37.6 (37.6)
- ----------------------------------------
Effect of change in investment
limitations (57.0) -- (57.0)
- ---------------------------------------- --------- ----------- --------
Balance as of December 31, 1996 as
reported in the 1997 NAIC Annual
Statement $49,959.6 $ 48,091.6 $1,868.0
- ---------------------------------------- --------- ----------- --------
--------- ----------- --------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The Company has been
redirecting a large portion of internal Information Technology efforts and
contracting with outside consultants to update systems to address Year 2000
issues. Experts have been engaged to assist in developing work plans and
cost estimates and to complete remediation activities.
For the year ended December 31, 1998, the Company identified expenditures of
$26,300,000 to address this issue. This brings the expenditures for 1996
through 1998 to $34,200,000 million. The Company's financial plans for 1999
and 2000 include expected expenditures of an additional $38,300,000 bringing
estimated overall Year 2000 expenditures to $72,500,000. Because updating
systems and procedures is an integral part of the Company's on-going
operations, approximately 50% of expenditures shown above are expected to
continue after all Year 2000 issues have been resolved. Actual Year 2000
expenditures through December 31, 1998 and future Year 2000 expenditures are
expected to be funded from operating cash flows. The anticipated cost of
addressing Year 2000 issues is based on management's current best estimates
which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. Such costs will be closely monitored
by management. Nevertheless, there can be no guarantee that actual costs
will not be higher than these estimated costs. Specific factors that might
cause such differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer problems and other uncertainties. The total
expenditures identified represent only the Company's portion of LNC's larger
expenditures to address the Year 2000 issue.
The current scope of the overall Year 2000 program includes the following
four major project areas: 1) addressing the readiness of business
applications, operating systems and hardware on mainframe, personal computer
and Local Area Network platforms (IT); 2) addressing the readiness of non-IT
embedded software and equipment (non-IT); 3) addressing the readiness of key
business partners and 4) establishing Year 2000 contingency plans.
The projects to address IT and non-IT readiness have four major phases.
Phase one involves raising awareness and creating an inventory of all IT and
non-IT assets. The second phase consists of assessing all items inventoried
to initially determine whether they are affected by the Year 2000 issue and
preparing general plans and strategies. The third phase entails the detailed
planning and remediation of affected systems and equipment. The last phase
consists of testing to verify Year 2000 readiness.
The Company has completed those four phases for over two-thirds of its high
priority IT systems, including those provided by software vendors. While the
Company's year 2000 program for nearly all high priority IT systems is
expected to be completed in the first quarter 1999, phase four, for a small
but important subset of these systems, will continue through the end of the
second quarter 1999. As of December 31, 1998, the status of projects
addressing readiness of IT assets is: 100% of IT assets have been
inventoried (Phase 1) and assessed (Phase 2); 94% of IT projects have been
through the remediation phase (Phase 3) with the last project scheduled for
completion by the end of March 1999; and 69% of IT projects have completed
the testing phase (Phase 4) with the last project scheduled to finish
testing by the end of June 1999. A portion of the effort that extends into
1999 is dependent on outside third parties and is behind the original
schedule. The Company is working with these parties to modify the completion
schedule.
As of December 31, 1998, the status of projects that address readiness of
high priority non-IT assets is: 100% of non-IT assets have been inventoried
(Phase 1) and assessed (Phase 2); 79% of non-IT projects addressing
remediation (Phase 3) have been completed and 21% of non-IT projects have
completed the testing phase (Phase 4). The Company expects to have all
phases related to high priority non-IT completed by the end of October 1999.
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. CENTURY COMPLIANCE (UNAUDITED) (CONTINUED)
Concurrent with the IT and non-IT projects, the readiness of key business
partners is being reviewed and Year 2000 contingency plans are being
developed. The most significant categories of key business partners are
financial institutions, software vendors and utility providers (gas,
electric and telecommunications). Surveys have been mailed to these key
business partners. Based on responses received, current levels of readiness
are being assessed, follow-up contacts are underway, alternative strategies
are being developed and testing is being scheduled where feasible. This
effort is expected to continue well into 1999. As noted above, software
vendor assessments are considered part of the IT projects and, therefore,
would follow the schedule shown above for such projects.
While the Company is working to meet the schedules outlined above, some
uncertainty remains. Specific factors that give rise to this uncertainty
include a possible loss of technical resources to perform the work, failure
to identify all susceptible systems, non-compliance by third parties whose
systems and operations impact the Company and other similar uncertainties.
A worst case scenario might include the Company's inability to achieve Year
2000 readiness with respect to one or more of the Company's significant
policyholder systems resulting in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in
its ability to collect and process premiums or deposits, process claim
payments, accurately maintain policyholder information, accurately maintain
accounting records and/or perform adequate customer service. Should the
worst case scenario occur, it could, depending on its duration, have a
material impact on the Company's results of operations and financial
position. Simple failures can be repaired and returned to production within
a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period would have a more serious impact. For this
reason, the Company is placing significant emphasis on risk management and
Year 2000 contingency planning. The Company is in the process of modifying
its contingency plans to address potential Year 2000 issues. Where these
efforts identify high risks due either to unacceptable work around
procedures or significant readiness risks, appropriate risk management
techniques are being developed. These techniques, such as resource shifting
or use of alternate providers, will be employed to provide stronger
assurances of readiness. The Company has gone through exercises to identify
worst case scenario failures. At this time, the Company believes its plans
are sufficient to mitigate identified worst case scenarios.
S-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (a wholly owned
subsidiary of Lincoln National Corporation) as of December 31,
1998 and 1997, and the related statutory-basis statements of
operations, changes in capital and surplus and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted
accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the
accompanying financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of The
Lincoln National Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
/s/ Ernst & Young LLP
February 1, 1999
S-35
<PAGE>
PART C--OTHER INFORMATION
Item 24.
- --------
(a) LIST OF FINANCIAL STATEMENTS
(1) Part A The Table of Condensed Financial Information is included in
Part A of this Registration Statement.
(2) Part B
The following financial statements of Lincoln National Variable
Annuity Account C are included in the
SAI:
Statement of Assets and Liability -- December 31, 1998
Statement of Operations -- Year ended December 31, 1998
Statements of Changes in Net Assets -- Years ended
December 31, 1998 and 1997
Notes to Financial Statements --
Report of Ernst & Young LLP, Independent Auditors
(3) Part B
The following statutory-basis financial statements of Lincoln
National Life Insurance Company are included in the SAI:
Balance Sheets -- Statutory Basis -- December 31, 1998 and 1997
Statements of Operations -- Statutory Basis -- Years ended
December 31, 1998, 1997 and 1996
Statements of Changes in Capital and Surplus -- Statutory Basis --
Years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows -- Statutory Basis -- Years ended
December 31, 1998, 1997, and 1996
Notes to Statutory-basis Financial Statements --
Report of Ernst & Young LLP, Independent Auditors
24 (b) LIST OF EXHIBITS
(1) Resolution establishing separate accounts*
(2) N/A
(3) N/A
(4) Variable Annuity Contract*
(a) Multi Fund - Single premium contract*
(b) Multi Fund 1 - Periodic*
(c) Multi Fund 2 - Flexible*
(d) Multi Fund 3 - Flexible*
(e) Multi Fund 4 - Flexible (Incorporated by reference to Post-
Effective Amendment No. 14 to this Registration Statement.)
(f) Contract Rider - Multi Fund 2 & Multi Fund 3
(Incorporated by reference to Post-Effective
Amendment No. 13 to this Registration Statement.)
(g) Contract Rider - Multi Fund 4 (Incorporated by reference
filed with Post-Effective Amendment No. 13 to this
Registration Statement.)
(5) (a) Deferred Annuity Application (incorporated by reference to
Post-Effective Amendment No. 14 to this Registration
Registration Statement.)
(b) 403(b) Annuity Application (incorporated by reference to
Post-Effective Amendment No. 14 to this Registration
Statement.)
(6) (a) Articles of Incorporation of The Lincoln National Life
Insurance Company are (incorporated herein by reference
to the Registration Statement of Lincoln National Life
Insurance Company on Form N-4 (33-27783) filed
on December 5, 1996).
(b) By-Laws of The Lincoln National Life Insurance Company are
incorporated herein by reference to the Registration
Statement of Lincoln National Life Insurance Company on
Form N-4 (33-27783) filed on May 20, 1997.
(7) N/A
(8) (a) Services Agreement between Delaware Management Holdings,
Inc., Delaware Service Company, Inc. and Lincoln National
Life Insurance Company (incorporated by reference to the
Registration Statement of Lincoln National Life Insurance
Company on Form S-6 (333-40745) filed on November 21, 1997.
(b) Participation Agreement among Delaware Group Premium
Fund, Inc and Lincoln National Life and Delaware
Distributors, LP*
(c) Selling Group Agreement for Lincoln Financial Advisors.
(d) Participation Agreement among Lincoln National Aggressive
Growth Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective
Amendment No. 8 to the Registration Statement of Lincoln
National Aggressive Growth Fund form N-1A, 33-70742 on
April 16, 1999.)
(e) Participation Agreement among Lincoln National Capital
Appreciation Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective
Amendment No. 21 to the Registration Statement of Lincoln
National Capital Appreciation Fund form N-1A, 33-70272 on
April 16, 1999.)
(f) Participation Agreement among Lincoln National Global
Asset Allocation Fund, Inc. (formerly Putnam Master
Fund, Inc.) and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment No. 7
to the Registration Statement of Lincoln National Global
Asset Allocation Fund form N-1A, 33-13530 on April 16,
1999.)
(g) Participation Agreement among Lincoln National International
Fund, Inc. (formerly Real Estate Fund, Inc.) and Lincoln
National Life Insurance Company. (Incorporated by reference
to Post Effective Amendment No. 7 to the Registration
Statement of Lincoln National International Fund form N-1A,
33-38335 on April 16, 1999.)
(h) Participation Agreement among Lincoln National Money Market
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment
No. 15 to the Registration Statement of Lincoln National
Money Market Fund form N-1A, 2-80743 on April 16, 1999.)
(i) Participation Agreement among Lincoln National Special
Opportunities Fund, Inc. and Lincoln National Life
Insurance Company. (Incorporated by reference to Post
Effective Amendment No. 20 to the Registration Statement
of Lincoln National Special Opportunities Fund form N-1A,
2-80731 on April 16, 1999.)
(j) Participation Agreement among Lincoln National Bond Fund,
Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment
No. 11 to the Registration Statement of Lincoln National
Bond Fund form N-1A, 2-80746 on April 16, 1999.)
(k) Participation Agreement among Lincoln National Equity-
Income Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective
Amendment No. 19 to the Registration Statement of Lincoln
National Equity-Income Fund form N-1A, 33-71158 on
April 16, 1999.)
(l) Participation Agreement among Lincoln National Growth and
Income Fund, Inc. and Lincoln National Life Insurance
Company. (Incorporated by reference to Post Effective
Amendment No. 20 to the Registration Statement of Lincoln
National Growth and Income Fund form N-1A, 2-80741 on
April 16, 1999.)
(m) Participation Agreement among Lincoln National Managed
Fund, Inc. and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment
No. 13 to the Registration Statement of Lincoln National
Managed Fund form N-1A, 2-82276 on April 16, 1999.)
(n) Participation Agreement among Lincoln National Social
Awareness Fund, Inc. (formerly Government Securities
Fund, Inc.) and Lincoln National Life Insurance Company.
(Incorporated by reference to Post Effective Amendment
No. 20 to the Registration Statement of Lincoln National
Special Awareness Fund form N-1A, 33-19896 on April 16,
1999.)
(o) Amendment to fund participation agreement between Delaware
Group Premium Fund, Inc. and Lincoln National Life and
Delaware Distributors LP, dated November 1, 1998.
(9) Opinion and Consent of Jeremy Sachs, Senior Counsel
(Incorporated by reference to post-effective amendment No. 14
to this registration statement.)
(10) Consent of Ernst & Young LLP, Independent Auditors
(11) N/A
(12) N/A
(13) Schedule of Computation. (Incorporated by reference filed with
post-effective amendment No. 13 to this registration statement.)
(14) N/A
(15) (a) Organizational Chart of Lincoln National Life Insurance
Holding Company System
(b) Memorandum Concerning Books and Records
(16) Powers of Attorney
(a) Gabriel Shaheen
(b) Lawrence Rowland
(c) Keith Ryan
(d) H. Thomas McMeekin
(e) Richard Vaughan
(f) Jon Boscia
* Incorporated by reference to the registration statement of Lincoln National
Life Insurance Company Post-Effective Amendment 15 to this Registration
Statement (File No. 33-25990).
<PAGE>
Item 25.
- --------
DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name Positions and Offices
- ---- ------------------------------
<S> <C>
Gabriel L. Shaheen* President, Chief Executive Officer and Director
Jon A. Boscia** Director
John H. Gotta**** Senior Vice President
Stephen H. Lewis* Senior Vice President
H. Thomas McMeekin** Director
Cynthia A. Rose** Secretary and Assistant Vice President
Lawrence T. Rowland*** Executive Vice President and Director
Keith J. Ryan* Senior Vice President, Chief Financial Officer and
Assistant Treasurer
Eldon J. Summers** Assistant Vice President and Treasurer
Richard C. Vaughan** Director
Roy V. Washington***** Vice President and Chief Compliance Officer
</TABLE>
* Principal business address is 1300 South Clinton Street, Fort Wayne,
IN 46802-3506
** Principal business address is 200 East Berry Street, Fort Wayne, IN
46802-2706
*** Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne, IN 48604-1538.
**** Principal business address is 350 Church Street, Hartford, CT 06103
***** Principal business address is 915 S. Clinton, Fort Wayne, IN 46802
Item 26.
- --------
PERSONS CONTROLLED BY OR UNDER COMMON
CONTROL WITH THE DEPOSITOR OR REGISTRANT
See Exhibit 15(a): The Organizational Chart of The Lincoln National
Insurance Holding Company System is hereby incorporated herein by this
reference.
Item 27.
- --------
NUMBER OF CONTRACT OWNERS
As of February 28, 1999, there were 429,000 Contract Owners under
Lincoln National Variable Annuity Account C.
Item 28.
- --------
INDEMNIFICATION--UNDERTAKING
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life
Insurance Company (LNL) provides that LNL will indemnify certain
persons against expenses, judgments and certain other specified costs
incurred by any such person if he/she is made a party or is threatened
to be made a party to a suit or proceeding because he/she was a
director, officer, or employee of LNL, as long as he/she acted in good
faith and in a manner he/she reasonably believed to be in the best
interests of, or not opposed to the best interests of, LNL. Certain
additional conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of LNL in connection with suits by, or in the
rights of, LNL.
Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b)
hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the requirements of,
Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item
28(a) above or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29.
- --------
PRINCIPAL UNDERWRITER
(a) Lincoln National Variable Annuity Fund A (Group); Lincoln National
Variable Annuity Fund A (Individual); Lincoln National Flexible Premium
Variable Life Account D; Lincoln National Flexible Premium Variable
Life Account F; Lincoln National Flexible Premium Variable Life
Account G; Lincoln National Variable Annuity Account H; Lincoln Life
Flexible Premium Variable Life Account K; Lincoln Life Flexible Premium
Variable Life Account M; Lincoln Life Variable Annuity Account N;
Lincoln Life Variable Annuity Account Q; Lincoln National Variable
Annuity Accounts 50 and 51
(b) See Item 25.
(c) Commissions and Other Compensation Received by Lincoln National Life
Insurance Company from Lincoln National Variable Annuity Account C
during the fiscal year which ended December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting
Name of Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
- ----------------- ---------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
The Lincoln National
Life Insurance a b
Company None $12,887,791 None $104,425,602
</TABLE>
Notes:
(a) These figures represent compensation received by Lincoln National Life
Insurance Company for surrender, withdrawal and contract charges. See Charges
and other deductions, in the Prospectus.
(b) These figures represent compensation received by Lincoln National Life
Insurance Company for mortality and expense guarantees. See Charges and other
deductions, in the Prospectus.
Item 30.
- --------
LOCATION OF ACCOUNTS AND RECORDS
Exhibit 15(b) is hereby expressly incorporated herein by this reference.
Item 31.
- --------
Item 32. Undertakings
- --------
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Certificate or an Individual Contract offered by
the Prospectus, a space that an applicant can check to request a Statement
of Additional Information, or (2) a post cared or similar written
communication affixed to or included in the Prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statement required to be made available under this Form
promptly upon written or oral request to Lincoln Life at the address or
phone number listed in the Prospectus.
(d) The Lincoln National Life Insurance company hereby represents that the fees
and charges deducted under the contract, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by The Lincoln National Life Insurance Company.
Item 33.
- --------
Registrant represents that it is relying on the American Council of
Life Insurance (avail. Nov. 28, 1988) no-action letter with respect to
Contracts used in connection with retirement plan meeting the requirements of
Section 403(b) of the Internal Revenue Code, and represents further that it
will comply with the provisions of paragraphs (1) through (4) set forth in
that no-action letter.
Item 34.
- --------
For Contracts sold in connection with the Texas Option Retirement
Program, Registrant is relying on Rule 6c-7 and represents that paragraphs
(a) through (d) of that rule have been complied with.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Amendment and has caused
this Amendment to the Registration Statement to be signed on its behalf, in
the City of Fort Wayne, and the State of Indiana on this 22 day of April,
1999.
LINCOLN NATIONAL VARIABLE ANNUITY
Account C - Multi-Fund
(Registrant)
By:
------------------------------------
Stephen H. Lewis
(Signature-Officer of Depositor)
Senior Vice President, LNL
------------------------------------
(Title)
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY (LNL)
(Depositor)
By:
------------------------------------
Kelly D. Clevenger
Vice President, LNL
(b) As required by the Securities Act of 1993, this Amendment to the
Registration Statement has been signed for the Depositors by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
* Chief Executive April 22, 1999
- ----------------------- Officer, President & --------------
Gabriel L. Shaheen Director (Principal Executive
Officer)
* Executive Vice President April 22, 1999
- ----------------------- and Director --------------
Lawrence T. Rowland
* Senior Vice President, Chief April 22, 1999
- ----------------------- Financial Officer and Assistant --------------
Keith J. Ryan Treasurer (Principal Accounting
Officer and Principal Financial
Officer)
* Director April 22, 1999
- ----------------------- --------------
Jon A. Boscia
* Director April 22, 1999
- ----------------------- --------------
H. Thomas McMeekin
* Director April 22, 1999
- ----------------------- --------------
Richard C. Vaughan
* By pursuant to a Power of Attorney filed with
------------------- this Registration Statement
Steven M. Kluever
<PAGE>
Exhibit Index
(8) (c) Selling Group Agreement for Lincoln Financial Advisors.
(o) Amendment to fund participation agreement (Delaware Group Premium
Fund, Inc.)
(10) Consent of Ernst & Young LLP, Independent Auditors
(15) (a) Organizational Chart of Lincoln National Life Insurance Holding
Company System
(b) Memorandum Concerning Books and Records.
(16) Powers of Attorney.
(a) Gabriel Shaheen
(b) Lawrence Rowland
(c) Keith Ryan
(d) H. Thomas McMeekin
(e) Richard Vaughan
(f) Jon Boscia
<PAGE>
SELLING GROUP AGREEMENT
FOR LINCOLN FINANCIAL ADVISORS
Effective July 1, 1997 this Agreement is made between Lincoln Financial
Advisors [hereinafter called the "Broker"] and the LIncoln National Life
Insurance Company, located at 1300 South Clinton Street, Fort Wayne, Indiana
46802, an Indiana corporation [hereinafter called the "Company"].
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
A. Definitions
(1) Contract--variable annuity, and variable universal life
insurance contracts described in Schedule A attached hereto
and issued by the Company and for which the Company acts as
the principal underwriter. From time to time Schedule A may
be amended. Such amendments will be effective upon written
notification to the Broker that a new or amended Schedule A
has been issued.
(2) Account--segregated investment accounts in which the Company
sets aside and invests the assets to fund the benefits under
the Contracts.
(3) Funds--Any of the mutual funds in which net purchase payments
are invested at net asset value pursuant to the directions of
the Contract owner.
(4) Registration Statement--the Registration Statements and
amendments thereto on file with the SEC relating to the
Contracts, the Account, and the Funds, including financial
statements and all exhibits, as applicable.
(5) Prospectus--the prospectus included within the Registration
Statements referred to herein.
(6) 1933 Act--the Securities Act of 1933, as amended.
(7) 1934 Act--the Securities and Exchange Act of 1934, as amended.
(8) 1940 Act--the Investment Company Act of 1940, as amended.
(9) SEC--the Securities and Exchange Commission.
<PAGE>
B. Agreements of the Company
(1) Company hereby authorizes Broker during the term of this
Agreement to solicit applications for Contracts from eligible
persons, provided that there is an effective Registration
Statement relating to such Contracts and provided further that
Broker has been notified by Company that the contracts are
qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in all applicable
jurisdictions. In connection with the solicitation of
applications for Contracts, Broker is hereby authorized to
offer riders that are available with the Contracts in
accordance with instructions furnished by Company.
(2) Company, during the terms of this Agreement, will notify
Broker of the issuance by the SEC of any stop order with
respect to the Registration Statement or any amendments
thereto or the initiation of any proceedings for that purpose
or for any other purpose relating to the Registration and/or
offering of the Contracts and of any other action or
circumstance that may prevent the lawful sale of the Contracts
in any state or jurisdiction.
(3) During the term of this Agreement, Company shall advise Broker
of any amendment to the Registration Statement or any
amendment or supplement to any Prospectus.
C. Agreements of Broker
(1) Broker represents that it is a properly registered and
licensed broker or dealer under federal and state securities
laws and regulations and a member in good standing of the
National Association of Securities Dealers, Inc. [hereinafter
"NASD"] and agrees to notify Company immediately if Broker
ceases to be so registered or licensed or a member in good
standing of the NASD. Further, Broker represents that each of
its agents licensed to sell contracts [each respectively
referred to hereinafter as "the Agent"] will be soliciting
applications for Contracts under this Agreement. Broker
represents that the Agent is a fully-registered representative
of the Broker and moreover that the Agent is a registered
representative in good standing with the NASD, with
accreditation to sell the Contracts as required by the NASD.
(2) Commencing at such time as Company and Broker shall agree
upon, Broker agrees to use its best efforts to find purchasers
for the Contracts acceptable to the Company. In meeting its
obligation to use its best efforts to solicit applications for
Contracts, Broker shall, during the term of this Agreement,
engage in the following activities:
<PAGE>
(a) Continuously utilize training, sales, and only such
promotional materials which have been approved by Company for
those Contracts defined in this Agreement.
(b) Abide by all rules and regulations of the NASD, including its
Conduct Rules (which shall control and override any provision
to the contrary in this Agreement), and company with all
applicable federal and state laws, rules and regulations.
Broker is responsible for supervision of Agent and other
associated persons which will enable Broker to assure that
Agent and associated persons are in compliance with applicable
securities laws, rules, regulations and statements of policy
promulgated thereunder.
(c) After reasonable inquiry of each applicant, Broker shall take
reasonable steps to ensure that the Agent shall not make
recommendations to an applicant to purchase a Contract in the
absence of reasonable grounds to believe that the purchase of
the Contract is suitable for such applicant.
(3) All payments for Contracts collected by the Agent shall be held at
all times in a fiduciary capacity and shall be remitted promptly,
in full, together with such applications, forms, and other required
documentation to the designated office of the Company. Checks or
money orders in payment of initial premiums shall be drawn to the
order of The Lincoln National Life Insurance Company. Broker
acknowledges that the Company retains the ultimate right to control
the sale of the Contracts and that the Company shall have the
unconditional right to reject, in whole or in part, any application
for the Contract. In the event Company rejects an application,
Company will immediately return all payments directly to the
purchaser, and the Broker will be notified of such action. In the
event that any purchaser of a Contract elects to return such
Contract, as allowed by the applicable state law, federal law or
NASD Conduct Rules, the purchaser will receive a refund in
accordance with the provisions of the applicable law or rule.
(4) Broker shall return any related sales commission to the Company, if
a Contract is tendered for redemption within seven business days
after acceptance of the Contract application.
(5) Broker shall act as an independent contractor, and nothing
contained herein shall make Broker or any one of its employees, or
the Agent, an employee of Company in connection with the
solicitation of, or applications for, Contracts. The Broker, the
Agent, and the employees of either the Broker or Agent shall not
hold themselves out to be employees of Company in this connection
or in any dealings with the public.
<PAGE>
(6) Broker agrees that any material it develops, approves or uses for
sales, training, explanatory or other purposes including
illustrations in connection with the solicitation of applications
for Contracts hereunder (other than generic advertising materials
which do not make specific reference to the Contracts) will not be
used without the prior written consent of Company and, where
appropriate, the endorsement of Company.
(7) Solicitation and other activities by Broker shall be undertaken
only in accordance with applicable laws and regulations. The Agent
shall not solicit applications for the Contracts until duly
licensed and appointed by the Company as a life insurance and
variable contract broker or agent of Company in the appropriate
states or other jurisdictions. Broker shall ensure that the
Agent fulfills any training requirements necessary to be licensed
to sell such products. Broker understands and acknowledges that
neither it nor the Agent is authorized by Company to give any
information or make any representation in connection with this
Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material
authorized in writing by Company.
(8) Broker shall not have authority on behalf of Company to make,
alter, or discharge any Contract or other form; waive any
forfeiture; extend the time of paying any premium; or receive any
monies or premiums due, or to become due, to Company, except as set
forth in Section C(3) of this Agreement. Broker shall not expend,
nor contract for the expenditure of the funds of Company, nor shall
Broker posses or exercise any authority on behalf of the Company
under this Agreement.
(9) Broker shall have the responsibility for maintaining the records of
the Agent. Broker shall maintain such other records as are
required of it by applicable laws and regulations. The books,
accounts and records of Company, the Account and Broker relating to
the sale of the Contract shall be maintained so as to clearly and
accurately disclose the nature and details of the transactions.
All records maintained by the Broker in connection with this
Agreement shall be the property of the Company and shall be
returned to the Company upon termination of this Agreement, free
from any claims or retention of rights by the Broker. Nothing in
this Section C(9) shall be interpreted to prevent the Broker from
retaining copies of any such records which the Broker, in its
discretion, deems necessary or desirable to keep. The Broker shall
keep confidential any information obtained pursuant to this
Agreement, and shall disclose such information, only if the Company
has authorized such disclosure, or if such disclosure is expressed
or required by an applicable federal or state regulatory authority.
<PAGE>
D. Compensation
(1) Company shall arrange for the payment of commissions to the
Agent as compensation for the sale of each Contract sold by
the Agent. Compensation shall be paid according to the terms
of Section B of the Broker and Agent Contracts entered into
between the Company and the Broker, and the Company and the
Agent. No compensation is payable unless the Broker and the
Agent have first complied with all applicable insurance laws,
rules, and regulations. Company shall identify to the Broker,
with each such payment, the name of the Agent as the one who
solicited each Contract covered by the payment.
(2) Neither Broker nor the Agent shall have any right to withhold
or deduct any part of any premium it shall receive for the
purposes of the payment of commission or otherwise.
(3) Upon termination of this Agreement, the Company will pay
commissions to the Agent only to the extent provided in
Section B of the Agent's Contract entered into between the
Company and the Agent. Furthermore, in the event of
termination, Company will pay commissions to the Broker only
to the extent provided in Section B of the Broker's contract
entered into between the Company and the Agent.
(4) No commissions will be paid for the sale of Contracts not
listed in Schedule A.
(5) No commissions will be paid for the sale of Contracts in
jurisdictions in which the Broker and/or its Agents are not
duly licensed.
E. Complaints and Investigations
(1) Broker and Company jointly agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the contracts marketed
under this Agreement. Broker and Company further agree to
cooperate fully in any securities regulatory investigation or
proceeding or judicial proceeding with respect to Broker,
Company, their affiliates and the Agent to the extent that
such investigation or proceeding is in connection with
Contracts marketed under this Agreement. Broker and Company
shall furnish applicable federal and state regulatory
authorities with any information or reports in connection with
their services under this Agreement which such authorities may
request in order to ascertain whether the Company's or
Broker's operations are being conducted in a manner consistent
with any applicable law or regulation.
(2) Broker warrants and represents that as of the date of
execution of this
<PAGE>
Agreement, it has no knowledge of any pending or threatened
complaint or investigation instituted against any of its
Agents relating to the sale of any Contracts listed in
Schedule A.
F. Termination of Agreement
(1) This Agreement shall continue in force unless terminated by
either party pursuant to Section A of the Broker Contract
entered into between the Company and Broker.
(2) Upon termination of this Agreement, all authorizations, rights
and obligations themselves shall cease except (a) the
agreements contained in Section E hereof; and (b) the
indemnity agreement set forth in Section G hereof.
G. Indemnity
(1) Broker shall be held to the exercise of reasonable care in
carrying out the provisions of this Agreement.
(2) Company agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims,
damages or liabilities, joint or several, to which Broker or
such officer or director becomes subject, under the 1933 Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or
are based upon, any untrue statement or alleged untrue
statement of a material fact, required to be stated therein or
necessary to make these statements therein not misleading,
contained in any Registration Statement or any post-effective
amendment thereof or in the Prospectus, or any sales
literature provided by the Company.
(3) Broker agrees to indemnify and hold harmless Company and each
of its current and former directors and officers and each
person, if any, who controls or has controlled the Company
within the meaning of the 1933 Act of the 1934 Act, against
any losses, claims, damages or liabilities to which Company
and any such director or officer or controlling person may
become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in
respect there) arise out of, or are based upon:
(a) Any unauthorized use of sales materials or any verbal or
written misrepresentations or any unlawful sales
practices concerning the Contracts by Broker, its agents
and its employees; or
(b) Claims by the Agent, Broker or their employees for
commissions,
<PAGE>
service fees, development allowances or other
compensation or remuneration of any type; or
(c) The failure of Broker, its officers, employees, or the
Agent to comply with the provisions of this Agreement; or
(d) The fraudulent, malicious, intentional, reckless, knowing
or negligent acts or omissions of Broker's employees,
officers, agents or sales persons;
and Broker will reimburse Company and any director or officer
or controlling person of either for any legal or other
expenses reasonably incurred by Company, or such director,
officer of controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or
action. This indemnity agreement will be in addition to any
liability which Broker may otherwise have.
H. Assignability
(1) This Agreement shall not be assigned by either party without
the written consent of the other.
I. Governing Law
(1) This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed this 26th day of June, 1997.
The Lincoln National Life Insurance Company Lincoln Financial Advisors, Inc.
[COMPANY] [BROKER]
By: /s/ Kelly D. Clevenger By: /s/ Richard C. Boyles
-------------------------------------- ------------------------------
Its: Vice President Its: Chief Financial Officer
------------------------------------- -----------------------------
<PAGE>
Amendment to Schedule A
To the Selling Group Agreement
Between
The Company and The Broker
Effective February 9, 1999
The following is a list of Contracts that Broker has been granted
authority by the Company to sell:
1. Lincoln National Life Insurance Company
Multi-Fund-Registered Trademark- Variable Annuity Contracts
(Lincoln National Variable Annuity Account C)
2. Lincoln National Life Insurance Company
Variable Universal Life III Contracts
(Lincoln Life Flexible Premium Variable Life Account G)
3. Lincoln National Life Insurance Company
Multi-Fund-Registered Trademark- Variable Life
(Lincoln Life Flexible Premium Variable Life Account K)
4. Lincoln National Life Insurance Company
VUL I
(Lincoln Life Flexible Premium Variable Life Account M)
5. Lincoln National Life Insurance Company
Delaware-Lincoln ChoicePlus
Delaware-Lincoln ChoicePlus XL
(Lincoln National Variable Annuity Account N)
6. Lincoln National Life Insurance Company
Group Multi-Fund-Registered Trademark-
(Lincoln Life Variable Annuity Account Q)
7. Lincoln National Life Insurance Company
SVUL
(Lincoln Life Flexible Premium Variable Life Account R)
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to Schedule A to be executed in its name and behalf by its duly authorized
officer specified below.
THE LINCOLN NATIONAL LIFE LINCOLN FINANCIAL
INSURANCE COMPANY [COMPANY] ADVISORS, INC. [BROKER]
By: /s/ Kelly D. Clevenger By: /s/ Richard C. Boyles
-------------------------------- --------------------------------
Kelly D. Clevenger Richard C. Boyles
Vice President Chief Financial Officer
<PAGE>
AMENDMENT TO SCHEDULE 1
Separate Accounts of Lincoln National Life Insurance Company
Investing in the Fund
As of November 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
Lincoln National Life Insurance Company Separate Account 36
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to Schedule 1 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/ Wayne A. Stork
--------------------------------
Wayne A. Stork
Chairman
LINCOLN NATIONAL LIFE INSURANCE COMPANY
Date: By: /s/ Kelly D. Clevenger
--------------------------------
Kelly D. Clevenger,
Vice President
DELAWARE DISTRIBUTORS, LP (Distributor), by
DELAWARE DISTRIBUTORS, INC., General Partner
Date: By: /s/ David K. Downes
--------------------------------
David K. Downes
Executive Vice President/Chief Operating
Officer/Chief Financial Officer
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" in the Post Effective Amendment No. 16 to the Registration
Statement (Form N-4 No. 33-25990) and the related Statement of Additional
Information appearing therein and pertaining to Lincoln National Variable
Annuity Account C, and to the use therein of our reports dated
(a) February 1, 1999, with respect to the statutory-basis financial
statements of The Lincoln National Life Insurance Company, and
(b) March 30, 1999, with respect to the financial statements of
Lincoln National Variable Annuity Account C.
Fort Wayne, Indiana
April 19, 1999
<PAGE>
<TABLE>
<CAPTION>
<S><C>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ---------------------------------------------
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
| ---------------------------------------------
| ---------------------------------------------
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life |
| | assurance & pension products |
| ---------------------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| |100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -----------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | --------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | --------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
--------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| |100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
| | ----------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
| -------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
| ----------------------------------------------
| | Lincoln Life and Annuity Distributors, Inc. |
|--| (formerly Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | |Inc. ("LLAD")has subsidiaries of which LLAD owns from |
| | |80%-100% of the common stock (see Attachment #1). These |
| | |subsidiaries serve as the corporate agency offices for the |
| | |marketing and servicing of products of The Lincoln National |
| | |Life Insurance Company. Each subsidiary's assets are less |
| | |than 1% of the total assets of the ultimate controlling |
| | |person. |
| | -------------------------------------------------------------
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
|
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| |
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
--------------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | ------------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | ------------------------------------
| | | | ----------------------------------------
| | | ---| Delaware International Advisers Ltd. |
| | | | 81.1% - England - Investment Advisor |
| | | ----------------------------------------
| | | --------------------------------------
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service |
| | | --------------------------------------
| | | | -------------------------------------------------
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | -------------------------------------------------
| | | | | --------------------------------------
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | | --------------------------------------
| | | | -------------------------------------------------
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | | ---------------------------------------
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | ---------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | ------------------------------------------------------
| | | | | | ------------------------------------
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General Partner |
| | | | | | ------------------------------------
| | | | | | | -----------------------------------------
| | | | | | |--| Founders CBO, L.P. |
| | | | | | | 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | |--|Founders CBO Corporation |
| | | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
| | | | | | | ------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | |100% - Delaware - Holding Company |
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | | -----------------------------------
| | | | -------------------------------------------------
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | | ------------------------------------
| | | | |--| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | -------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -----------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | -----------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |--| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -------------------------------------------------
| | | | |__| Delaware Investment & Retirement Services, Inc. |
| | | | | | 100% - Delaware - Registered Transfer Agent |
| | | | | -------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | ---------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ---------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
----------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--|AnnuityNet, Inc. |
| | |100% - Indiana - Distribution of annuity products |
| | --------------------------------------------------
| | | -------------------------------------
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| | -------------------------------------
| | -------------------------------------------
| |--|Lincoln National Insurance Associates, Inc.|
| | |(fka Cigna Associates, Inc.) |
| | |100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | --------------------------------------------------------
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | |100% - Alabama - Insurance Agency |
| | | --------------------------------------------------------
| | | -------------------------------------------------------------
| | | | Lincoln National Insurance Associates of Massachusetts, Inc.|
| | | | (formerly Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| | -------------------------------------------------------------
| | -------------------------------------------
| |--| Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| | --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| | -----------------------------------------------
| | -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
----------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | --------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
| --------------------------------------------------------
| ---------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| ---------------------------------------------
| ------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| ------------------------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | -------------------------------------------------------
| |--| Allied Westminster & Company Limited |
| | | (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | -------------------------------------------------------
| | --------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ---------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| | --------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Financial Advisers Limited |
| | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| | ------------------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln ISA Management Limited |
| | | | (formerly Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
----------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | | (formerly: Laurentian Milldon Limited)|
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--|Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | |100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | |100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | -----------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
-------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | |----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | | -----------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| | -----------------------------------------------------------
| |--| Lincoln Independent Limited |
| | | (formerly: Laurentian Independent Financial Planning Ltd.)|
| | | 100% - England/Wales - Independent Financial Adviser |
| | -----------------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln Investment Management Limited |
| | | (formerly: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| | --------------------------------------------
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Independent (Jersey) Limited |
| | | (formerly Lincoln National (Jersey) Limited) |
| | | 100% - England/Wales - Dormat |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln National(Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| | ------------------------------------------------
| | ------------------------------------------------
| |--| Lincoln SBP Trustee Limited |
| | | 100% - England/Wales |
------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| | --------------------------------------------------------
| | ---------------------------------------------------
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | ---------------------------------------------------
| | | -----------------------------------------
| | |--|Solutions Reinsurance Limited |
| | | |100% - Bermuda - Class III Insurance Co |
| -----------------------------------------
| ----------------------------------------------------------
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
| ----------------------------------------------------------
| ----------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ----------------------------------------------------------
| --------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
--------------------------------------------
</TABLE>
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act as Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (formerly Laurentian
Financial Group PLC); Lincoln Milldon Limited (formerly Laurentian Milldon
Limited); Lincoln Management Services Limited (formerly Laurentian
Management Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was
dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved effective
March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company
then changed its name to Delvoy, Inc. The acquisition included the mutual
fund group of companies as part of the Voyager acquisition. The following
companies all then were moved under the newly formed holding company,
Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors,
Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager
Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund
Distributors, Inc. is to merge into Delaware Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros,
Grupo Financiero InverMexico. Stock was sold to Grupo Financiero
InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National Financial
Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc.
effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc.
surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a
newly formed company Voyager Fund Distributors (Delaware), Inc.,
incorporated as a Delaware corporation on May 23, 1997. Voyager Fund
Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P.
effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Soutwest Financial Group, Inc. -- company's term of existence
expired July 18, 1998.
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having
Transactions with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every underwriter,
broker, dealer, or investment advisor which is a majority-owned subsidiary of
such a company, shall maintain and keep current the accounts, books, and other
documents relating to its business which constitute the record forming the basis
for financial statements required to be filed pursuant to Section 30 of the
Investment Company Act of 1940 and of the auditor's reports relating thereto.
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Annual Reports Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
TYPE OF RECORD
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
PURCHASES AND SALES JOURNALS
Daily reports CSRM Nancy Alford Permanently, the first two
of securities Finance Eric Jones years in an easily accessible
transactions place
PORTFOLIO SECURITIES
C-Port Purchase/ Finance Eric Jones Permanently, the first two
Sales Report years in an easily accessible
place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
RECEIPTS AND DELIVERIES OF SECURITIES (UNITS)
Not Applicable.
PORTFOLIO SECURITIES
Not Applicable.
RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS
Daily Journals CSRM Nancy Alford Permanently, the first two
Finance Eric Jones years in an easily accessible
place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record
of the collateral therefore and
substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
GENERAL LEDGER
LNL trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
SECURITIES IN TRANSFER
Not Applicable.
SECURITIES IN PHYSICAL POSSESSION
Not Applicable.
SECURITIES BORROWED AND LOANED
Not Applicable.
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Daily Report Finance Eric Jones Permanently, the first two
Of Securities years in an easily accessible
Transactions (Daily place
Trade File)
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held. in
respect of share accumulation accounts (arising from periodic investment plans,
dividend reinvestment plans, deposit of issued shares by the owner thereof,
etc.), details shall be available as to the dates and number of shares of each
accumulation, and except with respect to already issued shares deposited by the
owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
Master file Finance Eric Jones Permanently, the first two
Record (Daily CSRM Nancy Alford years in an easily accessible
Trade File & Leg place
Syst Client Rpt)
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Not Applicable
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
CORPORATE DOCUMENTS
Memorandum Legal Janet Lindenberg Permanently, the first two
Establishing SA years in an easily accessible
place
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
UIT applica- CSRM Nancy Alford Six years, the first two
tions and Finance Eric Jones years in and easily accessible
daily reports place
of securities
transactions
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
COMMERCIAL PAPER
Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
RECORD OF PUTS, CALLS, SPREADS, ETC.
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
TRIAL BALANCE
LNL Trial Finance Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Not Applicable.
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Advisory Legal Janet Lindenberg Six years, the first two
Agreements years in an easily accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence CSRM Nancy Alford Six years, the first two
years in an easily accessible
place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
Proxy State- CSRM Nancy Alford Six years, the first two
ments and years in an easily accessible
Proxy Cards place
Pricing Sheets Finance Eric Jones Permanently, the first two
years in an easily accessible
place
Bank State- Treasurers Rusty Summers Six years, the first two
Ments years in an easily accessible
place
March 24, 1999
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
/s/Gabriel L. Shaheen
President, Chief Executive Officer and Director
Gabriel L. Shaheen (Principal Executive Officer)
Lawrence T. Rowland Executive Vice President and Director
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
H. Thomas McMeekin Director
Richard C. Vaughan Director
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Lawrence T. Rowland
Lawrence T. Rowland Executive Vice President and Director
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
H. Thomas McMeekin Director
Richard C. Vaughan Director
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
Lawrence T. Rowland Executive Vice President and Director
/s/ Keith J. Ryan
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
H. Thomas McMeekin Director
Richard C. Vaughan Director
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
Lawrence T. Rowland Executive Vice President and Director
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
/s/ H. Thomas McMeekin
H. Thomas McMeekin Director
Richard C. Vaughan Director
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
Lawrence T. Rowland Executive Vice President and Director
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
H. Thomas McMeekin Director
/s/ Richard C. Vaughan
Richard C. Vaughan Director
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
C (Multi-Fund), which were previously executed by us and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, our true and lawful attorneys-in-fact, with full power in each of them
to sign for us, in our names and in the capacities indicated below, any and all
amendments to Registration Statement No. 33-25990 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming our signatures as they may be signed by any of our
attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
SIGNATURE TITLE
- --------- ------
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
Lawrence T. Rowland Executive Vice President and Director
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
H. Thomas McMeekin Director
Richard C. Vaughan Director
/s/ Jon A. Boscia
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/Janet L. Lindenberg
Notary public
Commission Expires: 7-10-2001
---------
