<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1998
Registration No. 2-25618
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 53 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [X]
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (GROUP)
-------------------------
[Exact Name of Registrant]
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
-------------------------
[Name of Insurance Company]
1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Indiana 46801
-------------------------
(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company`s Telephone Number, including Area Code (219)455-2000
-------------------------
Jack D. Hunter, Esq.
The Lincoln National Life Insurance Company
200 East Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
Copy to:
Patrice M. Pitts
Porter, Wright, Morris & Arthur
1667 K Street, NW, Suite 1100
Washington, DC 20006-1605
-------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
- ---------
X on 4/30/98 pursuant to paragraph (b) of Rule 485
- ---------
60 days after filing pursuant to paragraph (a)(i) of Rule 485
- ---------
on pursuant to paragraph (a)(i) of Rule 485
- ---------
75 days after filing pursuant to paragraph (a)(ii) of Rule 485
- ---------
on pursuant to paragraph (a)(ii) of Rule 485.
- ---------
If appropriate, check the following box:
this Post-Effective Amendment designates a
- --------- new effective date for a previously filed Post-Effective Amendment.
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (GROUP)
POST-EFFECTIVE AMENDMENT NO. 53 ON FORM N-3
CROSS REFERENCE SHEET
N-3 Item Description Per Form N-3 Caption in the Prospectus (Part A)
- -------- ------------------------ ----------------------------------
1. Cover Page Cover Page
2. Definitions Special Terms
3. Synopsis Expense Table; Synopsis
4. Condensed Financial
Information
(a) Per-Unit Table Lincoln National Variable Annuity
Fund A Per-Accumulation-Unit
Income and Capital Changes
(b) Senior Securities Not Applicable
(c) Performance Data Not Applicable
(d) Financial Statements Financial Statements
5. General Description of
Registrant and Insurance
Company
(a) Insurance Company The Company
(b Registrant The Fund
(c) Investment Objectives Investment Objectives and
and Policies of Registrant Policies of the Fund
(d) Lesser Investment Investment Objectives and
Policies of the Fund
(e) Principal Risk Factors Investment Objectives and
Policies of the Fund; The
Variable Annuity Contracts
6. Management
(a) Board of Managers The Fund
(b) Investment Adviser Investment Management
(c) Other Management Not Applicable
Services
(d) Certain Practices Not Applicable
7. Deductions and Expenses
(a) Describe Deductions Charges and Deductions;
Synopsis
(b) Sales Load Charges and Deductions;
Synopsis
(c) Special Purchase Plans Charges and Deductions;
Synopsis
(d) Dealer Commissions Not Applicable
(e) Registrant's Expenses [See Response to Item 4(a)]
(f) Operational Expenses Charges and Deductions
of Registrant
8. General Description of
Variable Annuity Contract
(a) Persons Having Material The Variable Annuity
Rights Contracts; Voting Rights
(b) Sub-Accounts Not Applicable
(c) Changes in Contract The Variable Annuity
or Operations Contracts; Voting Rights
(d) Contract Owner Inquiries The Variable Annuity Contracts
<PAGE>
9. Annuity Period
(a) Material Factors Accumulation Period; Annuity
Period; Fund Valuation Procedure
(b) Annuity Commencement Annuity Period
Date
(c) Payment Frequency and Annuity Period
Duration
(d) Assumed Investment Annuity Period
Return
(e) Minimum Annuity Payment Annuity Period
(f) Changes After Annuity Period
Annuitization
10. Death Benefit
(a) Calculation Accumulation Period
(b) Forms of the Benefit Accumulation Period; Annuity Period
11. Purchases and Contract
Value
(a) Procedures for Synopsis; The Variable Annuity
Purchasing Contract Contracts; Accumulation Period
(b) Factors Affecting Accumulation Period; Fund
Accumulation Unit Valuation Procedure
Value
(c) Asset Valuation Method Fund Valuation Procedure
(d) When Accumulation Accumulation Period
Units Are Credited
(e) Principal Underwriter Not Applicable
12. Redemptions
(a) How to Redeem Accumulation Period; Synopsis
(b) O.R.P. Accumulation Period
(c) Delay in Redemption Accumulation Period
(d) Involuntary Redemptions Annuity Period
(e) Revocation Right Synopsis
(f) Redemption in Kind Not Applicable
13. Taxes Federal Tax Status
14. Legal Proceedings Other Information
15. Table of Contents of the Table of Contents of The State-
Statement of Additional ment of Additional Information
Information (SAI)
16. Cover Page Cover Page
17. Table of Contents Table of Contents
18. General Information
and History
(a) Insurance Company Name Not Applicable
Change; Suspension of
Sale
(b) Assets in the Sub- Not Applicable
Account
(c) Indirect Control General Information and
History of The Lincoln National
Life Insurance Company
19. Investment Objectives Investment Objectives and
and Policies Policies of the Fund
[Refers back to Investment
Objectives and Policies of
the Fund, in the Prospectus]
20. Management Management
21. Investment Advisory
and Other Services
(a) Control Relationship-- Investment Advisory and
Investment Adviser Related Services [refers back to
the Company and Investment Manage-
ment, in the Prospectus]; General
<PAGE>
Information and History
of The Lincoln National Life Insurance
Company
(b) Services from Investment Advisory and Other
Investment Adviser Services [refers back to Invest-
ment Management, and Charges and
Deductions, in the Prospectus]
21.
(c) Payment of Costs, Fees Not Applicable
(d) Management-Related Not Applicable
Services
(e) Other Investment Advice Not Applicable
(f) Distribution Expenses Not Applicable
(g) Custodian Custodian
(h) Other Holder of Port- Not Applicable
folio Securities
(i) Affiliated Administrator Not Applicable
22. Brokerage Allocation
(a) Brokerage Commissions Brokerage Allocation
(b) Affiliated Broker Not Applicable
(c) Broker Selection Brokerage Allocation
(d) Research Services Not Applicable
(e) Purchase of Securities Not Applicable
23. Purchase and Pricing
of Securities Being
Offered
(a) How Securities are Purchase and Pricing of Securities Being
Being offered Offered [Refers back to Synopsis and The
Variable Annuity Contracts, in the
Prospectus]
(b) Calculation of Purchase and Pricing of Securities Being
Sales Load Offered [Refers back to Charges and
Deductions, in the Prospectus]
(c) Valuation Purchase and Pricing of
Securities Being Offered
(d) Crediting Purchase Purchase and Pricing of Securities Being
Payment Offered [Refers back to Accumulation
Period, in the Prospectus]
(e) Redemption In Kind Not Applicable
24. Underwriters
(a) Principal Underwriter Underwriters
(b) Continuous Offering Underwriters
(c) Underwriting Commissions Underwriters
(d) Payments to Unaffili- Not Applicable
ated Underwriter
25. Calculation of Yield Not Applicable
Quotations of Money
Market Sub-Accounts
26. Annuity Payments Purchase and Pricing of
Securities Being Offered
27. Financial Statements Financial Statements
<PAGE>
LINCOLN NATIONAL
VARIABLE ANNUITY
FUND A (Group)
1300 South Clinton Street, Fort Wayne, Indiana 46802
Telephone: 1-800-454-6265
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
The group variable annuity contracts offered by this prospectus are designed
and offered: (a) for annuity purchase plans adopted by public school systems
and Section 501(c)(3) organizations pursuant to Section 403(b) of the Internal
Revenue Code of 1986, as amended ("Code"), (b) for qualified employee pension
and profit-sharing trusts (described in Section 401(a) and tax exempt under
Section 501(a) of the Code) and qualified annuity plans (described in Section
403(a) of the Code), including H.R.-10 plans, (c) for Individual Retirement
Annuities and Accounts adopted by or on behalf of individuals pursuant to
Section 408 of the Code and (d) for Simplified Pension Plans pursuant to
Section 408(k) of the Code. Such qualified plans provide special tax treatment
to participating employees and self-employed individuals and their
beneficiaries. Contracts offered by this prospectus are also designed for
governmental and charitable organizations deferred compensation plans meeting
the requirements of Section 457 of the Code.
The principal investment objective of Lincoln National Variable Annuity Fund
A (the Fund) is the long-term growth of capital in relation to the changing
value of the dollar. A secondary investment objective is the production of
current income. The Fund seeks to accomplish these objectives by investing in
equity securities, principally common stocks.
Depending on the provisions of the plan, the Participant or Contract Owner
may elect, if the plan so provides, that a portion (in multiples of 10%) of
payments be applied by the Company to purchase fixed-dollar accumulation units
under the variable annuity contract. However, unless reference is specifically
made to fixed-dollar elements, this prospectus relates to variable elements
under the Separate Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. PLEASE READ IT CAREFULLY
AND RETAIN IT FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE FUND HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THAT STATEMENT OF ADDITIONAL INFORMATION (SAI), DATED
APRIL 30, 1998, HAS BEEN INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND
WILL BE PROVIDED ON REQUEST AND WITHOUT CHARGE. WRITE ANNUITIES CUSTOMER
SERVICE, THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, P.O. BOX 2340, FORT
WAYNE, INDIANA 46801, OR CALL 1-800-454-6265. A TABLE OF CONTENTS FOR THE SAI
APPEARS ON THE LAST PAGE OF THIS PROSPECTUS.
---------
THIS PROSPECTUS IS DATED APRIL 30, 1998
PR-AG
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms.............................................................. 2
Expense Table.............................................................. 3
Synopsis................................................................... 4
Per-Accumulation-Unit Income and Capital Changes........................... 5
Financial Statements....................................................... 5
The Company................................................................ 5
The Fund................................................................... 6
Investment Objectives and Policies of the Fund............................. 6
Charges and Deductions..................................................... 7
Investment Management...................................................... 9
The Variable Annuity Contracts............................................. 10
Accumulation Period........................................................ 11
Annuity Period............................................................. 13
Fund Valuation Procedure................................................... 16
Federal Tax Status......................................................... 17
Voting Rights.............................................................. 18
Other Annuity Contracts.................................................... 19
Custodian.................................................................. 19
State Regulation........................................................... 19
Other Information.......................................................... 19
Table of Contents of the Statement of Additional Information (SAI)......... 20
</TABLE>
SPECIAL TERMS
As used in this prospectus the following terms have the indicated meanings.
ACCUMULATION UNIT: A statistical device used to determine the value of an
individual account prior to the commencement of annuity payments.
ANNUITANT: The person on whose life or life expectancy the payments are
based.
ANNUITY: A series of payments for (a) life, (b) life with either a minimum
number of payments or an ascertainable sum guaranteed, or (c) the joint
lifetime of the Annuitant and another person and thereafter during the
lifetime of their survivor.
ANNUITY RATE PROMISE: The promise that the amount of annuity payments will
not be affected by the fact that Annuitants live longer than expected.
ANNUITY UNIT: A statistical device used to determine the amount of annuity
payments.
CONTRACT OWNER: The Annuitant, or other designated person, except in cases
where a Contract is issued to a trustee of a trust or a custodian of a
qualified pension or profit-sharing plan under Section 401(a) of the Code or
of an Individual Retirement Annuity under Section 408 of the Code, or where a
Contract is issued in connection with a deferred compensation plan pursuant to
Section 457 of the Code. In cases where the Contract is issued to such a
trustee or custodian, as defined above, the Contract Owner is the trustee or
custodian.
FIXED-DOLLAR ANNUITY: An annuity with payments which remain fixed throughout
the payment period and which do not reflect the investment experience of a
separate account.
LINCOLN LIFE (THE COMPANY, WE, US, OUR): The Lincoln National Life Insurance
Company
PAYMENTS: Amounts paid to purchase an annuity by or on behalf of an
Annuitant.
PARTICIPANT: The individual participating in a qualified pension or profit-
sharing plan pursuant to Section 401(a) of the Code, a deferred compensation
plan pursuant to Section 457 of the Code, a tax deferred annuity pursuant to
Section 403(a) of the Code or a tax sheltered annuity pursuant to 403(b) of
the Code.
SEPARATE ACCOUNT: Assets set aside in a separate account by The Lincoln
National Life Insurance Company with respect to payments received for the
variable side of the contract offered by this prospectus and certain other
annuity contracts and designated as Lincoln National Variable Annuity Fund A.
TERMINATION AND SURRENDER: Surrender means redemption; the term redemption
may be used interchangeably with surrender. The termination options permit
redemption as set forth in Accumulation Period, below.
VARIABLE ANNUITY: An annuity providing for payments varying in accordance
with the changing values of securities held in a separate account.
VARIABLE ANNUITY CONTRACT: An agreement between the Company and the Contract
Owner providing a variable annuity.
PR-AG
2
<PAGE>
EXPENSE TABLE
CONTRACT OWNER TRANSACTION EXPENSES (as a percentage of purchase payments
unless otherwise indicated)
<TABLE>
<CAPTION>
SINGLE PERIODIC
PREMIUM PREMIUM
-------- --------
<S> <C> <C>
Sales Load Imposed on Purchases 2% + $50 4.25%
-------- ----
Administrative Expense $65 1.00%
-------- ----
Minimum Death Benefit (if elected) .75% .75%
-------- ----
ANNUAL EXPENSES (as a percentage of average net assets)
Management Fees .32%
----
Annuity Rate and Expense Risk Fees 1.00%
----
Total Annual Expenses 1.32%
----
</TABLE>
EXAMPLE*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
S. P. P. P. S. P. P. P. S. P. P. P. S. P. P. P.
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At the end of the applicable
time period, you would pay
the following expenses on a
$1,000 investment, assuming
5% annual return on assets: $147 $66 $173 $95 $202 $126 $287 $218
</TABLE>
*The figures are the same, whether the Contract Owner holds the contract,
surrenders it, or annuitizes. The expenses shown do NOT include charges for
the minimum death benefit, since the purchase of that benefit is optional with
the client. [S. P. = Single Premium; P. P. = Periodic Payment]
This table is provided to assist the Contract Owner in understanding the
various costs and expenses that he or she will bear directly or indirectly.
The table reflects expenses of operating both the Variable Annuity Contract
and the Fund. For a more complete description of the various costs and
expenses involved, see "Charges and Deductions" in this Prospectus. Premium
taxes may also be applicable, although they do not appear in the table. THE
"Example" SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. This
table is unaudited.
PR-AG
3
<PAGE>
SYNOPSIS
WHAT ARE THE VARIABLE ANNUITIES BEING OFFERED?
The variable annuity contracts offered by this prospectus are of two types:
immediate annuities and deferred annuities. Deferred annuities may be
purchased with a single payment or with periodic payments. Immediate annuities
may only be purchased with a single payment. The Contracts are not being sold
to new Contract Owners.
WHO IS THE PRINCIPAL UNDERWRITER?
The Lincoln National Life Insurance Company (the Company), a registered
broker-dealer, is the principal underwriter. It makes contracts available
through its registered representatives licensed to sell life insurance
policies and annuity contracts.
INVESTMENT ADVISER--NATURE OF BUSINESS
The Company, a stock life insurance company providing life insurance and
annuities, serves as investment adviser to the Fund.
WHAT FEES ARE CHARGED TO THE FUND?
For providing investment management services, the Company (the adviser) will
make daily deductions aggregating .323% annually of the average daily value of
the Fund. (See Investment Management, below.)
Daily deductions aggregating 1.002% annually of the average daily value of
the Fund are also made for annuity rate and expense guarantees. (See Charges
and Deductions, below.)
In general, see Expense Table on page 3.
WHAT IS THE MAXIMUM SALES LOAD?
The maximum sales load under a periodic payment contract is 4.49% of the net
amount invested which is 4.25% of the offering price (gross payment received).
Under a single payment contract, the maximum sales load is 3.9% of the net
amount invested. The maximum sales load is 2% of the offering price (gross
payment received) plus $50.
There are provisions for reduced sales charges. (See Charges and Deductions,
below.)
ADMINISTRATIVE EXPENSE CHARGES
In addition to the maximum sales load described above, a charge is also
deducted for administrative expenses. This charge is a maximum of 1% of
purchase payments under periodic payment contracts; under single payment
contracts, the charge is $65.
ARE THERE ANY OTHER DEDUCTIONS, CHARGES OR PENALTIES?
If the minimum death benefit has been elected, an additional deduction of
.75% is made from each purchase payment. Deductions are also made for any
applicable premium taxes. If you withdraw contract value or surrender the
contract before the annuity period begins, you may be subject to a penalty tax
under Section 72(q) of the Code.
IS THERE A SHORT-TERM CANCELLATION RIGHT?
Within 10 days after this contract is first received, it may be cancelled for
any reason by delivering or mailing it to the agent through whom it was
purchased or to the Home Office of the Company. Upon cancellation, this
contract shall be void from the beginning and the Company will return the
value of any payments made to the variable account (including the sales and
administrative charge).
IS A MINIMUM INVESTMENT REQUIRED?
Normally, under a periodic payment contract, the minimum amount of any
scheduled purchase payment is $25 and the scheduled purchase payments must
total at least $600 per year. Normally, under a single payment contract the
minimum payment is $5,000.
INVESTMENT OBJECTIVES
The principal investment objective of the Fund is the long-term growth of
capital in relation to the changing value of the dollar. A secondary
investment objective is the production of current income. (See Investment
Objectives and Policies of the Fund, below.)
TYPE OF FUND
The Fund is a segregated investment account of the Company, operated as an
open-end, diversified management investment company.
REDEMPTION OR REPURCHASE PRICE
Payments upon redemption will be made at the value of the account without any
charge. (See Accumulation Period, below.)
PR-AG
4
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
PER-ACCUMULATION-UNIT INCOME AND CAPITAL CHANGES
(For an accumulation unit outstanding throughout the year)
The following per-unit income and capital changes table of the Fund has been
derived from the financial statements of Lincoln National Variable Annuity
Fund A which have been audited by Ernst & Young LLP, independent auditors.
This table should be read in conjunction with the Fund's financial statements,
notes and report of independent auditors included in the Statement of
Additional Information. The information is for years ended December 31.
PER-ACCUMULATION-UNIT INCOME AND CAPITAL CHANGES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $ .286 $ .267 $ .251 $ .217 $ .204 $ .206 $ .181 $ .146 $ .183 $ .150
Expenses................ .178 .139 .114 .095 .090 .083 .076 .064 .062 .053
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net investment income... .108 .128 .137 .122 .114 .123 .105 .082 .121 .097
Net realized and
unrealized gain (loss)
on investments......... 3.755 1.735 2.539 (.040) .522 (.099) 1.402 (.102) .786 .266
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Increase (decrease) in
accumulation unit
value.................. 3.863 1.863 2.676 .082 .636 .024 1.507 (.020) .907 .363
Accumulation unit value
at beginning of year... 11.737 9.874 7.198 7.116 6.480 6.456 4.949 4.969 4.062 3.699
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
ACCUMULATION UNIT VALUE
AT END OF YEAR........ $15.600 $11.737 $9.874 $7.198 $7.116 $6.480 $6.456 $4.949 $4.969 $4.062
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
RATIOS
Ratio of expenses to
average net assets..... 1.27% 1.28% 1.28% 1.27% 1.27% 1.27% 1.27% 1.28% 1.28% 1.28%
Ratio of net investment
income to average net
assets................. .77% 1.17% 1.65% 1.75% 1.72% 2.01% 1.85% 1.72% 2.63% 2.49%
Portfolio turnover rate. 32.56% 49.94% 48.95% 64.09% 49.90% 70.97% 36.99% 59.57% 201.20% 178.95%
Number of accumulation
units outstanding at
end of year (expressed
in thousands).......... 7,723 8,462 9,569 9,908 11,538 12,742 14,185 16,554 19,522 22,564
</TABLE>
FINANCIAL STATEMENTS
Financial statements of the Fund and the statutory-basis financial statements
and schedules of Lincoln Life are in the Statement of Additional Information
(SAI) for the Fund. To obtain a copy of the SAI, call or write to the source
listed on page one of this Prospectus.
THE 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. The Home
Office of the Company (principal business address) is located at 1300 South
Clinton Street, Fort Wayne, Indiana. The Company's Home Office mailing address
is P.O. Box 2340, Fort Wayne, IN 46801.
PR-AG
5
<PAGE>
THE FUND
On September 16, 1966 the Board of Directors of the Company established a
segregated investment account designated Lincoln National Variable Annuity
Fund A (the Fund or Variable) in accordance with certain provisions of Indiana
Insurance Law. The Fund is an open-end, diversified management investment
company registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended (the 1940 Act).
The present Board of Managers for the Fund has been elected by the Contract
Owners (See Voting Rights, below.) A majority of these Members are persons who
are not otherwise interested persons of the Company as the term "interested
persons" is defined in the 1940 Act. Members of the Board of Managers are also
Directors of the following: 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; Lincoln National Growth and Income Fund, Inc.; Lincoln
National International Fund, Inc.; Lincoln National Managed Fund, Inc.;
Lincoln National Money Market Fund, Inc.; Lincoln National Social Awareness
Fund, Inc.; and Lincoln National Special Opportunities Fund, Inc. All of the
foregoing are registered investment companies. The Board is responsible, among
other things, for authorizing investment programs for the Fund, in accordance
with the Fund's investment objectives and policies; for recommending to
Contract Owners any appropriate changes to those objectives and policies; and
for contracting for certain services necessary to the operation of the Fund.
The Indiana law under which the Fund was established provides it shall not be
chargeable with liabilities arising out of any other business which the
Company may conduct and which has no specific relation to or dependence upon
the Fund. Accordingly, the assets of the Fund will be held exclusively for the
benefit of Participants in, and persons entitled to payment under, variable
annuity contracts. Income, gains, and losses, whether or not realized, from
assets allocated to the Fund are, in accordance with the applicable variable
annuity contracts, credited to or charged against the Fund without regard to
other income, gains, or losses of the Company. The assets of the Fund may not
be charged with liabilities arising out of any other business of the Company.
The obligations arising under the variable annuity contracts are obligations
of the Company. The Fund is a "separate account" as that term is defined under
the federal securities laws.
The Company, in addition to serving as Investment Adviser for the Fund (See
Investment Management, below), provides overall management of the Fund's
business affairs, subject to the authority of the Board of Managers.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
All investment objectives and policies shown below (except Restrictions 9
through 11) are fundamental and may not be changed without approval of
Contract Owners casting a majority of the votes entitled to be cast (see
Voting Rights, below).
OBJECTIVES
1.The principal investment objective is the selection of investments for the
long-term growth of capital in relation to the changing value of the dollar.
Investments will be made with the objective of providing annuity payments
which may tend to reflect changes in the value of the dollar. An additional
but secondary investment objective is the production of current income.
2. Income and realized capital gains will be reinvested.
3. The Fund's assets will be kept fully invested except that (a) sufficient
cash will be kept on hand to meet variable annuity contract payments and (b)
reasonable amounts of cash or United States Government securities may be held
for limited periods pending investment in accordance with investment policies.
4. The Fund's assets will usually be invested in a portfolio of equity
securities, mainly common stocks, diversified over industries and companies.
Changes in such diversification may be made from time to time to take into
account changes in the outlook for particular industries or companies. The
investments of the Fund will not, however, be concentrated in any one
industry, and no more than 25% of the Fund's assets will be invested in any
one industry. Such diversification does not eliminate the risks inherent in
the making of equity investments. The purchasing of common stocks may occur in
rising or declining markets.
Further, when the Board of Managers determines that investments of other
types may be advantageous on the basis of combined considerations of risk,
income and appreciation, investments may be made in bonds, notes or other
evidences of indebtedness, issued publicly or placed privately, of a type
customarily purchased for investment by institutional investors including
United States Government securities. Such investments, if made, constitute a
defensive policy. Such investments may, or may not, be convertible into stock
or be accompanied by stock purchase options or warrants for the purchase of
stock. Warrants are purely speculative in that they have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. A warrant, basically, is an option to purchase a given security
within a specified period for a specified price. The prices of warrants do not
necessarily move parallel to the price of the underlying securities.
PR-AG
6
<PAGE>
RESTRICTIONS
The investments of the Fund are subject to the provisions of the Indiana
Insurance Law concerning earnings records, preferred stock coverage, self-
dealing, real estate holdings and concentration.
Loans will not be made, but the purchase of a portion of an issue of bonds,
debentures or other securities publicly distributed or privately placed with
financial institutions shall not be considered the making of a loan.
The Fund will not:
1. Invest more than 5% of the value of the Fund's assets in securities of
any one issuer, except obligations of the United States Government and
instrumentalities thereof.
2. Acquire more than 10% of the voting securities of any one issuer.
3. Borrow money except for temporary or emergency purposes in an amount up
to 5% of the value of the assets.
4. Underwrite securities of other issuers.
5. Purchase or sell real estate as a principal activity. However, the right
is reserved to invest up to 10% of the value of the assets of the Fund in real
properties.
6. Purchase commodities or commodity contracts.
7. Make short sales of securities.
8. Make purchases on margin, except for such short-term credits as are
necessary for the clearance of transactions.
9. Invest in the securities of a company for the purpose of exercising
management or control.
10. Place emphasis upon obtaining short-term trading profits, but it may
engage in short-term transactions in the event that a change in economic
conditions or a rapid appreciation or depreciation of stock prices occurs. See
the Fund's portfolio turnover rates set forth in the Per-Accumulation-Unit
Income And Capital Changes Table.) The securities markets in general have
experienced volatility due to rapidly shifting economic trends. This
volatility can affect turnover.
11. Plan to make investments in securities of other investment companies.
However, the right is reserved to make such investments up to a maximum of 10%
of the value of the assets of the Fund, provided that not more than 3% of the
total outstanding voting stock of any one investment company may be held.
SPECIAL RISKS
Investments, if made, in any securities of the type which are privately
placed with financial institutions and which cannot be sold to the public
without prior registration of such securities with the SEC, will be limited in
order that the total of such investments will not exceed 10% of the value of
the Fund's assets. Such securities are commonly referred to as "restricted
securities." Restricted securities may not be readily marketable and the Fund
may not be able to dispose of its holdings in these securities at reasonable
price levels if such securities are ever acquired. Furthermore, registration
of restricted securities under the Securities Act of 1933 may be necessary if
the Fund is to sell such securities publicly. Should a considerable period of
time elapse between the time that a decision is made to sell restricted
securities and the time when the Fund may be permitted to sell them publicly
under an effective registration statement, adverse market conditions could
develop with the result that the Fund might not be able to obtain as favorable
a price as that prevailing at the time the decision to sell was made. During
1997 no restricted securities were held.
CHARGES AND DEDUCTIONS
DEDUCTION FROM PURCHASE PAYMENTS--SALES AND ADMINISTRATIVE EXPENSES
Under periodic payment contracts, a deduction of 4.25% for sales expenses and
1% for administrative expenses is made from each purchase payment when
received. Under single payment contracts, which contemplate that lump sum
amounts under pension or retirement plans will be applied to the purchase of
an annuity, the deduction from each purchase payment made on behalf of a
Participant for sales and administrative expenses is 2% plus $50 for sales
expenses and $65 for administrative expenses. In addition to periodic
payments, the Contract Owner may make single payments on behalf of
Participants. The deduction from such a payment made for a Participant is 2%.
Administrative expenses include salaries, rent, postage, telephone, travel,
legal, actuarial and accounting fees, office equipment, and stationery. The
administrative charge is designed to cover the expense of administering these
contracts, and the Company does not expect to realize a profit by virtue of
this charge.
These services are provided under a Sales and Administrative Services
Agreement executed by the Company and the Fund. The Agreement continues in
effect from year to year if approved at least annually by a majority of the
Board of Managers who are not interested persons of the Company or the Fund,
cast in person at a meeting called for the purpose of voting on such approval.
PR-AG
7
<PAGE>
With respect to the regular Group Variable Annuity Contract, should the
Company increase the combined sales and administrative expense charge, then,
for existing holders of periodic payment contracts, the Company promises not
to deduct more than 5.25% from any year's payment, as long as that payment is
no more than twice the original year's payment. The excess will be charged at
the higher rate. With respect to the Group Variable Annuity Deposit
Administration Contract, should the Company increase the combined sales and
administrative expense charge, then, for existing holders of periodic payment
contracts, the Company promises not to deduct more than 5.25% from any of the
payments made in the first 14 contract years immediately following the first
contract year, as long as the payment in any of those 14 years is no more than
twice the original payment. The excess will be charged at the higher rate. For
both types of contracts, the deduction for sales and administrative expenses
may be decreased by the application of experience rating credits. (See
Purchase of Contracts, below.)
Deductions for sales and administrative expenses made from purchase payments
applied to purchase fixed-dollar accumulation units are the same as those made
from payments applied to the Separate Account.
Over the actuarial life of the contracts issued by the Fund, the aggregate
sales load is expected to exceed the aggregate distribution expenses
associated with those contracts. To the extent that sales load does not exceed
distribution expenses during the first year of those contracts, the Company
pays those expenses out of its general assets. Aggregate sales load in years
after the first exceeds aggregate distribution expenses in those years.
For sales and administrative expenses, the Fund paid $9,784 in 1997, $12,259
in 1996 and $12,796 in 1995.
REDUCED CHARGES
No sales or administrative expense charge is deducted from:
1. Amounts transferred between the fixed and the separate account portions of
contracts offered by this prospectus, if such transfers are permitted by the
underwriting practices of the Company;
2. Purchase payments under contracts offered by this prospectus to (a)
Members of the Board of Managers and officers of the Fund, (b) directors,
officers and full-time employees of the Company, if they spend more than 50%
of their working time either (1) rendering investment advisory services to the
Fund or supervising persons who spend more than 50% of their working time
rendering such services, or acting in a position necessary for such persons to
render such services, or (2) selling or offering for sale contracts of the
Fund or supervising persons who spend more than 50% of their working time
selling or offering such contracts for sale, or acting in a position necessary
for such persons to sell or offer such contracts for sale, and (c) sales
representatives of the Company, or to any trust, pension, profit-sharing, or
other benefit plan for such persons, provided that each of the foregoing
persons has acted as above described for not less than 90 days, and provided
further that such sales are made with the written assurances of the purchaser
that the purchase is made for investment purposes and that the contracts will
not be resold except through redemption; and/or
3. Payments under contracts offered by this prospectus to the owners of or
beneficiaries under life insurance, endowment, or annuity contracts issued by
the Company in cases where and to the extent that proceeds payable under such
policies are applied to the purchase of contracts offered by this prospectus.
EXPERIENCE RATING CREDIT
The variable annuity contracts are non-participating and do not share in the
surplus of the Company; however, each variable annuity contract provides for
experience rating. The experience rating credit will be determined annually on
the basis of allocated costs compared with the amounts deducted for sales and
administrative expenses. If such costs exceed the amount deducted, no
additional deduction will be made from the Participant's individual account.
If, however, the amount deducted for such expenses exceeds allocated costs,
the Company, in its discretion, may allocate all, a portion or none of such
excess as an experience rating credit.
Credits will be applied without deduction of any amounts for sales or
administrative expenses. Application of the credit will be made in one of two
ways, as considered appropriate by the Company: (a) by a reduction in the
amount deducted from subsequent purchase payments for sales and administrative
expenses, or (b) by the crediting of a number of additional accumulation units
or annuity units, as applicable, equal in value to the amount of the credit
less any applicable premium taxes.
During 1997, there were no experience rating credits paid. In years in which
experience rating credits are granted, the granting of those credits in no way
obligates the Company to grant such credits in ensuing years, as the Company
retains sole discretion with respect to payment of experience rating credits.
DEDUCTION FROM PURCHASE PAYMENTS--MINIMUM DEATH BENEFIT
An additional deduction of .75% is made from each purchase payment for the
minimum death benefit, if such coverage has been elected. The Company
anticipates that the sale of this death benefit will generate profits for it.
(See Accumulation Period, below.)
PR-AG
8
<PAGE>
DEDUCTION FROM PURCHASE PAYMENTS--PREMIUM TAXES
Any applicable premium taxes are deducted from purchase payments in
accordance with local law. Premium tax deductions are held in the General
Account of the Company until paid to the appropriate state on a quarterly or
annual basis. The balance of the payment less all deductions is placed in the
Fund and credited to the Participant's individual account. The tax ranges from
.5% (.005) to 4.0% (.04) of purchase payments.
DEDUCTION FROM AVERAGE DAILY VALUE OF THE FUND--ANNUITY RATE AND EXPENSE
PROMISES
Although variable annuity payments will vary in accordance with the
investment performance of the Fund, they will not be affected by adverse
mortality experience or by an increase in the Company's expenses to an amount
in excess of expense deductions provided for in the variable annuity contract.
The Company assumes the risk that Annuitants as a class may live longer than
expected and that expenses may be higher than the deductions for such
expenses. In either case, the loss will fall on the Company. Conversely, if
such reserves and deductions prove more than sufficient, the excess will be a
profit to the Company.
In return for the assumption of these risks, deductions aggregating 1.002%
annually of the average daily value of the Fund are made consisting of .9% for
annuity rates and .102% for expenses.
By the terms of the variable annuity contracts, all periodic deductions and
annuity rates are subject to certain modifications by the Company. (See The
Variable Annuity Contracts, below.) However, in the case of deductions for
investment advisory services, such deductions may only be modified by a
majority vote of Contract Owners.
DEDUCTION FROM AVERAGE DAILY VALUE OF THE FUND--INVESTMENT ADVISORY FEES
For providing investment advisory services to the Fund, the Company makes
deductions aggregating .323% annually of the average daily value of the Fund.
(See Investment Management, below.) The Fund paid investment advisory fees of
$394,625 in 1997, $345,624 in 1996 and $288,545 in 1995.
INVESTMENT MANAGEMENT
The Company has been registered under the Investment Advisers Act of 1940
since 1967, and it serves as investment adviser of the Fund. (See The Company,
above, for a description of the Company; and Management, in the SAI, for
affiliated persons.) Investment management services are provided under an
Investment Management Services Agreement executed by the Company and the Board
of Managers. The Agreement continues in effect from year to year if approved
at least annually by a majority of the Board of Managers, who are not
interested persons of the Company or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and by either (a) the Board
of Managers, or (b) a majority vote of all Contract Owners.
The Agreement may be terminated at any time without penalty on 60 days'
written notice to the Company by the Board of Managers or by a majority vote
of all Contract Owners. The Company may not terminate the Agreement without
the prior approval of a new investment advisory agreement by a majority vote
of all Contract Owners. In the event of assignment, the Agreement will
terminate.
In performing investment management services, the Company continuously
provides the Board of Managers with an investment program for its
consideration. Upon approval of such an investment program by the Board of
Managers, the Company executes the program by placing orders for the purchase
or sale of the assets of the Fund.
A "sub-advisory agreement" is in force between the Company and Vantage Global
Advisors, Inc. ("Vantage"), 630 5th Ave., Suite 2670, New York, NY 10111, a
Delaware corporation. Under it, Vantage may perform some, or substantially
all, of the investment advisory services required by the Fund. However, the
Company remains primarily responsible for investment decisions affecting the
Fund, and no additional compensation from the assets of the Fund is assessed
as a result of that agreement.
PR-AG
9
<PAGE>
THE VARIABLE ANNUITY CONTRACTS
ANNUITY PROMISE
The variable annuity contract includes the Company's promise that variable
payments will be made for the lifetime of the Annuitant (commencing on the
selected annuity date) based upon mortality assumptions contained in the
contract and annuity option selected, regardless of the actual mortality
experience among the Annuitants. That is, while annuity payments are based on
life expectancies, Annuitants will nevertheless continue to receive annuity
payments if they live longer than expected. Annuity payments will not be
affected by an increase in the Company's expenses.
PURCHASE OF CONTRACTS
Two types of Group Variable Annuity Contracts are covered by this prospectus:
1. Under the regular Group Variable Annuity Contract, payments are allocated
to the accounts of individual Participants. Each Participant under the regular
Group Variable Annuity Contract receives a certificate which summarizes the
provisions of the group contract and evidences participation.
2. The Group Variable Annuity Deposit Administration Contract is designed for
use with defined benefit pension plans and defined benefit H.R.-10 plans.
In each case, the group contract is issued to the Contract Owner. The
payments are added to a single account for the contract.
Persons wishing to become Participants under a group contract must complete
application forms to be forwarded to the Home Office of the Company for its
acceptance. Upon acceptance, certificates are prepared and forwarded to the
Participant.
An initial purchase payment will be priced not later than two business days
after receipt of an order to purchase, if the application and all information
necessary for processing the purchase order are complete upon receipt. The
Company may retain the purchase payment for up to five business days while
attempting to complete an incomplete application. If the application cannot be
made complete within five days, the applicant will be informed of the reasons
for the delay and the purchase payment will be returned immediately unless the
applicant specifically consents to the Company retaining the purchase payment
until the application is made complete. Thereafter, this initial purchase
payment must be priced within two business days.
Certain significant provisions of the contracts are discussed in the
following sections.
MODIFICATION OF CONTRACT
The variable annuity contract cannot be modified by the Company except with
approval of the Contract Owner (which is the employer or a trustee in the case
of group variable annuity contracts) until it has been in force for at least
three years. Further, no modifications can affect retired Participants in any
manner without their written consent, unless such modification is deemed by
the Company to be necessary to give the Contract Owner or Participants the
benefit of federal or state statutes or Treasury Department rules or
regulations. Moreover, under the regular Group Variable Annuity Contract, the
annuity rate promise, expense promise, and the deductions applicable at the
time of a Participant's entry into the plan will continue to apply for all
purchase payments made on his or her behalf, up to a maximum payment in any
year equal to 200% of the amount paid in the first year of participation. The
portion of the purchase payments in excess of such maximum will receive the
benefit of the promises applicable to new entrants into the plan in the year
such excess is first received by the Company, and these promises will continue
to apply if the increased payment is continuously made.
Under the Group Variable Annuity Deposit Administration Contract, the annuity
rate promise, expense promise and the deductions applicable at issue will
continue to apply for all payments made during the first 15 contract years up
to a maximum payment in any year equal to 200% of the amount paid in the first
contract year. The portion of the purchase payments in excess of such maximum
will receive the benefit of the promises applicable to new contracts in the
year such excess is first received by the Company and these promises will
continue to apply if the increased payment is continuously made during the
first 15 contract years. The Company has not found it necessary in the past to
change the annuity rate promise, expense promise, or the deductions applicable
at the time of a Participant's entry into the plan.
Notwithstanding the above, the Company reserves the right to unilaterally
modify this variable annuity contract to comply with federal and state laws.
ASSIGNMENT
Unless contrary to applicable law, assignment of variable annuity contracts
or participant's individual accounts thereunder is prohibited.
PR-AG
10
<PAGE>
PURCHASE LIMITS
Normally, under a periodic payment contract, the minimum amount of any
scheduled purchase payment is $25 per Participant and the scheduled purchase
payments must total at least $600 per year per Participant. Normally, under a
single payment contract, the minimum payment is $5,000 for any one
Participant.
REINVESTMENT PRIVILEGE
The Contract Owner or a Participant may elect to make a reinvestment purchase
with any part of the proceeds of a total or partial liquidation of the
contract without any deductions by the Company. Such election must be made
within 30 days of the date of such liquidation and the purchase must be of a
contract covered by this prospectus. 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 (see Synopsis, above). The number of Accumulation Units which
will be credited upon reinvesting the funds will be based on the value of the
Accumulation Unit(s) the next time such value is computed following receipt of
the proceeds and request for reinvestment at the Company's Home office. This
reinvestment privilege may be utilized only once with respect to any Contract
Owner or Participant. For tax reporting purposes, a liquidation and subsequent
reinvestment purchase will be treated by the Company as separate transactions.
Prior to a liquidation or subsequent reinvestment purchase, a tax adviser
should be consulted by the Contract Owner or Participant.
GENERAL RISK FACTORS
Variable annuities are designed to provide Participants with payments which
will tend to reflect changes in the cost of living. The Company seeks to
accomplish this objective by providing a medium for investment in equity
securities accompanied by annuity promises. There is no assurance that this
objective will be attained.
Historically, the value of a diversified portfolio of common stocks held for
an extended period of time has tended to rise during periods of inflation.
There has, however, been no exact correlation, and for some periods the prices
of securities have declined while the cost of living was rising.
The value of the investments held in the Fund fluctuates daily and is subject
to the risks of changing economic conditions as well as the risks inherent in
the ability of management to anticipate changes in such investments necessary
to meet changes in economic conditions.
There is no assurance that the value of a Participant's individual account
during the years prior to retirement or that the aggregate amount of the
variable annuity payments received during the years following the commencement
of annuity payments will equal or exceed the payments made on behalf of a
Participant. Neither is there assurance that the value of an unallocated
fund's contract will equal or exceed the payments made to this account. The
policy of investment in common stocks may be maintained in both rising and
declining markets.
CONTRACT OWNER INQUIRIES
The obligations to purchasers under the Variable Annuity Contracts are those
of the Company. Inquiries from Contract Owners should be directed to the
Company at 1-800-454-6265.
ACCUMULATION PERIOD
ACCUMULATION UNITS
Under the regular Group Variable Annuity Contract, the purchase payments made
with respect to a Participant, less deductions, are credited to the account of
the Participant in the form of Accumulation Units. Under the Group Variable
Annuity Deposit Administration Contract, net payments are credited to the
account of the Contract Owner. The number of Accumulation Units credited to an
account is determined by dividing the net purchase payment by the value of an
Accumulation Unit when the net purchase payment is received, if received prior
to the close of trading on the New York Stock Exchange and by the value
computed on the next trading day, if received thereafter. (See Fund Valuation
Procedure, below.) Crediting of Accumulation Units may be delayed on payments
received which cannot be identified or allocated to a specific Participant's
Individual account.
The number of Accumulation Units so determined shall not be changed by any
subsequent change in the value of an Accumulation Unit, but the dollar value
of an Accumulation Unit will vary in amount depending upon the investment
experience of the Fund.
PR-AG
11
<PAGE>
VALUE OF PARTICIPANT'S ACCOUNT
The value of a Participant's individual account at any time prior to the
commencement of annuity payments or the value of a Contract Owner's account
can be computed by multiplying the total number of Accumulation Units by the
current Accumulation Unit value. The Participant bears the investment risk,
that is, the risk that market values may decline. There is no assurance that
the value of the Participant's individual account will equal or exceed the
payments made on his or her behalf. Each Participant is advised annually of
the number of Accumulation Units credited to his or her account, the current
Accumulation Unit value, and the total value of the account.
DEATH BENEFIT BEFORE RETIREMENT
If the Annuitant dies prior to the commencement of benefit payments, death
proceeds payable will be the value of the person's account determined as of
the valuation date coincident with or next following the date written notice
of death is received by the Company.
If minimum death benefit coverage has been elected, the variable annuity
contract will contain a promise that in the event of the death of the
Participant prior to the commencement of benefit payments, death proceeds
payable will be the greater of (a) the value of the Participant's account
determined as of the valuation next following receipt of written notice of
death by the Company or (b) in the event of such death prior to the
Participant's 65th birthday, 100% of the total purchase payments made on
behalf of the Participant minus a proportionate reduction for any partial
withdrawals of the value of the Participant's account. Payment of death
proceeds will be made within seven days of receipt of such notice.
DEATH OF CONTRACT OWNER
If the owner of a non-qualified contract dies before annuity payments have
begun, then in accordance with the provisions of Section 72(s) of the Code,
the Cash Surrender Value (proceeds) of the Contract will be paid as follows:
(i) Upon the death of a non-annuitant owner, the proceeds shall be paid to any
surviving joint or contingent owner(s); (ii) If no joint or contingent owner
has been named, then the proceeds shall be paid to the annuitant named in the
contract.
If the decedent owner or joint owner is also the Annuitant, then the death
will be treated as death of the Annuitant subject to the provisions of this
Contract regarding death of annuitant. If the recipient of the proceeds is the
surviving spouse of the Contract Owner, the Contract may be continued in the
name of the spouse as owner.
In accordance with Section 72(s), any distribution must be paid within 5
years of the death of the owner unless the beneficiary begins receiving,
within one year of the Contract Owner's death, the distribution in the form of
a life annuity or an annuity for a period certain not exceeding the
beneficiary's life expectancy.
JOINT/CONTINGENT OWNERSHIP
If a joint owner is named in the application, such joint owners shall be
treated as having equal undivided interests in the Contract. Either owner,
independent of the other, may exercise any ownership rights in this Contract.
A contingent owner cannot exercise any ownership rights in this Contract while
the Contract Owner is alive.
SURRENDER OF CONTRACT
The Contract Owner, if the plan so provides, has the right to surrender in
whole or in part at any time prior to the commencement of the annuity period.
The Contract Owner must submit a written request for surrender to the
Company's Home Office. The Contract Owner will receive the value of that
portion of the account surrendered computed as of the valuation time
coincident with or next following the date of surrender, and payment will be
made within seven days after the date of surrender. (For federal income tax
consequences of a surrender for cash, see Federal Tax Status, below and in the
SAI.) [Note: however, special restrictions on surrenders and withdrawals now
apply if your Contract was purchased as part of a retirement plan of a public
school system or tax-exempt institution under Section 403(b) of the Code.
Section 403(b) prohibits the withdrawal of post-1988 contributions pursuant to
a salary reduction agreement (within the meaning of Section 402(g)(3)(c) of
the Code), and earnings thereon, from a 403(b) contract except in the event
the participant: 1) attains age 59 1/2; 2) separates from service; 3) dies; 4)
becomes totally and permanently disabled; or 5) experiences financial hardship
(in which event the income attributable to such contributions may not be
withdrawn). Pre-1989 contributions and earnings through December 31, 1988, are
not subject to the above restrictions.
PR-AG
12
<PAGE>
Payment of any termination value may be postponed (a) when the New York Stock
Exchange is closed other than customary weekend and holiday closing or during
which trading on the New York Stock Exchange is restricted; (b) for any period
during which an emergency exists as a result of which (1) disposal of
securities in the Fund is not reasonably practicable or (2) it is not
reasonably practicable to determine the value of the Fund's net assets or (c)
for such other periods as the SEC may by order permit for the protection of
the Participants.
For contracts issued in connection with qualified employee pension and
profit-sharing trust and qualified annuity plans including H.R.-10 trusts of
plans covering self-employed individuals and their employees and certain tax
deferred annuity plans, termination options will be as stated in the trust or
plan, and the terms of the trust or plan applicable to the Participant should
be consulted for limitations on early surrender or payment. (See Federal Tax
Status, below and in the SAI.)
For all other contracts, upon termination of payments on the Participant's
behalf and prior to the commencement of annuity payments, a Participant will
have the following options:
1. A Participant may have his or her individual account applied to provide
fixed or variable annuity payments or a combination thereof commencing
immediately under the selected annuity option. (See Annuity Period, below.)
2. A Participant may surrender the whole or any portion of his or her
individual account by submission of a written request for surrender and the
certificate to the Company's Home Office, and receive the value of the account
computed as of the valuation time coincident with or next following the date
of surrender. Payment will be made within seven days after the date of
surrender. If the payment of a surrender value results in reduction of the
Company's state premium tax liability, the amount payable will include the
lesser of (a) the amount by which the Company's premium tax liability is
reduced or (b) the amount previously deducted from purchase payments for
premium taxes on the contract being surrendered.
3. The Participant may leave his or her individual account in force under the
group contract and the account will continue to participate in the investment
results of the Fund. When the originally selected retirement date arrives, the
Participant will begin to receive annuity payments under the selected option.
(See Annuity Period, below.) At any time in the interim, the Participant can
surrender his or her individual account in accordance with (2.) above.
If the Participant becomes an employee of another employer or a member of an
association which has a similar variable annuity contract in force with the
Company, the Participant may transfer his or her individual account to the
other contract.
A Participant may also purchase an individual variable annuity contract of
the type then being issued by the Company, if any, upon making such payments
as may then be required.
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 as defined in Texas law, (2)
retirement, or (3) death. Accordingly, a participant in the ORP will be
required to obtain a certificate of termination from his or her employer
before he or she can redeem his or her account.
ANNUITY PERIOD
ASSUMED INVESTMENT RATE (AIR)
Variable annuity contracts providing for deferred annuities contain a table
of annuity rates based on an AIR of 3.5% per year. The Company will permit the
Contract Owner to select an AIR permitted by state law or regulations as
follows: 3.5%, 4.5%, 5% or 6%. These AIRs are used merely to determine the
first monthly payment for each $1,000 of value. It should not be inferred that
such rates will bear any relationship to the actual net investment experience
of the Fund.
The choice of the AIR affects the pattern of annuity payments. A higher AIR
will produce a higher initial payment but a more slowly rising series of
subsequent payments (or a more rapidly falling series of subsequent payments)
than a lower AIR.
The objective of a variable annuity contract is to provide level payments
during periods when the economy is relatively stable and to reflect as
increased payments only the excess investment results flowing from inflation
or an increase in productivity. The achievement of this objective will depend
in part upon the validity of the assumption that the net investment rate of
the Fund equals the AIR during periods of stable prices. Subsequent payments
will be smaller than, equal to or greater than the first payment depending
upon whether the actual net investment rate is smaller than, equal to or
greater than the AIR.
PR-AG
13
<PAGE>
The following table shows the Annuity Unit values at each year end for the
different AIRs:
Annuity Unit Values
Assumed Investment Rate
<TABLE>
<CAPTION>
DECEMBER 31 3.5% 4.5% 5% 6%
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1988 1.946 1.584 1.431 1.168
1989 2.300 1.855 1.667 1.348
1990 2.175 1.739 1.556 1.247
1991 2.565 2.031 1.809 1.436
1992 2.705 2.120 1.878 1.476
1993 2.870 2.227 1.964 1.529
1994 2.805 2.156 1.892 1.459
1995 3.718 2.830 2.472 1.888
1996 4.268 3.218 2.797 2.117
1997 5.482 4.094 3.541 2.654
</TABLE>
RETIREMENT DATE; FORM OF ANNUITY
A Participant or Contract Owner in accordance with the plan, selects a
retirement date, typically not later than age 75, and an annuity option--
either of which may be changed at any time prior to 30 days before the date
upon which annuity payments are to commence--except that contracts issued
under plans qualified under Section 401(a) pursuant to qualified annuity plans
under Section 403(a) of the Code, including H.R.-10 plans, or plans pursuant
to Section 408, provide for annuity payments to commence at the date and under
the option specified under the plan. The contract provides four optional
annuity forms described below, each of which may be selected on either a fixed
annuity or variable annuity basis, or a combination thereof. The allocation
between fixed and variable may be changed at any time prior to 30 days before
the date on which payments are to commence. Amounts applied to the purchase of
a fixed-dollar annuity will not participate in the investment experience of
the Fund. If an election has not been made otherwise, the option with 120
monthly payments guaranteed will be effective, except in those cases in which
a joint and survivor annuity payout is required by law.
In such instance, the accumulated amount in the Fund will be applied to
provide variable annuity payments under such option and any amount accumulated
for a fixed annuity will be applied to provide fixed annuity payments under
such option. In such cases, the minimum first monthly payment required on the
new basis is $25, or $25 on each basis if a combination of fixed and variable
payments is elected. If at any time the payments are or become less than $25,
the Company has the right to change the frequency of payment to intervals that
will result in payments of at least $25.
While the contracts contain no provision under which an Annuitant or a
beneficiary may surrender his or her contract (see Accumulation Period, above)
and receive a lump-sum settlement in lieu thereof once annuity payments have
commenced, the Company has undertaken to honor any request for a surrender of
the remaining value of a contract in any case in which annuity payments are
being made under a form of annuity not involving life contingencies. This
applies to Option 2 when annuity payments are being continued during the
remainder of the guaranteed period to the beneficiary designated by the
Participant.
OPTIONAL ANNUITY FORMS
OPTION 1--LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant and
terminating with the last monthly payment preceding the death of the
Annuitant. This option offers the maximum level of monthly payments since
there is no guarantee of a minimum number of payments or provision for a death
benefit for beneficiaries. It would be possible under this option for the
Annuitant to receive no annuity payment if he or she died prior to the due
date of the first annuity payment, one annuity payment if the Annuitant died
before the second annuity payment date, etc.
OPTION 2--LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if, at the death of the Annuitant, payments have been made for
less than 120, 180 or 240 months as elected, annuity payments will be
continued during the remainder of such period to the beneficiary designated by
the Participant. If the beneficiary dies while receiving annuity payments, the
present value of the current dollar amount of the remaining guaranteed number
of annuity payments, computed on the basis of the AIR, shall be paid in one
sum to the estate of the beneficiary.
PR-AG
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OPTION 3--UNIT REFUND LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that upon death a payment will be made of the value of the number of
Annuity Units equal to the excess, if any, of (a) the total amount applied
under this option divided by the Annuity Unit Value for the date annuity
payments commence over (b) the Annuity Units represented by each payment to
the Annuitant multiplied by the number of payments paid prior to death. The
value of the number of Annuity Units is computed on the date the Home Office
receives written notice of the annuitant's death, provided that if notice is
not received prior to the close of trading at the New York Stock Exchange on
such date computation shall be made on the first trading date thereafter.
For example, assume that $10,000 is applied under this option. Further assume
that the Annuity Unit value for the annuity commencement date is $2 and the
first monthly payment due the Annuitant is $61. This means that the Annuitant
has 5,000 Annuity Units credited to his or her account ($10,000 divided by $2
per unit) as of the annuity commencement date and that each monthly payment
received by the Annuitant will be equal to the monetary value, at the time
paid, of 30.5 units ($61 first monthly payment divided by $2 per unit). Assume
the Annuitant receives 10 monthly payments and then dies. Prior to death, the
Annuitant was paid the value of 305 units (30.5 per month X 10 months). The
beneficiary is entitled to the value in one sum of 4,695 Annuity Units (5,000
units initially less 305 units already valued and paid). If the value of an
Annuity Unit is $2.05 on the relevant valuation date, the cash payment to the
beneficiary will be $9,624.75 (4,694 remaining units X unit value of $2.05).
OPTION 4--JOINT AND SURVIVOR ANNUITY
An annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor.
Other annuity options may be provided if agreed upon by the Company and the
Contract Owner. If any such option involves the deferral of annuity payments,
the Annuitant shall have the right to surrender his contract at any time
during the period of deferral. The mortality and expense risk charge and the
charge for administrative services will be assessed on all annuity options,
including those that do not have a life contingency and thus no mortality
risk.
FIRST MONTHLY ANNUITY PAYMENT
Under the regular Group Variable Annuity Contract, when annuity payments are
to commence, the value of the Participant's individual account is determined
as the product of the value of an Accumulation Unit on the 14th day prior to
the date the first annuity payment is due and the number of Accumulation Units
credited to the Participant's account as of the date annuity payments
commence.
The contract contains tables indicating the dollar amount of the first
monthly payment under each optional form of annuity for each $1,000 of value
applied. The first monthly payment varies according to the form of annuity
selected (see the descriptions above) and the adjusted age of the Annuitant.
The contract contains a formula for determining the adjusted age, and the
tables are determined from the Progressive Annuity Table assuming births in
the year 1900 and an AIR of 3.5% per year. The total first monthly annuity
payment is determined by multiplying the value of the Participant's individual
account (less any applicable premium taxes not previously deducted) by the
amount of the first monthly payment per $1,000 of value from the tables in the
contract.
If a greater first monthly payment would result, the Company will compute the
first monthly payment using an annuity rate based on the same mortality table
as is used in determining such payments under group variable annuity contracts
then being issued for a similar class of Annuitant.
Under the Group Variable Annuity Deposit Administration Contract, upon
written notice by the Contract Owner that annuity payments are to commence,
the Company shall determine as of the 14th day prior to the date the first
annuity payment is due, the amount necessary to provide the annuity specified
in the Plan. This amount is determined by dividing the annuity specified in
the Plan by the amount of the first monthly payment per $1,000 of value from
the tables in the contract and adding any applicable premium taxes not
previously deducted. The number of Accumulation Units to be removed from the
Contract Owner's unallocated account and used to purchase an annuity and pay
any applicable premium tax is determined by dividing the amount determined as
described in the preceding sentence by the Accumulation Unit value for the
14th day prior to the date the first annuity payment is due. If the annuity
specified in the plan can be obtained at a lower cost to the Contract Owner by
using the same mortality table as is used in determining payments under group
variable annuity contracts then being issued by the Company for a similar
class of Annuitants, it will be done.
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<PAGE>
SUBSEQUENT MONTHLY ANNUITY PAYMENTS
The amount of the first monthly annuity payment is divided by the value of an
Annuity Unit for the valuation period in which the payment is due to determine
the number of Annuity Units represented by the first payment. This number of
Annuity Units remains fixed during the annuity period, and in each subsequent
month, the dollar amount of the annuity payment is determined by multiplying
this fixed number of Annuity Units by the then value of an Annuity Unit.
FUND VALUATION PROCEDURE
VALUATION DATE
A valuation date is any date on which the New York Stock Exchange is open for
trading. On any date other than a valuation date, the Accumulation Unit value
or the Annuity Unit value will be the same as that on the next following
valuation date.
VALUATION PERIOD
The period starting at the close of trading (currently 4:00 p.m. New York
time) on each day that the New York Stock Exchange is open for trading and
ending at the close of such trading on the next Valuation Date.
ACCUMULATION UNIT VALUE
The value of an Accumulation Unit was set at $1 effective March 1, 1967. The
value of an Accumulation Unit on the last day of any subsequent valuation
period is determined by multiplying such value on the last day of the prior
valuation period by the net investment factor for the current valuation
period. Accumulation Units will be valued daily, as of the close of trading on
the New York Stock Exchange.
ANNUITY UNIT VALUE
The value of an Annuity Unit for the valuation period ending March 1, 1967
was established at $1. The value of the Annuity Unit for any subsequent
valuation period is determined by multiplying the value for the immediately
preceding valuation period by the product of (a) the net investment factor for
the valuation period containing the 14th day prior to the last day of the
current valuation period and (b) a factor to neutralize the AIR built into the
annuity tables contained in the contract which is not applicable as actual net
investment income is credited instead.
The value of an Annuity Unit on any date upon which the New York Stock
Exchange is closed is its value on the next succeeding valuation date. The net
investment factor for the 14th day prior to the current valuation date is used
in calculating the value of an Annuity Unit in order to permit calculation of
amounts of annuity payments and mailing of checks in advance of their due
dates. Such checks will normally be issued and mailed at least 3 days before
the due date.
NET INVESTMENT FACTOR
The net investment rate for any valuation period is equal to the gross
investment rate expressed in decimal form to 8 places less a deduction of the
product of .00363% (1.325% on an annual basis; deduction for providing
investment management, annuity rate promises and expense promises) and the
number of days in the valuation period.
The gross investment rate is the quotient of two factors, "a" and "b." "a" is
equal to investment income for the valuation period, plus capital gains, minus
capital losses and taxes (see Federal Tax Status, below and in the SAI.) "b"
is equal to the value of the Fund at the beginning of the valuation period.
"a" is divided by "b" to yield the gross investment rate. The gross investment
rate may be positive or negative.
The net investment factor for the Fund is 1.0 plus the net investment rate
for the period. (See Purchase and Pricing of Securities Being Offered, in the
SAI, for an illustration of the method of calculation of Accumulation Unit
value and Annuity Unit value.)
VALUING THE FUND'S ASSETS
In determining the value of the assets of the Fund, each security traded on a
national securities exchange is valued at the last reported sale price on the
valuation date. If there has been no sale on such day, then the value of such
security is taken to be the average of the reported bid and asked prices at
the time as of which the value is being ascertained.
PR-AG
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<PAGE>
Any security not traded on a securities exchange but traded in the over-the-
counter market is valued at the average of the quoted bid and asked prices on
the valuation date. Securities, including restricted securities, if any, or
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Managers.
FEDERAL TAX STATUS
The following is a general discussion of the federal income tax rules
applicable with respect to the Contracts as of the date of the Prospectus.
Further information is provided in the Statement of Additional Information
(SAI). NEITHER THESE DISCUSSIONS NOR THOSE IN THE SAI ARE INTENDED AS TAX
ADVICE. This section does not discuss the federal tax consequences resulting
from every possible situation, nor does it discuss any applicable state, local
or foreign tax laws. Prior to the purchase of a Contract, a prospective
purchaser should consult a competent tax adviser.
GENERAL
The operations of the Fund form a part of, and are taxed with, the operations
of the Company under the Internal Revenue Code of 1986, as amended (the
"Code"). Under existing federal income tax law, the Company does not
anticipate that it will incur any federal income tax liability attributable to
the Fund, and therefore the Company does not intend to make provision for any
such taxes. However, if the Company determines that it may be taxed on income
or gains attributable to the Fund or certain types of Contracts, then the
Company may impose a charge against the Fund (with respect to some or all
Contracts) in order to provide for payment of such taxes.
QUALIFIED CONTRACTS
The Contracts may be purchased in connection with the following types of tax-
favored retirement plans: (1) annuity contracts purchased for employees by
public school systems and Section 501(c)(3) organizations, qualified under
Section 403(b) of the Code; (2) pension and profit-sharing plans of self-
employed individuals ("H.R.10" or "Keogh" plans) or corporations, qualified
under Section 401(a) or 403(a) of the Code; (3) individual retirement
annuities, qualified under Section 408 of the Code; (4) deferred compensation
plans of state or local governments and tax-exempt organizations, qualified
under Section 457 of the Code; and (5) simplified employee pension plans,
qualified under Section 408(k) of the Code. Participants under such plans, as
well as Contract Owners, annuitants and beneficiaries, should be aware that
the rights of any person to any benefits under such plans may be subject to
the terms, conditions and limitations of the plans themselves, regardless of
the terms and conditions of the Contracts. Purchasers of Contracts for use
with any qualified plan, as well as plan participants and beneficiaries,
should consult counsel and other competent advisers as to the suitability of
the Contracts to their specific needs, and as to applicable Code limitations
and tax consequences.
The tax rules applicable to these plans, including restrictions on
contributions and benefits, taxation of distributions, and any tax penalties,
vary according to the type of the plan and its terms and conditions.
Generally, in the case of a distribution under a Contract purchased in
connection with these plans (other than plans qualified under Section 457 of
the Code), the amount received is taxable only to the extent it exceeds the
"investment in the contract." The "investment in the contract" equals the
portion of plan contributions invested in the Contract that was not excluded
from the individual's gross income, and may be zero. Special favorable tax
treatment may be available for lump sum distributions, and partial or total
distributions that are "rolled over" to other retirement programs within 60
days of receipt. Adverse tax consequences may result from excess
contributions, distributions prior to age 59 1/2 (subject to certain
exceptions), distributions that commence later than dates specified by the
Code, distributions in excess of a specified annual amount, and in certain
other circumstances.
MULTIPLE CONTRACTS
All non-qualified contracts entered into after October 21, 1988, and issued
by the same insurance company (or its affiliates) to the same contract owner
during any calendar year will be treated as a single contract, for tax
purposes.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients, however,
may be provided the opportunity to elect not to have tax withheld from
distributions. Distributions from Section 457 plans are subject to the general
wage withholding rules. Under the Unemployment Compensation Amendments of 1992
("UCA"), twenty percent (20%) income tax withholding may apply to "eligible
rollover distributions." All taxable distributions from qualified plans (other
than plans qualified under Section 408 of the Code) and Section 403(b)
annuities are "eligible
PR-AG
17
<PAGE>
rollover distributions," except (1) annuities paid out over life or life
expectancy, (2) installments paid for a period spanning ten years or more, and
(3) required minimum distributions. The UCA imposes a mandatory twenty percent
(20%) income tax withholding on any eligible rollover distribution that the
holder does not elect to have paid in a direct rollover to another qualified
plan, Section 403(b) annuity, or individual retirement account.
VOTING RIGHTS
When a meeting is to be held, the Rules and Regulations of the Fund specify a
quorum as 25% of the Contract Owners entitled to vote at an annual or special
meeting. Therefore, less than a majority of those entitled to vote could take
action which is not prohibited by law which could affect other Contract
Owners' rights.
The number of votes which a Contract Owner may cast for Participants in the
accumulation period is equal to the number of Accumulation Units under the
contract. For Annuitants receiving annuity payments, the Contract Owner may
cast the number of votes equal to (a) the amount of assets established in the
Fund to meet the annuity obligations related to such Annuitants divided by (b)
the value of an Accumulation Unit. The amount of the assets established in the
Fund for an Annuitant receiving annuity payments will decrease as annuity
payments are made.
Since assets are maintained in the Fund with respect to other contracts than
those offered by this prospectus, Contract Owners under such other contracts
are also entitled to vote. The number of votes which they are entitled to cast
is computed in the same manner as for Contract Owners of the variable annuity
contracts offered by this prospectus.
The number of votes each Contract Owner may cast shall be determined as of a
date to be chosen by the Board of Managers within 90 days of the date of the
meeting, and at least 20 days' written notice of the meeting will be given. To
be entitled to vote, a Contract Owner must have been an owner on both the date
as of which the number of votes was determined and the date of the written
notice.
During the accumulation period, a Participant under a group contract with
respect to which assets are maintained in the Fund or an employee covered by
an individual contract issued in connection with an H.R.-10 plan or pursuant
to Section 403(b) of the Internal Revenue Code will have the right to instruct
the Contract Owner with respect to the votes attributable to his or her
individual account, and a Participant under a group contract or an employee
covered by an individual contract issued pursuant to a qualified employee
pension or profit-sharing trust or a qualified annuity plan (other than one
involving an H.R.-10 plan or pursuant to Section 403(b)) will have the right
to instruct the Contract Owner only with respect to votes attributable to
payments made by him or her, if any, and with respect to additional votes that
are authorized by the terms of the plan, if any. All other votes entitled to
be cast during such period under such a trust or plan may be cast by the
Contract Owner in its sole discretion.
During the annuity period, every Participant and every employee will have the
right to instruct the Contract Owner with respect to all votes attributable to
the amount of assets established in the Fund to meet the annuity obligations
related to such Participant or employee. Each Contract Owner and each employee
and Participant having the right to instruct a Contract Owner with respect to
any votes will receive all proxy materials.
The Rules and Regulations of the Fund provide that each Contract Owner shall
cast the votes with respect to which instructions from an employee or a
Participant have been received in accordance with such instructions and all
votes with respect to which no instructions are received, other than those as
to which no employee or Participant is entitled to give instructions, shall be
cast in the same proportion as are votes with respect to which instructions
are received by such Contract Owners. If no one is entitled to instruct a
Contract Owner or if a Contract Owner receives no instructions, all votes to
which such Contract Owner is entitled may be cast in the Contract Owner's sole
discretion.
The Company and the Fund have no duty to ascertain whether Contract Owners
actually cast votes under such contracts in accordance with the voting rights
provisions described in this section.
The Rules and Regulations of the Fund permit the Board of Managers to
dispense with an annual meeting in any year in which the Investment Company
Act of 1940 does not require a Contract Owner to vote on: 1) election of
members of the Board of Managers; 2) approval of an investment advisory
agreement; 3) ratification of the independent public accountant; or 4)
approval of a distribution agreement. Each year, prior to the date set by the
Rules and Regulations for the annual meeting, the Board of Managers will
determine whether such meeting need be held.
Special meetings may be called for any proper purpose when permitted by
applicable law. As a result of the option for the Board to dispense with
annual meetings of Contract Owners, special meetings must be called whenever
there is a change in the Fund's independent public accountant, and whenever
fewer than 50% of the existing Members of the Board of Managers has been
elected by Contract Owners. Also, since dispensing with annual meetings
results in perpetuating Members of the Board of Managers in office, the Fund
is required to call a special meeting when Contract Owners who meet the
standards of Section 16(c) of the Investment Company Act of 1940 apply to the
Fund requesting that such a meeting be called for the purpose of removing one
or more Members of the Board of Managers. That section also requires that the
Fund facilitate communication between Contract Owners who wish to solicit the
approval of other Contract Owners for the calling of such a meeting.
Additional information about this procedure is available from Fund management.
PR-AG
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<PAGE>
OTHER ANNUITY CONTRACTS
Individual variable annuity contracts are also sold by the Company. Assets
with respect to the individual variable annuity contracts are also held in the
Fund and are affected by its investment experience. All such contracts
initially meet the requirements of Section 403(b) of the Internal Revenue
Code, or are issued with respect to (a) plans initially qualifying under
Section 401(a) of the Code, (b) annuity plans initially qualifying under
Section 403(a) of the Code, (c) retirement plans initially qualifying for
special tax treatment under Section 408 of the Code, or (d) governmental
deferred compensation plans as defined in Section 414(d) or meeting the
requirements of Section 457 of the Code.
CUSTODIAN
Bankers Trust Company, 14 Wall Street, 4th Floor, New York, New York 10005
("Bankers") is Custodian for the Fund pursuant to a Custodian Agreement
effective March 4, 1985. Under this Agreement, Bankers shall (1) receive and
disburse money; (2) receive and hold securities; (3) transfer, exchange, or
deliver securities; (4) present for payment coupons and other income items,
collect interest and cash dividends received, hold stock dividends, etc.; (5)
cause escrow and deposit receipts to be executed; (6) register securities; and
(7) deliver to the Fund proxies, proxy statements, etc. (It is anticipated
that Custodian for the Fund will change to Chase Manhattan Bank, New York, New
York, in approximately mid-1998.)
STATE REGULATION
As a life insurance company organized and operating under Indiana law, the
Company is subject to provisions governing such companies and to regulation by
the Indiana Commissioner of Insurance.
The Company's books and accounts are subject to review and examination by the
Indiana Insurance Department (Department) at all times and a full examination
of its operations normally is conducted by the Department at least once every
five years.
OTHER INFORMATION
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000.
The year 2000 issue affects virtually all companies and organizations. Lincoln
Life, as part of its year 2000 updating process, is responsible for the
updating of the Separate Account and Fund related computer systems. An
affiliate of Lincoln Life, Delaware Service Company (Delaware), provides
substantially all of the necessary accounting and valuation services for the
Separate Account and Fund. Delaware, for its part, is responsible for updating
all of its computer systems, including those which service the Separate
Account and Fund, to accommodate the year 2000. Lincoln Life and Delaware have
begun formal discussions with each other to assess the requirements for their
respective systems to interface properly in order to facilitate the accurate
and orderly operation of the Separate Account and Fund beginning in the year
2000.
The year 2000 issue is pervasive and complex and affects virtually every
aspect of the businesses of both Lincoln Life and Delaware (the Companies).
The computer systems of the Companies and their interfaces with the computer
systems of vendors, suppliers, customers and other business partners are
particularly vulnerable. The inability to properly recognize date-sensitive
electronic information and to transfer data between systems could cause errors
or even complete failure of systems, which would result in a temporary
inability to process transactions correctly and engage in normal business
activities for the Separate Account and Fund. The Companies respectively are
redirecting significant portions of their internal information technology
efforts and are contracting, as needed, with outside consultants to help
update their systems to accommodate the year 2000. Also, in addition to the
discussion with each other noted above, the Companies have respectively
initiated formal discussions with other critical parties that interface with
their systems to gain an understanding of the progress by those parties in
addressing year 2000 issues. While the Companies are making substantial
efforts to address their own systems and the systems with which they
interface, it is not possible to provide assurance that operational problems
will not occur. The Companies presently believe that, with the modification of
existing computer systems, updates by vendors and conversion to new software
and hardware, the year 2000 issue will not pose significant operations
problems for their respective computer systems. In addition, the Companies are
incorporating potential issues surrounding year 2000 into their contingency
planning process, in the event that, despite these substantial efforts, there
are unresolved year 2000 problems. If the remediation efforts noted above are
not completed timely or properly, the year 2000 issue could have a material
adverse impact on the operation of the businesses of Lincoln Life or Delaware,
or both.
The cost of addressing year 2000 issues and the timeliness of completion will
be closely monitored by management of the respective Companies and, for each
company, will be based on its management's best estimates which are derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources third-
PR-AG
19
<PAGE>
party modification plans and other factors. Nevertheless, there can be no
guarantee either by Lincoln Life or by Delaware that estimated costs will be
achieved, and actual results could differ significantly from those
anticipated. Specific factors that might cause such differences include, but
are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer problems, and
other uncertainties.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings pending or known to
be contemplated, other than ordinary routine litigation incidental to the
business, to which the Fund is a party or to which any of its property is
subject.
During the 1990's class action lawsuits alleging sales practices fraud have
been filed against many life insurance companies, and Lincoln Life has not
been immune. Lincoln Life is involved in various pending or threatened legal
proceedings arising from the conduct of its business. Most of these
proceedings are routine and in the ordinary course of business. In some
instances these proceedings include claims for unspecified or substantial
punitive damages and similar types of relief in addition to amounts for
alleged contractual liability or requests for equitable relief. After
consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will not have a material adverse effect on the financial position of Lincoln
Life.
Two lawsuits involve alleged fraud in the sale of interest-sensitive
universal and whole life insurance policies. These two suits have been filed
as class actions against Lincoln Life, although as of the date of this
Prospectus the court had not certified a class in either case. Plaintiffs seek
unspecified damages and penalties for themselves and on behalf of the putative
class. Although the relief sought in these cases is substantial, the cases are
in the early stages of litigation, and it is premature to make assessments
about potential loss, if any. Management intends to defend these suits
vigorously. The amount of liability, if any, which may arise as result of
these suits (exclusive of any indemnification from professional liability
insurers) cannot be reasonably estimated at this time.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION (SAI)
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
General Information and History............................................ B-2
Special Terms.............................................................. B-2
Investment Objectives and Policies of the Fund............................. B-2
Management................................................................. B-2
Investment Advisory and Related Services................................... B-3
Brokerage Allocation....................................................... B-3
Purchase and Pricing of Securities Being Offered........................... B-3
Distribution of Variable Annuity Contracts................................. B-4
Federal Tax Status......................................................... B-4
Other Services............................................................. B-7
Underwriters............................................................... B-7
Determination of Net Asset Value........................................... B-7
Financial Statements....................................................... B-7
</TABLE>
NOTE: SEE THE COVER PAGE OF THIS PROSPECTUS FOR DETAILS ABOUT HOW TO OBTAIN A
COPY OF THE SAI.
20
PR-AG
<PAGE>
LINCOLN NATIONAL
VARIABLE ANNUITY
FUND A (GROUP)
PROSPECTUS
APRIL 30, 1998
GROUP VARIABLE ANNUITY
CONTRACTS ISSUED BY
The Lincoln National Life Insurance Company
Fort Wayne, Indiana
No person has been authorized to give any information or to make any
representations other than those contained in the prospectus and, if given or
made, such information or representations must not be relied upon as having
been authorized. This prospectus does not constitute an offer of, or
solicitation of an offer to acquire, any interest or participation in the
variable annuity contracts offered by this prospectus in any jurisdiction to
anyone to whom it is unlawful to make such an offer or solicitation in such
jurisdiction.
To obtain a copy of the Statement of Additional Information, please complete
and mail the following form:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -
Please send me a copy of the current Statement of Additional Information for
Lincoln National Variable Annuity Fund A (Group):
(Please Print)
Name: _________________________________________________________________________
Address: ______________________________________________________________________
City ______________________________________________________________ State Zip
Mail to: Annuities Customer Service, The Lincoln National Life Insurance
Company, P.O. Box 2340, Fort Wayne, Indiana 46801
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -
Form 10547 4/98
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (GROUP)
(REGISTRANT)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(DEPOSITOR)
This Statement of Additional Information should be read in conjunction with
the Prospectus of Lincoln National Variable Annuity Fund A (Group) dated April
30, 1998. You may obtain a copy of the Fund A (Group) Prospectus on request
and without charge. Please write Annuities Customer Service, The Lincoln
National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801 or
call 1-800-454-6265.
---------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
General Information and History............................................ B-2
Special Terms.............................................................. B-2
Investment Objectives and Policies of the Fund............................. B-2
Management................................................................. B-2
Investment Advisory and Related Services................................... B-3
Brokerage Allocation....................................................... B-3
Purchase and Pricing of Securities Being Offered........................... B-3
Distribution of Variable Annuity Contracts................................. B-4
Federal Tax Status......................................................... B-4
Other Services............................................................. B-7
Underwriters............................................................... B-7
Determination of Net Asset Value........................................... B-7
Financial Statements....................................................... B-7
</TABLE>
The date of this Statement of Additional Information is April 30, 1998
Form 10547 (SAI) 4/98
SAI-AG
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (GROUP)
GENERAL INFORMATION AND HISTORY OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
The Lincoln National Life Insurance Company (the Company) is an Indiana
insurance corporation, engaged primarily in the direct issuance of life
insurance contracts and annuities, and is also a professional reinsurer. The
Company is wholly owned by Lincoln National Corporation, 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.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
See that heading in the Prospectus.
MANAGEMENT
MANAGERS AND OFFICERS OF THE FUND
The Fund is managed by a Board of Managers, whose Members are elected
annually by the Contract Owners. The affairs of the Fund are conducted in
accordance with Rules and Regulations adopted by the Board of Managers.
<TABLE>
<CAPTION>
POSITION PRESENT POSITION AND PRINCIPAL
NAME AND ADDRESS WITH THE FUND AGE OCCUPATION DURING LAST FIVE YEARS
<S> <C> <C> <C>
John B. Borsch, Jr. Member 64 Retired (formerly Associate Vice President -- Investments,
1776 Sherwood Road Northwestern University, Evanston, Illinois)
Des Plaines, IL 60016
*Kelly D. Clevenger Chairman and 45 Vice President, Lincoln National Life Insurance Company
1300 S. Clinton Street Member
Fort Wayne, IN 46802
*Barbara S. Kowalczyk Member 46 Senior Vice President, Lincoln National Corporation (formerly
200 East Berry Street Senior Vice President, Lincoln Investment Management, Inc.)
Fort Wayne, IN 46802
Nancy L. Frisby, CPA Member 56 Regional Vice President/Chief Financial Officer (formerly Vice
700 Broadway President -- Finance; Regional Controller of Finance),
Fort Wayne, IN 46802 St. Joseph Medical Center, Fort Wayne, Indiana
Kenneth G. Stella Member 54 President, Indiana Hospital and Health Association,
One American Square Indianapolis, Indiana
Indianapolis, IN 46282
*Cynthia A. Rose Secretary to the Board 44 Assistant Secretary, Lincoln National Corporation
200 East Berry Street of Managers
Fort Wayne, IN 46802
*Janet C. Whitney Vice President and 49 Vice President and Treasurer, Lincoln National Corporation
200 East Berry Street Treasurer
Fort Wayne, IN 46802
</TABLE>
*An "interested person" of the Fund as that term is defined in the Investment
Company Act of 1940.
REMUNERATION OF CERTAIN AFFILIATED PERSONS
No person receives any remuneration from the Fund. The Company pays all
expenses relative to the operation of the Fund, for which it deducts certain
amounts (see the Prospectus).
B-2
SAI-AG
<PAGE>
CONTROL OF THE FUND
No person is the record or beneficial owner of 5% or more of the Fund. In
addition, Members of the Board of Managers and officers of the Fund as a group
own less than 1% of the Registrant.
INVESTMENT ADVISORY AND RELATED SERVICES
This information is disclosed in the Prospectus.
BROKERAGE ALLOCATION
The Company places orders for the purchase and sale of securities for the
Fund's portfolio. It is the Fund's policy to have orders placed with brokers
or dealers who will give the best execution of such orders at prices and under
conditions most favorable to the Fund. The Company will customarily deal with
principal market makers in purchasing over-the-counter securities. In the
allocation of brokerage business, preference may be given to those brokers and
dealers who provide statistical, research, or other services -- so long as
there is no sacrifice in getting the best price and execution.
Consistent with the policy of seeking best price and execution for the
transaction size and the risk involved, in selecting brokers or dealers or
negotiating the commissions to be paid, the Company considers each firm's
financial responsibility and reputation, range and quality of the service made
available to the Fund and the broker's or dealer's professional services,
including execution, clearance procedures, wire service quotations and ability
to provide performance, statistical and other research information for
consideration, analysis and evaluation by the Company. In accordance with this
policy, the Company does not execute brokerage transactions solely on the
basis of the lowest commission rates available for a particular transaction.
Securities of the same issuer may be purchased, held or sold at the same time
by the Fund or other accounts or companies for which the Advisor provides
investment advice (including affiliates of the Advisor). On occasions when the
Advisor deems the purchase or sale of a security to be in the best interest of
the Fund, as well as the other clients of the Advisor, the Advisor, to the
extent permitted by applicable laws and regulations, may aggregate such
securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients in order to obtain best execution and lower
brokerage commissions, if any. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Advisor in the manner it considers to be equitable and
consistent with its fiduciary obligations to all such clients, including the
Fund. In some instances, the procedures may impact the price and size of the
position obtainable for the Fund.
The Fund paid brokerage fees of $78,697 in 1997, $124,820 in 1996 and
$101,171 in 1995.
PURCHASE AND PRICING OF SECURITIES BEING OFFERED
OFFERING TO PUBLIC; SALES LOAD
This information is disclosed in the Prospectus.
GENERAL FORMULAS FOR DETERMINING VALUE OF THE ACCUMULATION UNIT
The following formulas set out in general terms the computation of the
Accumulation Unit value at the close of trading on any day upon which the New
York Stock Exchange is open.
Investment Income + Capital Gains - Capital Losses - Taxes
-------------------------------------------
Gross Investment Rate =
Value of Fund at Beginning of Valuation
Period
Net Investment Rate = Gross Investment Rate - .0000363 (for a one day
Valuation Period)
Net Investment Factor = Net Investment Rate + 1.00000000
Accumulation Unit
Value
Accumulation Unit Value = X Net Investment Factor
on Preceding
Valuation Date
CALCULATION OF ACCUMULATION UNIT VALUE USING HYPOTHETICAL EXAMPLE
The above computations may be illustrated by the following hypothetical
example. Assume that the value of the assets of the Fund at the beginning of a
one day valuation period was $5,000,000; that the value of an Accumulation
Unit on that date was $1.135; and that during the valuation period the
investment income was $4,000, the net unrealized capital gains were $6,000 and
the net realized capital losses were $3,000. Assuming these figures are net
after provision for applicable taxes, the value of the assets of the Fund at
the end of the valuation period, before adding payments received during the
period, would thus be $5,007,000 ($5,000,000 plus $4,000 plus $6,000 minus
$3,000).
The gross investment rate for the valuation period would be equal to (a)
$7,000 ($4,000 plus $6,000 less $3,000) divided by (b) $5,000,000 which
produces .14% (.0014). The net investment rate for the valuation period is
determined
B-3
SAI-AG
<PAGE>
by deducting .00363% (.0000363) from the gross investment rate, which results
in a net investment rate of .13637% (.0013637). The net investment factor for
the valuation period would be determined as the net investment rate plus 1.0,
or 1.0013637.
The value of the Accumulation Unit at the end of the valuation period would
be equal to the value at the beginning of the period ($1.135) multiplied by
the net investment factor for the period (1.0013637), which produces
$1.1365478.
GENERAL FORMULAS FOR DETERMINING DOLLAR AMOUNT OF ANNUITY PAYMENTS
Dollar Amount of First
Monthly Payment
Number of Annuity Units =
------------------------------
Annuity Unit Value on Date of
First Payment
Value of Annuity Unit
Factor to Net Investment Factor for
Annuity Unit Value = on Preceding Valuation X Neutralize X 14th Day Preceding
Current
Date AIR Valuation Date
Dollar Amount of Annuity Unit Value
Second and Subsequent = Number of Annuity Units X for Period in Which
Annuity Payment Payment is Due
CALCULATION OF ANNUITY PAYMENTS USING HYPOTHETICAL EXAMPLE
The determination of the Annuity Unit value and the annuity payment may be
illustrated by the following hypothetical example. Assume a Participant at the
date of retirement has credited to his individual account 30,000 Accumulation
Units, and that the value of an Accumulation Unit on the 14th day preceding
the last day of the valuation period in which annuity payments commence was
$1.15 producing a total value of his individual account of $34,500. Assume
also that the Participant elects an option for which the table in the variable
annuity contract indicates the first monthly payment is $6.57 per $1,000 of
value applied; the Participant's first monthly payment would thus be 34.5
multiplied by $6.57 or $226.67.
Assume that the Annuity Unit value for the valuation period in which the
first payment was due was $1.10. When this is divided into the first monthly
payment the number of Annuity Units represented by that payment is determined
to be 206.064. The value of this same number of Annuity Units will be paid in
each subsequent month.
Assume further that the net investment factor for the Fund for the 14th day
preceding the last day of the valuation period in which the next annuity
payment is due is 1.0019. Multiplying this factor by .99990575 (for a one day
valuation period) to neutralize the AIR of 3.5% per year built into the number
of Annuity Units determined as per above, produces a result of 1.00180557.
This is then multiplied by the Annuity Unit value for the valuation period
preceding the period in which the next annuity payment is due (assume $1.105)
to produce an Annuity Unit value for the current valuation period of
$1.10699515.
The current monthly payment is then determined by multiplying the fixed
number of Annuity Units by the current Annuity Unit value or 206.064 times
$1.10699515, which produces a current monthly payment of $228.11.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
Variable annuity contracts will be sold by registered representatives of the
Company who have been licensed by the state insurance departments, by certain
employees of the Company and through selected dealers who are members of the
National Association of Securities Dealers, Inc. (NASD). The Company is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the NASD. For contracts of the Fund sold through
other broker-dealers, the Company will pay the broker-dealer an amount
equivalent to the amount deducted for sales expenses. The amount paid to the
broker-dealer may be greater during the first year of a variable annuity
contract than the amount deducted for sales expenses. The Company pays any
excess over the amount deducted for sales expenses.
FEDERAL TAX STATUS
GENERAL
The operations of the Fund form a part of, and are taxed with, the operations
of the Company under the Internal Revenue Code of 1986, as amended (the
"Code"). Investment income and realized net capital gains on the assets of the
Fund are reinvested and taken into account in determining the accumulation and
annuity unit values. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the Contract. Under
existing federal income tax law, separate account investment income and
capital gains are not taxed to the extent they are applied to increase
reserves under a contract issued in connection with the Fund. Accordingly, the
Company does not anticipate that it will incur any federal income tax
liability attributable to the Fund, and therefore the Company does not intend
to make provisions for any such taxes. However, if changes in the federal tax
laws or
B-4
SAI-AG
<PAGE>
interpretations thereof result in the Company being taxed on income or gains
attributable to the Fund or certain types of Contracts, then the Company may
impose a charge against the Fund (with respect to some or all Contracts) in
order to make provision for payment of such taxes. The terms of the plan may
limit the rights otherwise available under the Contracts.
QUALIFIED CONTRACTS
The rules governing the tax treatment of contributions and distributions
under such 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 the
Company's understanding of the current Federal tax laws as interpreted by the
Internal Revenue Service. Purchasers of Contracts for use with such a plan and
plan participants and beneficiaries should consult counsel and other competent
advisers 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 Contract Owners, annuitants, and
beneficiaries, should also be aware that the rights of any person to any
benefits under such plans may be subject to the terms and conditions of the
plans themselves regardless of the terms and conditions of the Contract.
Following are brief descriptions of the various types of plans and of the use
of Contracts in connection therewith.
PUBLIC SCHOOL SYSTEMS AND SECTION 501(C)(3) ORGANIZATIONS [403(B) ANNUITY]
Payments made to purchase annuity contracts by public school systems or
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 overall 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 payments 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.
Distributions are subject to certain restrictions.
QUALIFIED CORPORATE EMPLOYEE'S PENSION AND PROFIT-SHARING TRUSTS AND QUALIFIED
ANNUITY PLANS [401(A)]
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 prior to 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. For plan years beginning after December 31, 1996,
tax exempt organizations may have 401(k) plans.
Distributions of amounts in excess of nondeductible employee contributions
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 age 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 payments made prior to January 1,
1974. 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. Purchasers of the Contracts for 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 Individual Retirement Annuity (IRA). An individual may make
an annual IRA contribution of up to the lesser of $2,000 ($2,250 if IRAs are
maintained for both the individual and his nonworking spouse) or 100% of
compensation. For tax years beginning in 1997, the limit is raised from $250
to $2,000 for non-working spouses. However, IRA contributions may be
nondeductible in whole or in part if (1) the individual or his spouse is an
active participant in certain other retirement programs and (2) the income of
the individual (or of the individual and his spouse) exceeds a specified
amount. Distributions from certain other IRA plans or qualified plans may be
"rolled over" to an IRA on a tax deferred basis
B-5
SAI-AG
<PAGE>
without regard to the limit on contributions, provided certain requirements
are met. Distributions from IRAs are subject to certain restrictions.
Deductible IRA contributions and all IRA earnings will be taxed as ordinary
income when distributed. The failure to satisfy certain Code requirements with
respect to an IRA may result in adverse tax consequences.
DEFERRED COMPENSATION PLANS (457 PLANS)
Under the Code provisions, employees and independent contractors performing
services for state and local governments or tax-exempt organizations may
establish deferred compensation plans with a governmental employer or tax-
exempt organization. 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. 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. 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 limited
circumstances, up to $15,000 may be deferred in each of the last three years
before retirement. Deferred compensation plans of tax-exempt employers must
also comply with the requirements of Section 457.
SIMPLIFIED EMPLOYEE PENSION PLANS
An employer may make contributions on behalf of employees to a simplified
employee pension plan (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. 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.
TAXATION OF DISTRIBUTIONS FROM QUALIFIED CONTRACTS
The following rules generally apply to distributions from contracts purchased
in connection with the plans discussed above, other than governmental deferred
compensation plans.
The portion, if any, of any contribution under a contract made by or on
behalf of an individual which is not excluded from the employee's gross income
(generally, the employee's own non-deductible contributions) constitutes his
"investment in the contract." If a distribution is made in the form of annuity
payments, the employee's "investment in the contract" (adjusted for certain
refund provisions) divided by his life expectancy (or other period for which
annuity payments are expected to be made) constitutes a tax-free return of
capital each year. The dollar amount of annuity payments received in any year
in excess of such return is taxable as ordinary income. However, for employees
whose annuity starting date is after December 31, 1986, all distributions will
be fully taxable once the employee is deemed to have recovered the dollar
amount of his investment in the contract. For amounts distributed after 1986,
rules generally provide that all distributions 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.)
If a surrender of or withdrawal from the contract is effected and a
distribution is made in a single payment, 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) will be taxed as ordinary
income in the year of receipt.
Distributions from qualified plans, 403(b) plans, IRAs, SEPs and Keoghs will
be subject to a 10% penalty tax if made before age 59 1/2 unless certain other
exceptions apply. Failure to meet certain minimum distribution requirements
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 his beneficiary
generally follow these same principles, subject to a variety of special rules.
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 Contract Owner dies on or after the annuity starting
date but prior to 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 Contract Owner's death; and (B) if any Contract Owner dies prior to the
annuity starting date, the entire interest must be distributed within five
years after the death of the Contract Owner. These requirements are considered
satisfied if any portion of the
B-6
SAI-AG
<PAGE>
Contract Owner'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 Contract
Owner's death. The "designated beneficiary" is the person designated by the
Contract Owner as a beneficiary and to whom Contract ownership passes by
reason of death, and must be a natural person. However, if the recipient of
the proceeds is the surviving spouse of the Contract Owner, the Contract may
be continued in the name of such surviving spouse as the Contract Owner.
Contracts issued after January 18, 1985 contain provisions intended to comply
with these Code requirements, although regulations interpreting these
requirements have not yet been issued. The Company 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.
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. Before an investment is made in any of the above
plans, a tax adviser should be consulted.
OTHER SERVICES
CUSTODIAN
This information is disclosed in the Prospectus.
INDEPENDENT AUDITORS
The financial statements of the Fund and the statutory-basis financial
statements and schedules of Lincoln Life, which have been included in this
Statement of Additional Information, and the Per-Accumulation-Unit Income and
Capital Changes Table appearing in the Prospectus, have been audited by Ernst
& Young LLP, 2300 Fort Wayne National Bank Building, Fort Wayne, Indiana
46802, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
KEEPER OF RECORDS
All accounts, books, records and other documents which are required to be
maintained for the Fund are maintained by the Company or by third parties
responsible to the Company. The Company has entered into an agreement with the
Delaware Management Company, 2005 Market Street, Philadelphia, PA 19203, to
provide accounting services to the Fund. No separate charge against the assets
of the Fund is made by the Company for this service.
UNDERWRITERS
The Company is the principal underwriter for the variable annuity contracts.
The Contracts are no longer being offered. The Company retains no underwriting
commissions from the sale of the variable annuity contracts.
DETERMINATION OF NET ASSET VALUE
A description of the days on which the Fund's net asset value per share will
be determined is given in the Prospectus. The New York Stock Exchange's most
recent announcement (which is subject to change) states that it will be closed
on New Year's Day, Martin Luther King's Birthday, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. It may also be closed on other days.
FINANCIAL STATEMENTS
Financial statements for the Fund and the statutory-basis financial
statements and schedules of Lincoln Life appear on the following pages. For
more information about the financial statements for Lincoln Life provided in
this SAI, please see the cover page of this SAI.
B-7
SAI-AG
<PAGE>
FINANCIAL STATEMENTS
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $ 2,455,559
Interest........................................... 48,577
------------
2,504,136
EXPENSES:
Investment management services..................... $ 394,625
Mortality and expense guarantees................... 1,163,876 1,558,501
------------ ------------
<CAPTION>
NET INVESTMENT INCOME 945,635
<S> <C> <C>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................... 15,561,276
Increase in net unrealized appreciation of
investments....................................... 17,892,073
------------
<CAPTION>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 33,453,349
<S> <C> <C>
------------
<CAPTION>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 34,398,984
<S> <C> <C>
============
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------ ------------
<S> <C> <C>
CHANGES FROM OPERATIONS:
Net investment income.............................. $ 945,635 $ 1,248,519
Net realized gain on investments................... 15,561,276 9,896,271
Increase in net unrealized appreciation of
investments....................................... 17,892,073 7,531,873
------------ ------------
<CAPTION>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 34,398,984 18,676,663
<S> <C> <C>
Net decrease from equity transactions............... (11,845,771) (13,726,463)
------------ ------------
<CAPTION>
TOTAL INCREASE IN NET ASSETS 22,553,213 4,950,200
<S> <C> <C>
Net assets at beginning of year .................... 108,904,850 103,954,650
------------ ------------
<CAPTION>
NET ASSETS AT END OF YEAR $131,458,063 $108,904,850
<S> <C> <C>
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
B-8
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT NUMBER
OF OF
NET ASSETS SHARES MARKET VALUE
---------- ------ ------------
<S> <C> <C> <C>
INVESTMENTS
COMMON STOCKS:
AEROSPACE:..................................... 1.9%
General Dynamics............................... 9,500 $ 821,156
United Technologies Corp....................... 22,800 1,660,125
------------
2,481,281
AUTOMOBILES AND AUTO PARTS:.................... 4.4%
Cooper Industries.............................. 25,100 1,229,900
Ford Motor..................................... 42,900 2,088,694
General Motors................................. 15,600 945,750
Johnson Controls............................... 33,000 1,575,750
------------
5,840,094
BANKING AND INSURANCE: ........................ 17.3%
AmSouth Bancorporation......................... 26,000 1,412,125
Bank of Boston................................. 20,500 1,925,719
Bank of New York............................... 8,800 508,750
Bankers Trust of New York...................... 14,000 1,574,125
Bear Stearns................................... 37,015 1,758,212
Chase Manhattan................................ 22,800 2,496,600
Cigna.......................................... 8,600 1,488,338
First Chicago NBD.............................. 18,639 1,556,357
MBIA........................................... 10,400 694,850
Marsh & McLennan............................... 18,200 1,357,037
Nations Bank................................... 20,600 1,252,738
PaineWebber Group.............................. 30,150 1,042,059
SLM Holding.................................... 11,800 1,641,675
Torchmark...................................... 39,800 1,674,088
Travelers Group................................ 44,799 2,413,546
------------
22,796,219
BUILDINGS AND MATERIALS:....................... 1.2%
Armstrong World Industries..................... 3,600 269,100
Centex......................................... 5,200 327,275
Lafarge........................................ 22,500 665,156
Masco.......................................... 7,100 361,212
------------
1,622,743
CABLE, MEDIA, AND PUBLISHING:.................. 3.4%
Dun & Bradstreet............................... 19,200 594,000
McGraw-Hill.................................... 15,900 1,176,600
New York Times................................. 15,200 1,005,100
Omnicom Group.................................. 38,400 1,627,200
------------
4,402,900
CHEMICALS:..................................... 2.9%
Avery Dennison................................. 21,795 975,326
Dow Chemical Co................................ 18,200 1,847,300
Lyondell Petrochemicals........................ 36,700 972,550
------------
3,795,176
COMPUTERS AND TECHNOLOGY:...................... 7.5%
American Power Conversion*..................... 27,100 641,931
Bay Networks*.................................. 18,300 467,794
Cadence Design Systems*........................ 35,750 875,875
Compaq Computer................................ 33,950 1,916,053
HBO............................................ 10,400 498,875
Network Associates Inc.*....................... 5,100 269,184
PeopleSoft*.................................... 33,200 1,290,650
Storage Technology*............................ 27,100 1,678,506
Sun Microsystems*.............................. 42,400 1,693,350
Western Digital*............................... 32,700 525,244
------------
9,857,462
CONSUMER PRODUCTS:............................. 6.6%
Clorox......................................... 14,600 1,154,313
General Electric............................... 59,600 4,373,150
Maytag......................................... 12,000 447,750
Procter & Gamble............................... 33,600 2,681,700
------------
8,656,913
ELECTRONICS AND ELECTRICAL: ................... 1.1%
Honeywell...................................... 11,400 780,900
Raytheon-Class A............................... 995 49,057
Xerox.......................................... 9,100 671,694
------------
1,501,651
</TABLE>
B-9
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
STATEMENT OF NET ASSETS--CONTINUED
<TABLE>
<CAPTION>
PERCENT NUMBER
OF OF
NET ASSETS SHARES MARKET VALUE
---------- ------ ------------
<S> <C> <C> <C>
ENERGY: ....................................... 9.2%
Atlantic Richfield............................. 17,200 1,378,150
Exxon.......................................... 47,500 2,906,406
Halliburton.................................... 26,500 1,376,344
Occidental Petroleum........................... 36,000 1,055,250
Royal Dutch Petroleum.......................... 46,800 2,535,975
Texaco......................................... 31,600 1,718,250
USX-Marathon Group............................. 33,200 1,120,500
------------
12,090,875
FOOD, BEVERAGE, AND TOBACCO: .................. 8.2%
Campbell Soup.................................. 16,800 $ 976,500
Coca Cola. .................................... 24,800 1,652,300
ConAgra........................................ 16,400 538,125
Fortune Brands................................. 16,500 611,531
Heinz (H.J.)................................... 19,250 978,141
Hershey Foods.................................. 17,000 1,052,937
Philip Morris.................................. 82,200 3,724,688
RJR Nabisco Holdings........................... 32,500 1,218,750
------------
10,752,972
HEALTHCARE AND PHARMACEUTICALS: ............... 10.7%
Amgen*......................................... 29,300 1,585,863
Bristol-Myers Squibb........................... 35,900 3,397,038
Dura Pharmaceuticals*.......................... 7,600 350,550
Johnson & Johnson.............................. 23,900 1,574,412
Lincare Holdings*.............................. 12,400 709,900
Merck & Company................................ 27,800 2,953,750
Oxford Health Plans*........................... 19,300 299,753
Phycor*........................................ 27,500 743,359
Schering-Plough................................ 39,000 2,422,875
------------
14,037,500
INDUSTRIAL MACHINERY: ......................... 2.8%
Caterpillar.................................... 35,800 1,738,538
Deere & Co..................................... 17,200 1,002,975
Ingersoll-Rand................................. 23,250 941,625
------------
3,683,138
LEISURE, LODGING, AND ENTERTAINMENT: .......... 1.7%
Boston Chicken*................................ 25,400 163,116
Callaway Golf.................................. 35,500 1,013,969
King World Productions*........................ 19,200 1,108,800
------------
2,285,885
METALS AND MINING: ............................ 1.0%
ASARCO......................................... 16,600 372,463
Phelps Dodge................................... 15,400 958,650
------------
1,331,113
MISCELLANEOUS: ................................ .4%
Cendant*....................................... 15,288 525,525
RETAIL: ....................................... 5.6%
CompUSA*....................................... 45,600 1,413,600
Gap............................................ 18,600 659,136
Jostens........................................ 33,000 761,062
Liz Claiborne.................................. 13,000 543,562
Ross Stores.................................... 19,600 714,175
Safeway*....................................... 24,600 1,555,950
TJX............................................ 51,500 1,770,313
------------
7,417,798
TELECOMMUNICATIONS: ........................... 8.7%
AT&T........................................... 14,600 894,250
Ameritech...................................... 29,000 2,334,500
Bell Atlantic.................................. 25,958 2,362,178
BellSouth...................................... 44,600 2,511,538
PairGain Technologies*......................... 5,000 97,031
SBC Communications............................. 13,599 996,127
Telltabs*...................................... 26,000 1,372,312
U.S. West Communications Group................. 17,700 798,713
------------
11,366,649
TRANSPORTATION AND SHIPPING: .................. 1.2%
AMR*........................................... 8,000 1,028,000
UAL*........................................... 5,800 536,500
------------
1,564,500
</TABLE>
B-10
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
STATEMENT OF NET ASSETS--CONTINUED
<TABLE>
<CAPTION>
PERCENT NUMBER
OF OF
NET ASSETS SHARES MARKET VALUE
---------- ------ ------------
<S> <C> <C> <C>
UTILITIES: ................................... 3.3%
FirstEnergy*.................................. 32,100 $ 930,900
General Public Utilities...................... 33,600 1,415,400
Minnesota Power and Light..................... 8,200 357,212
Texas Utilities............................... 38,500 1,600,156
------------
4,303,668
TOTAL COMMON STOCKS 99.1% 130,314,062
----- ------------
(Cost--$78,612,415)
TOTAL INVESTMENTS
(Cost--$78,612,415) 99.1% 130,314,062
Excess of other assets over liabilities 0.9% 1,144,001
----- ------------
NET ASSETS 100.0% $131,458,063
===== ============
Net assets are represented by:
Value of accumulation units:
7,722,501 units at $15.600 unit value $120,467,202
Annuity reserves:
217,841 units at $15.600 unit value 3,398,212
382,478 units at $19.851 unit value 7,592,649
------------
600,319 $131,458,063
======= ============
</TABLE>
*Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
B-11
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Significant Accounting Policies
THE FUND: Lincoln National Variable Annuity Fund A (Fund) is a segregated
investment account of The Lincoln National Life Insurance Company. The Fund is
registered under the Investment Company Act of 1940, as amended, as an open-
end, diversified management investment company. The Fund's investment
objective is to maximize long-term growth of capital. The Fund invests
primarily in equity securities diversified over industries and companies.
INVESTMENTS: Security transactions are accounted for on the date the
securities are purchased or sold. Stocks are valued at the closing sales
prices for those traded on a national stock exchange and the mean between the
quoted bid and asked prices for those traded over-the-counter. Short-term
investments are stated at cost which approximates market. The cost of
investments sold is determined using the specific identification method.
FEDERAL INCOME TAXES: Operations of the Fund form a part of, and are taxed
with, operations of The Lincoln National Life Insurance Company, which is
taxed as a "life insurance company" under the Internal Revenue Code. Under
current law, no federal income taxes are payable with respect to the
investment income and gains on investments of the Fund. Accordingly, no
provision for any such liability has been made.
INCOME: Dividends are recorded as earned on the ex-dividend date and interest
is accrued as earned.
ANNUITY RESERVES: Reserves on contracts not involving life contingencies are
calculated using assumed investment rates of 3.5%, 4.5%, 5%, or 6%. Reserves
on contracts involving life contingencies are calculated using the Progressive
Annuity Table with the age adjusted for persons born before 1900 or after 1919
and assumed investment rates of 3.5%, 4.5%, 5%, or 6%.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
2. Investments
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) during the year ended
December 31, 1997 amounted to $39,024,799 and $50,216,101, respectively.
3. Expenses and Sales Charges
Amounts are paid to The Lincoln National Life Insurance Company for investment
management services at the rate of .000885% of the current value of the Fund
per day (.323% on an annual basis) and for mortality and expense guarantees at
the rate of .002745% of the current value of the Fund per day (1.002% on an
annual basis). In addition, The Lincoln National Life Insurance Company
retained $9,784 from the proceeds of the sale of annuity contracts during 1997
for sales and administrative charges. Accordingly, The Lincoln National Life
Insurance Company is responsible for all sales, general, and administrative
expenses applicable to the Fund.
The custodian bank of the Fund has agreed to waive its custodial fees when the
Fund maintains a prescribed amount of cash on deposit in certain non-interest
bearing accounts. For the year ended December 31, 1997, the custodial fee
offset arrangement was not material to either total expenses or to the
calculation of average net assets and the ratio of expenses to average net
assets.
4. Net Assets
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Equity transactions $(153,292,578)
Accumulated net investment income 73,282,387
Accumulated net realized gain on investments 161,684,979
Net unrealized appreciation of investments 49,783,275
-------------
$ 131,458,063
=============
</TABLE>
B-12
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS--CONTINUED
5. Summary of Changes in Equity Transactions
<TABLE>
<CAPTION>
1997 1996
------------------------ -------------------------
UNITS AMOUNT UNITS AMOUNT
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of
year ................... 8,462,449 $(135,982,849) 9,568,929 $(123,869,196)
Contract purchases....... 152,590 2,092,826 153,035 1,603,060
Terminated contracts..... (892,538) (12,324,266) (1,259,515) (13,029,596)
--------- ------------- ---------- -------------
Balance at End of Year 7,722,501 $(146,214,289) 8,462,449 $(135,982,849)
========= ============= ========== =============
Annuity Reserves:
Balance at beginning of
year.................... 699,953 $ (5,463,958) 831,033 $ (3,851,148)
Annuity payments......... (88,185) (1,400,844) (66,369) (1,207,775)
Receipt of guarantee
mortality adjustments... (11,449) (213,487) (64,711) (1,092,152)
--------- ------------- ---------- -------------
Balance at End of Year 600,319 $ (7,078,289) 699,953 $ (5,463,958)
========= ============= ========== =============
</TABLE>
6. Supplemental Information--Selected Per Unit Data and Ratios
The following is selected financial data for an accumulation unit outstanding
throughout each year:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Investment income....................... $ 0.286 $ 0.267 $0.251 $0.217 $0.204
Expenses................................ 0.178 0.139 0.114 0.095 0.090
------- ------- ------ ------ ------
Net investment income................... 0.108 0.128 0.137 0.122 0.114
Net realized and unrealized gain (loss)
on investments......................... 3.755 1.735 2.539 (0.040) 0.522
------- ------- ------ ------ ------
Increase in accumulation unit value..... 3.863 1.863 2.676 0.082 0.636
Accumulation unit value at beginning of
year................................... 11.737 9.874 7.198 7.116 6.480
------- ------- ------ ------ ------
Accumulation unit value at end of year.. $15.600 $11.737 $9.874 $7.198 $7.116
======= ======= ====== ====== ======
Ratio of expenses to average net assets. 1.27% 1.28% 1.28% 1.27% 1.27%
Ratio of net investment income to
average net assets..................... .77% 1.17% 1.65% 1.75% 1.72%
Portfolio turnover rate................. 32.56% 49.94% 48.95% 64.09% 49.90%
Number of units outstanding at end of
year (in thousands)
Accumulation units...................... 7,723 8,462 9,569 9,908 11,538
Reserve units........................... 600 700 831 863 945
</TABLE>
B-13
SAI-AI
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Managers and Contract Owners
Lincoln National Variable Annuity Fund A
We have audited the accompanying statement of net assets of Lincoln National
Variable Annuity Fund A as of December 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the selected per unit
data and ratios for each of the five years in the period then ended. These
financial statements and per unit data and ratios are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and per unit data and ratios 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 and per
unit data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of the Lincoln National Variable Annuity Fund A at December 31, 1997,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the selected
per unit data and ratios for each of the five years in the period then ended
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Fort Wayne, Indiana
February 13, 1998
B-14
SAI-AI
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $18,560.7 $19,389.6
- ------------------------------------------------------------------------------------
Preferred stocks 257.3 239.7
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 436.0 358.3
- ------------------------------------------------------------------------------------
Affiliated common stocks 412.1 241.5
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,012.7 2,976.7
- ------------------------------------------------------------------------------------
Real estate 584.4 621.3
- ------------------------------------------------------------------------------------
Policy loans 660.5 626.5
- ------------------------------------------------------------------------------------
Other investments 335.5 282.7
- ------------------------------------------------------------------------------------
Cash and short-term investments 2,133.0 759.2
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 26,392.2 25,495.5
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 42.4 60.9
- ------------------------------------------------------------------------------------
Accrued investment income 343.5 343.6
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 44.1 25.8
- ------------------------------------------------------------------------------------
Other admitted assets 216.0 355.7
- ------------------------------------------------------------------------------------
Separate account assets 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 5,872.9 $ 5,954.0
- ------------------------------------------------------------------------------------
Other policyholder funds 16,360.1 17,262.4
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 878.2 250.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 720.4 564.6
- ------------------------------------------------------------------------------------
Asset valuation reserve 450.0 375.5
- ------------------------------------------------------------------------------------
Interest maintenance reserve 135.4 76.7
- ------------------------------------------------------------------------------------
Other liabilities 413.9 490.9
- ------------------------------------------------------------------------------------
Federal income taxes 0.8 4.3
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (761.9) (659.7)
- ------------------------------------------------------------------------------------
Separate account liabilities 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 55,400.7 48,054.0
- ------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National
Corporation) 25.0 25.0
- ------------------------------------------------------------------------------------
Paid-in surplus 1,821.8 883.4
- ------------------------------------------------------------------------------------
Unassigned surplus 1,121.6 1,054.2
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,968.4 1,962.6
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF INCOME -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 5,589.0 $ 7,268.5 $ 4,899.1
- -----------------------------------------------------------------------------
Net investment income 1,847.1 1,756.3 1,772.2
- -----------------------------------------------------------------------------
Amortization of interest maintenance reserve 41.5 27.2 34.0
- -----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 99.7 90.9 98.3
- -----------------------------------------------------------------------------
Expense charges on deposit funds 119.3 100.7 83.2
- -----------------------------------------------------------------------------
Other income 21.3 16.8 14.5
- ----------------------------------------------------------------------------- --------- --------- ---------
Total revenues 7,717.9 9,260.4 6,901.3
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 4,522.1 5,989.9 4,184.0
- -----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,728.4 2,878.5 2,345.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 7,250.5 8,868.4 6,529.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before dividends to policyholders, income taxes and net
realized gain on investments 467.4 392.0 371.6
- -----------------------------------------------------------------------------
Dividends to policyholders 27.5 27.3 27.3
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before federal income taxes and net realized gain on
investments 439.9 364.7 344.3
- -----------------------------------------------------------------------------
Federal income taxes 78.3 83.6 103.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before net realized gain on investments 361.6 281.1 240.6
- -----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding net
transfers to the interest maintenance reserve 31.3 53.3 43.9
- ----------------------------------------------------------------------------- --------- --------- ---------
Net income $ 392.9 $ 334.4 $ 284.5
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 1,962.6 $ 1,732.9 $ 1,679.6
- -----------------------------------------------------------------------------
Correction of prior years' asset valuation reserve (Note 15) (37.6) -- --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets (Note 15) (57.0) -- --
- ----------------------------------------------------------------------------- --------- --------- ---------
1,868.0 1,732.9 1,679.6
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income 392.9 334.4 284.5
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (36.2) 38.6 143.2
- -----------------------------------------------------------------------------
Nonadmitted assets (0.4) (3.0) 2.9
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (3.9) 0.6 (2.0)
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.9) (0.4) 2.9
- -----------------------------------------------------------------------------
Asset valuation reserve (36.9) (105.5) (112.5)
- -----------------------------------------------------------------------------
Mortgage loan, real estate and other investment reserves -- -- 2.2
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 938.4 100.0 15.1
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation (2.6) -- 27.0
- -----------------------------------------------------------------------------
Dividends to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 6,364.3 $ 8,059.4 $ 5,430.9
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (649.2) (767.5) (383.6)
- -----------------------------------------------------------------------
Investment income received 1,798.8 1,700.6 1,713.2
- -----------------------------------------------------------------------
Benefits paid (5,345.2) (4,050.4) (3,239.6)
- -----------------------------------------------------------------------
Insurance expenses paid (2,867.5) (2,972.2) (2,513.5)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) (87.0) (72.3) 38.4
- -----------------------------------------------------------------------
Dividends to policyholders (28.4) (27.7) (16.5)
- -----------------------------------------------------------------------
Other income received and expenses paid, net (42.7) 6.3 14.4
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities (856.9) 1,876.2 1,043.7
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 12,142.6 12,542.0 13,183.9
- -----------------------------------------------------------------------
Purchase of investments (10,345.0) (14,175.4) (14,049.6)
- -----------------------------------------------------------------------
Other sources (uses) 563.1 (266.5) (64.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 2,360.7 (1,899.9) (929.7)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in -- 100.0 15.1
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 120.0 100.0 63.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (100.0) (63.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (130.0) 2.0 (294.9)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments 1,373.8 (21.7) (180.9)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 759.2 780.9 961.8
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 2,133.0 $ 759.2 $ 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1997, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health & Casualty
Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC")
and Lincoln Life & Annuity Company of New York ("LLANY").
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Department"), which practices differ from generally accepted
accounting principles ("GAAP"). The more significant variances from GAAP are
as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or fair value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported directly
in shareholder's equity after adjustments for related amortization of
deferred acquisition costs, additional policyholder commitments and deferred
income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period that the asset giving rise to the gain or loss is sold and valuation
allowances are provided when there has been a decline in value deemed other
than temporary, in which case, the provision for such declines are charged
to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
subsidiaries are carried at their statutory basis net equity and presented
in the balance sheet as affiliated common stocks.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance, annuity and other investment-type products,
deferred
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
policy acquisition costs, to the extent recoverable from future gross
profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium revenues;
whereas, under GAAP, such premiums and deposits are treated as liabilities
and policy charges represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Department to assume such business. Changes to those
amounts are credited or charged directly to unassigned surplus. Under GAAP,
an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
A reconciliation of the Company's net income and capital and surplus
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1995
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory basis $ 2,968.4 $ 1,962.6 $ 392.9 $ 334.4 $ 284.5
- ---------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs and
present value of future profits 958.3 1,119.1 (98.9) 66.7 (63.0)
------------------------------------------
Policy and contract reserves (1,672.9) (1,405.3) (48.6) (57.1) (55.3)
------------------------------------------
Interest maintenance reserve 135.4 76.7 58.7 (39.7) 60.9
------------------------------------------
Deferred income taxes (13.0) (27.4) 70.3 1.8 38.3
------------------------------------------
Policyholders' share of earnings and
surplus on participating business (79.8) (81.9) 5.3 (.3) .2
------------------------------------------
Asset valuation reserve 450.0 375.5 -- -- --
------------------------------------------
Net realized gain (loss) on investments (91.5) (72.0) (20.4) 78.7 30.0
------------------------------------------
Unrealized gain on investments 1,245.5 825.2 -- -- --
------------------------------------------
Nonadmitted assets, including nonadmitted
investments 61.0 (7.1) -- -- --
------------------------------------------
Investments in subsidiary companies 188.8 156.6 (80.5) 29.9 34.3
------------------------------------------
Other, net (162.5) (99.0) (35.0) (82.6) (7.3)
------------------------------------------ --------- --------- --------- --------- ---------
Net increase (decrease) 1,019.3 860.4 (149.1) (2.6) 38.1
- --------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 3,987.7 $ 2,823.0 $ 243.8 $ 331.8 $ 322.6
- --------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
The discount or premium on bonds is amortized using the interest method. For
mortgage-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect
actual payments to date and anticipated future payments. The net investment
in the securities is adjusted to the amount that would have existed had the
new effective yield been applied since the acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items and are amortized over the
remaining lives of the hedged items as adjustments to investment income or
benefits from the hedged items through the IMR. Any unamortized gains or
losses are recognized when the underlying hedged items are sold. The
premiums paid for interest rate caps and swaptions are deferred and
amoritized to net investment income on a straight-line basis over the term
of the respective derivative.
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity
U.S. Government obligations, increased liabilities associated with certain
reinsurance agreements and foreign exchange risk. Moreover, the derivatives
used are designated as a hedge and reduce the indicated risk by having a
high correlation between changes in the value of the derivatives and the
items being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items have
been sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the amount to be paid to reacquire the
security. It is the Company's policy to take possession of securities with a
market value at least equal to the value of the securities loaned.
Securities loaned are recorded at amortized cost as long as the value of the
related collateral is sufficient. The Company's agreements with third
parties generally contain contractual provisions to allow for additional
collateral to be obtained when necessary. The Company values collateral
daily and obtains additional collateral when deemed appropriate.
GOODWILL
Goodwill, which represents the excess of the ceding commission over
statutory-basis net assets of business purchased under an assumption
reinsurance agreement, is amortized on a straight-line basis over ten years.
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Department. The Company waives deduction of deferred fractional premiums on
the death of life and annuity policy insureds and returns any premium beyond
the date of death, except for policies issued prior to March 1977. Surrender
values on policies do not exceed the corresponding benefit reserves.
Additional reserves are established when the results of cash flow testing
under various interest rate scenerios indicate the need for such reserves.
If net premiums exceed the gross premiums on any insurance in-force,
additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums and claims and claim adjustment expenses are accounted
for on bases consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts. Certain business
is transacted on a funds withheld basis and investment income on funds
withheld are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans is
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC. Pursuant to an intercompany
tax sharing agreement with LNC, the Company provides for income taxes on a
separate return filing basis. The tax sharing agreement also provides that
the Company will receive benefit for net operating losses, capital losses
and tax credits which are not usable on a separate return basis to the
extent such items may be utilized in the consolidated income tax returns of
LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of the
intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable
life and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's statements of income.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Department. "Prescribed" statutory accounting practices include state laws,
regulations and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
may differ from state to state, may differ from company to company within a
state and may change in the future. The NAIC currently is in the process of
recodifying statutory accounting practices ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Codification, which is expected to be approved by the NAIC in 1998, will
require adoption by the various states before it becomes the prescribed
statutory-basis of accounting for insurance companies domesticated within
those states. Accordingly, before Codification becomes effective for the
Company, the state of Indiana must adopt Codification as the prescribed
basis of accounting on which domestic insurers must report their
statutory-basis results to the Department. At this time, it is unclear
whether Indiana will adopt Codification. However, based on the current draft
guidance, management believes that the impact of Codification will not be
material to the Company's statutory-basis financial statements.
The Company has received written approval from the Department to record
surrender charges applicable to separate account liabilities for variable
life and annuity products as a liability in the separate account financial
statements payable to the Company's general account. In the accompanying
financial statements, a corresponding receivable is recorded with the
related income impact recorded in the accompanying statement of operations
as a change in reserves or change in premium and other deposit funds.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,524.4 $ 1,442.2 $ 1,457.4
----------------------------------------------------------------
Preferred stocks 23.5 9.6 6.4
----------------------------------------------------------------
Unaffiliated common stocks 8.3 6.5 5.2
----------------------------------------------------------------
Affiliated common stocks 15.0 9.5 12.6
----------------------------------------------------------------
Mortgage loans on real estate 257.2 269.3 252.0
----------------------------------------------------------------
Real estate 92.2 114.4 110.0
----------------------------------------------------------------
Policy loans 37.5 35.0 32.1
----------------------------------------------------------------
Other investments 28.2 22.4 62.6
----------------------------------------------------------------
Cash and short-term investments 70.3 48.9 53.2
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,056.6 1,957.8 1,991.5
- -------------------------------------------------------------------
Expenses:
Depreciation 21.0 25.0 25.9
----------------------------------------------------------------
Other 188.5 176.5 193.4
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 209.5 201.5 219.3
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 1,847.1 $ 1,756.3 $ 1,772.2
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
and 1996 amounted to $2,600,000 and $2,500,000,
respectively, consisting principally of interest on bonds in
default and mortgage loans.
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9
------------------------------------------------
U.S. government 436.3 67.9 -- 504.2
------------------------------------------------
Foreign government 1,202.1 104.9 5.4 1,301.6
------------------------------------------------
Mortgage-backed 3,874.3 215.2 27.1 4,062.4
------------------------------------------------
State and municipal 44.2 .3 -- 44.5
------------------------------------------------ --------- ----------- ----------- ---------
$18,560.7 $ 1,330.5 $ 92.6 $19,798.6
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1996:
Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0
------------------------------------------------
U.S. government 1,088.7 43.2 18.0 1,113.9
------------------------------------------------
Foreign government 1,234.0 105.1 1.4 1,337.7
------------------------------------------------
Mortgage-backed 4,478.4 183.3 27.4 4,634.3
------------------------------------------------
State and municipal 40.4 .1 -- 40.5
------------------------------------------------ --------- ----------- ----------- ---------
$19,389.6 $ 918.2 $ 113.4 $20,194.4
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1997 and 1996 reflects NAIC adjustments of
$5,500,000 and $2,700,000, respectively, to decrease
amortized cost.
Fair values for bonds are based on quoted market prices,
where available. For bonds not actively traded, fair values
are estimated using values obtained from independent pricing
services or, in the case of private placements, are
estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit
quality and maturity of the investments.
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1997, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1998 $ 490.1 $ 494.9
--------------------------------------------------------------------------
In 1999-2002 3,088.7 3,185.4
--------------------------------------------------------------------------
In 2003-2007 4,762.7 4,971.0
--------------------------------------------------------------------------
After 2007 6,344.9 7,084.9
--------------------------------------------------------------------------
Mortgage-backed securities 3,874.3 4,062.4
-------------------------------------------------------------------------- --------- ---------
Total $18,560.7 $19,798.6
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1997, the Company did not have a material
concentration of financial instruments in a single investee,
industry or geographic location.
Proceeds from sales of investments in bonds during 1997,
1996 and 1995 were $9,715,000,000, $10,996,900,000 and
$12,234,100,000, respectively. Gross gains during 1997, 1996
and 1995 of $218,100,000, $169,700,000 and $225,600,000,
respectively, and gross losses of $78,000,000, $177,000,000
and $83,100,000, respectively, were realized on those sales.
At December 31, 1997 and 1996, investments in bonds, with an
admitted asset value of $76,200,000 and $70,700,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in unaffiliated
common stocks and preferred stocks are as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
(IN MILLIONS)
--------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
At December 31, 1996:
Preferred stocks $239.7 $10.5 $ 1.7 $248.5
- ----------------------------------------
Unaffiliated common stocks 289.9 84.6 16.2 358.3
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1997 and 1996 reflects NAIC
adjustments of $4,000,000 and $700,000, respectively, to
decrease amortized cost.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During 1997, the minimum and maximum lending rates for
mortgage loans were 7.09% and 9.25%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1997, the
Company did not hold any mortgages with interest overdue
beyond one year. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan
over the maximum loan that would be allowed on the land
without the building.
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 209.3 $ 69.3 $ 186.8
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $54.0,
$(6.7) and $51.1 in 1997, 1996 and 1995, respectively) 100.2 (12.4) 94.8
- ------------------------------------------------------------------------ --------- --------- ---------
109.1 81.7 92.0
Less federal income taxes on realized gains 77.8 28.4 48.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 31.3 $ 53.3 $ 43.9
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly-owned subsidiaries is summarized as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3
- -----------------------------------------------------------
Other assets 36.9 77.3 481.6 130.8
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7
- -----------------------------------------------------------
Other liabilities 48.4 21.7 546.4 5.8
- -----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 164.7
- -----------------------------------------------------------
Capital and surplus 70.7 73.7 54.9 212.9
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0
- ------------------------------------------------------------
Expenses 262.6 244.2 114.6 224.4
- ------------------------------------------------------------
Net realized gains (losses) .1 .6 (.1) (.1)
- ------------------------------------------------------------ --------- --------- --------- ---------
Net income $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,090.7 $ 146.4 $ 406.7 $ 664.3
- -----------------------------------------------------------
Other assets 31.8 17.7 503.1 9.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,013.5 $ 72.7 $ 261.8 $ 601.1
- -----------------------------------------------------------
Other liabilities 41.3 18.7 597.2 22.1
- -----------------------------------------------------------
Capital and surplus 67.7 72.7 50.8 50.2
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 246.5 $ 104.9 $ 120.8 $ 642.7
- -------------------------------------------------------------
Expenses 247.1 97.1 114.1 661.3
- -------------------------------------------------------------
Net realized gains (losses) (.6) -- -- --
- ------------------------------------------------------------- --------- ----------- ----------- -----------
Net income (loss) $ (1.2) $ 7.8 $ 6.7 $ (18.6)
- ------------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The carrying value of affiliated common stocks, representing
their statutory-basis net equity, was $412,100,000 and
$241,500,000 at December 31, 1997 and 1996, respectively.
The cost basis of investments in subsidiaries as of December
31, 1997 and 1996 was $466,200,000 and $194,000,000,
respectively.
During 1997 and 1996, the Company's insurance subsidiaries
paid dividends of $15,000,000 and $10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate for financial
reporting purposes differs from the prevailing statutory tax
rate principally due to tax-exempt investment income,
dividends-received tax deductions, differences in policy
acquisition costs and policy and contract liabilities for
tax return and financial statement purposes.
Federal income taxes incurred of $78,300,000, $83,600,000
and $103,700,000 in 1997, 1996 and 1995, respectively, would
be subject to recovery in the event that the Company incurs
net operating losses within three years of the years for
which such taxes were paid.
Prior to 1984, a portion of the Company's current income was
not subject to current income tax, but was accumulated for
income tax purposes in a memorandum account designated as
"policyholders' surplus." The Company's balance in the
"policyholders' surplus" account at December 31, 1983 of
$187,000,000 was "frozen" by the Tax Reform Act of 1984 and,
accordingly, there have been no additions to the accounts
after that date. That portion of current income on which
income taxes have been paid will continue to be accumulated
in a memorandum account designated as "shareholder's
surplus," and is available for dividends to the shareholder
without additional payment of tax by the Company. The
December 31, 1997 memorandum account balance for
"shareholder's surplus"
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
was $1,905,000,000. Should dividends to the shareholder
exceed its respective "shareholder's surplus," amounts would
need to be transferred from the "policyholders' surplus" and
would be subject to federal income tax at that time. Under
existing or foreseeable circumstances, the Company neither
expects nor intends that distributions will be made that
will result in any such tax.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other Admitted Assets", includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future Policy
Benefits and Claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 1,431.0 $ 1,154.5
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 35.9 16.0
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions included in the income statement
caption, "Premiums and Deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 727.2 $ 241.3 $ 667.7
- ------------------------------------------------------------------------
Insurance ceded 302.9 193.3 453.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net amount included in premiums $ 424.3 $ 48.0 $ 214.6
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and Settlement
Expenses," is net of reinsurance recoveries of
$1,240,500,000, $787,900,000 and $1,407,000,000 for 1997,
1996 and 1995, respectively.
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and Fees in Course of Collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.2 $ 2.4 $ .8
- ------------------------------------------------------------------------
Ordinary renewal 17.8 3.2 14.6
- ------------------------------------------------------------------------
Group life 10.6 .2 10.4
- ------------------------------------------------------------------------ --------- --- -----
$ 31.6 $ 5.8 $ 25.8
--------- --- -----
--------- --- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.9 $ 1.9 $ 2.0
- ------------------------------------------------------------------------
Ordinary renewal 35.1 3.0 32.1
- ------------------------------------------------------------------------
Group life 9.4 (.1) 9.5
- ------------------------------------------------------------------------ --------- --- -----
$ 48.4 $ 4.8 $ 43.6
--------- --- -----
--------- --- -----
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance
Consultants, Inc. to write group life and health business.
Direct premiums written related to the agreements amounted
to $2,000,000, $2,600,000 and $8,800,000 in 1997 and
$26,200,000, $3,800,000 and $8,600,000 in 1996,
respectively. During 1996, LNC Administrative Services
Corporation entered into a similar agreement with the
Company with direct premiums written amounting to $7,200,000
and 6,200,000 in 1997 and 1996, respectively. Authority
granted by the managing general agents agreements include
underwriting, claims adjustment and claims payment services.
7. ANNUITY RESERVES
At December 31, 1997, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES (CONTINUED)
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------
(IN MILLIONS)
----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,426.3 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 4,225.8 8
-----------------------------------------------------------------------------
At market value 30,064.7 59
----------------------------------------------------------------------------- --------- ---
36,716.8 72
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 11,657.7 23
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,531.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 50,905.6 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,797.5
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $49,108.1
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
8. CAPITAL AND SURPLUS
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1997, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In 1998, the Company can pay dividends of
$361,600,000 without prior approval of the Indiana Insurance Commissioner.
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory-basis financial statements of income or
financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Option issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
As of December 31, 1997, 716,211 shares of LNC common stock were subject to
options granted to Company employees and agents under the stock option
incentive plans of which 370,239 were exercisable on that date. The exercise
prices of the outstanding options range from $23.50 to $75.66. During 1997,
1996 and 1995, 170,789, 72,405 and
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
117,806 options were exercised, respectively, and 1,846, 10,950 and 11,473
options were forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1997 and 1996 is a net
liability of $516,900,000 and $572,000,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves may be required in the future. Accordingly, this liability may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the financial position of
the Company. The Company reviews reserve levels on an ongoing basis.
During 1995, the Company completed an in-depth review of the experience of
its disability income business. As a result of this study, and based on the
assumption that recent experience will continue in the future, net income
decreased by $15,200,000 as a result of strengthening the disability income
reserve.
Because of continuing adverse experience and worsening projections of future
experience, the Company conducted an additional in-depth review of loss
experience on its disability income business during 1997. As a result of
this study, the reserve level was deemed to be inadequate to meet future
obligations if current incident levels were to continue in the future. In
order to address this situation, the Company strengthened its disability
income reserve by $80,000,000 (pre-tax).
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the long-term nature of group pension annuities and the
resulting inability to exactly match cash flows, a risk exists that future
cash flows from investments will not be reinvested at rates as high as
currently earned by the portfolio.
Accordingly, these liabilities may prove to be deficient or excessive.
However, it is management's opinion that such future development will not
materially affect the financial position of the Company.
LEASES
The Company leases its home office properties through sale-leaseback
agreements. The agreements provide for a 25 year lease period with options
to renew for six additional terms of five years each. The agreements also
provide the Company with the right of first refusal to purchase the
properties during the term of the lease, including renewal periods, at a
price as defined in the agreements. The Company also has the option to
purchase the leased properties at fair market value as defined in the
agreements on the last day of the initial 25-year lease ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1997, 1996 and 1995 was
$29,300,000, $26,400,000 and
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
$22,500,000, respectively. Future minimum rental commitments are as follows
(in millions):
<TABLE>
<S> <C>
1998 $ 18.5
- --------------------------------------
1999 18.9
- --------------------------------------
2000 20.1
- --------------------------------------
2001 20.4
- --------------------------------------
2002 20.7
- --------------------------------------
Thereafter 152.2
- -------------------------------------- ---------
$ 250.8
---------
---------
</TABLE>
The future commitments include amounts for space and equipment to be used by
the personnel that were added on January 2, 1998 as a result of the purchase
of a block of individual life and annuity business (see NOTE 12).
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for providing information technology services for the Fort Wayne
operations. Annual costs are estimated to range from $33,600,000 to
$56,800,000.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. Industry regulations prescribe the maximum
coverage that the Company can retain on an individual insured. Prior to
December 31, 1997, the Company limited its maximum coverage that it retained
on an individual to $3,000,000. Based on a review of the capital and
business in-force (including the addition of the block of business described
in NOTE 12), effective in January 1998, the Company changed the amount it
will retain on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been reinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1997, the
reserves associated with these reinsurance arrangements totaled
$1,760,000,000. To cover products other than life insurance, the Company
acquires other insurance coverages with retentions and limits that
management believes are appropriate for the circumstances. The Company
remains liable if its reinsurers are unable to meet their contractual
obligations under the applicable reinsurance agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1997, the Company has provided $12,400,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding
receivables from the ceding company, which are secured by future profits on
the reinsured business. However, the Company is subject to the risk that the
ceding company may become insolvent and the right of offset would not be
permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $8,200,000 and $4,300,000 at December 31, 1997
and 1996, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1997, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of labor
or services used in the business; or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for claims in excess of $5,000,000. The degree
of applicability of this coverage depends on the specific facts of each
proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
not have a material adverse affect on the financial position or results of
operations of the Company.
Two lawsuits involve alleged fraud in the sale of interest sensitive
universal life and whole life insurance policies. These two suits have been
filed as class actions against the Company, although the court has not
certified a class in either case. Plaintiffs seek unspecified damages and
penalties for themselves and on behalf of the putative class while the
relief sought in these cases in substantial, the cases are in the early
stages of litigation, and it is premature to make assessments about
potential loss, if any. Management intends to defend these suits vigorously.
The amount of liability, if any, which may arise as a result of these suits
cannot be reasonably estimated at this time.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
GUARANTEES
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-
balance-sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
NOTIONAL OR
CONTRACT AMOUNTS
--------------------
DECEMBER 31
--------------------
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Mortgage loan pass-through
certificates $ 41.6 $ 50.3
- ------------------------------
Real estate partnerships -- .5
- ------------------------------ --------- ---------
$ 41.6 $ 50.8
--------- ---------
--------- ---------
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans to finance their projects. In some cases, the terms of these
arrangements involve guarantees by each of the partners to indemnify the
mortgagor in the event a partner is unable to pay its principal and interest
payments. In addition, the Company has sold commercial mortgage loans
through grantor trusts which issued pass-through certificates. The Company
has agreed to repurchase any mortgage loans which remain delinquent for 90
days at a repurchase price substantially equal to the outstanding principal
balance plus accrued interest thereon to the date of repurchase. It is
management's opinion that the value of the properties underlying these
commitments is sufficient that in the event of default the impact would not
be material to the Company. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1997 and 1996.
DERIVATIVES
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations, increased liabilities associated with reinsurance
agreements and foreign exchange risks. In addition, the Company is subject
to the risks associated with changes in the value of its derivatives;
however, such changes in value generally are offset by changes in the value
of the items being hedged by such contracts. Outstanding derivatives with
off-balance-sheet risks, shown in notional or contract amounts along with
their carrying value and estimated fair values, are as follows:
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1997 1997 1996 1996
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,900.0 $5,500.0 $13.9 $ .9 $20.8 $ 8.2
---------------------------------
Swaptions 1,752.0 672.0 6.9 6.9 11.0 10.6
---------------------------------
Financial futures contracts -- 147.7 -- -- (2.4) (2.4)
---------------------------------
Interest rate swaps 10.0 -- -- (1.8) -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,662.0 6,319.7 20.8 6.0 29.4 16.4
Foreign currency derivatives:
Forward contracts 163.1 251.5 5.4 5.4 .2 (.2)
---------------------------------
Foreign currency options -- 43.9 -- -- .6 .4
---------------------------------
Foreign currency swaps 15.0 15.0 -- (2.1) -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
178.1 310.4 5.4 3.3 .8 (1.9)
-------- -------- -------- ----- -------- ------
$6,840.1 $6,630.1 $26.2 $ 9.3 $30.2 $ 14.5
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts at December
31 is a follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ --
- -----------------------------------
New contracts -- 390.0 50.0 15.0 1,080.0 672.0
- -----------------------------------
Terminations and maturities (600.0) -- (50.0) (615.0) -- --
- ----------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ----------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES INTEREST RATE SWAPS
CONTRACTS
------------------------------------------
1997 1996 1997 1996
------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 147.7 $ -- $ -- $ 5.0
- ------------------------------------------------------------
New contracts 88.3 7,918.8 10.0 --
- ------------------------------------------------------------
Terminations and maturities (236.0) (7,771.1) -- (5.0)
- ------------------------------------------------------------ --------- --------- --------- ---------
Balance at end of year $ -- $ 147.7 $ 10.0 $ --
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
----------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0
- --------------------------------------
New contracts 833.1 406.9 -- 1,168.8 -- --
- --------------------------------------
Terminations and maturities (921.6) (171.1) (43.9) (1,224.1) -- --
- -------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
INTEREST RATE CAPS
The interest rate cap agreements, which expire in 1998 through 2003, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the effect
of rising interest rates. The premium paid for the interest rate caps is
included in other assets ($13,900,000 as of December 31, 1997) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2002 and 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of
fluctuating interest rates. The premium paid for the swaptions is included
in other assets ($6,900,000 as of December 31, 1997) and is being amortized
over the terms of the agreements. This amortization is included in net
investment income.
SPREAD LOCKS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified
Government note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity Government
security and the price sensitivity of the swap at that time. The purpose of
the Company's spread-lock program is to protect a portion of its fixed
maturity securities against widening of spreads.
FINANCIAL FUTURES
The Company uses exchange-traded financial futures contracts to hedge
against interest rate risks and to manage duration of a portion of its fixed
maturity securities. Financial futures contracts obligate the Company to buy
or sell a financial instrument at a specified future date for a specified
price. They may be settled in cash or through delivery of the financial
instrument. Cash settlements on the change in market values of financial
futures contracts are made daily.
INTEREST RATE SWAPS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreements the stream of variable coupon payments generated from the bonds,
and in turn, receives a fixed payment from the counterparty at a
predetermined interest rate. The net receipts/payments from interest rate
swaps are recorded in net investment income.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts,
foreign currency options and foreign currency swaps, all of which are traded
over-the-counter, to hedge some of the foreign exchange risk of investments
in fixed maturity securities denominated in foreign currencies. The foreign
currency forward contracts obligate the Company to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give the Company the right, but not the obligation, to buy
or sell a foreign currency at a specific exchange rate during a specified
time period. A foreign currency swap is a contractual agreement to exchange
the currencies of two different countries pursuant to an agreement to
re-exchange the two currencies at the same rate of exchange at a specified
future date.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$7,000,000, $6,900,000 and $5,600,000 in 1997, 1996 and 1995, respectively.
Deferred losses of $2,600,000 as of December 31, 1997, were the result of:
1) terminated and expired spread-lock agreements and; 2) financial futures
contracts. These losses are included with the related fixed maturity
securities to which the hedge applied and are being amortized over the life
of such securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, swaptions, spread-lock
agreements, interest rate swaps, foreign exchange forward contracts, foreign
currency options and foreign currency swaps. However, the Company does not
anticipate nonperformance by any of the counterparties. The credit risk
associated with such agreements is minimized by purchasing such agreements
from financial institutions with long-standing, superior performance
records. The amount of such exposure is essentially the net replacement cost
or market value for such agreements with each counterparty if the net market
value is in the Company's favor. At December 31, 1997, the exposure was
$11,700,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly,
the estimates shown are not necessarily indicative of the amounts that would
be realized in a one-time, current market exchange of all of the Company's
financial instruments.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values are estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit quality and
maturity of the investments. The fair values of unaffiliated common stocks
are based on quoted market prices.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are calculated on a
composite discounted cash flow basis using Treasury interest rates
consistent with the maturity durations assumed. These durations are based on
historical experience.
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other investments and cash and
short-term investments in the accompanying statutory-basis balance sheets
approximate their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future Policy Benefits and Claims" and "Other
Policyholder Funds," include investment type insurance contracts (i.e.,
deposit contracts and guaranteed interest contracts). The fair values for
the deposit contracts and certain guaranteed interest contracts are based on
their approximate surrender values. The fair values for the remaining
guaranteed interest and similar contracts are estimated using discounted
cash flow calculations. These calculations are based on interest rates
currently offered on similar contracts with maturities that are consistent
with those remaining for the contracts being valued.
The remainder of the balance sheet captions "Future Policy Benefits and
Claims" and "Other Policyholder Funds," that do not fit the definition of
"investment-type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other companies in the insurance industry are monitoring the related actions
of the various rule-making bodies and attempting to determine an appropriate
methodology for estimating and disclosing the "fair value" of their
insurance contract liabilities.
SHORT-TERM DEBT
Fair values of short-term debt approximates carrying values.
GUARANTEES
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on
historical performance where repurchases have been negligible and the
current status, which indicates none of the loans are delinquent, the fair
value liability for the guarantees related to the mortgage loan pass-through
certificates is insignificant.
DERIVATIVES
The Company's derivatives include interest rate cap agreements, swaptions,
spread-lock agreements, foreign currency exchange contracts, financial
futures contracts, interest rate swaps, foreign currency options and foreign
currency swaps. Fair values for these contracts are based on current
settlement values. These values are based on: 1) quoted market prices for
the foreign currency exchange contracts and financial future contracts and;
2) brokerage quotes that utilize pricing models or formulas using current
assumptions for all other swaps and agreements.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real
estate are based on the difference between the value of the committed
investments as of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
1997 1996
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 18,560.7 $ 19,798.6 $ 19,389.6 $ 20,194.4
- -----------------------------------------------
Preferred stock 257.3 268.7 239.7 248.5
- -----------------------------------------------
Unaffiliated common stock 436.0 436.0 358.3 358.3
- -----------------------------------------------
Mortgage loans on real estate 3,012.7 3,179.2 2,976.7 3,070.9
- -----------------------------------------------
Policy loans 660.5 648.3 626.5 612.7
- -----------------------------------------------
Other investments 335.5 335.5 282.7 282.7
- -----------------------------------------------
Cash and short-term investments 2,133.0 2,133.0 759.2 759.2
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,324.2) (16,887.6) (17,871.6) (17,333.0)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (1,267.0) (1,294.6) (1,799.7) (1,835.4)
--------------------------------------------
Short-term debt (120.0) (120.0) (100.0) (100.0)
- -----------------------------------------------
Derivatives 26.2 9.3 26.5 13.8
- -----------------------------------------------
Investment commitments -- (.5) -- (.6)
- -----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In October 1996, the Company and LLANY purchased a block of group
tax-qualified annuity business from UNUM Corporation's affiliate. The
transaction was completed in the form of a reinsurance transaction, which
resulted in a ceding commission of $71,800,000. The ceding commission has
been recorded as admissible goodwill of $62,300,000, which is to be
amortized on a straight-line basis over 10 years. LLANY was required by the
New York Department of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals of the Company
and its wholly owned subsidiary increased by $3,200,000,000 as a result of
this transaction.
In 1997, LNC contributed 25,000,000 shares of common stock of American
States Financial Corporation ("American States") to the Company. American
States is a property casualty insurance holding company of which LNC owned
83.3%. The contributed common stock was accounted for as a capital
contribution equal to the fair value of the common stock received by the
Company. Subsequently, the American States common stock owned by the
Company, along with all other American States common stock owned by LNC and
its affiliates, was sold. The Company received proceeds from the sale in the
amount of $1,175,000,000. The Company recognized no gain or loss on the sale
of its portion of the common stock due to the receipt of such stock at fair
value.
On January 2, 1998, the Company issued a surplus note to LNC in return for
$500,000,000 in cash. The note calls for the Company to pay, on or before
March 31, 2028, the principal amount of the note and interest quarterly at a
6.56% annual rate. LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
12. ACQUISITIONS AND SALES OF SUBSIDIARIES (CONTINUED)
anniversary date of the note, but not before January 2, 2003. Any payment of
interest or repayment of principal may be paid only out of excess surplus
(as defined in the note) and is subject to the approval of the Commissioner
of the Indiana Department of Insurance.
Proceeds from the sale of the Company's American States common stock, as
well as proceeds from the surplus note, were used to finance an indemnity
reinsurance transaction whereby the Company reinsured 100% of a block of
individual life insurance and annuity business from CIGNA Corporation. The
Company paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of
the reinsurance agreement, which will result in a decrease to surplus in
1998 of approximately $1,000,000,000. Operating results generated by this
block of business after the closing date will be included in the Company
financial statements from the closing date. At the time of closing, this
block of business had statutory liabilities of $4,658,200,000 that became
the Company's obligation. The company also received assets, measured on a
historical statutory basis, equal to the liabilities. During 1997, this
block produced premiums, fees and deposits of $1,051,000,000 and earnings of
$87,200,000 on a statutory basis. The Company also expects to pay
$30,000,000 to cover expenses associated with the reinsurance agreement and
to record a charge of approximately $12,000,000 during 1998 to cover certain
costs of integrating the existing operations with the new block of business.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"),
has a nearly exclusive general agents contract with the Company under which
it sells the Company's products and provides the service that otherwise
would be provided by a home office marketing department and regional
offices. For providing these selling and marketing services, the Company
paid LFGI override commissions and operating expense allowances of
$61,600,000, $56,300,000 and $43,300,000 in 1997, 1996 and 1995,
respectively. LFGI incurred expenses of $5,500,000, $15,700,000 and
$10,400,000 in 1997, 1996 and 1995, respectively, in excess of the override
commissions and operating expense allowances received from the Company,
which the Company is not required to reimburse. Effective in January 1998,
the Company and LFGI agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1997 and 1996 include the
Company's participation in a short-term investment pool with LNC of
$325,600,000 and $175,100,000, respectively. Related investment income
amounted to $15,500,000, $15,300,000 and $21,100,000 in 1997, 1996 and 1995,
respectively. Other liabilities at December 31, 1997 and 1996 include
$120,000,000 and $100,000,000, respectively, of notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $48,500,000, $34,100,000 and
$24,900,000 in 1997, 1996 and 1995, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 11.9 $ 17.9 $ 17.6
- ----------------------
Insurance ceded 100.3 302.8 214.4
- ----------------------
</TABLE>
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 245.5 $ 312.7
- ------------------------
Future policy benefits
and claims ceded 997.2 891.8
- ------------------------
Amounts recoverable on
paid and unpaid losses 30.4 31.2
- ------------------------
Reinsurance payable on
paid losses 5.3 2.7
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,115.4 1,062.4
- ------------------------
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit
aggregating $280,900,000 and $314,200,000 at December 31, 1997 and 1996,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1997 and 1996, LNC had guaranteed $229,100,000 and $239,200,000,
respectively, of these letters of credit. At December 31, 1997, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $130,700,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at fair value and consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds. The detailed
operations of the separate accounts are not included in the accompanying
financial statements. Fees charged on separate account policyholder deposits
are included in other income.
Separate account premiums, deposits and other considerations amounted to
$4,821,800,000, $4,148,700,000 and $3,068,200,000 in 1997, 1996 and 1995,
respectively. Reserves for separate accounts with assets at fair value were
$30,560,700,000 and $23,047,800,000 at December 31, 1997 and 1996,
respectively. All reserves are subject to discretionary withdrawal at market
value. Substantially all of the Company's separate accounts are
nonguaranteed.
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $ 4,824.0 $ 4,149.6
- ------------------------------------------------------------
Transfers from separate accounts (2,943.8) (2,058.5)
- ------------------------------------------------------------ --------- ---------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $ 1,880.2 $ 2,091.1
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS
In 1997, certain errors were identified by the Illinois
Insurance Department in the calculation of the AVR as of
December 31, 1996 and 1995. The effects of the AVR errors
also resulted in the need for revisions in the calculation
of certain investment limitation thresholds, the results of
which indicated that additional assets should have been
nonadmitted as of December 31, 1996. As discussed by the
Company with the Indiana and Illinois Insurance Departments,
corrections were made to affected pages of the Company's
NAIC Annual Statement which were refiled with various state
insurance departments. However, due to immateriality of the
corrections in relation to the financial statements taken as
a whole, the audited 1996 and 1995 statutory-basis financial
statements were not corrected and re-issued.
The Company's 1997 NAIC Annual Statement, as filed with
various state insurance departments, also includes the
corrected balances for 1996 and 1995. The following is a
reconciliation of total admitted assets, total liabilities
and capital and surplus as of December 31, 1996 as presented
in the 1997 NAIC Annual Statement (as corrected) to the
accompanying audited financial statements.
<TABLE>
<CAPTION>
TOTAL CAPITAL
ADMITTED TOTAL AND
ASSETS LIABILITIES SURPLUS
---------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1996 as
reported in the accompanying audited
financial statements $50,016.6 $ 48,054.0 $ 1962.6
- ----------------------------------------
Effect of AVR errors -- 37.6 (37.6)
- ----------------------------------------
Effect of change in investment
limitations (57.0) -- (57.0)
- ---------------------------------------- --------- ----------- --------
Balance as of December 31, 1996 as
reported in the 1997 NAIC Annual
Statement $49,959.6 $ 48,091.6 $1,868.0
- ---------------------------------------- --------- ----------- --------
--------- ----------- --------
</TABLE>
16. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The inability to properly
recognize date sensitive electronic information and transfer data between
systems could cause errors or even a complete systems failure which would
result in a temporary inability to process transactions correctly and engage
in normal business
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
activities. The Company is redirecting a large portion of its internal
information technology efforts and contracting with outside consultants to
update its systems to accommodate the year 2000. Also, the Company has
initiated formal communications with critical parties that interface with
the Company's systems to gain an understanding of their progress in
addressing Year 2000 Issues. While the Company is making every effort to
address its own systems and the systems with which it interfaces, it is not
possible to provide assurance that operational problems will not occur. The
Company presently believes that with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
Year 2000 Issue will not pose significant operational problems for its
computer systems. In addition, the Company is developing contingency plans
in the event that, despite its best efforts, there are unresolved year 2000
problems. If the remediation efforts noted above are not completed timely or
properly, the Year 2000 Issue could have a material adverse impact on the
operation of the Company's business.
During 1997 and 1996, the Company incurred expenditures of approximately
$5,500,000 ($3,600,000 after-tax) to address this issue. The Company's
financial plans for 1998 through 2000 include expected expenditures of an
additional $20,000,000 ($13,000,000 after-tax) on this issue. The cost of
addressing Year 2000 Issues and the timeliness of completion will be closely
monitored by management and are based on managements's current best
estimates which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. Nevertheless, there can be no
guarantee that these estimated costs will be achieved and actual results
could differ significantly from those anticipated. Specific factors that
might cause such differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer problems and other uncertainties.
S-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (a wholly owned
subsidiary of Lincoln National Corporation) as of December 31,
1997 and 1996, and the related statutory-basis statements of
income, changes in capital and surplus and cash flows for each
of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted
accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the
accompanying financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of The
Lincoln National Life Insurance Company at December 31, 1997 and
1996, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1997.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
February 5, 1998
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C> <C>
Investment income earned:
Government bonds $ 52.8
-----------------------------------------------------------------------------------------
Other bonds (unaffiliated) 1,471.6
-----------------------------------------------------------------------------------------
Preferred stocks (unaffiliated) 23.5
-----------------------------------------------------------------------------------------
Common stocks (unaffiliated) 8.3
-----------------------------------------------------------------------------------------
Common stocks of affiliates 15.0
-----------------------------------------------------------------------------------------
Mortgage loans 257.2
-----------------------------------------------------------------------------------------
Real estate 92.2
-----------------------------------------------------------------------------------------
Premium notes, policy loans and liens 37.5
-----------------------------------------------------------------------------------------
Cash on hand and on deposit 1.0
-----------------------------------------------------------------------------------------
Short-term investments 69.3
-----------------------------------------------------------------------------------------
Other invested assets 21.9
-----------------------------------------------------------------------------------------
Derivative instruments (10.0)
-----------------------------------------------------------------------------------------
Aggregate write-ins for investment income 16.3
----------------------------------------------------------------------------------------- ---------
Gross investment income $ 2,056.6
- ---------------------------------------------------------------------------------------------------- ---------
---------
Real estate owned (cost, less encumbrances) $ 585.2
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans (unpaid balance):
Farm mortgages $ 0.1
-----------------------------------------------------------------------------------------
Residential mortgages 3.1
-----------------------------------------------------------------------------------------
Commercial mortgages 3,009.5
----------------------------------------------------------------------------------------- ---------
Total mortgage loans $ 3,012.7
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans by standing (unpaid balance):
Good standing $ 2,974.1
----------------------------------------------------------------------------------------- ---------
---------
Good standing with restructured terms $ 38.5
----------------------------------------------------------------------------------------- ---------
---------
Interest overdue more than three months, not in foreclosure $ --
----------------------------------------------------------------------------------------- ---------
---------
Foreclosure in process $ 0.1
----------------------------------------------------------------------------------------- ---------
---------
Other long-term assets (statement value) $ 281.5
- ---------------------------------------------------------------------------------------------------- ---------
---------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Bonds and stocks of parent, subsidiaries and affiliates (cost):
Common stocks of subsidiaries $ 466.2
- ----------------------------------------------------------------------------------------------- ---------
---------
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 3,140.1
------------------------------------------------------------------------------------------
Over 1 year through 5 years 5,182.8
------------------------------------------------------------------------------------------
Over 5 years through 10 years 5,772.8
------------------------------------------------------------------------------------------
Over 10 years through 20 years 3,275.3
------------------------------------------------------------------------------------------
Over 20 years 3,270.6
------------------------------------------------------------------------------------------ ---------
Total by maturity $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Bonds by class (statement value):
Class 1 $13,879.0
------------------------------------------------------------------------------------------
Class 2 5,215.6
------------------------------------------------------------------------------------------
Class 3 848.0
------------------------------------------------------------------------------------------
Class 4 668.8
------------------------------------------------------------------------------------------
Class 5 23.6
------------------------------------------------------------------------------------------
Class 6 6.6
------------------------------------------------------------------------------------------ ---------
Total by class $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Total bonds publicly traded $16,457.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Total bonds privately placed $ 4,184.5
- ----------------------------------------------------------------------------------------------- ---------
---------
Preferred stocks (statement value) $ 257.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Unaffiliated common stocks (market value) $ 436.0
- ----------------------------------------------------------------------------------------------- ---------
---------
Short-term investments (cost or amortized cost) $ 2,080.9
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps owned (statement value) $ 20.8
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps written (statement value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Swap and forward agreements open (statement value) $ 5.4
- ----------------------------------------------------------------------------------------------- ---------
---------
Futures contracts open (current value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Cash on deposit $ 52.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance in-force:
Ordinary $ 108.6
------------------------------------------------------------------------------------------ ---------
---------
Group life $ 31.2
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Amount of accidental death insurance in-force under ordinary policies $ 5.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance policies with disability provisions in-force:
Ordinary $ 5.5
------------------------------------------------------------------------------------------ ---------
---------
Group life $ --
------------------------------------------------------------------------------------------ ---------
---------
Supplementary contracts in-force:
Ordinary -- not involving life contingencies:
Amount on deposit $ --
------------------------------------------------------------------------------------------ ---------
---------
Income payable $ 0.8
------------------------------------------------------------------------------------------ ---------
---------
Ordinary -- involving life contingencies:
Income payable $ 3.0
------------------------------------------------------------------------------------------ ---------
---------
Group -- not involving life contingencies:
Income payable $ 1.1
------------------------------------------------------------------------------------------ ---------
---------
Group -- involving life contingencies:
Income payable $ --
------------------------------------------------------------------------------------------ ---------
---------
Annuities:
Ordinary:
Immediate -- amount of income payable $ 71.8
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- fully paid account balance $ 0.7
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- not fully paid account balance $ 264.0
------------------------------------------------------------------------------------------ ---------
---------
Group:
Amount of income payable $ 0.3
------------------------------------------------------------------------------------------ ---------
---------
Fully paid account balance $ 0.1
------------------------------------------------------------------------------------------ ---------
---------
Not fully paid account balance $ 72.3
------------------------------------------------------------------------------------------ ---------
---------
Accident and health insurance -- premiums in-force:
Ordinary $ 166.0
------------------------------------------------------------------------------------------ ---------
---------
Group $ 77.7
------------------------------------------------------------------------------------------ ---------
---------
Deposit funds and dividend accumulations:
Deposit funds account balance $16,507.3
------------------------------------------------------------------------------------------ ---------
---------
Dividend accumulations -- account balance $ 114.4
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-34
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
NOTE -- BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis
financial data as of December 31, 1997 and for the year then
ended for purposes of complying with paragraph 9 of the Annual
Audited Financial Reports in the General Section of the National
Association of Insurance Commissioners' Annual Statement
Instructions and agrees to or is included in the amounts
reported in The Lincoln National Life Insurance Company's 1997
Statutory Annual Statement as filed with the Indiana Department
of Insurance.
S-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
The Lincoln National Life Insurance Company
Our audits were conducted for the purpose of forming an opinion
on the statutory-basis financial statements taken as a whole.
The accompanying supplemental schedule of selected statutory
basis financial data is presented to comply with the National
Association of Insurance Commissioners' Annual Statement
Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the statutory-basis
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the statutory-basis
financial statements taken as a whole.
February 5, 1998
S-36
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (GROUP)
Post-Effective Amendment No. 53 on Form N-3
PART C--OTHER INFORMATION
Item 28.
(a) LIST OF FINANCIAL STATEMENTS
1. The Table of Per-Accumulation-Unit Income and
Capital Changes for Fund A is included in Part
A of this Registration Statement.
2. The following Financial Statements of Fund A
are included in Part B of this Registration
Statement:
Statement of Operations--Year ended
December 31, 1997
Statements of Changes in Net Assets--
Years ended December 31, 1997 and 1996
Statement of Net Assets--
December 31, 1997
Notes to Financial Statements--
December 31, 1997
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
3.
The following Statutory - Basis Financial Statements and Schedules of Lincoln
National Life Insurance Company are included in Part B of this Registration
Statement:
Balance Sheets -- Statutory - Basis Years ended December 31, 1997 and 1996
Statements of Income -- Statutory -- Basis - Years ended December 31, 1997, 1996
and 1995
Statements of Capital and Surplus -- Statutory Basis - Years ended December 31,
1997, 1996 and 1995
Notes to Statutory - Basis Financial Statements -- December 31, 1997
Supplemental Schedule of Selected Statutory Basis Financial Data -- December 31,
1997
Report of Ernst & Young LLP, Independent Auditors
(b) LIST OF EXHIBITS
(1) Separate Account Resolution of the Board of Directors of the Insurance
Company authorizing the establishment of the Registrant
(2) Fund Bylaws or Instruments corresponding thereto
(3) Custodian Agreement
(4) (a) Investment Advisory Contract
(b) Investment Sub-advisory Contract
(5) Not applicable
(6) (a) Variable Annuity Contract
(b) Participant Certificate
(7) Application
(8) Articles of Incorporation and Bylaws Lincoln National Life Insurance
Company are incorporated herein by reference to the Registration Statement
on Form N-4 (33-27783) filed on December 5, 1996.
(9) Not applicable
(10) Not applicable
(11) Services Agreement between Delaware Management Holdings, Inc., Delaware
Service Company, Inc. and Lincoln National Life Insurance Company is
incorporated herein by reference to the Registration Statement on Form S-6
(333-40745) filed on November 21, 1997.
(12) Opinion and Consent of Counsel--Robert H. Carpenter, Esquire
(13) Consent of Ernst & Young LLP, Independent Auditors
(14) Not applicable
(15) Not applicable
(16) Not applicable
(17) Financial Data Schedule
(18) General
(a) Organizational Chart of the Lincoln National Insurance Holding Company
System is incorporated herein by reference to the Registration
Statement on Form N-4 (33-27783) filed on March 27, 1998.
(b) Books and Records Report
Item 29.
DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with Insurance Company Registrant
- ---------------- ---------------------- ----------
<S> <C> <C>
GABRIEL L. SHAHEEN* President, Chief
Executive Officer
and Director
JON A. BOSCIA** Director
CAROLYN P. BRODY* Vice President
THOMAS L. CLAGG* Vice President and Associate
General Counsel
KELLY D. CLEVENGER* Vice President Chairman and Member
JEFFREY K. DELLINGER* Vice President
JOHN H. GOTTA**** Senior Vice President
</TABLE>
<PAGE>
JACK D. HUNTER** Executive Vice President
and General Counsel,
Lincoln National
Corporation and The Lincoln
National Life Insurance Company
DONALD E. KELLER* Vice President
STEPHEN H. LEWIS* Senior Vice President
H. THOMAS MCMEEKIN** Director
REED P. MILLER* Vice President
IAN M. ROLLAND** Director
CYNTHIA A. ROSE** Secretary, Secretary
The Lincoln National
Life Insurance Company and
Lincoln National Corporation
LAWRENCE T. ROWLAND*** Executive Vice President and
Director
KEITH J. RYAN* Assistant Treasurer, Senior
Vice President and Chief
Financial Officer
RICHARD C. VAUGHAN** Director
JANET C. WHITNEY** Vice President and Vice President and
Treasurer Treasurer
C. SUZANNE WOMACK** Secretary and Assistant
Vice President
Footnotes:
* Principal business address is 1300 S. Clinton Street, Fort Wayne, Indiana
46802
** Principal business address is 200 E. Berry Street, Fort Wayne, Indiana
46802
*** Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne,
**** Principal business address is 900 Cottage Grove Road, Bloomfield, CT
06152-2321
<PAGE>
Indiana 46804
This list is also designed to satisfy the requirements of Item 33.
Item 30.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE COMPANY
OR REGISTRANT
See Exhibit 18(a): Organizational Chart of the Lincoln National Insurance
Holding Company System. The Fund is a segregated account established pursuant
to Indiana Law, and thus does not appear on the Chart.
Item 31.
NUMBER OF CONTRACTOWNERS
As of February 28, 1998, there were 8,363 group contractowners of qualified
contracts. The Fund does not offer non-qualified contracts.
Item 32.
INDEMNIFICATION--UNDERTAKING
(a) Brief description of indemnification provisions.
See prior filings.
(b) Undertaking pursuant to Rule 484 of Regulation C under the
Securities Act of 1933:
See prior filings.
Item 33. Business and Other Connections of Investment Adviser.
The Lincoln National Life Insurance Company (Lincoln Life), the Investment
Adviser, is principally engaged in the sale of life insurance, annuities, and
related products and services, and is a professional reinsurer.
Information concerning other activities of certain directors and officers of
Lincoln Life is set out in item 29 above.
Item 34. Principal Underwriters
(a) Lincoln Life also currently serves as Principal Underwriter for Lincoln
National Variable Annuity Fund A (Individual) and is the Sponsor of Lincoln
National Flexible Premium Variable Life Accounts D, F, G, J, K, M and R and
Lincoln National Variable Annuity Accounts C, E, H, L, N, Q 50, 51 and 52.
(b) Not Applicable.
Item 35. Location of Accounts and Records
Exhibit 18(b) incorporated by reference herein, in response to this Item.
Item 36. Management Services
See Exhibit 9(d):
Item 37. Undertakings
(a) Not Applicable.
(b) See prior filings.
(c) See prior filings.
(d) Lincoln National Life Insurance Company hereby represents that the fees and
charges deducted under the contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by the Lincoln National Life Insurance Company.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant 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 State of Indiana on this 28th day of April, 1998.
LINCOLN NATIONAL VARIABLE ANNUITY
FUND A (Group)
By /s/ Kelly D. Clevenger
----------------------------------------
Kelly D. Clevenger, Chairperson
Board of Managers
(Signature and Title)
By THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY (Lincoln Life)
(Depositor)
By /s/ Gabriel L. Shaheen
----------------------------------------
Gabriel L. Shaheen
President
(Name and title of officer of Depositor)
(b) As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Gabriel L. Shaheen President, Chief Executive April 28, 1998
- ---------------------------- Officer and Director
Gabriel L. Shaheen (Principal Executive Officer)
/s/ Jon A. Boscia Director April 28, 1998
- ----------------------------
Jon A. Boscia
Director
- ----------------------------
Ian M. Rolland
Executive Vice President ______________
- ---------------------------- and Director
Lawrence T. Rowland
/s/ Richard C. Vaughan Director April 28, 1998
- ----------------------------
Richard C. Vaughan
/s/ H. Thomas McMeekin Director April 28, 1998
- ----------------------------
H. Thomas McMeekin
/s/ Keith J. Ryan Senior Vice President, April 28, 1998
- ---------------------------- Assistant Treasurer, and
Keith J. Ryan Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
Director
- ----------------------------
Jack D. Hunter
</TABLE>
<PAGE>
Exhibit 1
BOARD RESOLUTION ADOPTED ON SEPTEMBER 16, 1966
BY THE BOARD OF DIRECTORS OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOW, THEREFORE, BE IT RESOLVED:
A. That the company hereby establishes a segregated investment account in
accordance with the provisions of Section 59 of an Act of the Legislature of
the State of Indiana entitled "An Act concerning insurance, and declaring an
emergency", approved March 8, 1935, as amended.
B. That the segregated investment account be registered as an investment
company under the Investment Company Act of 1940, as amended, and
application be made for the exemptions from such provisions of that Act as
may be desirable.
C. That the Company issue contracts providing for the payment of cost or of
benefits, or both, computable on the basis of experience factors derived
from the segregated investment account of assets placed in that account by
the Company from contributions under such contracts, all as determined by
the President of the Company.
D. That to the extent necessary, contracts authorized by this resolution be
registered under the Securities Act of 1933, as amended.
E. That the company be registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended.
F. That the Board of Directors of the Company hereby establishes, as a
committee of this board, a variable annuity investment committee, to be
selected by the President of the Company from among the persons serving on
the Investment Committee of the Company; and that the President of the
Company is hereby authorized to determine the number (which shall be not
less than three), the identity of the members of the variable annuity
investment committee and the name by which this committee shall be known.
G. In aid of achieving the objectives of this resolution, the President of the
Company, and such officers and employees of the Company as he may select,
specifically, but not by way of limitation, shall be empowered to:
1. Register the segregated investment account as an investment company, as
authorized by paragraph B of this Resolution;
2. Register the contracts as authorized by paragraph D of this Resolution;
<PAGE>
3. Register the Company as a broker-dealer as authorized by paragraph E of
this Resolution;
4. Execute agreements on behalf of the company relating to the operation
of the segregated investment account, including, without limitation,
sales, investment and administrative services, death benefits,
mortality guarantees, and expense guarantees.
5. Name the initial board of directors of the segregated investment
account, who shall serve until their successors are duly elected and
qualified and to designate the name by which such board of directors
shall be known.
6. Establish the amount appropriate for compensation and expenses of
members of the board of directors of the segregated investment account.
7. Take the necessary steps to cause appropriate Rules and Regulations to
be established for the effective and proper operation of the segregated
investment account.
8. Designate the name by which the segregated investment account shall be
known.
9. Do and perform every act and thing which may be necessary, requisite or
proper to accomplish the objectives of this resolution, hereby
ratifying and confirming each and every act done and performed by the
President and such officers and employees on behalf of the Company.
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
FORT WAYNE, INDIANA
---------------
RULES AND REGULATIONS
(Amended January 24, 1989)
ARTICLE I
GENERAL
SECTION 1. Name. The name of this segregated investment account
shall be Lincoln National Variable Annuity Fund A ("Fund").
SECTION 2. Offices. The principal office of the Fund shall be at
1300 South Clinton Street, Fort Wayne, Indiana 46801. (Amended February 15,
1978)
SECTION 3. Purposes. The purposes of the Fund are to provide in
accordance with the provisions of Section 59 of an Act of the Legislature of the
State of Indiana entitled "An Act concerning insurance, and declaring an
emergency", approved March 8, 1935, as amended, a segregated investment account
for the assets set aside separate and apart for the sole benefit of the annuity
contracts (a) sold by The Lincoln National Life Insurance Company ("The
Lincoln") and (b) designated by The Lincoln as contracts for which reserves
shall be maintained in the Fund ("Contracts").
ARTICLE II
VARIABLE ANNUITY CONTRACT OWNERS
SECTION 1. Annual Meeting. (a) The annual meeting of the persons
holding the Contracts ("Contract Owners") [if such meeting be held] shall be
held at such hour and on such date (before May 31 in each year) as the Board of
Managers may select in each year, for the purpose of electing a Board of
Managers and for the transaction of such other business as may properly come
before the meeting. If such date is a legal holiday in any year, then the
annual meeting shall be held on the next succeeding full business day. All
meetings shall be held at the principal office of the Fund, or at such other
place as the Board of Managers may determine.
<PAGE>
(b) Upon the affirmative vote of a majority of the whole Board of
Managers, the annual meeting may be dispensed with in any year in which none of
the following is required to be acted upon by Contract Owners pursuant to the
Investment Company Act of 1940:
i. Election of Board of Managers;
ii. Approval of an investment advisory agreement;
iii. Ratification of the selection of independent public accountants; and
iv. Approval of a distribution agreement.
(Last amended January 24, 1989)
SECTION 2. Special Meetings. Special meetings of the Contract
Owners may be called by a majority of the Board of Managers. The notice of the
meeting shall state the purpose of the meeting and no business shall be
transacted at the meeting except matters coming into such purpose. All special
meetings of the Contract Owners shall be held at the principal office of the
Fund or at such other place as may be determined by the Board of Managers, at
the time and place stated in the notice of the meeting.
Special meetings of the Contract Owners shall be called for the
purpose of removing one or more Members of the Board of Managers when requested
by Participants holding the requisite number of shares of beneficial interest in
the Fund pursuant to Section 16(c) of the Investment Company Act of 1940.
Whenever Participants apply to the Board for assistance in communicating with
the other Participants for this purpose, the Board shall facilitate that
communication pursuant to that Section 16(c).
Should the Board of Managers change the independent public accountant
for the Fund, a meeting of Contract Owners shall be called by the Board for the
purpose of ratifying or rejecting the selection of the new accountant.
(Amended January 24, 1989)
SECTION 3. Notice of Meeting. A written or printed notice stating
the place, day and hour of the meeting, and in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
Contract Owner and to each participating employee under a Contract
("Participant") who is entitled pursuant to SECTION 6 of this Article II to
instruct a Contract Owner with respect to votes. Such notice shall be deemed
given when mailed, postage prepaid, as of a date within 90 days (but not less
than 20 days) prior to the date of the meeting and addressed to the Contract
Owners and Participants at the addresses of such persons as are carried on the
records of The Lincoln.
-2-
<PAGE>
SECTION 4. Quorum. Contract Owners entitled to cast twenty-five
percent of the votes which may be cast for all participants in accordance with
SECTION 6 of this ARTICLE II, shall constitute a quorum for the transaction of
business at any annual or special meeting of the Contract Owners. If a quorum
shall not be present, Contract Owners entitled to cast a majority of the votes
represented at the meeting may adjourn the meeting to some later time. When a
quorum is present, the vote of a majority of the votes represented in person or
by proxy shall determine any question except as may be otherwise provided by
these Rules and Regulations or by law. (Amended February 15, 1978)
SECTION 5. Proxies. A Contract Owner may vote either in person or
by proxy duly executed in writing by the Contract Owner. A proxy for any
meeting shall be valid for any adjournment of such meeting.
SECTION 6. Voting. The number of votes which a Contract Owner may
cast for Participants under a Group Variable Annuity Contract or a Group
Retirement Annuity Contract in the accumulation period is equal to the number of
accumulation units under the Contract. For Participants receiving annuity
payments, the Contract Owner of a Group Variable Annuity Contract may cast the
number of votes equal to (i) the amount of the assets established in the Fund to
meet the annuity obligations related to such Participants divided by (ii) the
value of an accumulation unit. For Participants receiving annuity payments, the
Contract Owner of a Group Retirement Annuity Contract is not entitled to cast
any votes. The number of votes which a Contract Owner of an Individual Variable
Annuity Contract or an Individual Retirement Annuity Contract in the
accumulation period may cast is equal to the number of accumulation units under
the contract. In the annuity period, the Contract Owner of an Individual
Variable Annuity Contract may cast the number of votes equal to (i) the amount
of assets established in the Fund to meet the annuity obligations related to
such contract divided by (ii) the value of an accumulation unit. In the annuity
period, a Contract Owner of an Individual Retirement Annuity Contract is not
entitled to cast any votes. Fractional votes shall be counted but each Contract
Owner shall have at least one vote.
The number of votes which each Contract Owner may cast shall be
determined as of a date, to be chosen by the Board of Managers, within 90 days
of the date of the meeting. To be entitled to vote, a Contract Owner must have
been an Owner on both the date as of which the number of votes was determined
and date of the written notice of the meeting.
During the accumulation period, a Participant under a Group Variable
Annuity Contract or a Group Retirement Annuity Contract will have the right to
instruct the Contract Owner with respect to the votes attributable to his
individual account.
-3-
<PAGE>
During the annuity period, a Participant under a Group Variable
Annuity Contract or an employee under an Individual Variable Annuity Contract
will have the right to instruct the Contract Owner with respect to the votes
attributable to the amount of the assets established in the Fund to meet the
annuity obligations to such Participant or employee. Each Contract Owner and
each employee and Participant having the right to instruct a Contract Owner with
respect to any votes will be sent all proxy materials.
Contract Owner shall cast the votes for which instructions have been
received in accordance with such instructions. All votes for which instructions
have not been received (other than those as to which no employee or Participant
is entitled to give instructions) shall be cast in the same proportions as those
for which instructions were received. Votes as to which no employee or
Participant is entitled to give instructions shall be cast in the sole
discretion of the Contract Owner.
SECTION 7. Order of Business. The order of business at the meetings
of the Contract Owners shall be determined by the presiding officer to
accomplish the purpose or purposes of the meeting.
SECTION 8. Inspectors. At each meeting of the Contract Owners the
polls shall be opened and closed, the proxies and ballots shall be received and
be taken in charge, and all questions touching the qualification of voters or
the validity of proxies and the acceptance or rejection of votes shall be
decided by three inspectors. Such inspectors, who need not be Contract Owners,
shall be appointed by the Board of Managers before the meeting, or if no such
appointment shall have been made, then by the presiding officer of the meeting.
In the event of failure, refusal or inability of any inspector previously
appointed to serve, the presiding officer may appoint any person to fill such
vacancy.
ARTICLE III
BOARD OF MANAGERS
SECTION 1. Composition. The Board of Managers shall consist of not
less than three nor more than seventeen Members. The initial Board of Managers
and Chairman thereof and the Secretary thereto (see SECTION 6) shall be
appointed as provided by a resolution of the Board of Directors of The Lincoln
adopted December 1, 1966. Thereafter, the Members of the Board of Managers
shall be elected and shall serve until their successors are duly elected and
qualified. (Last amended January 24, 1989)
SECTION 2. Powers. The Board of Managers shall have the following
duties, responsibilities and powers:
-4-
<PAGE>
a. To select and approve an independent public accountant whose
employment shall be approved by the Contract Owners when required by
law; (Amended January 24, 1989)
b. To approve annually an agreement providing for sales and
administrative services;
c. To approve annually an agreement providing for investment management
services. Such agreements as initially adopted, and any amendments
thereto shall be subject to approval by Contract Owners casting a
majority of the votes which may be cast by all Contract Owners in
accordance with SECTION 6 of ARTICLE II;
d. To recommend from time to time any changes deemed appropriate in the
fundamental investment policy of the Fund, to be submitted to the
Contract Owners at their next meeting;
e. To authorize investment programs for the Fund in accordance with the
investment objectives and policies of the Fund.
SECTION 3. Committees. The Board of Managers may elect by vote of a
majority of the whole Board which majority shall include a majority of the
Members who are not affiliated with The Lincoln, two or more of its Members to
constitute an Executive Committee which committee shall have and may exercise
when the Board is not in session, any or all powers of the Board of Managers in
the management of the business and affairs of the Fund.
The Board of Managers may elect by a majority of the whole Board, two
or more of its number to constitute an Investment Committee, which committee
shall approve all investment transactions relative to the Fund.
The Board of Managers likewise may appoint from their number other
committees from time to time, the number (not less than two) composing such
committees, and the functions to be performed by the same to be determined by
the vote of the Board of Managers.
Each committee may make rules for the notice and conduct of its
meetings and the keeping of the records thereof. The term of any member of any
committee shall be fixed by the Board of Managers, but no member of a committee
shall hold office for more than one year unless reappointed by the Board of
Managers. (Amended January 24, 1989)
-5-
<PAGE>
SECTION 4. Meetings. Regular meetings of the Board of Managers shall
be held at such places within or without the State of Indiana, and at such times
as the Board, by vote, may determine from time to time, and if so determined, no
call or notice thereof need be given except that at least two days' notice shall
be given of the first regular meeting following a change in the date of regular
meetings. Special meetings of the Board may be held at any time or place,
whenever called by the Chairman of the Board of Managers, or three or more
Members of the Board of Managers. Notice thereof shall be given to each Member
by the person calling the meeting, unless all Members are present or unless
those not present shall have waived notice thereof in writing prior to such
meeting which waivers shall be filed with the records of the meeting. Notice of
special meetings stating the time and place thereof shall be given by mail to
each Member at his residence or business address at least two days before the
meeting, or by delivering or telephoning the same to him personally or by
telegramming the same to him at his residence or business address at least one
day before the meeting; provided, that the Chairman of the Board of Managers may
prescribe a shorter notice to be given personally or by telephone or telegram to
each Member at his residence or business address. The Chairman of the Board of
Managers shall preside at all meetings of the Board of Managers at which he is
present.
SECTION 5. Quorum. A majority of the Members of the Board of
managers shall constitute a quorum for the transaction of business. When a
quorum is present at any meeting, a majority of the Members present shall decide
any question brought before such meeting except as otherwise provided by law, or
by these Rules and Regulations.
SECTION 6. Chairman of, and Secretary to the Board of Managers. At
the first meeting of the Board of Managers and annually thereafter, the Board of
Managers shall elect one of its Members to act as Chairman of The Board of
Managers, and he shall hold office until his successor is elected and qualified.
(Amended January 24, 1989)
The Board of Managers may appoint a Secretary to the Board, who need
not be a member of the Board. The Secretary shall have the power to certify the
minutes of the proceedings of the Contract Owners and the Board of Managers and
portions thereof and shall perform such other duties and have such other powers
as the Board of Managers shall designate from time to time. In the absence of a
Secretary, a temporary Secretary shall perform such duties and have such powers.
SECTION 7. Resignations and Removals. Any Member of the Board of
Managers, the Chairman, or the Secretary may resign their membership or office
at any time by mailing or delivering his resignation in writing to the Chairman
of the Board of Managers or to a meeting of the Board of Managers. Any Member
of any committee may resign as aforesaid or by delivering his resignation in
writing to the committee from
-6-
<PAGE>
which he wishes to resign or to the Chairman thereof. Contract Owners may, at
any meeting called for the purpose, remove any Member of the Board of Managers
or the Secretary. A Member of the Board of Managers may be thus removed by vote
of Contract Owners casting no less than two thirds of the votes which may be
cast by all Participants in accordance with SECTION 6 of ARTICLE II; the same
requirements apply for removal of the Secretary, except that the vote must be by
Contract Owners casting at least a majority of the votes which may be cast. The
Board of Managers may, by vote of a majority of the Members then in office,
remove the Chairman and/or the Secretary from their offices. No Member of the
Board of Managers, the Chairman or a Secretary who resigns and no Member, the
Chairman or a Secretary who is removed shall have any right to any compensation
as such Member, Chairman, or Secretary for any period following his resignation
or removal, or any right to damages on account of such removal (except where a
right to receive compensation for a definite future period shall be expressly
provided in a written agreement duly approved by the Board of Managers). Any
such resignation shall take effect at the time specified therein or, if the time
be not specified, upon acceptance thereof by the Board of Managers. (Amended
January 24, 1989)
SECTION 8. Vacancies. Vacancies occurring by reason of death,
resignation, or otherwise (except removal) of duly elected Members of the Board
of Managers occurring between meetings of the Contract Owners may be filled for
any unexpired term by a majority vote of all the remaining Members if
immediately after so filling any such vacancy at least two-thirds of the Members
then holding office shall have been elected to such office by ballot of the
Contract Owners at an annual or special meeting. (Amended January 24, 1989)
In the event that at any time after the first annual meeting of the
Contract Owners, less than a majority of the Members holding office at that time
have been so elected by a ballot of the Contract Owners, the Board of Managers
shall forthwith cause to be held as promptly as possible (and in any event
within sixty days) a meeting of the Contract Owners for the purpose of electing
Members to fill the existing vacancies in the Board of Managers. The Board of
Managers shall have and may exercise all its powers notwithstanding the
existence of one or more vacancies in its number as fixed by the Contract
Owners, provided there be at least two Members in office. If the office of any
Member of the Executive Committee, Investment or any other committee, or the
Chairman of the Board of Managers or the Secretary becomes vacant, the Board of
Managers may elect a successor by vote of a majority of the Members then in
office. Each such successor shall hold office for the unexpired term and until
his successor shall be elected or appointed and qualified, or until he sooner
dies, resigns, is removed or becomes disqualified.
The Contract Owners, at any meeting called for the purpose, may, with
or without cause, remove any Manager or the Secretary by the affirmative vote of
not less
-7-
<PAGE>
than two-thirds of the outstanding votes which may be cast by all Participants
which are entitled to be represented at such meeting. (Amended January 24, 1989)
The Contract Owners may, at any meeting called for the purpose, fill
the vacancy in the Board thus caused, by the affirmative vote of a majority of
the outstanding votes which may be cast for all Participants entitled to be
represented at such meeting. (Amended January 24, 1989)
Notwithstanding anything in these Rules and Regulations to the
contrary, the process of removing a Manager shall be governed by Section 16(c)
of the Investment Company Act of 1940. (Amended January 24, 1989)
ARTICLE IV
AMENDMENT AND TERMINATION OF INVESTMENT
MANAGEMENT AGREEMENT
Any investment management agreement referred to in Paragraph c of
SECTION 2 of ARTICLE III shall provide that it may not be amended without the
prior approval of Contract Owners casting a majority of the votes which may be
cast by all Contract Owners in accordance with SECTION 6 of ARTICLE II and that
it may not be terminated by the investment manager without the prior approval of
a new investment advisory agreement by Contract Owners casting a majority of the
votes which may be cast by all Contract Owners in accordance with SECTION 6 of
ARTICLE II.
ARTICLE V
VALUE OF THE FUND
The value of the assets of the Fund at the end of any valuation period
shall be the aggregate of the following:
(1) The face amount of cash; plus
----
(2) The total market value of any securities, valued at the closing price
for the business day ending the valuation period for securities
traded on organized exchanges, and at the mean of the bid and asked
prices for the business
-8-
<PAGE>
day ending the valuation period for non-traded securities and
securities not traded on an organized exchange; plus
----
(3) The fair market value as determined in good faith by the Fund's Board
of Managers of any other asset; minus
-----
(4) An amount for taxes on realized and unrealized capital gains and any
other taxes based on income of, assets in, or the existence of, the
Fund which may be applicable; and minus
-----
(5) Liabilities of the Fund other than Contract liabilities. (Amended
February 27, 1973)
ARTICLE VI
AMENDMENTS
These Rules and Regulations, subject to applicable law, may be
altered, amended or repealed by vote of a majority of the Board of Managers as
is necessary and appropriate to carry out the purposes of the Fund.
-9-
<PAGE>
EXHIBIT 3
SAFEKEEPING AGREEMENT
BETWEEN
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
AND
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
AND
BANKERS TRUST COMPANY
AS APPROVED BY THE COMMISSIONER OF INSURANCE OF INDIANA
On September 16, 1966 The Lincoln National Life Insurance Company (the
"Company") established a segregated investment account of the Company pursuant
to provisions of the statutes of Indiana governing life insurance companies for
the purposes of engaging in a variable annuity business. That account has been
named "Lincoln National Variable Annuity Fund A" (the "Fund"). The Company will
perform investment management services for the Fund. A part of those services
will be executing a program of investment for the Fund by purchasing and selling
securities. The purpose of this agreement is to make arrangements for the
safekeeping of the securities and other assets in the Fund and for the
disposition of those securities in accordance with the conduct of a variable
annuity business.
This agreement, when executed by the Company, by the Fund and by Bankers
Trust Company ("Bankers"), of the City of New York, New York and when approved
by the Commissioner of Insurance of the State of Indiana ("Commissioner"), shall
constitute the Safekeeping Agreement:
<PAGE>
2
1. The term "Security" or "Securities" as used in this agreement shall
include all bonds., coupons, debentures., notes, drafts., bills of exchange,
certificates of stock, currency and all. negotiable and non- negotiable
instruments, documents, contracts or property of whatsoever kind or character
representing or evidencing money, property rights or indebtedness., except money
deposited into the Fund Bank Account (as such term is defined in paragraph 7).
2. Bankers shall establish and maintain for purposes of this agreement
two safekeeping accounts, one to be known as the Joint Account and the other as
the Fund Bank Account. All Securities held for the account of the Fund shall be
held jointly with the Department of Insurance of the State of Indiana (the
"Department") for the benefit of only the holders of, or participants in,
variable annuity contracts, whose contributions have been placed in the Fund,
and shall constitute the Joint Account. All other assets held for the account of
the Fund shall be held in the Fund Bank Account in accordance with paragraph 7.
All Securities and other assets held for the account of the Fund under this
AGREEMENT ARE referred to as "Assets in the Fund".
<PAGE>
3
3. All Assets in the Fund shall be deposited with Bankers for
safekeeping under this agreement.
4. The custody of Bankers under any account established under this
agreement shall be deemed to have commenced concurrently with the receipt of
delivery, irrespective of the place or time of delivery, of any Asset in the
Fund delivered to Bankers or its agents or representatives by Company, by the
Fund or by any other person, firm, corporation or governmental agency, authority
or subdivision. The custody of Bankers shall continue until Bankers shall have
made an authorized delivery of the Assets in the Fund.
5. Bankers agrees to receive and to safely keep and preserve all Assets
in the Fund delivered to Bankers and to take all action with respect thereto,
all as provided in this agreement. Bankers assumes full responsibility for the
safekeeping of all Securities in the custody of Bankers under this agreement and
for the performance and completion of any transaction relating to any such
Security, except that BANKERS SHALL not be responsible for any lose directly
resulting from war, civil war, insurrection, or military, naval
<PAGE>
4
4. or usurped power.
6. Bankers agrees to place and hold the Securities delivered to it under
this agreement in its bank vault situated on or within its premises at 16 Wall
Street, New York City, New York, and to safeguard the Securities in the same
manner as like securities of, Bankers. Bankers AGREES NOT to remove such
Securities to vaults situated elsewhere without having first procured the
consent of the Company and of the Department. Such Securities shall at all times
be physically segregated from the securities of Bankers and of other persons,
firms or corporations and of other accounts so that at all times such Securities
may be identified as Securities deposited for safekeeping in the Joint Account.
7. A bank account with Bankers (the "Fund Bank Account") shall receive
money and credit on behalf of the Fund and shall disburse funds or be charged on
behalf of the Fund, all as directed by Authorized Persons (as defined in
paragraph 8).
<PAGE>
5
8. The Board of Managers of the Fund shall authorize by resolution not
more than five persons who are officers or responsible employees of the Fund and
of the Company, to direct (a) the purchase, sale, delivery or exchange of
Securities and (b) a charge or credit to the Fund Bank Account. Any two of such
persons so authorized shall act jointly, but one of the persons so acting shall
be an officer of the Fund and of the Company. Any group of two or more such
persons, one being an officer of the Fund and of the Company, is referred to in
this agreement as "Authorized Persons". The Board of Managers of the Fund shall
from time to time furnish Bankers with a certificate or certificates setting
forth the names and signing signatures of the Authorized Persons. Each of the
Authorized Persons shall be bonded as required by the Investment Company Act of
1940, as amended, and the rules and regulations promulgated thereunder.
<PAGE>
6
9. The two following persons, the Chairman of the Board of Managers and
the Secretary to the Board of Managers of the Fund., Jointly,, are authorized
and permitted to have access to the Securities deposited in the Joint Account,
for the purpose of inspection, but only when accompanied by (a) a duly
authorized representative of the Department, and (b) a duly authorized officer
or employee of Bankers .
10. Access to Securities deposited in the Joint Account shall be
permitted to the duly authorized officers and employees of Bankers for purposes
of this agreement.
11. Access to Securities deposited in the Joint Account shall be
permitted, jointly with any officer or employee of Bankers., to an independent
public accountant for the purpose of the examination of the Securities of the
Fund required by the rules and regulations of the Securities and Exchange
Commission.
12. The Securities deposited in the Joint Account shall at all times be
subject to inspection by the Securities and Exchange Commission through its
authorized employees or agents accompanied, unless
<PAGE>
7
otherwise directed by order of the Commission, by one or more of the duly
authorized officers or employees of Bankers.
13. The Securities in the Joint Account shall be verified by complete
examination of an independent public accountant retained by the Fund at least
three times during each fiscal year of the Fund, at least two of which times
shall be chosen by the accountant without prior notice to the Fund or to the
Company. A certificate of such accountant, stating that he has made an
examination of the Securities and describing the nature and extent of the
examination, shall be transmitted to the Securities and Exchange Commission by
the accountant promptly after each such examination.
14. Upon the receipt of the written instructions of Authorized Persons
Bankers will undertake to complete the purchase of Securities for the account of
the Fund, and will comply fully with such instructions and will assume full
responsibility for performance of such instructions relating to the completion
of purchase of those Securities,including, without limitation, (a) the payment
for those Securities and (b) the charging of the Fund Bank Account for such
purchase and the brokerage fees and other costs of such purchase (except those
Costs to be borne by the Company pursuant to paragraph 27 of this agreement)
<PAGE>
8
and (c) the acceptance and delivery of Securities and (d) their transportation
to Bankers' vaults. Upon completion of each purchase transaction or upon receipt
of a Security deposited in the Joint Account, Bankers shall supply each of the
Company, the Fund and the Department with a custody receipt, in the joint names
of the Company, the Fund and the Department, (i) identifying the Security and
(ii) certifying that Bankers has received the Security and has placed it in the
Joint Account in accordance with this agreement, and (iii) stating the amount
for which the Fund Bank Account has been charged.
15. Upon receipt of written instructions of Authorized Persons, Bankers
will undertake to complete any sale or other disposition of Securities in the
Joint Account, and will comply fully with such instructions and will. assume
full responsibility for the completion of such transaction. Bankers will not be
obligated to act unless and until it has received the written authorization for
such sale or other disposition of an authorized representative of the
Department. Upon completion of sale or other disposition of Securities in the
Joint Account Bankers will deposit in the Fund Bank Account, or credit the
<PAGE>
9
Fund Bank Account with, the net proceeds of sale or other disposition and will
supply Company and the Fund with a credit advice, showing (a) delivery and (b)
the receipt of cash or credits in the amount for which the Fund Bank Account has
been credited. Brokerage fees, transfer taxes and other costs of sale or other
disposition, except those costs to be borne by the Company pursuant to paragraph
27 of this agreement, shall be deducted from the proceeds of sale or' charged to
the Fund Bank Account.
16. Upon receipt of instructions from Authorized Persons pertaining to
the purchase of a Security or to the sale of any Security in the Joint Account,
Bankers may decline to act in relation to such purchase or sale and will
promptly advise the Authorized Persons of its decision. If, however, Bankers
assumes to act with respect to any such transaction, it assumes full
responsibility for completion of the transaction, except only that Bankers shall
not be liable for losses arising directly from war, civil war, insurrection, or
military, naval or usurped power.
17. With respect to any securities in the Joint Account directed by
Authorized Persons to be delivered to any person, FIRM OR corporation, Bankers
assumes full responsibility for the PROPER DELIVERY to the person to whom such
delivery is directed, including but not by way of limitation, the receipt and
collection of funds payable on delivery.
<PAGE>
10
18. Each person., when depositing Securities in or withdrawing them from
Bankers or when ordering their withdrawal and delivery from the safekeeping of
Bankers, shall sign a notation in respect of such deposit., withdrawal or order
which shall show (a) the date and time of the deposit, withdrawal or order, (b)
the title and amount of the Securities deposited, withdrawn or ordered to be
withdrawn, and an identification thereof by certificate numbers or otherwise,
(c) the manner of acquisition,of the Securities deposited or the purpose for
which they have been withdrawn, or ordered to be withdrawn, and (d) if withdrawn
and delivered to another person, the name of such person. Such notation shall be
transmitted promptly to an officer of the Fund or a member of the Board of
Managers of the Fund designated by resolution of its Board of Managers. The
person so designated shall not be a person authorized to have access to the
Securities on behalf of the Fund. The notation shall be on serially numbered
forms and shall be preserved for at least one year.
19. Bankers is authorized and empowered to exchange Securities in the
Joint Account in temporary form for like Securities in definitive form, and if
the stated or par value
<PAGE>
11
of any shares of stock is changed, to effect the exchange of the certificates of
stock. Bankers shall make such other exchanges in such Securities as may be
specifically directed by Authorized Persons.
20. Bankers is authorized to accept payment of dividends and interest on
all securities, registered or otherwise, which are deposited in the Joint
Account, which sums shall be placed in the Fund Bank Account. Bankers shall
likewise be authorized and empowered to clip interest coupons as they become
due, to make collections thereof, to make collections of all such maturing
Securities and all such Securi- ties called for redemption and to credit the
Fund Bank Account with such collections. Bankers shall be empowered to endorse
payments upon any Securities in the Joint Account payable in installments as may
be required by the terms of such documents. In accepting payments on account of
any such security, Bankers accepts full responsibility for the correctness of
the amount of interest or principal so collected, for adequacy of the
collection, and with respect to whether the amount so collected 13 at the time
of payment to Bankers properly payable under the terms of the Security.
<PAGE>
12
21. As Bankers may receive dividend checks, stock dividends, stock
rights, notices, proxies and communications directed to Company or the Fund
respecting Securities in the Joint Account, Bankers may accept and open all mail
so addressed. Bankers shall handle such mail as shall be proper for Bankers to
handle. Other mail and communications shall be promptly transmitted to the
Company or to the Fund, as the case may be, at the address of the party
concerned as specified by this agreement.
22. Bankers shall be under no duty to supervise the investment of or to
advise or make any recommendations to the Company or the Fund with respect to
any purchase, sale or other acquisition or disposition of any Security at any
time. Company assumes the duty of filing any and all tax reports and returns and
of paying all taxes other than transfer taxes payable by the Company or the Fund
on account of any Securities in the Joint Account or the income therefrom, and
on any transactions which Bankers may handle under this agreement for the
account of the Fund in respect of any Security in the Joint Account.
<PAGE>
13
23. Bankers shall from time to time as needed or requested by the Company
or the Fund, supply to (a) the Company, (b) the Fund, (c) the insurance
department, the insurance commissioner or any other similarly designated
official of any state or (d) the Securities and Exchange Commission.,
verification certificates executed by a responsible officer of Bankers listing
and identifying the Securities held in the Joint Account.
24. With respect to the Securities deposited in the Joint Account, the
Department shall allow full credit to the Company for all eligible Securities of
the Fund so deposited, to the same extent and subject to the same limitations as
if deposited with the Department in the State of Indiana according to the law
governing required deposits to cover reserves. It is understood that the
Department shall have and possess no greater rights and powers with respect to
the Securities on deposit in the Joint Account than it would have if the
Securities were deposited within the State of Indiana as a credit on required
deposits to COVER RESERVES; AND it is further understood that the
<PAGE>
14
Securities deposited in the Joint Account are for the benefit of only the
holders of, or participants in, variable annuity contracts, whose contributions
have been placed in the Fund. Bankers is and shall be absolved from all
responsibility respecting the eligibility of any Security deposited with it in
the Joint Account as a credit on required deposits.
25. Orders authorizing withdrawal of Securities in the Joint Account free
of payment or against payment shall only be on the signatures of Authorized
Persons and an authorized representative of the Department. A telegram, which
shall include a confidential key word supplied by the Department and a
confidential key word supplied by Authorized Persons, shall be considered and
have like full force as a signed order, such telegram to be confirmed
immediately by mail by authorized signatures of the Department and of Authorized
Persons. The method of determining key words shall be delivered to the
Department direct by Bankers. The Department shall execute orders for withdrawal
from the Joint Account on request therefor by Authorized Persons in accordance
with the customary method
<PAGE>
15
adopted for the withdrawal of Securities on deposit with the Department other
than those deposited with Bankers, but Bankers shall not be required to see to
it that all of the usual regulations governing withdrawals have been met and
Bankers shall be released from all responsibility for the methods employed by
Authorized Persons in obtaining the Department's approval of withdrawals.
26. Securities in registered form deposited in the Joint Account are to
be transferred by Bankers to the name of: Lincoln National Variable Annuity Fund
A of The Lincoln National Life Insurance Company.
27. Bankers may advance and charge the Company's account with Bankers for
all sums advanced by Bankers for postage, shipping charges and insurance upon
securities during transit.
28. The Company shall pay to Bankers as compensation for the services of
Bankers to be performed under this agreement a fee computed at the rates agreed
upon
<PAGE>
16
or to be agreed upon by Company and Bankers from time to time, and Bankers is
authorized to charge the Company's account semiannually with the amount due
Bankers under this provision.
29. With respect to future deposits this agreement may be terminated by
the Company, the Fund or Bankers at any time upon not less than 30 days' written
notice to other parties. Notwithstanding termination, subsequent withdrawals
from any account established under this agreement cannot be effected except in
the manner provided in this agreement.
30. All receipts, notices or communications which Bankers shall be
obligated to deliver under this agreement shall be sent by first class mail and
(a) if to the Company, addressed to the Company at P. 0. Box 1110, Fort Wayne,
Indiana 46801, attention Treasurer; and (b) if to the Fund, addressed to Lincoln
National Variable Annuity Fund A, c/o The Lincoln National Life Insurance
Company, P. 0. Box 1110, Fort Wayne, Indiana 46801, attention: Chairman, Board
of Managers; and (c) if to the Department, addressed to the authorized
representative of the department of insurance, state of
<PAGE>
17
Indiana, as the Department may from time to time direct; and if any of the
Company or the Fund or the Department shall designate for itself any other
address in writing to Bankers, to such other address.
Dated this 12th day of January 1967
---- --------------------
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By /s/ M. C. Ledden
---------------------------------------
M. C. Ledden, Vice President and
Treasurer
ATTEST:
/s/ Lionel S. Schwan,
- ----------------------------------------
Lionel S. Schwan Assistant Secretary
WITNESS LINCOLN NATIONAL VARIABLE ANNUITY FUND
/s/ Gordon C. Reeves By /s/ Gathings Stewart
- --------------------- -------------------------------
Secretary to Chairman of Board of Managers
Board of Managers, Gathings Stewart
Gordon C. Reeves
BANKERS TRUST COMPANY
By Signature Illegible
--------------------------
Vice President
APPROVED Feb. 13, 1967
---------------------
/s/ Joseph G. Wood
-------------------------
COMMISSIONER OF INSURANCE
DEPARTMENT OF INSURANCE OF THE
STATE OF INDIANA
<PAGE>
18
AMENDMENT NO. 1
TO
SAFEKEEPING AGREEMENT
BETWEEN
THIE LINCOLN NATIONAL LIFE INSURANCE COMPANY
AND
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
AND
BANKERS TRUST COMPANY
AS APPROVED BY THE COMMISSIONER OF INSURANCE OF INDIANA
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, ("The Lincoln") LINCOLN
NATIONAL VARIABLE ANNUITY FUND A, (the "Fund") and BANKERS TRUST COMPANY
("Bankers") entered into a Safekeeping Agreement dated January 12, 1967. That
agreement was approved by the Commissioner of Insurance, Department of Insurance
of the State of Indiana (the "Department") on February 13, 1967. That agreement
as so approved is referred to as the "Safekeeping Agreement."
Paragraph 26 of the Safekeeping Agreement requires in effect that
Securities (as that term is defined in the Safekeeping Agreement) be registered
in the name of: "Lincoln National Variable Annuity A of The Lincoln National
Life Insurance Company". Since that requirement may result in a refusal by some
transfer agents to register Securities in that name or may prevent Securities
registered in that name from being readily transferred when sold - all to the
detriment
<PAGE>
19
of theFund, the parties to the Safekeeping Agreement desire to amend paragraph
26 to provide for the holding of Securities in the name of a nominee.
Therefore, the parties agree that:
1. Paragraph 26 of the Safekeeping Agreement shall be amended to read:
"26. Except when Authorized Persons shall specify that Securities be
registered in the name of 'Lincoln National Variable Annuity Fund A of The
Lincoln National Life Insurance Company', Securities in registered form
deposited in the Joint Account shall be registered in the name of a nominee
which shall at all times meet all of the following requirements:
(1) The nominee shall be a partnership organized or formed by
Bankers;
(2) The nominee shall have as its sole purpose the holding in its
name of Securities deposited under this agreement;
(3) Each member of the nominee partnership SHALL be an officer of
Bankers;
(4) No person shall be a member of the nominee partnership if he
has, under the established rules and procedures Of Bankers relating to
safekeeping or custody; any access to the Securities deposited under this
agreement;
<PAGE>
20
(5) The nominee partnership shall conduct no business other than the
holding of registered title to registered Securities deposited under this
agreement.
Bankers shall or form and maintain a nominee partnership or partnerships,
as requcsted by Aluthorized Persons, conforming in all respects to the
requirements set forth above and further shall, in respect of each nominee,
(a) upon the death. retirement or disability of a member of the nominee
partnership, effectively appoint or cause to be appointed a qualified
person to replace the member who died, retired or became disabled, so
that at all times a nominee partnership will be in existence and able to
perform its functions;
(b) bear all expenses of the nominee partnership; and
(c) cause its rec~rds to show clearly and at all times that ownership of
Socurities held in the name of the norninee is in: The Lincoln National
Life Insurance Company - Lincoln National Variable Annuity Fund A.
With respect to Securities rogisterad in the name of a nominee, Bankers
specifically accapts the same responsibilities as if such Securities were
registered in the name of Lincoln National Variable Annuity Fund A of The
Lincoln National Life Insurance Company.
<PAGE>
21
When Securities are registered in the name of a nominee, Bankers may require the
transfer of any Security so registered before surrendering possession thereof.
Nothing in this paragraph 26 shall prevent the organization or formation and the
functioning of more than one nominee, provided that all of the provisions of
this paragraph 26 are complied with."
2. The amendment made by this instrument shall not be or become
effective unless and until the Commissioner of Insurance, Department of
Insurance of the State of Indiana shall have approved this instrument as
provided below.
3. Except as amended by this instrument, the Safekeeping Agreement shall
be and remain in all other respsects in full force and effect.
Dated this 1st day of May, 1967.
------ ----------
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By Signature Illegible
---------------------------------------
Senior Vice President
ATTEST:
Signature Illegible
- -------------------------------
Assistant Secretary
THE LINCOLN NATIONAL VAREIABLE ANNUITY FUND A
By /s/ Gathings Stewart
------------------------------------------
Chairman of Board of Managers
WITNESS:
Signature Illegible
- --------------------------------
Secretary to Board of Managers
BANKERS TRUST COMPANY
By Signature Illegible
------------------------------
Vice President
APPROVED May 5, 1967.
-------------
/s/ Joseph G. Wood
-------------------------
COMMISSIONER OF INSURANCE
DEPARTMENT OF INSURANCE
OF THE STATE OF INDIANA
[from the bylaws of The Lincoln National Life Insurance Company,
as last amended May 12, 1977]
<PAGE>
[from the bylaws of The Lincoln National Life Insurance Company, as last amended
May 12, 1977]
ARTICLE VI
LIABILITY
SECTION 1.-LIABILITY. No person or his personal representatives shall be liable
to the company for any loss or damage suffered by it on account of any action
taken or omitted to be taken by such person in good faith as a director, officer
or employee of the company, or of any other company, partnership, joint venture,
trust or other enterprise which he serves or served as a director, officer,
employee, partner or trustee at the written request of the company, if such
person (a) exercised and used the same degree of care and skill as a prudent man
would have exercised and used under like circumstances, charged with a like
duty, or (b) took or omitted to take such action in reliance upon advice of
counsel for the company or such enterprise or upon statements made or
information furnished by persons employed or retained by the company or such
enterprise upon which he had reasonable grounds to rely. The foregoing shall not
be exclusive of other rights and defenses to which such person or his personal
representatives may be entitled under law.
ARTICLE VII
INDEMNIFICATION
SECTION 1.-ACTIONS BY A THIRD PARTY. The company shall indemnify any person who
is or was a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the company) by
reason of the fact that he is or was a director, officer or employee of the
company, or is or was serving at the written request of the company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contenclere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2.-ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The company shall
indemnify any person who is or was a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
company to procure a judgment in its favor by reason of the fact that he is or
was a director, officer or employee of the company, or is or was serving at the
written request of the company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the company and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the company unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
SECTION 3-METHOD OF DETERMINING WHETHER STANDARDS FOR INDEMNIFICATION HAVE BEEN
MET. Any indemnification under Sections 1 or 2 (unless ordered by a court) shall
be made by the company only as authorized in the specific case upon a
determination that indemnification of the director, officer or employee is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 or 2. In the case of directors of the company,
such determination shall be made (1) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion. In the case of individuals who are not directors
of the company, such determination shall be made (1) by the chief executive
officer of the company or (2) if the chief executive officer so directs or in
his absence in the manner it would be made if the individual were a director of
the company.
SECTION 4.-ADVANCEMENT OF DEFENSE EXPENSES. Expenses (including attorneys' fees)
incurred in defending a civil or criminal action, suit or proceeding may be paid
by the company in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in Section 3 upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified by the company as authorized in this Article.
SECTION 5.-NON-EXCLUSIVENESS OF INDEMNIFICATION. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under law both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
<PAGE>
Exhibit 4(a)
INVESTMENT MANAGEMENT SERVICES AGREEMENT
Between
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
And
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
1. The Lincoln National Life Insurance Company (the Company) agrees to
provide investment management services to Lincoln National Variable Annuity Fund
A (the Fund), a segregated investment account of the Company created by the
Company's Board of Directors on September 16, 1966, pursuant to Indiana
Insurance Law. For such services, the Company will receive an amount per weekly
valuation period, including any partial period necessary for a valuation period
to end on the last market day in the calendar year, of .0061% (.323% on an
annual basis) of the value of the assets of the Fund at the beginning of each
valuation period.
2. In performing investment management services, the Company shall serve
as manager of the Fund and shall continuously provide the Board of Managers of
the Fund with an investment program for its approval or rejection; if rejected,
the Company shall submit another program for consideration. Following the
approval of such an investment program by the Board of Managers, such steps as
shall be required to implement the program shall be taken.
3. This Agreement shall continue in effect through May 15, 1973, unless
sooner terminated. It shall continue in effect from year to year thereafter
only so long as such continuance is specifically approved at least annually (a)
by the Board of Managers, or (b) by affirmative vote of a majority of the votes
which may be cast by all Contract Owners. In addition, the terms of this
Agreement and any renewal thereof must be approved by the vote of a majority of
the Board of Managers, who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval.
4. This Agreement shall immediately terminate in the event of its
assignment. In addition, it may be terminated at any time, on not more than 60
days' written notice to the Company, without payment of any penalty, by the
Board of Managers or by Contract Owners casting a majority of the votes which
may be cast by all Contract Owners.
5. This Agreement may not be terminated by the Company without the prior
approval of a new investment advisory agreement by Contract Owners casting a
majority of the votes which may be cast by all Contract Owners.
6. The terms "assignment" and "interested persons" when used herein shall
have the meanings specified in the Investment Company Act of 1940, as now in
effect and as from time to time amended.
<PAGE>
Exhibit 4(a)
7. This Agreement may not be amended in any manner by the Company without
the prior approval of Contract Owners casting a majority of the votes which may
be cast by all Contract Owners.
8. This Agreement shall be and is subject to and under the provisions of
the Investment Company Act of 1940, as amended, and the rules and regulations
promulgated by the Securities and Exchange Commission thereunder.
9. This Agreement shall become effective immediately upon termination of
the Investment Management Services Agreement between the Company and the Fund
dated May 21, 1968, provided this Agreement has been approved by a majority of
the votes which may be cast by all Contract Owners.
Executed May 16, 1972.
ATTEST: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By
- ----------------------------- -----------------------------
Secretary President
ATTEST: LINCOLN NATIONAL VARIABLE
ANNUITY FUND B
By
- ----------------------------- -----------------------------
Secretary Chairman
<PAGE>
Exhibit 4(b)
SUBADVISORY AGREEMENT
This Agreement is between The Lincoln National Life Insurance Company ("the
Company"), an Indiana corporation and Modern Portfolio Theory Associates, Inc.
("MPT"), a Delaware corporation with respect to Lincoln National Variable
Annuity Fund A ("the Fund"). This Agreement is effective as of January 15,
1986.
In consideration of the mutual promises set forth below, the parties agree
as follows:
1. MPT shall furnish to the Company such services as the company may
request in connection with the Company's performance of its obligations under
its contract with the Fund. The Company will continue to have responsibility
for all services under its contract with the Fund.
2. The Company shall reimburse MPT for costs and expenses incurred by
MPT, determined in a manner acceptable to the Company, in furnishing the
services described in paragraph 1 above.
3. This Agreement may be terminated by either party at any time upon not
less than thirty (30) days prior written notice to the other party. This
Agreement will terminate automatically in the event of its assignment. No
termination of this Agreement will affect the terms of contracts between the
Company and the Fund. In the event of the assignment or termination of the
Company's advisory contracts with the Fund, this Agreement will terminate
automatically.
4. This Agreement shall continue in effect for a period of more than two
years from its execution only so long as such continuance is specifically
approved at least annually in accordance with the requirements of the Investment
Company Act of 1940 applicable to continuation of advisory contracts.
THE LINCOLN NATIONAL MODERN PORTFOLIO THEORY
LIFE INSURANCE COMPANY ASSOCIATES, INC.
By: By:
- ---------------------- --------------------------
Attest: Attest:
- ---------------------- --------------------------
<PAGE>
----------------------------------------
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
FORT WAYNE, INDIANA
----------------------------------------
(herein called "the Company")
Group Variable Annuity
Contract Number GVA-
agrees with
(herein called the "Contract Owner")
to pay
at the Home Office of the Company in Fort Wayne, Indiana, the benefits herein
provided, in accordance with and subject to the provisions of this Contract.
This Contract is issued in consideration of the application therefor and of
payment by the Contract Owner of contributions as provided herein.
The effective date of this Contract is
This Contract is delivered in and is governed by
the laws of that jurisdiction.
The provisions set forth on the following pages hereof are a part of this
Contract as fully as if recited over the signatures hereto affixed.
IN WITNESS WHEREOF, The Lincoln National Life Insurance Company has caused
this Contract to be executed
this day of
/s/ T. A. Burns /s/ Ian M. Rolland
Secretary President
Group Variable Annuity Contract
Active Life Fund in Separate Account and General Account
Individual Allocation
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT
Examined by
FORM GVA-2A-70
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C> <C>
Article I-DEFINITIONS....................................................................... 3
Article II-ANNUITY PROVISIONS............................................................... 3
2.01 Annuity Commencement Date...................................................... 3
2.02 Notice to Effect Annuity Payments, Election of Optional Annuities.............. 4
2.03 Annuity Payments............................................................... 4
2.04 Optional Annuity Forms......................................................... 4
2.05 Variable and Fixed Annuities................................................... 4
2.06 Allocation of Annuity.......................................................... 5
2.07 Determination of First Payment................................................. 5
2.08 Frequency of Payments.......................................................... 6
Article III-CONTRIBUTIONS................................................................... 7
3.01 Contributions.................................................................. 7
3.02 Application of Contributions................................................... 7
3.03 Inactive Participants.......................................................... 7
3.04 The Active Life Fund........................................................... 7
Article IV-VALUATION........................................................................ 7
4.01 Net Investment Rate and Net Investment Factor.................................. 7
4.02 Accumulation Unit Value........................................................ 8
4.03 Annuity Unit Value............................................................. 8
4.04 Additional General Account Units............................................... 8
4.05 Valuation of Assets............................................................ 8
Article V-DISCONTINUANCE OF CONTRIBUTIONS................................................... 9
5.01 Suspension..................................................................... 9
5.02 Transfer of Active Life Fund................................................... 9
Article VI-DEATH BENEFITS................................................................... 9
6.01 Death Benefits................................................................. 9
Article VII-TERMINATION BENEFITS............................................................ 10
7.01 Termination Benefits........................................................... 10
Article VIII-GENERAL PROVISIONS............................................................. 11
8.01 Certificates................................................................... 11
8.02 General Provisions Governing Annuity Payments.................................. 11
8.03 Payments to Incompetents....................................................... 11
8.04 Assignments.................................................................... 11
8.05 Personnel Data................................................................. 11
8.06 Adjustments on Account of Misstatements........................................ 12
8.07 Modifications of this Contract................................................. 12
8.08 Entire Contract................................................................ 12
8.09 Beneficiary.................................................................... 13
8.10 Relation of this Contract to Separate Account.................................. 13
8.11 Nonparticipating............................................................... 13
8.12 Experience Rating.............................................................. 13
8.13 Voting Rights.................................................................. 13
8.14 Vesting........................................................................ 13
Article IX-THE PLAN......................................................................... 14
9.01 Plan Description............................................................... 14
9.02 Eligibility.................................................................... 14
9.03 Contributions by Contract Owner................................................ 14
9.04 Rate of Contribution........................................................... 14
9.05 Allocation of Contributions.................................................... 14
9.06 Vesting........................................................................ 14
</TABLE>
<PAGE>
ARTICLE I
Definitions
1.01 PLAN
The Retirement Plan described in Article IX.
1.02 PARTICIPANT
An eligible employee who participates in the Plan.
1.03 CONTRACT ANNIVERSARY
An anniversary of the effective date of this Contract.
1.04 CONTRACT YEAR
Any period of one year commencing with the effective date of this
Contract or with any Contract Anniversary.
1.05 ANNUITANT
A Participant who is receiving Annuity payments hereunder.
1.06 INACTIVE PARTICIPANT
A Participant for whom contributions have ceased prior to his Annuity
Commencement Date, but whose Individual Account is not terminated at such
time.
1.07 ANNUITY
A series of payments purchased under this Contract for a Participant who
elected a Deferred Annuity by application of the dollar value of
accumulation units in his Individual Account, or for a Participant who
elected an Immediate Annuity by application of his net contribution.
1.08 ANNUITY COMMENCEMENT DATE
The date upon which Annuity payments begin under the terms of the Plan.
1.09 SEPARATE ACCOUNT
Those assets of the Company in a segregated investment account, entitled
"Lincoln National Variable Annuity Fund A," established by the Company
for this class of Contracts pursuant to the provisions of applicable law.
1.10 GENERAL ACCOUNT
All assets of the Company other than those in Lincoln National Variable
Annuity Fund A or in other segregated accounts established by the
Company.
1.11 VALUATION DATE
In 1967, March lst, or any date which follows such date by an integral
number of weeks or the final market day in 1967, in any subsequent year
and not later than July 8, 1969, "Valuation Date" means any day which
follows the final-market day in the previous year by an integral number
of weeks or the final market day in such year. After July 8, 1969,
"Valuation Date" means any date upon which the New York Stock Exchange is
open for trading.
1.12 VALUATION PERIOD
The period beginning on the day after any Valuation Date and ending on
the next Valuation Date.
1.13 PARTICIPANT'S INDIVIDUAL ACCOUNT
The sum of the accumulation units credited to a Participant.
1.14 ASSUMED INVESTMENT RATE
The interest rate assumed in determining the First Monthly Payment Rates
for variable annuities.
ARTICLE II
Annuity Provisions
SECTION 2.01--ANNUITY COMMENCEMENT DATE
Such date may be the first day of any calendar month following the
Participant's 50th birthday but may not be later than the Participant's 75th
birthday.
3
<PAGE>
SECTION 2.02-NOTICE TO EFFECT ANNUITY PAYMENTS, ELECTION OF OPTIONAL ANNUITIES
When a Participant who elected a Deferred Annuity is eligible to elect
Annuity Payments, the Contract Owner or the Participant shall notify the Company
to effect Annuity Payments for such Participant, and on the date such Annuity
Payments are to commence, the Company shall allocate all accumulation units in
the Participant's Individual Account and apply them to provide an annuity on one
of the Optional Annuity Forms, described in Section 2.04. A Participant who
elected a Deferred Annuity may elect to have his payments made under any of the
Optional Annuity Forms provided written notice of election is received by the
Company at its Home Office at least 30 days prior to his Annuity Commencement
Date. In the absence of written notice of election by the Contract Owner or the
Participant, the Annuity will be a Life Annuity with 120 Payments Guaranteed.
SECTION 2.03-ANNUITY PAYMENTS
The amount of the first Annuity Payment, which is the one due on the
Annuity Commencement Date, will be determined as described in Section 2.07. The
amount of each subsequent Annuity Payment will be determined as described in
Section 2.05.
SECTION 2.04-OPTIONAL ANNUITY FORMS
Option 1--Life Annuity--An annuity payable monthly during the lifetime of
the Annuitant and terminating with the last monthly payment preceding the death
of the Annuitant.
Option 2--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed--An
annuity payable monthly during the lifetime of the Annuitant with the guarantee
that if, at the death of the Annuitant, payments have been made for less than
120, 180 or 240 months, as elected, annuity payments will be continued during
the remainder of said period to the beneficiary designated by the Participant.
If the beneficiary dies while receiving annuity payments, the present value of
the current dollar amount of the remaining guaranteed number of annuity payments
commuted on the basis of 3 1/2% interest compounded annually for fixed-dollar
annuities and the Assumed Investment Rate elected by the Participant for
variable annuities shall be paid in a lump sum to the estate of the beneficiary.
Option 3--Unit Refund Life Annuity--An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at such death, the beneficiary will
receive an additional payment of the then dollar value of the number of annuity
units equal to the excess, if any, of (a) over (b) where (a) is the total amount
applied under the option divided by the annuity unit value, as defined in
Section 4.03, at the Annuity Commencement Date and (b) is the product of the
number of annuity units represented by each payment and the number of payments
made.
Option 4--Joint and Last Survivor Annuity-An annuity payable monthly during
the joint lifetime of the Annuitant and a designated second person and
thereafter during the remaining lifetime of the survivor.
The first payment under any of these options will be determined in
accordance with Section 2.07. The Company reserves the right to require proof
satisfactory to it of the age of an Annuitant and any joint annuitant prior to
making the first payment under any of these options. Additional options may be
elected if mutually agreed upon by the Participant and the Company.
SECTION 2.05-VARIABLE AND FIXED ANNUITIES
(a) Variable Annuity--A variable annuity is an annuity with payments
varying in amount in accordance with the net investment result of the
Separate Account. The number of Separate Account annuity units is
determined by dividing the first monthly payment, determined as
described in Section 2.07, by the Separate Account annuity unit value
based on the net investment factor calculated on the Valuation Date
coincident with or next following the Annuity Commencement Date. The
number of annuity units remains fixed during the annuity payment
period.
The dollar amount of the second and subsequent payments is not
predetermined and may change from month to month. The actual amount of
these payments is determined by multiplying the number of Separate
Account annuity units by the Separate Account annuity unit value,
determined as described in Section 4.03, for the valuation period in
which the payment is due.
4
<PAGE>
The Company guarantees that the dollar amount of each payment after
the first shall not be affected by variations in mortality experience
from mortality assumptions used to determine the first payment.
(b) Fixed-Dollar Annuity--A fixed-dollar annuity is an annuity with
payments which remain fixed as to dollar amount throughout the payment
period. A number of annuity units is determined when payments
commence, but the value of the General Account annuity unit value is
always $1.00.
The Company may, from time to time, increase the number of General
Account annuity units, to the extent that such units are applicable to
a guaranteed period of benefits, and the value of such additional
units will be payable only during such guaranteed period.
SECTION 2.06--ALLOCATION OF ANNUITY
A Participant may elect to have any portion of his Individual Account
applied to provide either a variable annuity or a fixed annuity or a combination
of both; provided that where a transfer of accumulation units from one Account
to the other is required, written notice of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date and the first
payment provided by each Account must be at least $10.00.
In the absence of any notification by the Contract Owner to the contrary,
when an Annuity is effected for a Participant, who elected a Deferred Annuity,
General Account accumulation units will be applied to provide a fixed-dollar
annuity and Separate Account accumulation units will provide a variable annuity.
SECTION 2.07-DETERMINATION OF FIRST PAYMENT
The Tables contained herein are used to determine the first monthly annuity
payment for Immediate and Deferred Annuities. For Participants who have elected
a Deferred Annuity the Tables show the dollar amount of the first monthly
payment which can be purchased with each $1,000 of value in the Participant's
Individual Account, after deduction of any applicable premium taxes not
previously deducted under the provisions of Section 3.02. The accumulation units
applied to effect an annuity for an Annuitant will be at the accumulation unit
value, as defined in Section 4.02, as of the end of the Valuation Period
containing the fourteenth day immediately preceding the date annuity payments
commence. For Participants who have elected an Immediate Annuity the Tables show
the dollar amount of the first monthly payment which can be purchased with each
$1,000 of net contributions as defined in Section 3.02. Amounts shown in the
Tables are based on the Progressive Annuity Table with interest at the Assumed
Investment Rate of 3 1/2% per annum and assume births in the year 1900. The
Company will permit the Participant to elect an Assumed Investment Rate of 4
1/2, 5% or 6% if state law or regulations permit. Dollar amounts of the first
monthly payments for ages not shown in these Tables and for Assumed Investment
Rates of 4 1/2%, 5% or 6% will be calculated on the same basis as those shown
and may be ob tained from the Company. The amount of each payment depends upon
the sex and adjusted age of the Annuitant. The adjusted age is determined from
the actual age nearest birthday at the time the first payment is due in the
following manner.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Calendar Year of Birth......... Before 1900 1900-1919 1920-1939 1940-1959 1960-1979
Adjusted Age is Actual Age..... plus 1 plus 0 minus 1 minus 2 minus 3
</TABLE>
If it would produce a greater first monthly payment, the Company agrees that the
first monthly payment to an Annuitant will be determined on the same mortality
basis, and for a fixed annuity on the same interest basis, used in determining
rates under group variable annuity contracts then being issued for this class of
Annuitant.
5
<PAGE>
DOLLAR AMOUNT OF THE FIRST MONTHLY PAYMENT WHICH IS PURCHASED
WITH EACH $1,000 OF PROCEEDS APPLIED
Options 1, 2, and 3 -- Single Life Annuities
<TABLE>
<CAPTION>
-Adjusted Age- ----Guaranteed Payments---- Unit
Male Female None 120 180 240 Refund
<S> <C> <C> <C> <C> <C> <C>
50 54 $ 4.74 $4.69 $4.62 $4.52 $4.53
51 55 4.84 4.78 4.70 4.58 4.60
52 56 4.94 4.87 4.78 4.65 4.67
53 57 5.04 4.97 4.87 4.71 4.75
54 58 5.16 5.07 4.95 4.78 4.84
55 59 5.28 5.18 5.04 4.85 4.93
56 60 5.40 5.29 5.13 4.91 5.02
57 61 5.54 5.41 5.23 4.98 5.12
58 62 5.69 5.53 5.33 5.05 5.22
59 63 5.84 5.66 5.43 5.11 5.32
60 64 6.01 5.79 5.53 5.18 5.44
61 65 6.18 5.94 5.63 5.24 5.56
62 66 6.37 6.08 5.74 5.30 5.68
63 67 6.57 6.24 5.84 5.36 5.82
64 68 6.79 6.40 5.95 5.41 5.96
65 69 7.02 6.57 6.05 5.46 6.10
66 70 7.27 6.74 6.15 5.51 6.26
67 71 7.54 6.91 6.26 5.55 6.43
68 72 7.83 7.10 6.35 5.59 6.60
69 73 8.14 7.28 6.45 5.62 6.78
70 74 8.48 7.47 6.54 5.65 6.98
71 75 8.84 7.66 6.62 5.68 7.19
72 76 9.23 7.85 6.70 5.70 7.41
73 77 9.65 8.04 6.77 5.71 7.65
74 78 10.11 8.23 6.83 5.72 7.89
75 79 10.61 8.41 6.88 5.73 8.16
</TABLE>
Option 4 -- Joint and Survivor Life Annuity
<TABLE>
<CAPTION>
Adjusted age of -------------Adjusted Age of Annuitant--------------
Secondary Annuitant M-51 M-56 M-58 M-61 M-63 M-66 M-71
Male Female F-55 F-60 F-62 F-65 F-67 F-70 F-75
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 54 $4.21 $4.35 $4.40 $4.47 $4.51 $4.57 $4.64
55 59 4.37 4.58 4.66 4.78 4.85 4.94 5.07
57 61 4.43 4.67 4.77 4.90 4.99 5.10 5.26
60 64 4.51 4.80 4.92 5.09 5.20 5.36 5.59
62 66 4.55 4.88 5.01 5.22 5.35 5.54 5.82
65 69 4.62 4.99 5.15 5.39 5.56 5.81 6.19
70 74 4.70 5.14 5.34 5.65 5.88 6.23 6.83
</TABLE>
SECTION 2.08-FREQUENCY OF PAYMENTS
Annuity payments under this Contract will be made monthly, except that, if
at any time the payments are or become less than $10.00 each, the Company shall
have the right to change the frequency of payment to intervals as will result in
payments of at least $10.00.
6
<PAGE>
ARTICLE III
Contributions
SECTION 3.01-CONTRIBUTIONS
Each contract year the Company shall receive such contributions from the
Contract Owner as are made in accordance with the requirements of the Plan. Such
contributions will be applied by the Company to provide accumulation units or
annuity units for each Participant in accordance with Section 3.02 and the
instructions of the Contract Owner.
SECTION 3.02-APPLICATION OF CONTRIBUTIONS
Deductions as prescribed in Section 9.03 plus any applicable premium taxes
on the contributions shall be made by the Company from each contribution
received. The balance of each contribution remaining after these deductions is
herein called the net contribution. The Company shall apply the net contribution
as of the last day of the valuation period during which the payment is received
at its Home Office to provide accumulation units or annuity units as determined
by the then current value of such units. Such application shall be made
separately for net contributions allocated to the General Account and the
Separate Account.
The number of accumulation units provided in each Account for a Participant
who has elected a Deferred Annuity and credited to the Participant's Individual
Account shall be determined by dividing the net contribution for that Account
applicable to that Participant by the dollar value of one accumulation unit in
that Account. The number of accumulation units so determined shall not be
changed by any subsequent change in the dollar value of accumulation units. The
dollar value of the accumulation unit General Account will increase by a uniform
percentage each valuation period, but the dollar value of the accumulation unit
in the Separate Account may vary from period to period.
The number of Annuity Units provided in each Account for a Participant who
has elected an Immediate Annuity shall be determined as set forth in Section
2.07.
SECTION 3.03--INACTIVE PARTICIPANTS
In the event that contributions for a Participant cease before his Annuity
Commencement Date, the Contract Owner or the Participant will notify the Company
as to the manner in which the then value of the Participant's Individual Account
is to be disbursed in accordance with Section 7.01.
SECTION 3.04--THE ACTIVE LIFE FUND
An Active Life Fund shall be maintained by the Company, with respect to
this Contract, which shall at any time consist of the sum of all Participants'
Individual Accounts. At least once in each contract year after the first, the
Company will inform the Contract Owner of the then dollar value of the Active
Life Fund.
ARTICLE IV
Valuation
SECTION 4.01---NET INVESTMENT RATE AND NET INVESTMENT FACTOR
(a) The General Account net investment rate for each valuation period is
guaranteed, and is equivalent to an investment rate of 3 1/2%
compounded annually.
(b) The Separate Account net investment rate for any valuation period
ending not later than July 8, 1969, is equal to the gross investment
rate expressed in decimal form to six places less a deduction of
.000250, After July 8, 1969, the Separate Account net investment rate
for any Valuation Period is equal to the gross investment rate
expressed in decimal form to eight places less a deduction of the
product of .00003630 and the number of days in the Valuation Period.
Such gross investment rate is equal to (i) the investment income and
capital gains and losses, whether realized or unrealized, on the
assets of the Separate Account less a deduction
7
<PAGE>
for any applicable income taxes arising from such income and realized
and unrealized capital gains, divided by (ii) the amount of such
assets at the beginning of the valuation period. Such gross investment
rate may be either positive or negative.
(c) The net investment factor for each Account is the sum of 1.00000000
plus the net investment rate for the Account.
SECTION 4.02-ACCUMULATION UNIT VALUE
The value of an accumulation unit was established at $1.00 on March 1,
1967. The value of the respective accumulation units in each Account on the last
day of any subsequent valuation period is determined by multiplying such value
on the last day of the immediately preceding valuation period by the net
investment factor for that Account for the current valuation period.
SECTION 4.03-ANNUITY UNIT VALUE
The value of a General Account annuity unit is fixed at $1.00. The value of
a Separate Account Annuity Unit on March 1, 1967, was established at $1.00, and
for subsequent valuation periods ending not later than July 8, 1969, is
determined by multiplying the value of the Separate Account Annuity Unit for the
immediately preceding Valuation Period by the product of (a) the neutralization
factor described below and (b) the net investment factor of the Separate Account
for the second Valuation Period immediately preceding the Valuation Period for
which the value is being calculated. After July 8, 1969, the value of a Separate
Account Annuity Unit for a Valuation Period is determined by multiplying the
value of the Separate Account Annuity Unit for the immediately preceding
Valuation Period by the product of (a) the neutralization factor shown below
raised to a power equal to the number of days in the current Valuation Period
and (b) the net investment factor of the Separate Account for the Valuation
Period containing the fourteenth day immediately preceding the last day of the
current Valuation Period.
<TABLE>
<CAPTION>
Neutralization Factor for the
Specified Assumed Investment Rate
---------------------------------
For Valuation Periods For Valuation Periods
Assumed Investment Ending Not Later Than Ending After
Rate July 8, 1969 July 8, 1969
- ------------------- --------------------- ---------------------
<S> <C> <C>
3 1/2% .999351 .99990575
4 1/2% .999170 .99987941
5% .999080 .99986634
6% .998901 .99984037
</TABLE>
SECTION 4.04-ADDITIONAL GENERAL ACCOUNT UNITS
At the end of each valuation period during the first five contract years,
the Company will increase the number of General Account accumulation units by a
number which is equivalent to a 1% per annum additional net investment return.
At the end of each valuation period during the sixth to tenth contract years,
inclusive, the Company will increase the number of such units by a number which
is equivalent to a 1/2% per annum additional net investment return. The Company
may credit additional General Account accumulation units at any time to reflect
credits of investment return over and above those described in this Section or
for any other purpose as determined by the Company.
SECTION 4.05-VALUATION OF ASSETS
The valuation of all assets in the Separate Account shall be determined in
accordance with the provisions of applicable laws, rules and regulations.
8
<PAGE>
ARTICLE V
Discontinuance of Contributions
SECTION 5.01-SUSPENSION
This Contract shall be suspended automatically on a Contract Anniversary if
during the Contract Year immediately preceding such anniversary, the Contract
Owner shall have failed to remit to the Company contributions as required in the
Plan or has given written notice at least 90 days in advance of its intention to
discontinue all contributions on such anniversary. The Contract shall also be
suspended automatically on a Contract Anniversary if the Company has given
written notice to the Contract Owner of such suspension because the total number
of Active Participants is fewer than 25.
This Contract shall also be suspended upon written notice by the Contract
Owner to the Company at least 90 days in advance of the effective date of such
suspension.
Effective with such suspension, no further contributions of any kind shall
be accepted by the Company, and each Participant remaining in the Plan shall be
considered an Inactive Participant until his Annuity Commencement Date.
Suspension of the Contract in accordance with this Section 5.01 shall have
no effect upon payments to be made by the Company to any person or persons under
an annuity which shall have commenced prior to the date of suspension.
SECTION 5.02--TRANSFER OF ACTIVE LIFE FUND
This Contract may not be assigned nor may the Active Life Fund be
transferred.
ARTICLE VI
Death Benefits
SECTION 6.01--DEATH BENEFITS
In the event of the death of the Participant prior to the Annuity
Commencement Date, the beneficiary of the Participant will receive a death
benefit in accordance with the option elected by the Participant either at the
time of his original entry into the Plan or by subsequent amendment approved by
and on file with the Company at the time of the Participant's death. If, at the
time of the Participant's death, the standard death benefit is in force, the
beneficiary of the Participant will receive the accumulated value of the
Participants's Individual Account. If the Participant elected to include the
minimum death benefit and it is in force at the time of the participant's death,
in the event that the Participant's death also occurs prior to the Participant's
65th birthday, the beneficiary of the Participant will receive the greater of
the accumulated value of the Participant's Individual Account or 100% of all
contributions made on behalf of the Participant less amounts withdrawn as a
surrender of a portion of the accumulated value of the Participant's Individual
Account.
The value of the death benefit will be determined as of the valuation date
coincident with or next following the date written notice of death is received
in the Home Office of the Company. The death benefit may be taken in one sum or
in accordance with any of the settlement options offered under the Company's
variable annuity contracts then being issued.
9
<PAGE>
ARTICLE VII
Termination Benefits
SECTION 7.01-TERMINATION BENEFITS
With the approval of the Contract Owner, upon termination of participation
in the Plan prior to the Annuity Commencement Date, the Participant: (a) if he
is at least 50 years of age, may elect to have his vested interest in the value
of his Individual Account applied to provide Annuity payments; or (b) may elect
to leave his vested interest in the value of h-'s Individual Account in the
Contract, in which case the number of accumulation units in his Individual
Account attributable to the Separate Account will remain fixed, but the value
thereof will vary as described in Article IV, Sections 4.01(b), 4.01(c) and
4.02. The number of accumulation units attributable to the General Account and
the value thereof will be increased as described in Article IV, Sections
4.01(a), 4.01(c), 4.02 and 4.04; or (c) may elect to receive his vested interest
in the value of his Individual Account on the basis of the accumulation unit
value computed as of the valuation date coincident with or next following the
date on which both the written request for surrender and the certificate are
received by the Company; or (d) may elect to convert his vested interest in the
value of his Individual Account to an individual variable annuity contract on
the basis set forth by the Company at the time of such conversion; or (e) if he
becomes an employee of another employer which has a contract of this same type
in force with the Company, may transfer his vested interest in his Individual
Account to such contract.
In the event of the termination of a Participant's participation in the
Plan prior to the Annuity Commencement Date, the nonvested portion of the
accumulated value of the Participant's Individual Account will be distributed by
the Company in accordance with the Plan Document.
10
<PAGE>
ARTICLE VIII
General Provisions
SECTION 8.01-CERTIFICATES
The Company shall issue to the Contract Owner for delivery to each
Participant an individual certificate setting forth in substance the benefits to
which each Participant is entitled under this Contract. The word "certificate"
as used herein shall include certificate riders and certificate supplements, if
any. Such certificates shall not constitute a part of this Contract.
SECTION 8.02-GENERAL PROVISIONS GOVERNING ANNUITY PAYMENTS
Whenever any payment hereunder shall be contingent upon the survival of
some person, evidence of such person's survival must be furnished the Company
either by personal endorsement by such person of the check drawn for such
payment or by other evidence satisfactory to the Company.
SECTION 8.03-PAYMENTS TO INCOMPETENTS
If the Company shall receive evidence satisfactory to it that any payee
under this Contract is legally, physically or mentally incompetent to receive
and to give valid release for any payment due under this Contract, any such
payment, or any part thereof, may, unless claim therefor shall have been made to
the Company by a duly appointed executor, administrator, guardian or other legal
representative, be paid by the Company to the spouse, a child, parent or other
blood relative, or to any person, persons or institutions deemed by the Company
to have incurred expense for or on behalf of such payee, and such payment so
made shall be in full settlement of all liability of the Company to the extent
of such payment.
SECTION 8.04-ASSIGNMENTS
No assignment, transfer, pledge, hypothecation, commutation, or
anticipation, and no attempt to assign, transfer, pledge, hypothecate, commute,
or anticipate any benefits or payments under this Contract shall be valid except
insofar as such prohibition against assignment, transfer, pledge, hypothecation,
commutation, or anticipation or attempt may be contrary to the laws of any
state, territory, or country having jurisdiction, and in no event shall any
assignment be binding on the Company until it has been filed with the Company at
its Home Office. Such benefits and payments shall be exempt from the claims of
creditors to the extent permitted by law.
SECTION 8.05-PERSONNEL DATA
The Contract Owner shall furnish any information or evidence which the
Company may reasonably require in order to administer this Contract. If the
Contract Owner cannot furnish any required item of information, the Company may
request the person concerned to furnish such information. The Company shall not
be liable for the fulfillment of any obligations in any way dependent on such
information until it receives such information in form satisfactory to it.
Information furnished to the Company may be corrected for demonstrated
errors therein unless the Company has already acted to its prejudice by relying
on such information. Any records prepared by the Company from information
furnished as described above shall constitute prima facie evidence as to the
truth of the information so recorded.
11
<PAGE>
SECTION 8.06--ADJUSTMENTS ON ACCOUNT OF MISSTATEMENTS
If it shall be found that the date of birth, or sex, of any person with
respect to whom an annuity shall have been purchased hereunder, shall have been
misstated, the amount and dates of payment of benefits with respect to such
annuity shall be equitably adjusted. In the absence of an agreement by the
Contract Owner and the Company, the amount of the annuity payable by the Company
shall be that provided by the amount applied to effect such annuity on the basis
of the corrected information without changing the date of the first payment of
such annuity.
The dollar amount of any underpayment made by the Company shall be paid in
full with the next payment due such person or his beneficiary. The dollar amount
of any overpayment made by the Company due to any misstatement shall be deducted
from payments subsequently accruing to such person or his beneficiary under this
Contract.
SECTION 8.07--MODIFICATIONS OF THIS CONTRACT
This Contract may be modified at any time, subject to the laws of the
jurisdiction in which it is delivered, by written agreement between the Contract
Owner and the Company but no such modification shall, without the written
consent of the affected Participants, affect the amount or the terms of any
Annuities purchased prior to the effective date of such modification; except
that any modification of any kind whatsoever in this Contract and the annuities
purchased hereunder which shall be deemed necessary by the Contract Owner to
incorporate any provision which is, or shall be, required or authorized by or
for or shall be necessary to conform the Contract to, or to give the Contract
Owner or Participants the benefit of, any federal or state statute or any rule
or regulation of the United States Treasury Department, may be made effective
with the consent of the Company as of the effective date of this Contract or any
subsequent date without the consent of any Participant or other person affected
thereby.
The Company shall have the right only at the third and each subsequent
Contract Anniversary to modify this Contract in any respect provided that (a)
any such modification will not affect in any way the amount or terms of any
Annuity purchased prior to the effective date of such modification and (b) any
such change shall not affect Sections 2.07, 3.02, 4.01, 4.02, 4.03, 4.04 and
6.01 as they apply to accumulation unit purchases by contributions made on
behalf of Participants who were in the Plan prior to the effective date of such
change to the extent that such contributions in any year are not in excess of
twice the first annual contribution made on behalf of such Participant. The
Company shall give the Contract Owner a written notice of any such modification
at least 90 days prior to the effective date thereof.
The provisions of Sections 2.07, 3.02, 4.01, 4.02, 4.03, 4.04 and 6.01
applicable at the time the portions of contributions in any year which are in
excess of double the first annual contribution are first received by the Company
will apply without modification to such portions while continuously contributed.
Only the President, a Vice President, a Secretary or an Assistant Secretary
of the Company may make a Contract on its behalf; no waiver or modification of
the provisions of this Contract, or of any of the Company's rights shall be
binding on the Company unless it is in writing signed by one of such officers.
The Company shall not be bound by any promise or representation heretofore or
hereafter made by or to any agent or person other than as above.
The consent of any Participant or beneficiary shall not be required for any
change in this Contract, except as indicated in the first paragraph of this
Section 8.07.
SECTION 8.08--ENTIRE CONTRACT
This Contract and the Contract Owner's application therefor, a copy of
which is attached hereto, constitute the entire contract between the parties.
All statements made by. the Contract Owner shall, in the absence of fraud, be
deemed representations and not warranties.
12
<PAGE>
SECTION 8.09--BENEFICIARY
In his statement for participation hereunder, each Participant may
designate a beneficiary to whom there shall be paid all sums which under the
terms of this Contract with respect to such Participant become payable to a
beneficiary. The Participant may from time to time change his designation of
beneficiary without notice to or consent of the previously designated
beneficiary by filing written notice thereof on a form furnished by or
satisfactory to the Company, whereupon an acknowledgment of the change will be
furnished the Participant for attachment to his certificate. Such change shall
take effect on the date the Participant signs such written notice of change,
whether or not the Participant is living when the acknowledgment of the change
is furnished, but without prejudice to the Company on account of any payment
made by it before acknowledgment of the change.
If, with respect to any benefits payable hereunder to a beneficiary, a
Participant shall have failed to designate a beneficiary or if no designated
beneficiary shall survive the Participant, payment, if any such payment shall
become due, shall be made to the first surviving class of the following classes
of successive preference beneficiaries: (a) widow or widower; (b) surviving
children; (c) surviving parents; (d) surviving brothers and sisters; (e)
executors or administrators.
SECTION 8.10--RELATION OF THIS CONTRACT TO SEPARATE ACCOUNT
The Company shall have exclusive and absolute ownership and control of the
assets of both its General Account and its Separate Account. The method of
determination by the Company of the value of an accumulation unit and annuity
units will be conclusive upon the Contract Owner, Participant, and any
beneficiary.
SECTION 8.11--NONPARTICIPATING
This Contract does not share in the surplus earnings of the Company.
SECTION 8.12--EXPERIENCE RATING
The Company may apply an experience credit to this contract at the end of
any contract year in the form of an adjustment in the next succeeding year to
the deduction from each gross contribution described in Section 3.02 or in the
form of additional General Account or Separate Account accumulation units
credited to the Participant's Individual Account or in the form of additional
General Account or Separate Account annuity units, or in the form of
modifications in the calculation of annuity unit values, as applicable. The
experience credit may also be applied to future Contract owner contributions.
SECTION 8.13--VOTING RIGHTS
The Contract Owner shall have the right to vote at the meetings of contract
owners and shall cast the votes attributable to the Contract. Votes attributable
to the Contract shall be cast in conformity with applicable law, rules and
regulations.
SECTION 8.14--VESTING
Each Participant will have a vested interest in the value of his Individual
Account as determined by the provisions of the Plan. In the event of a
Participant's termination of active participation in the Plan, any value of his
Individual Account which is not vested will be held by the Company and applied
to future Contract Owner contributions.
13
<PAGE>
ARTICLE IX
THE PLAN
SECTION 9.01--PLAN DESCRIPTION
The Plan shall be the (CONTRACT OWNERS NAME) (hereafter, "the Plan").
Amendments to the Plan after the effective date of this Contract will be subject
to review by the Company before acceptance as binding on the Company under this
Contract.
SECTION 9.02--ELIGIBILITY
Eligibility shall be in accordance with the Plan Document.
SECTION 9.03--CONTRIBUTIONS BY CONTRACT OWNER
The Company will make deductions from each contribution received on behalf
of an individual Participant for sales and administrative expenses. For those
Participants electing the standard death benefit, the deductions will total 5
1/4% plus applicable premium taxes. For those Participants who have elected the
minimum death benefit, a deduction of 3/4% will be made for this benefit and the
total deductions will be 6% plus applicable premium taxes.
SECTION 9.04--RATE OF CONTRIBUTION
The rate of contribution shall be monthly unless otherwise specified by the
Contract Owner.
SECTION 9.05--ALLOCATION OF CONTRIBUTIONS
The Contract Owner may specify, on behalf of each Participant, an
allocation of 100%, 90%, 80%, 70%, 60%, or 50% either into the Separate Account
or into the General Account with the balance being allocated into the other
Account provided that no such election shall result in an allocation of less
than $10 per payment to the Separate Account.
SECTION 9.06--VESTING
Vesting shall be in accordance with the Plan Document.
14
<PAGE>
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
FORT WAYNE, INDIANA
(herein called "the Company")
Group Variable Annuity
Contract Number GVA-
agrees with
(herein called the "Contract Owner")
to pay
at the Home Office of the Company in Fort Wayne, Indiana, the benefits
herein provided, in accordance with and subject to the provisions of this
Contract.
This Contract is issued in consideration of the application therefor and of
payment by the Contract Owner of contributions as provided herein.
The effective date of this Contract is
This Contract is delivered in and is governed by the laws of
that jurisdiction.
The provisions set forth on the following pages hereof are a part of this
Contract as fully as if recited over the signatures hereto affixed.
IN WITNESS WHEREOF, The Lincoln National Life Insurance Company has caused this
Contract to be executed this day of
T. A. Burns Ian M. Rolland
Secretary President
Group Variable Annuity Contract
Active Life Fund in Separate Account and General Account
Individual Allocation
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT
Examined by
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Description Page
<S> <C>
Article I-DEFINITIONS...................................................... 3
Article II-ANNUITY PROVISIONS.............................................. 3
2.01 Annuity Commencement Date............................................. 3
2.02 Notice to Effect Annuity Payments, Election of Optional Annuities..... 4
2.03 Annuity Payments...................................................... 4
2.04 Optional Annuity Forms................................................ 4
2.05 Variable and Fixed Annuities.......................................... 4
2.06 Allocation of Annuity................................................. 5
2.07 Determination of First Payment........................................ 5
2.08 Frequency of Payments................................................. 6
Article III-CONTRIBUTIONS.................................................. 7
3.01 Contributions......................................................... 7
3.02 Application of Contributions.......................................... 7
3.03 Inactive Participants................................................. 7
3.04 The Active Life Fund.................................................. 7
Article IV-VALUATION....................................................... 7
4.01 Net Investment Rate and Net Investment Factor......................... 7
4.02 Accumulation Unit Value............................................... 8
4.03 Annuity Unit Value.................................................... 8
4.04 Additional General Account Units...................................... 8
4.05 Valuation of Assets................................................... 8
Article V-DISCONTINUANCE OF CONTRIBUTIONS.................................. 9
5.01 Suspension............................................................ 9
5.02 Transfer of Active Life Fund.......................................... 9
Article VI-DEATH BENEFITS.................................................. 9
6.01 Death Benefits........................................................ 9
Article VII-TERMINATION BENEFITS........................................... 10
7.01 Termination Benefits.................................................. 10
Article VIII-GENERAL PROVISIONS............................................ 11
8.01 Certificates.......................................................... 11
8.02 General Provisions Governing Annuity Payments......................... 11
8.03 Payments to Incompetents.............................................. 11
8.04 Assignments........................................................... 11
8.05 Personnel Data........................................................ 11
8.06 Adjustments on Account of Misstatements............................... 12
8.07 Modifications of this Contract........................................ 12
8.08 Entire Contract....................................................... 12
8.09 Beneficiary........................................................... 13
8.10 Relation of this Contract to Separate Account......................... 13
8.11 Nonparticipating...................................................... 13
8.12 Experience Rating..................................................... 13
8.13 Voting Rights......................................................... 13
8.14 Vesting............................................................... 13
Article IX-THE PLAN......................................................... 14
9.01 Plan Description...................................................... 14
9.02 Eligibility........................................................... 14
9.03 Contributions by Contract Owner....................................... 14
9.04 Rate of Contribution.................................................. 14
9.05 Allocation of Contributions........................................... 14
9.06 Vesting............................................................... 14
</TABLE>
<PAGE>
ARTICLE I
Definitions
1.01 PLAN
The Retirement Plan described in Article IX.
1.02 PARTICIPANT
An eligible employee who participates in the Plan.
1.03 CONTRACT ANNIVERSARY
An anniversary of the effective date of this Contract.
1.04 CONTRACT YEAR
Any period of one year commencing with the effective date of this
Contract or with any Contract Anniversary.
1.05 ANNUITANT
A Participant who is receiving Annuity payments hereunder.
1.06 INACTIVE PARTICIPANT
A Participant for whom contributions have ceased prior to his Annuity
Commencement Date, but whose Individual Account is not terminated at such
time.
1.07 ANNUITY
A series of payments purchased under this Contract for a Participant who
elected a Deferred Annuity by application of the dollar value of
accumulation units in his Individual Account, or for a Participant who
elected an Immediate Annuity by application of his net contribution.
1.08 ANNUITY COMMENCEMENT DATE
The date upon which Annuity payments begin under the terms of the Plan.
1.09 SEPARATE ACCOUNT
Those assets of the Company in a segregated investment account, entitled
"Lincoln National Variable Annuity Fund A," established by the Company
for this class of Contracts pursuant to the provisions of applicable law.
1.10 GENERAL ACCOUNT
All assets of the Company other than those in Lincoln National Variable
Annuity Fund A or in other segregated accounts established by the
Company.
1.11 VALUATION DATE
In 1967, March 1st, or any date which follows such date by an integral
number of weeks or the final market day in 1967, in any subsequent year
and not later than July 8, 1969, "Valuation Date" means any day which
follows the final-market day in the previous year by an integral number
of weeks or the final market day in such year. After July 8, 1969,
"Valuation Date" means any date upon which the New York Stock Exchange is
open for trading.
1.12 VALUATION PERIOD
The period beginning on the day after any Valuation Date and ending on
the next Valuation Date.
1.13 PARTICIPANT'S INDIVIDUAL ACCOUNT
The sum of the accumulation units credited to a Participant.
1.14 ASSUMED INVESTMENT RATE
The interest rate assumed in determining the First Monthly Payment Rates
for variable annuities.
ARTICLE II
Annuity Provisions
SECTION 2.01-ANNUITY COMMENCEMENT DATE
Such date may be the first day of any calendar month following the
Participant's 50th birthday but may not be later than the Participant's 75th
birthday.
<PAGE>
SECTION 2.02-NOTICE TO EFFECT ANNUITY PAYMENTS, ELECTION OF OPTIONAL ANNUITIES
When a Participant who elected a Deferred Annuity is eligible to elect
Annuity Payments, the Contract Owner or the Participant shall notify the Company
to effect Annuity Payments for such Participant, and on the date such Annuity
Payments are to commence, the Company shall allocate all accumulation units in
the Participant's Individual Account and apply them to provide an annuity on one
of the Optional Annuity Forms, described in Section 2.04. A Participant who
elected a Deferred Annuity may elect to have his payments made under any of the
Optional Annuity Forms provided written notice of election is received by the
Company at its Home Office at least 30 days prior to his Annuity Commencement
Date. In the absence of written notice of election by the Contract Owner or the
Participant, the Annuity will be a Life Annuity with 120 Payments Guaranteed.
SECTION 2.03-ANNUITY PAYMENTS
The amount of the first Annuity Payment, which is the one due on the
Annuity Commencement Date, will be determined as described in Section 2.07. The
amount of each subsequent Annuity Payment will be determined as described in
Section 2.05.
SECTION 2.04-OPTIONAL ANNUITY FORMS
Option 1-Life Annuity-An annuity payable monthly during the lifetime of the
Annuitant and terminating with the last monthly payment preceding the death of
the Annuitant.
Option 2--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed-An
annuity payable monthly during the lifetime of the Annuitant with the guarantee
that if, at the death of the Annuitant, payments have been made for less than
120, 180 or 240 months, as elected, annuity payments will be continued during
the remainder of said period to the beneficiary designated by the Participant.
If the beneficiary dies while receiving annuity payments, the present value of
the current dollar amount of the remaining guaranteed number of annuity payments
commuted on the basis of 3.% interest compounded annually for fixed-dollar
annuities and the Assumed Investment Rate elected by the Participant for
variable annuities shall be paid in a lump sum to the estate of the beneficiary.
Option 3-Unit Refund Life Annuity-An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at such death, the beneficiary will
receive an additional payment of the then dollar value of the number of annuity
units equal to the excess, if any, of (a) over (b) where (a) is the total amount
applied under the option divided by the annuity unit value, as defined in
Section 4.03, at the Annuity Commencement Date and (b) is the product of the
number of annuity units represented by each payment and the number of payments
made.
Option 4-Joint and Last Survivor Annuity-An annuity payable monthly during
the joint lifetime of the Annuitant and a designated second person and
thereafter during the remaining lifetime of the survivor.
The first payment under any of these options will be determined in
accordance with Section 2.07. The Company reserves the right to require proof
satisfactory to it of the age of an Annuitant and any joint annuitant prior to
making the first payment under any of these options. Additional options may be
elected if mutually agreed upon by the Participant and the Company.
SECTION 2.05-VARIABLE AND FIXED ANNUITIES
(a) Variable Annuity-A variable annuity is an annuity with payments
varying in amount in accordance with the net investment result of the
Separate Account. The number of Separate Account annuity units is
determined by dividing the first monthly payment, determined as
described in Section 2.07, by the Separate Account annuity unit value
based on the net investment factor calculated on the Valuation Date
coincident with or next following the Annuity Commencement Date. The
number of annuity units remains fixed during the annuity payment
period.
The dollar amount of the second and subsequent payments is not
predetermined and may change from month to month. The actual amount of
these payments is determined by multiplying the number of Separate
Account annuity units by the Separate Account annuity unit value,
determined as described in Section 4.03, for the valuation period in
which the payment is due.
<PAGE>
The Company guarantees that the dollar amount of each payment after
the first shall not be affected by variations in mortality experience
from mortality assumptions used to determine the first payment.
(b) Fixed-Dollar Annuity-A fixed-dollar annuity is an annuity with
payments which remain fixed as to dollar amount throughout the payment
period. A number of annuity units is determined when payments
commence, but the value of the General Account annuity unit value is
always $1.00.
The Company may, from time to time, increase the number of General
Account annuity units, to the extent that such units are applicable to
a guaranteed period of benefits, and the value of such additional
units will be payable only during such guaranteed period.
SECTION 2.06-ALLOCATION OF ANNUITY
A Participant may elect to have any portion of his Individual Account
applied to provide either a variable annuity or a fixed annuity or a combination
of both; provided that where a transfer of accumulation units from one Account
to the other is required, written notice of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date and the first
payment provided by each Account must be at least $10.00.
In the absence of any notification by the Contract Owner to the contrary,
when an Annuity is effected for a Participant, who elected a Deferred Annuity,
General Account accumulation units will be applied to provide a fixed-dollar
annuity and Separate Account accumulation units will provide a variable annuity.
SECTION 2.07-DETERMINATION OF FIRST PAYMENT
The Tables contained herein are used to determine the first monthly annuity
payment for Immediate and Deferred Annuities. For Participants who have elected
a Deferred Annuity the Tables show the dollar amount of the first monthly
payment which can be purchased with each $1,000 of value in the Participant's
Individual Account, after deduction of any applicable premium taxes not
previously deducted under the provisions of Section 3.02. The accumulation units
applied to effect an annuity for an Annuitant will be at the accumulation unit
value, as defined in Section 4.02, as of the end of the Valuation Period
containing the fourteenth day immediately preceding the date annuity payments
commence. For Participants who have elected an Immediate Annuity the Tables show
the dollar amount of the first monthly payment which can be purchased with each
$1,000 of net contributions as defined in Section 3.02. Amounts shown in the
Tables are based on the Progressive Annuity Table with interest at the Assumed
Investment Rate of 3.% per annum and assume births in the year 1900. The Company
will permit the Participant to elect an Assumed Investment Rate of 4., 5% or 6%
if state law or regulations permit. Dollar amounts of the first monthly payments
for ages not shown in these Tables and for Assumed Investment Rates of 4.%, 5%
or 6% will be calculated on the same basis as those shown and may be obtained
from the Company. The amount of each payment depends upon the sex and adjusted
age of the Annuitant. The adjusted age is determined from the actual age nearest
birthday at the time the first payment is due in the following manner.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Calendar Year of Birth.... Before 1900 1900-1919 1920-1939 1940-1959 1960-1979
Adjusted Age is Actual Age... plus 1 plus 0 minus 1 minus 2 minus 3
</TABLE>
If it would produce a greater first monthly payment, the Company agrees
that the first monthly payment to an Annuitant will be determined on the same
mortality basis, and for a fixed annuity on the same interest basis, used in
determining rates under group variable annuity contracts then being issued for
this class of Annuitant.
<PAGE>
DOLLAR AMOUNT OF THE FIRST MONTHLY PAYMENT WHICH IS PURCHASED
WITH EACH $1,000 OF PROCEEDS APPLIED
<TABLE>
<CAPTION>
Options 1, 2, and 3 -- Single Life Annuities
- --------------------------------------------------------------------------
Adjusted Age Guaranteed Payments Unit
Male Female None 120 180 240 Refund
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 54 $ 4.74 $4.69 $4.62 $4.52 $4.53
51 55 4.84 4.78 4.70 4.58 4.60
52 56 4.94 4.87 4.78 4.65 4.67
53 57 5.04 4.97 4.87 4.71 4.75
54 58 5.16 5.07 4.95 4.78 4.84
55 59 5.28 5.18 5.04 4.85 4.93
56 60 5.40 5.29 5.13 4.91 5.02
57 61 5.54 5.41 5.23 4.98 5.12
58 62 5.69 5.53 5.33 5.05 5.22
59 63 5.84 5.66 5.43 5.11 5.32
60 64 6.01 5.79 5.53 5.18 5.44
61 65 6.18 5.94 5.63 5.24 5.56
62 66 6.37 6.08 5.74 5.30 5.68
63 67 6.57 6.24 5.84 5.36 5.82
64 68 6.79 6.40 5.95 5.41 5.96
65 69 7.02 6.57 6.05 5.46 6.10
66 70 7.27 6.74 6.15 5.51 6.26
67 71 7.54 6.91 6.26 5.55 6.43
68 72 7.83 7.10 6.35 5.59 6.60
69 73 8.14 7.28 6.45 5.62 6.78
70 74 8.48 7.47 6.54 5.65 6.98
71 75 8.84 7.66 6.62 5.68 7.19
72 76 9.23 7.85 6.70 5.70 7.41
73 77 9.65 8.04 6.77 5.71 7.65
74 78 10.11 8.23 6.83 5.72 7.89
75 79 10.61 8.41 6.88 5.73 8.16
- --------------------------------------------------------------------------
Option 4--Joint and Survivor Life Annuity
Adjusted age of Adjusted Age of Other Annuitant
Secondary Annuitant M-51 M-56 M-58 M-61 M-63 M-66 M-71
Male Female F-55 F-60 F-62 F-65 F-67 F-70 F-75
- --------------------------------------------------------------------------
50 54 $4.21 $4.35 $4.40 $4.47 $4.51 $4.64 $5.23
55 59 4.37 4.58 4.66 4.78 4.85 5.07 5.44
57 61 4.43 4.67 4.77 4.90 4.99 5.26 5.65
60 64 4.51 4.80 4.92 5.09 5.20 5.59 5.88
62 66 4.55 4.88 5.01 5.22 5.35 5.82 6.12
65 69 4.62 4.99 5.15 5.39 5.56 6.19 6.35
70 74 4.70 5.14 5.34 5.65 5.88 6.83 6.59
- --------------------------------------------------------------------------
</TABLE>
SECTION 2.08-FREQUENCY OF PAYMENTS
Annuity payments under this Contract will be made monthly, except that, if
at any time the payments are or become less than $10.00 each, the Company shall
have the right to change the frequency of payment to intervals as will result in
payments of at least $10.00.
<PAGE>
ARTICLE III
Contributions
SECTION 3.01-CONTRIBUTIONS
Each contract year the Company shall receive such contributions from the
Contract Owner as are made in accordance with the requirements of the Plan. Such
contributions will be applied by the Company to provide accumulation units or
annuity units for each Participant in accordance with Section 3.02 and the
instructions of the Contract Owner.
SECTION 3.02-APPLICATION OF CONTRIBUTIONS
Deductions as prescribed in Section 9.03 plus any applicable premium taxes
on the contributions shall be made by the Company from each contribution
received. The balance of each contribution remaining after these deductions is
herein called the net contribution. The Company shall apply the net contribution
as of the last day of the valuation period during which the payment is received
at its Home Office to provide accumulation units or annuity units as determined
by the then current value of such units. Such application shall be made
separately for net contributions allocated to the General Account and the
Separate Account.
The number of accumulation units provided in each Account for a Participant
who has elected a Deferred Annuity and credited to the Participant's Individual
Account shall be determined by dividing the net contribution for that Account
applicable to that Participant by the dollar value of one accumulation unit in
that Account. The number of accumulation units so determined shall not be
changed by any subsequent change in the dollar value of accumulation units. The
dollar value of the accumulation unit General Account will increase by a uniform
percentage each valuation period, but the dollar value of the accumulation unit
in the Separate Account may vary from period to period.
The number of Annuity Units provided in each Account for a Participant who
has elected an Immediate Annuity shall be determined as set forth in Section
2.07.
SECTION 3.03-INACTIVE PARTICIPANTS
In the event that contributions for a Participant cease before his Annuity
Commencement Date, the Contract Owner or the Participant will notify the
Company as to the manner in which the then value of the Participant's
Individual Account is to be disbursed in accordance with Section 7.01.
SECTION 3.04-THE ACTIVE LIFE FUND
An Active Life Fund shall be maintained by the Company, with respect to
this Contract, which shall at any time consist of the sum of all Participants'
Individual Accounts. At least once in each contract year after the first, the
Company will inform the Contract Owner of the then dollar value of the Active
Life Fund.
ARTICLE IV
Valuation
SECTION 4.01-NET INVESTMENT RATE AND NET INVESTMENT FACTOR
(a) The General Account net investment rate for each valuation period is
guaranteed, and is equivalent to an investment rate of 3.% compounded
annually.
(b) The Separate Account net investment rate for any valuation period
ending not later than July 8, 1969, is equal to the gross investment
rate expressed in decimal form to six places less a deduction of
.000250. After July 8, 1969, the Separate Account net investment rate
for any Valuation Period is equal to the gross investment rate
expressed in decimal form to eight places less a deduction of the
product of .00003630 and the number of days in the Valuation Period.
Such gross investment rate is equal to (i) the investment income and
capital gains and losses, whether realized or unrealized, on the
assets of the Separate Account less a deduction for any applicable
income taxes arising from
<PAGE>
such income and realized and unrealized capital gains, divided by (ii)
the amount of such assets at the beginning of the valuation period.
Such gross investment rate may be either positive or negative.
(c) The net investment factor for each Account is the sum of 1.00000000
plus the net investment rate for the Account.
SECTION 4.02-ACCUMULATION UNIT VALUE
The value of an accumulation unit was established at $1.00 on March 1,
1967. The value of the respective accumulation units in each Account on the last
day of any subsequent valuation period is determined by multiplying such value
on the last day of the immediately preceding valuation period by the net
investment factor for that Account for the current valuation period.
SECTION 4.03-ANNUITY UNIT VALUE
The value of a General Account annuity unit is fixed at $ 1.00. The value
of a Separate Account Annuity Unit on March 1, 1967, was established at $1.00,
and for subsequent valuation periods ending not later than July 8, 1969, is
determined by multiplying the value of the Separate Account Annuity Unit for the
immediately preceding Valuation Period by the product of (a) the neutralization
factor described below and (b) the net investment factor of the Separate Account
for the second Valuation Period immediately preceding the Valuation Period for
which the value is being calculated. After July 8, 1969, the value of a Separate
Account Annuity Unit for a Valuation Period is determined by multiplying the
value of the Separate Account Annuity Unit for the immediately preceding
Valuation Period by the product of (a) the neutralization factor shown below
raised to a power equal to the number of days in the current Valuation Period
and (b) the net investment factor of the Separate Account for the Valuation
Period containing the fourteenth day immediately preceding the last day of the
current Valuation Period.
<TABLE>
<CAPTION>
Neutralization Factor for the
Specified Assumed Investment Rate
---------------------------------
For Valuation Periods For Valuation Periods
Assumed Investment Ending Not Later Than Ending After
Rate July 8, 1969 July 8, 1969
- ------------------ --------------------- ---------------------
<S> <C> <C>
3. .999351 .99990575
4. .999170 .99987941
5% .999080 .99986634
6% .998901 .99984037
</TABLE>
SECTION 4.04-ADDITIONAL GENERAL ACCOUNT UNITS
At the end of each valuation period during the first five contract years,
the Company will increase the number of General Account accumulation units by a
number which is equivalent to a 1% per annum additional net investment return.
At the end of each valuation period during the sixth to tenth contract years,
inclusive, the Company will increase the number of such units by a number which
is equivalent to a .% per annum additional net investment return. The Company
may credit additional General Account accumulation units at any time to reflect
credits of investment return over and above those described in this Section or
for any other purpose as determined by the Company.
SECTION 4.05-VALUATION OF ASSETS
The valuation of all assets in the Separate Account shall be determined in
accordance with the provisions of applicable laws, rules and regulations.
<PAGE>
ARTICLE V
Discontinuance of Contributions
SECTION 5.01-SUSPENSION
This Contract shall be suspended automatically on a Contract Anniversary if
during the Contract Year immediately preceding such anniversary, the Contract
Owner shall have failed to remit to the Company contributions as required in the
Plan or has given written notice at least 90 days in advance of its intention to
discontinue all contributions on such anniversary. The Contract shall also be
suspended automatically on a Contract Anniversary if the Company has given
written notice to the Contract Owner of such suspension because the total number
of Active Participants is fewer than 25.
This Contract shall also be suspended upon written notice by the Contract
Owner to the Company at least 90 days in advance of the effective date of such
suspension.
Effective with such suspension, no further contributions of any kind shall
be accepted by the Company, and each Participant remaining in the Plan shall be
considered an Inactive Participant until his Annuity Commencement Date.
Suspension of the Contract in accordance with this Section 5.01 shall have
no effect upon payments to be made by the Company to any person or persons under
an annuity which shall have commenced prior to the date of suspension.
SECTION 5.02-TRANSFER OF ACTIVE LIFE FUND
This Contract may not be assigned nor may the Active Life Fund be
transferred.
ARTICLE VI
Death Benefits
SECTION 6.01-DEATH BENEFITS
In the event of the death of the Participant prior to the Annuity
Commencement Date, the beneficiary of the Participant will receive a death
benefit in accordance with the option elected by the Participant either at the
time of his original entry into the Plan or by subsequent amendment approved by
and on file with the Company at the time of the Participant's death. If, at the
time of the Participant's death, the standard death benefit is in force, the
beneficiary of the Participant will receive the accumulated value of the
Participant's Individual Account. If the Participant elected to include the
minimum death benefit and it is in force at the time of the participant's death,
in the event that the Participant's death also occurs prior to the Participant's
65th birthday, the beneficiary of the Participant will receive the greater of
the accumulated value of the Participant's Individual Account or 100% of all
contributions made on behalf of the Participant less amounts withdrawn as a
surrender of a portion of the accumulated value of the Participant's Individual
Account.
The value of the death benefit will be determined as of the valuation date
coincident with or next following the date written notice of death is received
in the Home Office of the Company. The death benefit may be taken in one sum or
in accordance with any of the settlement options offered under the Company's
variable annuity contracts then being issued.
<PAGE>
ARTICLE VII
Termination Benefits
SECTION 7.01-TERMINATION BENEFITS
With the approval of the Contract Owner, upon termination of participation
in the Plan prior to the Annuity Commencement Date, the Participant: (a) if he
is at least 50 years of age, may elect to have his vested interest in the value
of his Individual Account applied to provide Annuity payments; or (b) may elect
to leave his vested interest in the value of his Individual Account in the
Contract, in which case the number of accumulation units in his Individual
Account attributable to the Separate Account will remain fixed, but the value
thereof will vary as described in Article IV, Sections 4.01(b), 4.01(c) and
4.02. The number of accumulation units attributable to the General Account and
the value thereof will be increased as described in Article IV, Sections
4.01(a), 4.01(c), 4.02 and 4.04; or (c) may elect to receive his vested interest
in the value of his Individual Account on the basis of the accumulation unit
value computed as of the valuation date coincident with or next following the
date on which both the written request for surrender and the certificate are
received by the Company; or (d) may elect to convert his vested interest in the
value of his Individual Account to an individual variable annuity contract on
the basis set forth by the Company at the time of such conversion; or (e) if he
becomes an employee of another employer which has a contract of this same type
in force with the Company, may transfer his vested interest in his Individual
Account to such contract.
In the event of the termination of a Participant's participation in the
Plan prior to the Annuity Commencement Date, the nonvested portion of the
accumulated value of the Participant's Individual Account will be distributed by
the Company in accordance with the Plan Document.
<PAGE>
ARTICLE VIII
General Provisions
SECTION 8.01-CERTIFICATES
The Company shall issue to the Contract Owner for delivery to each
Participant an individual certificate setting forth in substance the benefits to
which each Participant is entitled under this Contract. The word "certificate"
as used herein shall include certificate riders and certificate supplements, if
any. Such certificates shall not constitute a part of this Contract.
SECTION 8.02-GENERAL PROVISIONS GOVERNING ANNUITY PAYMENTS
Whenever any payment hereunder shall be contingent upon the survival of
some person, evidence of such person's survival must be furnished the Company
either by personal endorsement by such person of the check drawn for such
payment or by other evidence satisfactory to the Company.
SECTION 8.03-PAYMENTS TO INCOMPETENTS
If the Company shall receive evidence satisfactory to it that any payee
under this Contract is legally, physically or mentally incompetent to receive
and to give valid release for any payment due under this Contract, any such
payment, or any part thereof, may, unless claim therefor shall have been made to
the Company by a duly appointed executor, administrator, guardian or other legal
representative, be paid by the Company to the spouse, a child, parent or other
blood relative, or to any person, persons or institutions deemed by the Company
to have incurred expense for or on behalf of such payee, and such payment so
made shall be in full settlement of all liability of the Company to the extent
of such payment.
SECTION 8.04-ASSIGNMENTS
No assignment, transfer, pledge, hypothecation, commutation, or
anticipation, and no attempt to assign, transfer, pledge, hypothecate, commute,
or anticipate any benefits or payments under this Contract shall be valid except
insofar as such prohibition against assignment, transfer, pledge, hypothecation,
commutation, or anticipation or attempt may be contrary to the laws of any
state, territory, or country having jurisdiction, and in no event shall any
assignment be binding on the Company until it has been filed with the Company at
its Home Office. Such benefits and payments shall be exempt from the claims of
creditors to the extent permitted by law.
SECTION 8.05-PERSONNEL DATA
The Contract Owner shall furnish any information or evidence which the
Company may reasonably require in order to administer this Contract. If the
Contract Owner cannot furnish any required item of information, the Company may
request the person concerned to furnish such information. The Company shall not
be liable for the fulfillment of any obligations in any way dependent on such
information until it receives such information in form satisfactory to it.
Information furnished to the Company may be corrected for demonstrated
errors therein unless the Company has already acted to its prejudice by relying
on such information. Any records prepared by the Company from information
furnished as described above shall constitute prima facie evidence as to the
truth of the information so recorded.
<PAGE>
SECTION 8.06-ADJUSTMENTS ON ACCOUNT OF MISSTATEMENTS
If it shall be found that the date of birth, or sex, of any person with
respect to whom an annuity shall have been purchased hereunder, shall have been
misstated, the amount and dates of payment of benefits with respect to such
annuity shall be equitably adjusted. In the absence of an agreement by the
Contract Owner and the Company, the amount of the annuity payable by the Company
shall be that provided by the amount applied to effect such annuity on the basis
of the corrected information without changing the date of the first payment of
such annuity.
The dollar amount of any underpayment made by the Company shall be paid in
full with the next payment due such person or his beneficiary. The dollar amount
of any overpayment made by the Company due to any misstatement shall be deducted
from payments subsequently accruing to such person or his beneficiary under this
Contract.
SECTION 8.07-MODIFICATIONS OF THIS CONTRACT
This Contract may be modified at any time, subject to the laws of the
jurisdiction in which it is delivered, by written agreement between the Contract
Owner and the Company but no such modification shall, without the written
consent of the affected Participants, affect the amount or the terms of any
Annuities purchased prior to the effective date of such modification, except
that any modification of any kind whatsoever in this Contract and the annuities
purchased hereunder which shall be deemed necessary by the Contract Owner to
incorporate any provision which is, or shall be, required or authorized by or
for or shall be necessary to conform the Contract to, or to give the Contract
Owner or Participants the benefit of, any federal or state statute or any rule
or regulation of the United States Treasury Department, may be made effective
with the consent of the Company as of the effective date of this Contract or any
subsequent date without the consent of any Participant or other person affected
thereby.
The Company shall have the right only at the third and each subsequent
Contract Anniversary to modify this Contract in any respect provided that (a)
any such modification will not affect in any way the amount or terms of any
Annuity purchased prior to the effective date of such modification and (b) any
such change shall not affect Sections 2.07, 3.02, 4.01, 4.02, 4.03, 4.04 and
6.01 as they apply to accumulation unit purchases by contributions made on
behalf of Participants who were in the Plan prior to the effective date of such
change to the extent that such contributions in any year are not in excess of
twice the first annual contribution made on behalf of such Participant. The
Company shall give the Contract Owner a written notice of any such modification
at least 90 days prior to the effective date thereof.
The provisions of Sections 2.07, 3.02, 4.01, 4.02, 4.03, 4.04 and 6.01
applicable at the time the portions of contributions in any year which are in
excess of double the first annual contribution are first received by the Company
will apply without modification to such portions while continuously contributed.
Only the President, a Vice President, a Secretary or an Assistant Secretary
of the Company may make a Contract on its behalf; no waiver or modification of
the provisions of this Contract, or of any of the Company's rights shall be
binding on the Company unless it is in writing signed by one of such officers.
The Company shall not be bound by any promise or representation heretofore or
hereafter made by or to any agent or person other than as above.
The consent of any Participant or beneficiary shall not be required for any
change in this Contract, except as indicated in the first paragraph of this
Section 8.07.
SECTION 8.08-ENTIRE CONTRACT
This Contract and the Contract Owner's application therefor, a copy of
which is attached hereto, constitute the entire contract between the parties.
All statements made by the Contract Owner shall, in the absence of fraud, be
deemed representations and not warranties.
<PAGE>
SECTION 8.09-BENEFICIARY
In his statement for participation hereunder, each Participant may
designate a beneficiary to whom there shall be paid all sums which under the
terms of this Contract with respect to such Participant become payable to a
beneficiary. The Participant may from time to time change his designation of
beneficiary without notice to or consent of the previously designated
beneficiary by filing written notice thereof on a form furnished by or
satisfactory to the Company, whereupon an acknowledgment of the change will be
furnished the Participant for attachment to his certificate. Such change shall
take effect on the date the Participant signs such written notice of change,
whether or not the Participant is living when the acknowledgment of the change
is furnished, but without prejudice to the Company on account of any payment
made by it before acknowledgment of the change.
If, with respect to any benefits payable hereunder to a beneficiary, a
Participant shall have failed to designate a beneficiary or if no designated
beneficiary shall survive the Participant, payment, if any such payment shall
become due, shall be made to the first surviving class of the following classes
of successive preference beneficiaries: (a) widow or widower; (b) surviving
children; (c) surviving parents; (d) surviving brothers and sisters; (e)
executors or administrators.
SECTION 8.10-RELATION OF THIS CONTRACT TO SEPARATE ACCOUNT
The Company shall have exclusive and absolute ownership and control of the
assets of both its General Account and its Separate Account. The method of
determination by the Company of the value of an accumulation unit and annuity
units will be conclusive upon the Contract Owner, Participant, and any
beneficiary.
SECTION 8.11-NONPARTICIPATING
This Contract does not share in the surplus earnings of the Company.
SECTION 8.12-EXPERIENCE RATING
The Company may apply an experience credit to this contract at the end of
any contract year in the form of an adjustment in the next succeeding year to
the deduction from each gross contribution described in Section 3.02 or in the
form of additional General Account or Separate Account accumulation units
credited to the Participant's Individual Account or in the form of additional
General Account or Separate Account annuity units, or in the form of
modifications in the calculation of annuity unit values, as applicable. The
experience credit may also be applied to future Contract owner contributions.
SECTION 8.13-VOTING RIGHTS
The Contract Owner shall have the right to vote at the meetings of contract
owners and shall cast the votes attributable to the Contract. Votes attributable
to the Contract shall be cast in conformity with applicable law, rules and
regulations.
SECTION 8.14-VESTING
Each Participant will have a vested interest in the value of his Individual
Account as determined by the provisions of the Plan. In the event of a
Participant's termination of active participation in the Plan, any value of his
Individual Account which is not vested will be held by the Company and applied
to future Contract Owner contributions.
<PAGE>
ARTICLE IX
THE PLAN
SECTION 9.01-PLAN DESCRIPTION
The Plan shall be the (CONTRACT OWNERS NAME) (hereafter, "the Plan").
Amendments to the Plan after the effective date of this Contract will be subject
to review by the Company before acceptance as binding on the Company under this
Contract.
SECTION 9.02-ELIGIBILITY
Eligibility shall be in accordance with the Plan Document.
SECTION 9.03-CONTRIBUTIONS BY CONTRACT OWNER
The Company will make deductions from each contribution received on behalf
of an individual Participant for sales and administrative expenses. For those
Participants electing the standard death benefit, the deductions will total 5~%
plus applicable premium taxes. For those Participants who have elected the
minimum death benefit, a deduction of 3/4% will be made for this benefit and the
total deductions will be 6% plus applicable premium taxes.
SECTION 9.04-RATE OF CONTRIBUTION
The rate of contribution shall be monthly unless otherwise specified by the
Contract Owner.
SECTION 9.05-ALLOCATION OF CONTRIBUTIONS
The Contract Owner may specify, on behalf of each Participant, an
allocation of 100%, 90%, 80%, 70%, 60%, or 50% either into the Separate Account
or into the General Account with the balance being allocated into the other
Account provided that no such election shall result in an allocation of less
than $10 per payment to the Separate Account.
SECTION 9.06-VESTING
Vesting shall be in accordance with the Plan Document.
<PAGE>
EXHIBIT 6(b)
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
FORT WAYNE, INDIANA
(herein called "the Company")
Effective Date Certificate
of Certificate _____________________
Certifies that in accordance with and subject to the provisions of Group
Variable Annuity Contract Number GVA- issued to
(herein called the "Contract Owner")
There will be paid to herein called the Participant,
an annuity payable monthly during his lifetime commencing on the date elected by
the Participant, provided he is then alive. The amount of such annuity will be
based on the contributions received by the Company and made on behalf of the
Participant prior to the date such annuity commences.
The Company further certifies that upon the death of the Participant there
will be paid to the beneficiary whose name is on file with the Company at the
time of death any death benefit that may be payable in accordance with the
provisions of the Contract.
Rights of withdrawal before the annuity commences and any benefits at the
time of withdrawal are described in the Group Contract.
This certificate is not a part of and does not alter or modify any of the
provisions of the Group Contract. All rights, privileges and benefits are
governed by the provisions of the Group Contract and certain of its provisions
are described on the following pages only for the Information of the
Participant.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
T. A. Burns
Secretary
ALL PAYMENTS AND VALUES DESCRIBED IN THIS CERTIFICATE, WHEN BASED ON
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO FIXED DOLLAR AMOUNT
FORM GVA-2A-C-70-1
<PAGE>
RETIREMENT ANNUITY
SECTION 2.01--ANNUITY COMMENCEMENT DATE
Such date may be the first day of any calendar month following the
Participant's 50th birthday but may not be later than the Participant's 75th
birthday.
SECTION 2.02--NOTICE TO EFFECT ANNUITY PAYMENTS, ELECTION OF OPTIONAL ANNUITIES
When a Participant who elected a Deferred Annuity is eligible to elect
Annuity Payments, the Contract Owner or the Participant shall notify the Company
to effect Annuity Payments for such Participant, and on the date such Annuity
Payments are to commence, the Company shall allocate all accumulation units in
the Participant's Individual Account and apply them to provide an Annuity on one
of the Optional Annuity Forms, described in Section 2.04. A Participant who
elected a Deferred Annuity may elect to have his payments made under any of the
Optional Annuity Forms provided written notice of election is received by the
Company at its Home Office at least 30 days prior to his Annuity Commencement
Date. In the absence of written notice of election by the Contract Owner or the
Participant, the annuity will be a Life Annuity with 120 Payments Guaranteed.
SECTION 2.03--ANNUITY PAYMENTS
The amount of the first Annuity Payment, which is the one due on the
Annuity Commencement Date, will be determined as described in Section 2.07 of
the Contract, The amount of each subsequent Annuity Payment will be determined
as described in Section 2.05.
SECTION 2.04--OPTIONAL ANNUITY FORMS
Option 1--Life Annuity-An annuity payable monthly during the lifetime of
the Annuitant and terminating with the last monthly payment preceding the death
of the Annuitant.
Option 2--Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed -
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if, at the death of the Annuitant, payments have been made for
less than 120, 180 or 240 months, as elected, Annuity Payments will be continued
during the remainder of said period to the beneficiary designated by the
Participant. If the beneficiary dies while receiving Annuity Payments, the
present value of the current dollar amount of the remaining guaranteed number of
Annuity Payments commuted on the basis of 3 1/2% interest compounded annually
for fixed-dollar annuities and the Assumed Investment Rate elected by the
Participant for variable annuities shall be paid in a lump sum to the estate of
the beneficiary.
Option 3--Unit Refund Life Annuity-An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at such death, the beneficiary will
receive an additional payment of the then dollar value of the number of Annuity
Units equal to the excess, if any, of (a) over (b), where (a) is the total
amount applied under the option divided by the Annuity Unit Value, as defined in
Section 4.03, at the Annuity Commencement Date and (b) is the product of the
number of Annuity Units represented by each payment and the number of payments
made.
Option 4--Joint and Last Survivor Annuity-An annuity payable monthly during
the joint lifetime of the Annuitant and a designated second person and
thereafter during the remaining lifetime of the survivor.
The first payment under any of these options will be determined in
accordance with Section 2.07. The Company reserves the right to require proof
satisfactory to it of the age of the Annuitant and any joint Annuitant prior to
making the first payment under any of these options. Additional options may be
elected if mutually agreed upon by the Participant and the Company.
SECTION 2.05--VARIABLE AND FIXED ANNUITIES
(a) Variable Annuity-A variable annuity is an annuity with payments
varying in amount in accordance with the net investment result of the
Separate Account. The number of Separate Account annuity units is
determined by dividing the first monthly payment by the Separate
Account annuity unit value based on the net investment factor
calculated on the Valuation
<PAGE>
Date coincident with or next following the Annuity Commencement Date.
The number of annuity units remains fixed during the annuity payment
period.
The dollar amount of the second and subsequent payments is not
predetermined and may change from month to month. The actual amount
of these payments is determined by multiplying the number of Separate
Account annuity units by the Separate Account annuity unit value for
the valuation period in which the payment is due.
The Company guarantees that the dollar amount of each payment after
the first shall not be affected by variations in mortality experience
from mortality assumptions used to determine the first payment.
(b) Fixed-Dollar Annuity-A fixed-dollar annuity is an annuity with
payments which remain fixed as to dollar amount throughout the
payment period. A number of annuity units is determined when payments
commence, but the value of the General Account annuity unit value is
always $1.00.
The Company may, from time to time, increase the number of General
Account annuity units, to the extent that such units are applicable to
a guaranteed period of benefits, and the value of such additional
units will be payable only during such guaranteed period.
SECTION 2.06--ALLOCATION OF ANNUITY
A Participant may elect to have any portion of his Individual Account
applied to provide either a variable annuity or a fixed annuity or a combination
of both; provided that where a transfer of accumulation units from one Account
to the other is required, written notice of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date and the first
payment provided by each Account must be at least $10.00.
In the absence of any notification by the Contract Owner to the contrary,
when an Annuity is effected for a Participant, who elected a Deferred Annuity,
General Account accumulation units will be applied to provide a fixed-dollar
annuity and Separate Account accumulation units will provide a variable annuity.
SECTION 6.01--DEATH BENEFITS
In the event of the death of the Participant before the Annuity
Commencement Date, the beneficiary of the Participant will receive the
accumulated value of the Participant's Individual Account determined as of the
valuation date coincident with or next following the date written notice of
death is received by the Company. The death benefit may be taken in one sum or
under any of the settlement options available in the Company's individual
variable annuities then being issued, if any.
SECTION 7.01--TERMINATION BENEFITS
Upon termination of participation in the Plan prior to the Annuity
Commencement Date, the Participant: (a) if he is at least 50 years of age, may
elect to have the value of his Individual Account applied to provide Annuity
payments; or (b) may elect to leave his accumulated value in the Contract, in
which case the number of accumulation units in his Individual Account will
remain fixed, but the values thereof will vary as described in Article IV; or
(e) may elect to receive the accumulated value of his Individual Account on the
basis of the accumulation unit value computed as of the valuation date
coincident with or next following the date the written request or surrender is
received by the Company; or (d) may elect to convert to an individual variable
annuity contract on the basis set forth by the Company at the time of such
conversion; or (e) if he becomes an employee of another employer which has a
contract of this type in force with the Company, may transfer his Individual
Account to such contract.
<PAGE>
SECTION 8.04--ASSIGNMENT
A Participant cannot assign, transfer or commute any of the benefits
provided by the Contract and his benefits will be exempt from the claims of his
creditors to the maximum extent permitted by law.
SECTION 8.05--PERSONNEL DATA
The Company shall require satisfactory proof of the date of birth of the
Annuitant or Contingent Annuitant, if any, before commencement of annuity
payments and such other information as might be reasonably required to
administer the Contract.
THE PLAN
SECTION 9.01--PLAN DESCRIPTION
The Plan shall be the Tax Sheltered Annuity Plan of
SECTION 9.02--ELIGIBILITY
All full time employees of the Contract Owner are eligible to become
Participants in The Plan.
SECTION 9.03--CONTRIBUTIONS BY CONTRACT OWNER
At least once each month the Contract Owner will remit to the Company all
contributions required for the applicable salary reduction period on behalf of
the Participants in accordance with the individual agreements between the
Contract Owner and the Individual Participants. A deduction of 5 1/4% plus
applicable premium taxes will be made from each contribution received.
SECTION 9.04--AMOUNT OF CONTRIBUTIONS
The minimum amount of any scheduled contribution is $10 per Participant and
the scheduled contributions must total at least $300 per year, per Participant.
SECTION 9.05--ALLOCATION OF CONTRIBUTIONS
The Contract Owner will specify in the case of each Participant what portion
of a Participant's contributions will be allocated to the Separate Account and
what portion will be allocated to the General Account. A Participant may elect
an allocation of 100%, 90%, 80%, 70%, 60%, or 50% in either Account with the
balance being allocated to the other Account. No such election shall result in
an allocation of less than $10 per month to either Account.
SECTION 9.06--VESTING
Each Participant will at all times have a 100% vested interest in the value of
his Individual Account.
<PAGE>
CANCELLATION PRIVILEGE RIDER
Made a part of the contract/certificate to which it is attached
This contract/certificate may, at any time within 10 days after its receipt
by the Owner, be returned by delivering it or mailing . it to the Company or to
the agent through whom it was purchased. Immediately upon delivery or mailing,
the fixed-dollar portion of the contract/certificate will be deemed void from
the beginning, and any premium paid on the fixed dollar portion will be
refunded. Upon receipt of this contract/certificate at the Home Office of The
Lincoln National Life Insurance Company, any Accumulated Value in the Separate
Account under this contract/certificate plus the deductions for sales and
administrative expenses, rider premiums, if any, and premium tax, if any, on
amounts allocated to the Separate Account will be paid to the Owner. The
Accumulated Value in the Separate Account will be computed on the Valuation Date
coincident with or next following the date the contract/certificate is received
at the Home Office and any cash payment will be made within seven days after the
date request for surrender is received by the Company at its Home Office, except
as the Company may be permitted to defer such payment under the Investment
Company Act of 1940, as in effect at the time such request is received.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/ T. A. Burns
T. A. Burns, Secretary
Form 16126 5-79
<PAGE>
SURRENDER BENEFIT LIBERALIZATION
The surrender benefit described in Section 7.01 is liberalized as follows:
In the event the Participant surrenders this contract prior to the Annuity
Commencement Date, the surrender benefit as it applies to contributions made
by or on behalf of the Participant to the General Account will be the greater
of the accumulated value of such contributions, or 100% of all such
contributions made less any amounts which are withdrawn prior to the date of
surrender of those contributions. The surrender benefit as it applies to
contributions made by or on behalf of the Participant to the Separate Account
will be the accumulated value of those contributions.
The value of the surrender benefit will be determined as of the date
coincident with or next following the date written notice of the surrender is
received in the Home Office of the Company.
Form 16247 8-78
<PAGE>
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
FORT WAYNE, INDIANA
(herein called "the Company")
Effective Date Certificate
of Certificate______________ Number_______________
Certifes that in accordance with and subject to the provisions of Group
Variable Annuity Contract Number GVA- issued to
(herein called the "Contract Owner")
There will be paid to herein called the
Participant, an annuity payable monthly during his lifetime commencing on the
date elected by the Participant, provided he is then alive. The amount of such
annuity will be based on the contributions received by the Company and made on
behalf of the Participant prior to the date such annuity commences.
The Company further certifies that upon the death of the Participant there
will be paid to the beneficiary whose name is on file with the Company at the
time of death any death benefit that may be payable in accordance with the
provisions of the Contract.
Rights of withdrawal before the annuity commences and any benefits at the
time of withdrawal are described in the Group Contract.
This certificate is not a part of and does not alter or modify any of the
provisions of the Group Contract. All rights, privileges and benefits are
governed by the provisions of the Group Contract and certain of its provisions
are described on the following pages only for the Information of the
Participant.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
T. A. Burns
Secretary
ALL PAYMENTS AND VALUES DESCRIBED IN THIS CERTIFICATE, WHEN BASED
ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND
ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT
<PAGE>
RETIREMENT ANNUITY
SECTION 2.01-ANNUITY COMMENCEMENT DATE
Such date may be the first day of any calendar month following the
Participant's 50th birthday but may not be later than the Participant's 75th
birthday.
SECTION 2.02-NOTICE TO EFFECT ANNUITY PAYMENTS, ELECTION OF OPTIONAL ANNUITIES
When a Participant who elected a Deferred Annuity is eligible to elect
Annuity Payments, the Contract Owner or the Participant shall notify the Company
to effect Annuity Payments for such Participant, and on the date such Annuity
Payments are to commence, the Company shall allocate all accumulation units in
the Participant's Individual Account and apply them to provide an Annuity on one
of the Optional Annuity Forms, described in Section 2.04. A Participant who
elected a Deferred Annuity may elect to have his payments made under any of the
Optional Annuity Forms provided written notice of election is received by the
Company at its Home Office at least 30 days prior to his Annuity Commencement
Date. In the absence of written notice of election by the Contract Owner or the
Participant, the annuity will be a Life Annuity with 120 Payments Guaranteed.
SECTION 2.03-ANNUITY PAYMENTS
The amount of the first Annuity Payment, which is the one due on the
Annuity Commencement Date, will be determined as described in Section 2.07 of
the Contract. The amount of each subsequent Annuity Payment will be determined
as described in Section 2.05.
SECTION 2.04-OPTIONAL ANNUITY FORMS
Option 1-Life Annuity-An annuity payable monthly during the lifetime of the
Annuitant and terminating with the last monthly payment preceding the death of
the Annuitant.
Option 2-Life Annuity with 120, 180 or 240 Monthly Payments Guaranteed -
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if, at the death of the Annuitant, payments have been made for
less than 120, 180 or 240 months, as elected, Annuity Payments will be continued
during the remainder of said period to the beneficiary designated by the
Participant. If the beneficiary dies while receiving Annuity Payments, the
present value of the current dollar amount of the remaining guaranteed number of
Annuity Payments commuted on the basis of 3.% interest compounded annually for
fixed-dollar annuities and the Assumed Investment Rate elected by the
Participant for variable annuities shall be paid in a lump sum to the estate of
the beneficiary.
Option 3-Unit Refund Life Annuity-An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at such death, the beneficiary will
receive an additional payment of the then dollar value of the number of Annuity
Units equal to the excess, if any, of (a) over (b), where (a) is the total
amount applied under the option divided by the Annuity Unit Value, as defined in
Section 4.03, at the Annuity Commencement Date and (b) is the product of the
number of Annuity Units represented by each payment and the number of payments
made.
Option 4-Joint and Last Survivor Annuity-An annuity payable monthly during
the joint lifetime of the Annuitant and a designated second person and
thereafter during the remaining lifetime of the survivor.
The first payment under any of these options will be determined in
accordance with Section 2.07. The Company reserves the right to require proof
satisfactory to it of the age of the Annuitant and any joint Annuitant prior to
making the first payment under any of these options. Additional options may be
elected if mutually agreed upon by the Participant and the Company.
SECTION 2.05-VARIABLE AND FIXED ANNUITIES
(a) Variable Annuity-A variable annuity is an annuity with payments
varying in amount in accordance with the net investment result of the
Separate Account. The number of Separate Account annuity units is
determined by dividing the first monthly payment by the Separate
Account annuity unit value based on the net investment factor
calculated on the Valuation Date coincident with or next following the
Annuity Commencement Date. The number of annuity units remains fixed
during the
<PAGE>
annuity payment period.
The dollar amount of the second and subsequent payments is not
predetermined and may change from month to month. The actual amount of
these payments is determined by multiplying the number of Separate
Account annuity units by the Separate Account annuity unit value for
the valuation period in which the payment is due.
The Company guarantees that the dollar amount of each payment after
the first shall not be affected by variations in martality experience
from mortality assumptions used to determine the first payment.
(b) Fixed-Dollar Annuity-A fixed-dollar annuity is an annuity with
payments which remain fixed as to dollar amount throughout the payment
period. A number of annuity units is determined when payments
commence, but the value of the General Account annuity unit value is
always $1.00.
The Company may, from time to time, increase the number of General
Account annuity units, to the extent that such units are applicable to
a guaranteed period of benefits, and the value of such additional
units will be payable only during such guaranteed period.
SECTION 2.06-ALLOCATION OF ANNUITY
A Participant may elect to have any portion of his Individual Account
applied to provide either a variable annuity or a fixed annuity or a combination
of both; provided that where a transfer of accumulation units from one Account
to the other is required, written notice of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date and the first
payment provided by each Account must be at least $10.00.
In the absence of any notification by the Contract Owner to the contrary,
when an Annuity is effected for a Participant, who elected a Deferred Annuity,
General Account accumulation units will be applied to provide a fixed-dollar
annuity and Separate Account accumulation units will provide a variable annuity.
SECTION 6.01-DEATH BENEFITS
In the event of the death of the Participant before the Annuity
Commencement Date, the beneficiary of the Participant will receive the
accumulated value of the Participant's Individual Account determined as of the
valuation date coincident with or next following the date written notice of
death is received by the Company. The death benefit may be taken in one sum or
under any of the settlement options available in the Company's individual
variable annuities then being issued, if any.
SECTION 7.01-TERMINATION BENEFITS
Upon termination of participation in the Plan prior to the Annuity
Commencement Date, the Participant: (a) if he is at least 50 years of age, may
elect to have the value of his Individual Account applied to provide Annuity
payments; or (b) may elect to leave his accumulated value in the Contract, in
which case the number of accumulation units in his Individual Account will
remain fixed, but the values thereof will vary as described in Article IV; or
(e) may elect to receive the accumulated value of his Individual Account on the
basis of the accumulation unit value computed as of the valuation date
coincident with or next following the date the written request or surrender is
received by the Company, or (d) may elect to convert to an individual variable
annuity contract on the basis set forth by the Company at the time of such
conversion; or (e) if he becomes an employee of another employer which has a
contract of this type in force with the Company, may transfer his Individual
Account to such contract.
<PAGE>
SECTION 8.04-ASSIGNMENT
A Participant cannot assign, transfer or commute any of the benefits
provided by the Contract and his benefits will be exempt from the claims of his
creditors to the maximum extent permitted by law.
SECTION 8.05-PERSONNEL DATA
The Company shall require satisfactory proof of the date of birth of the
Annuitant or Contingent Annuitant, if any, before commencement of annuity
payments and such other information as might be reasonably required to
administer the Contract.
THE PLAN
SECTION 9.01-PLAN DESCRIPTION
The Plan shall be the Tax Sheltered Annuity Plan of
SECTION 9.02-ELIGIBILITY
All full time employees of the Contract Owner are eligible to become
Participants in The Plan.
SECTION 9.03-CONTRIBUTIONS BY CONTRACT OWNER
At least once each month the Contract Owner will remit to the Company all
contributions required for the applicable salary reduction period on behalf of
the Participants in accordance with the individual agreements between the
Contract Owner and the Individual Participants. A deduction of 5.% plus
applicable premium taxes will be made from each contribution received.
SECTION 9.04-AMOUNT OF CONTRIBUTIONS
The minimum amount of any scheduled contribution is $10 per Participant and
the scheduled contributions must total at least $300 per year, per Participant.
SECTION 9.05-ALLOCATION OF CONTRIBUTIONS
The Contract Owner will specify in the case of each Participant what
portion of a Participant's contributions will be allocated to the Separate
Account and what portion will be allocated to the General Account. A Participant
may elect an allocation of 100%, 90%, 80%, 70%, 60%, or 50% in either Account
with the balance being allocated to the other Account. No such election shall
result in an allocation of less than $10 per month to either Account.
SECTION 9.06-VESTING
Each Participant will at all times have a 100% vested interest in the value
of his Individual Account.
<PAGE>
CANCELLATION PRIVILEGE RIDER
Made a part of the contract/certificate to which it is attached
This contract/certificate may, at any time within 10 days after its receipt
by the Owner, be returned by delivering it or mailing it to the Company or to
the agent through whom it was purchased. Immediately upon delivery or mailing,
the fixed-dollar portion of the contract/certificate will be deemed void from
the beginning, and any premium paid on the fixed dollar portion will be
refunded. Upon receipt of this contract/certificate at the Home Office of The
Lincoln National Life Insurance Company, any Accumulated Value in the Separate
Account under this contract/certificate plus the deductions for sales and
administrative expenses, rider premiums, if any, and premium tax, if any, on
amounts allocated to the Separate Account will be paid to the Owner. The
Accumulated Value in the Separate Account will be computed on the Valuation Date
coincident with or next following the date the contract/certificate is received
at the Home Office and any cash payment will be made within seven days after
the date request for surrender is received by the Company at its Home Office,
except as the Company may be permitted to defer such payment under the
Investment Company Act of 1940, as in effect at the time such request is
received.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
T. A. Burns, Secretary
<PAGE>
SURRENDER BENEFIT LIBERALIZATION
The surrender benefit described in Section 7.01 is liberalized as follows:
In the event the Participant surrenders this contract prior to the Annuity
Commencement Date, the surrender benefit as it applies to contributions made by
or on behalf of the Participant to the General Account will be the greater of
the accumulated value of such contributions, or 100% of all such contributions
made less any amounts which are withdrawn prior to the date of surrender of
those contributions. The surrender benefit as it applies to contributions made
by or on behalf of the Participant to the Separate Account will be the
accumulated value of those contributions.
The value of the surrender benefit will be determined as of the date coincident
with or next following the date written notice of the surrender is received in
the Home Office of the Company.
<PAGE>
Exhibit 7
1. RETIREMENT PROGRAM ESTABLISHED FOR:
Group Master Contract Owner:
Employer (if Other Than Contract Owner):
11. PARTICIPANT INFORMATION
Full Name (First, Middle, Last)
Street: City/State: Zip: County:
Social Security No.: Birthdate: Sex: Male Female
Marital Status: Married l Single Widowed Divorced
E Separated Date Retirement Pmts. are
Citizenship: U.S Other Specify Expected to Begin:
111. BENEFICIARY INFORMATION
Name: Relationship:
Birthdate:
Street: City/State/Zip:
IV. PURCHASE-PAYMENTS DATA
A. Periodic Payments
Since Purchase Payments may originate from several sources, each source
should be itemized separately below.
Examples of such
sources are:
Pension Market-Employer's payments, employee's salary reductions (before taxes),
employee's mandatory payments (after taxes) employee's voluntary
payments (after taxes); Market -Employer's payments (within
eligibility limits), employer's/employee's optional payments;
TDA MARKET - Employee's salary reductions (before taxes),
employer's or state's matching payments
<TABLE>
<CAPTION>
<S> <C> <C>
1. Primary Payments 2. Secondary Payments 3. Tertiary Payments
Source: Source: Source:
Method: Method: Method:
Salary Reduction or Salary Reduction or Salary Reduction or
Payroll Deduction Payroll Deduction Payroll Deduction
Direct Remittance Direct Remittance Direct Remittance
Amount of each Amount of each Amount of each
Deduction or Deduction or Deduction or
Remittance: Remittance: $ Remittance:
Frequency of Deduction or Frequency of Deduction or Frequency of Deduction or
Remittance: Monthly Remittance: Monthly Remittance: Monthly
Bi-Weekly Semi-Monthly Bi-Weekly Semi-Monthly Bi-Weekly Semi-Monthly
Weekly Other Weekly Other Weekly Other
*Deductions or Remittances *Deductions or Remittances *Deductions or Remittances
To begin on: To begin on: To begin, on:
(Date) (Date) (Date)
Annual Amount $ Annual Amount $ Annual Amount $
Allocation: Fixed Allocation: Fixed Allocation: Fixed
% Variable % Variable % Variable
</TABLE>
*If on a deduction schedule, this is the first pay day for which deductions will
occur; otherwise it is the date on which the first remittance will be made.
B. Single Payments or Lump Sum Payments
1. Attached is a remittance in the amount of
2. To be used for the purpose of:
Purchasing a single payment immediate variable annuity (Attach completed
Form 11410-Notification to Effect Annuity Payments).
Purchasing a single payment deferred variable annuity.
Making a one-time only, non-recurring payment into a periodic payment plan
(lump sum payment).
3. This payment originated from the following sources (Describe fully):
4. Payment should be allocated as follows: % FIXED AND % VARIABLE.
SPECIAL REQUESTS Dated at Date
(city. state",
INCLUDE MINIMUM DEATH BENEFIT: [_] YES [_] NO
ENDORSEMENTS (H.O. USE ONLY)
(Signature of Contract Owner if other than participant)
Signature of Participant
General Agency Signature of Registered Representative
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1 (a.) Number of Dependents Their Ages
(b.) Applicant's Total Wages $
GENERAL Other Income (Include Wages of Spouse)
SUITABILITY Applicant's Total Annual Income $
INFORMATION (c.) Applicant's Total Fixed Assets
(d.) Applicant's Total Variable Assets $
Registered representatives are required to (e.) Applicant's Total Debts $
make these inquiries for purposes of de- (f.) Applicant's Total Life Insurance In-Force $
termining the suitability of this sale for the (g.) Will Applicant be Eligible for Social Security Retirement Benefits?
applicant. The applicant may choose not to (h.) List the Applicant's Other Sources of Retirement Income:
answer these inquiries. Whenever this occurs
Section 11 must be completed.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 11 I understand that the registered representative is required to make the
APPLICANTS OPTION inquiries in Section 1 for purposes of determining the suitability of
this section only if the inquiries in this sale. However, I do Complete wish to answer these inquiries.
Section 1 are not answered.
Signature of Applicant
SECTION III (a.) Applicant's Gross Earnings (before taxes) for Current Tax. Year $
Also, Average Gross Annual Salary with Present Employer $
(b.) Applicant was employed by Present Employer _________ , if any broken
TDA ONLY (REQUIRED) Service Indicate Period to
(c.) The Employer is Located In
(d.) Does Applicant Have Any Other TDA Plan if Yes
(1.) The Date Enrolled,
Complete this section on all applications for (2.) Cumulative Contributions to Beginning of Current Tax Year $
participation in a Tax-Deferred Annuity Plan. (3.) Anticipated Contributions in Current Tax Year $
(4.) If This Plan Will be Discontinued, on what Date
(e.) Does Applicant Participate in Any Other
Retirement Plan with Employer?
If Yes, (1.) Cumulative Contributions to End of Current Tax Year $
(2.) If Contributory, Cumulative Employee
Contributions to End of Current Tax Year $
SECTION IV I CERTIFY THAT:
(a.) I Have Received a Current Prospectus for a Group Variable Annuity.
APPLICANTS
CERTIFICATION (b) I Have Received No Written Sales Material Other'
Bearing Lincoln National's Name. Than Printed Documents
(c) I Understand that the Basic Objective of the Variable Annuity Contract
is to Provide at Retirement, Benefits which May Tend to Conform More
Closely in the Cost of Living than the Benefits Provided by a
Fixed Annuity.
(d) I Understand that All Payments and Values Provided by the
Contract, when Based on the Investment Experience of a Variable Account,
are, Variable and are not Guaranteed as to Fixed Dollar Amount.
(e) I Understand that I May Elect to have my Payments Allocated at
Time of Payment to Purchase Variable Benefits Only, Fixed Benefits only
or a Combination of Fixed and Variable Benefits.
(f) I Understand that a Charge for Sales and Administrative Expense Will Be
Made Against my Payments as Outlined in the Prospectus.
(g) I Understand that the Fund Will Pay an Investment Management Fee and a
Mortality and Expense Promise Fee to Lincoln National as Outlined in the
Prospectus.
Signature of Applicant
SECTION V SECTION VI
REGISTERED REPRESENTATIVE REPORT FOR HOME OFFICE USE ONLY
(Complete This Section on All Applications) (a.) Application Approved for Issue By:
(a.) PLEASE PRINT:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name of General Agents Credit
Registered Representative Agency Code (%) Registered Principal I
(b.) Remarks:
(c.) GVA Cert. #
</TABLE>
(b.) Does Applicant Appear to be in Good Mental and Physical Health? yes. No. If
No Attach Details.
(c.) Do you have any knowledge or reason to believe that proceeds Date App.
Received in Home Office from the replacement of Life- Insurance or
Annuities will be Cash with App. applied to this contract? Yes No. If yes,
attach details Register Date
<PAGE>
EXHIBIT 12
[LETTERHEAD OF LINCOLN NATIONAL LIFE]
March 31, 1980
The Lincoln National Life Insurance Company
and the
Board of Managers of Lincoln National
Variable Annuity Fund A
1300 South Clinton Street
Fort Wayne, IN 46801
Gentlemen:
As Assistant Counsel Of The Lincoln National Life Insurance Company, I
have made such examination of law and have examined such records and documents
as I have deemed necessary or appropriate to render the opinion expressed below.
I am of the opinion that upon acceptance by Lincoln National Variable
Annuity Fund A (the Fund) of contributions on behalf of a participant pursuant
to a contract issued in accordance with the prospectus contained in the
Registration Statement and, upon compliance with applicable local law, such
participant will have a legally issued, fully paid and nonassessable interest in
his individual account with the Fund.
I hereby consent to the filing of this Opinion as an exhibit to Post-
Effective Amendment No. 24 of the Fund's Registration Statement (No. 2-26342).
Very truly yours,
/s/ Robert H. Carpenter
Robert H. Carpenter
<PAGE>
Exhibit 13
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Per-Accumulation-
Unit Income and Capital Changes" and "Independent Auditors" in the Post-
Effective Amendment No. 53 to the Registration Statement (Form N-3 No. 2-25618)
and related Prospectus and Statement of Additional Information pertaining to the
Lincoln National Variable Annuity Fund A (Group) and to the use therein of our
reports dated (a) February 5, 1998, with respect to the statutory-basis
financial statements of The Lincoln National Life Insurance Company, and (b)
February 13, 1998, with respect to the financial statements of Lincoln National
Variable Annuity Fund A.
Fort Wayne, Indiana
April 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
The Fund Annual Report dated 12/31/97 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000059566
<NAME> Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 78,612,415
<INVESTMENTS-AT-VALUE> 130,314,062
<RECEIVABLES> 0
<ASSETS-OTHER> 1,144,001
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,458,063
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (153,292,578)
<SHARES-COMMON-STOCK> 8,322,820
<SHARES-COMMON-PRIOR> 9,162,402
<ACCUMULATED-NII-CURRENT> 73,282,387
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 161,684,979
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,783,275
<NET-ASSETS> 131,458,063
<DIVIDEND-INCOME> 2,455,559
<INTEREST-INCOME> 48,577
<OTHER-INCOME> 0
<EXPENSES-NET> (1,558,501)
<NET-INVESTMENT-INCOME> 945,635
<REALIZED-GAINS-CURRENT> 15,561,276
<APPREC-INCREASE-CURRENT> 17,892,073
<NET-CHANGE-FROM-OPS> 34,398,984
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152,590
<NUMBER-OF-SHARES-REDEEMED> (992,172)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22,553,213
<ACCUMULATED-NII-PRIOR> 72,336,752
<ACCUMULATED-GAINS-PRIOR> 146,123,703
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 394,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,558,501
<AVERAGE-NET-ASSETS> 122,307,043
<PER-SHARE-NAV-BEGIN> 11,737
<PER-SHARE-NII> 0.104
<PER-SHARE-GAIN-APPREC> 3.759
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.60
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 18(b)
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
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
certificates relating thereto.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Annual Reports F&RM Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual F&RM Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR F&RM Eric Jones Permanently, the first two
years in an easily accessible
place
</TABLE>
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------
<TABLE>
<S> <C> <C> <C>
Daily reports Delaware Fund Accounting Permanently, the first two
of securities years in an easily accessible
transactions place
Portfolio Securities
- --------------------
Equity Notifi- Delaware Fund Accounting Permanently, the first two
cations years in an easily accessible
place
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Public Bond Delaware Fund Accounting Permanently, the first two
Trades years in an easily accessible
Notifications place
(Bank Statement)
</TABLE>
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
<TABLE>
<S> <C> <C> <C>
Debit and Delaware Fund Accounting Permanently, the first two
Credit Advices years in an easily accessible
from Bankers place
Trust Company
</TABLE>
Receipts and Disbursements of Cash and other Debits and Credits
- -----------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Daily Journals Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
</TABLE>
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of
the collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
- --------------
<TABLE>
<S> <C> <C> <C>
LNL trial Delaware Fund Accounting Permanently, the first two
balance (4000 years in an easily accessible
series) place
</TABLE>
Separate Ledger Accounts
------------------------
Securities in Transfer
- ----------------------
<TABLE>
<S> <C> <C> <C>
Bank Advices Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Notification Treasurers- Ken Hobson
of Securities Sec. Custody
Transactions.
(Original
records main-
tained by
custodian bank.)
</TABLE>
Securities in Physical Possession
- ---------------------------------
<TABLE>
<S> <C> <C> <C>
Securities Treasurers- Ken Hobson Permanently, the first
Ledger. Sec. Custody two years in an easily
(Portfolio accessible place
report
available on
request from
Bankers Trust
Company -
Keeper of
original
records).
Monthly Securities Nate Wagley Permanently, the first
Portfolio Compliance two years in an easily
Listings accessible place
</TABLE>
Securities Borrowed and Loaned
- ------------------------------
<TABLE>
<S> <C> <C> <C>
AOS file Treasurers- Ken Hobson Permanently, the first
Sec. Custody two years in an easily
accessible place
</TABLE>
Monies Borrowed and Loaned
- --------------------------
Not Applicable.
Dividends and Interest Received
- -------------------------------
<TABLE>
<S> <C> <C> <C>
Interest File Delaware Fund Accounting Permanently, the first
Accrual two years in an easily
Activity accessible place
Journal
Dividend Master Delaware Fund Accounting Permanently, the first
File Display two years in an easily
accessible place
</TABLE>
Dividends Receivable and Interest Accrued
- -----------------------------------------
<TABLE>
<S> <C> <C> <C>
Interest File Delaware Fund Accounting Permanently, the first
Accrual two years in an easily
Activity accessible place
Journal
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Dividend Master Delaware Fund Accounting Permanently, the first
File Display two years in an easily
accessible place
</TABLE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<TABLE>
<S> <C> <C> <C>
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
</TABLE>
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
Ledger Account for each portfolio Security
- ------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inventory Delaware Fund Accounting Permanently, the first two
(on line) years in an easily accessible
place
</TABLE>
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
<TABLE>
<S> <C> <C> <C>
Broker-Dealer Delaware Fund Accounting Permanently, the first two
Ledger years in an easily accessible
place
</TABLE>
(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
- --------------------
<TABLE>
<S> <C> <C> <C>
Master file F&RM Eric Jones Permanently, the first two
record CS&RM Nancy Alford years in an easily accessible
place
</TABLE>
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Securities Position Record
- --------------------------
Maintained by Bankers Mutual Funds Permanently, the first two
Custodian of Trust Division years in an easily
Securities Company accessible place
</TABLE>
(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
- -------------------
<TABLE>
<S> <C> <C> <C>
Bylaws and Executive- Sue Womack Permanently, the first two
minute books. Corp. Secy. years in an easily
accessible place
</TABLE>
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
<TABLE>
<S> <C> <C> <C>
Sales Order or Vantage Mutual Funds Six years, the first two
Purchase Order Global Operation years in an easily
accessible place
Confirmations Vantage Mutual Funds Six years, the first two
Global Operation years in an easily
accessible place
Notification Investment Pat Roller Six years, the first two
Form (Generate Admin. years in an easily
from AOS accessible place
trading system)
</TABLE>
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
Short-Term Investments
- ----------------------
<TABLE>
<S> <C> <C> <C>
Notification Investment Pat Roller Six years, the first two
Form (Generate Admin. years in an easily
from AOS accessible place
trading system)
Bank Advice and LIM Ann Warner Six years, the first two
Issuer years in an easily
Confirmation accessible place
</TABLE>
(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
<PAGE>
(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.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
</TABLE>
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.
Trial Balance
- -------------
<TABLE>
<S> <C> <C> <C>
General Ledger Delaware Fund Accounting Permanently, the first
two years in an easily
accessible place
</TABLE>
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
<TABLE>
<S> <C> <C> <C>
Brokerage LIM Gina Rohrbacher Six years, the first two
Allocation years in an easily
Report accessible place
</TABLE>
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
<TABLE>
<S> <C> <C> <C>
Trading LIM/ Mutual Funds Six years, the first two
Authorization Vantage Operation years in an easily
Global accessible place
Advisory Law Division Jeremy Sachs Six years, the first two
Agreements years in an easily
accessible place
</TABLE>
<PAGE>
(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.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Issue Folders LIM/ Mutual Funds Six years, the first two
Vantage Operation years in an easily
Global accessible place
</TABLE>
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
<TABLE>
<S> <C> <C> <C>
Correspondence Product Nancy Alford Six years, the first two
Admin. years in an easily
Product accessible place
Management
Pricing Sheets Delaware Fund Accounting Permanently, the first
two years in an easily
accessible place
Bank State- Delaware Fund Accounting Six years, the first two
ments years in an easily
and Cash accessible place
Reconciliations
Proxy State- Annuities Nancy Alford Six years, the first two
ments and Division - years in an easily
Proxy Cards Admin. accessible place
March 12, 1998
</TABLE>
