<PAGE>
As filed with the Securities and Exchange Commission on April 25, 2000
Registration No. 2-26342
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 49 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [X]
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (INDIVIDUAL)
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[Exact Name of Registrant]
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
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[Name of Insurance Company]
1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Indiana 46801
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(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code (219)455-2000
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Elizabeth A. Frederick, Esquire
The Lincoln National Life Insurance Company
1300 S. Clinton St.
P.O. Box 1110
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
Copy to:
Kimberly J. Smith, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Ave., N.W.
Washington, DC 20004
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on 5/01/00 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
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on April 30, 1999 pursuant to paragraph (a)(1) of Rule 485
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75 days after filing pursuant to paragraph (a)(2) of Rule 485
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on pursuant to paragraph (a)(2) of Rule 485.
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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
Individual variable annuity contracts
Home Office:
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, Indiana 46802
Telephone: 1-800-454-6265
www.LincolnLife.com
This Prospectus describes an individual variable annuity contract issued by
Lincoln National Life Insurance Company (Lincoln Life) for use with certain
qualified and non-qualified retirement plans. The contractowner does not pay
federal income tax on the contract's growth until it is paid out. The contract
is designed to accumulate contract value and to provide retirement income that
the contractowner cannot outlive or for an agreed upon time. These benefits may
be a variable or a fixed amount, or a combination of both. If the contractowner
or annuitant dies before the annuity commencement date, we will pay the benefi-
ciary a death benefit.
Additional purchase payments may be made to periodic payment contracts and must
be at least $25 per payment, and total $600 annually.
The contractowner chooses whether the contract value accumulates on a variable
or a fixed (guaranteed) basis or both. If the contractowner puts all purchase
payments into the fixed account, we guarantee the principal and a minimum in-
terest rate. We limit withdrawals and transfers from the fixed side of the con-
tract.
All purchase payments for benefits on a variable basis will be placed in Lin-
coln National Variable Annuity Fund A (the fund), a segregated investment ac-
count of Lincoln Life. The main investment objective of the fund is the long-
term growth of capital in relation to the changing value of the dollar. A sec-
ondary investment objective is the production of current income. The fund seeks
to accomplish these objectives by investing in equity securities, primarily
common stocks.
The contractowner takes all the investment risk on the contract value and the
retirement income derived from purchase payments into the fund. If the fund
makes money, the contract value goes up; if the fund loses money, the contract
value goes down. How much the contract value goes up or down depends on the
performance of the fund. We do not guarantee how the fund will perform. Also,
neither the U.S. Government nor any federal agency insures or guarantees any
investment in the contract.
This Prospectus gives information about the contracts that one should know be-
fore deciding to buy a contract and make purchase payments. This Prospectus
should be kept for future reference.
Neither the SEC nor any state securities commission has approved this contract
or determined that this Prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
A Statement of Additional Information (SAI) dated May 1, 2000 about the con-
tracts has more information about the contracts, and its terms are made part of
this Prospectus. For a free copy, write: Annuities Customer Service, The Lin-
coln National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801,
or call: 1-800-454-6265. The SAI and other information about Lincoln Life and
the fund are also available on the SEC's web site (http://www.sec.gov). There
is a table of contents for the SAI on the last page of this Prospectus.
May 1, 2000
1
<PAGE>
Table of contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Special terms 2
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Expense tables 3
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Summary 4
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Condensed financial information for the fund 5
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Investment results 6
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Financial statements 6
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Lincoln National Life Insurance Co. 6
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Fixed side of the contract 6
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Fund A 6
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Charges and other deductions 7
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The contracts 8
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</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Annuity payouts 11
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More information about the fund 13
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Federal tax matters 13
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Voting rights 17
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Distribution of the contracts 17
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State regulation 17
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Restrictions under the Texas Optional Retirement Program 17
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Records and reports 17
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Other information 18
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Table of Contents for SAI 18
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</TABLE>
Special terms
(Throughout this Prospectus, we have italicized the special terms.)
Accumulation unit - A measure used to calculate contract value for the vari-
able side of the contract before the commencement of annuity date.
Annuitant - The person on whose life the annuity benefit payments are based
and made to after the annuity commencement date.
Annuity Commencement Date - The valuation date when funds are withdrawn or
converted into annuity units or fixed dollar payout for payment of annuity
benefits under the annuity payout option you select.
Annuity unit - A measure used to calculate the amount of annuity payouts after
the annuity commencement date.
Beneficiary - The person the contractowner chooses to receive the death bene-
fit that is paid if the contractowner or annuitant dies before the annuity
commencement date.
Contractowner - The annuitant or other designated person, except in cases
where a contract is issued to a trustee of a trust or a custodian (1) of a
qualified pension or profit-sharing plan or (2) of an Individual Retirement
Annuity (under Sections 401(a) and 408 of the Internal Revenue Code, or "tax
code"), or (3) where a contract is issued in connection with a deferred com-
pensation plan (under Section 457 of the tax code). In these cases, the
contractowner is the trustee or custodian.
Contract value - At a given time, the total value of all accumulation units
for a contract plus the value of the fixed side of the contract.
Contract year - Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit - The amount payable to the designated beneficiary if the
contractowner or annuitant dies before the annuity commencement date.
Lincoln Life (the Company, we, us, our) - The Lincoln National Life Insurance
Company.
Purchase payments - Amounts paid into the contract.
Participant - The individual participating in the qualified pension or profit-
sharing plan, deferred compensation plan, tax deferred annuity, or tax shel-
tered annuity.
Valuation date -- Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period -- The period starting at the close of trading (currently,
normally, 4:00 p.m. New York time) on each day that the NYSE is open for trad-
ing (valuation date) and ending at the close of such trading on the next valu-
ation date.
2
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Expense tables
Summary of Contractowner expenses:
(as a percentage of purchase payments unless otherwise indicated)
<TABLE>
<CAPTION>
Single Periodic
Premium Premium
<S> <C> <C>
Sales load on purchase payments 2%+$50 4.25%
Administrative expense $65 1.00%
Minimum death benefit rider (if elected) .75% .75%
</TABLE>
We may waive or reduce these charges in certain situations. See Charges and
other deductions. For existing holders of periodic payment contracts, we may
increase the combined sales and administrative expense charge above 5.25% for
any year's payment that is more than twice the original year's payment.
Fund A annual expenses (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees 0.32%
Mortality and expense risk charge 1.00%
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Total Annual Expenses 1.32%
</TABLE>
Examples
(expenses of the contract and the fund)
<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.
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contractowner would pay the following
expenses
on a $1,000 investment, assuming 5%
annual
return on assets: $154 $73 $179 $99 $205 $128 $279 $210
</TABLE>
We provide this table and these examples to help the contractowner and partici-
pant understand the direct and indirect costs and expenses of the contract and
the fund. The example assumes that the minimum death benefit is in effect.
Without this benefit, expenses would be lower.
For more information, see Charges and other deductions in this Prospectus. Pre-
mium taxes may also apply, although they do not appear in the examples. These
examples should not be considered a representation of past or future expenses.
Actual expenses may be more or less than those shown.
3
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Summary
What kind of contract is this? It is an individual annuity contract between
the contractowner and Lincoln Life, and is one of two types: an immediate an-
nuity or a deferred annuity. Immediate annuities may only be purchased with a
single payment; deferred annuities may be purchased with a single payment or
periodic payments. It may provide for a fixed annuity and/or a variable annui-
ty. The contracts are no longer being sold to new contractowners.
What is the fund? It is a separate account we established under Indiana insur-
ance law, and registered with the SEC as a management investment company. Fund
assets are not chargeable with liabilities arising out of any other business
which Lincoln Life may conduct. See Fund A.
Who invests the money? The investment advisor for the fund is Lincoln Life.
The sub-advisor for the fund is Vantage Investment Advisors, Inc. See Fund A.
How is the money invested? The principal investment objective of the fund is
the long-term growth of capital in relation to the changing value of the dol-
lar. A secondary investment objective is the production of current income. See
Fund A -- The investment advisor.
How does the contract work? A contractowner purchases accumulation units with
purchase payments during the accumulation phase. If the contractowner decides
to purchase annuity payouts, the accumulation units are converted to annuity
units. The amount of an annuity payout will be based on the number of annuity
units received and the value of each annuity unit on payout days. See The con-
tracts.
What charges are there under the contract? We deduct sales load from each pur-
chase payment (2% +$50 from a single payment, 4.25% from each periodic pay-
ment), along with an administrative expense ($65 from a single payment, 1.00%
from each periodic premium); and if the contractowner elects the minimum death
benefit, an additional charge of 0.75% from each purchase payment. We may re-
duce or waive these charges in certain situations. See Charges and other de-
ductions.
We also will deduct any applicable premium tax from purchase payments.
The fund pays to us a management fee equal to an annual rate of 0.323%, and a
mortality and expense risk charge equal to 1.00%, of the average daily net as-
set value of the fund. See Fund A -- Investment management.
What purchase payments must be made, and how often? Subject to the minimum
payment amounts, the payments are completely flexible. See The contracts --
Periodic Purchase payments.
How will the annuity payouts be calculated? If the contractowner decides to
annuitize, he or she may select an annuity option and start receiving annuity
payouts from the contract on a fixed basis, a variable basis, or a combination
of both. See Annuity payout options. Remember that participants in the fund
benefit from any gain, and take a risk of any loss, in the value of the secu-
rities in the fund's portfolio.
What happens if the contractowner or annuitant dies before annuitization? If
the contractowner elects the minimum death benefit, and the annuitant is age
64 or younger at the time of death, the beneficiary will receive the greater
of purchase payments (less Rider Premiums and withdrawals) or contract value.
If the contractowner does not elect the minimum death benefit or the annuitant
is 65 or older at the time of death, the beneficiary will receive contract
value. The beneficiary has options as to how the death benefit is paid. See
Death benefit before the annuity commencement date.
May contract value be transferred between the variable and fixed sides of the
contract? Yes, with certain limits. See The contracts -- Transfers.
May the contractowner surrender the contract or make a withdrawal? Yes, sub-
ject to contract requirements and to the restrictions of any qualified retire-
ment plan for which the contract was purchased. See Surrenders and withdraw-
als. A portion of surrender/withdrawal proceeds may be taxable. In addition,
if the contractowner decides to take a distribution before age 59 1/2, a 10%
Internal Revenue Service (IRS) tax penalty may apply. A surrender or a with-
drawal also may be subject to 20% withholding. See Federal tax matters--Fed-
eral income tax withholding.
4
<PAGE>
Condensed financial information for the fund
(For an accumulation unit outstanding throughout the year)
Accumulation unit values
The following information relating to accumulation unit values and number of
accumulation units for the fund for periods ending December 31 is derived from
the fund's financial statements which have been audited by Ernst & Young LLP,
independent auditors. It should be read along with the fund's financial state-
ments, notes and report of independent auditors which are included in the SAI.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $ .283 $ .301 $ .286 $ .267 $ .251 $ .217 $ .204 $ .206 $ .181 $ .146
Expenses................ .256 .217 .178 .139 .114 .095 .090 .083 .076 .064
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net investment income... .027 .084 .108 .128 .137 .122 .114 .123 .105 .082
Net realized and
unrealized gain (loss)
on investments......... 3.106 3.028 3.755 1.735 2.539 (.040) .522 (.099) 1.402 (.102)
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net increase (decrease)
in accumulation unit
value.................. 3.113 3.112 3.863 1.863 2.676 .082 .636 .024 1.507 (.020)
Accumulation unit value
at beginning of year... 18.712 15.600 11.737 9.874 7.198 7.116 6.480 6.456 4.949 4.969
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
ACCUMULATION UNIT VALUE
AT END OF YEAR......... $21.845 $18.712 $15.600 $11.737 $9.874 $7.198 $7.116 $6.480 $6.456 $4.949
======= ======= ======= ======= ====== ====== ====== ====== ====== ======
<CAPTION>
RATIOS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of expenses to
average net assets..... 1.28% 1.28% 1.27% 1.28% 1.28% 1.27% 1.27% 1.27% 1.27% 1.28%
Ratio of net investment
income to average net
assets................. .51% .54% .77% 1.17% 1.65% 1.75% 1.72% 2.01% 1.85% 1.72%
Portfolio turnover rate. 21.46% 31.10% 32.56% 49.94% 48.95% 64.09% 49.90% 70.97% 36.99% 59.57%
Number of accumulation
units outstanding at
end of year (expressed
in thousands).......... 6,366 7,176 7,723 8,462 9,569 9,908 11,538 12,742 14,185 16,554
</TABLE>
5
<PAGE>
Investment results
At times, the fund may compare its investment results to various unmanaged in-
dices or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods. Total returns include the reinvestment of all distributions,
which are reflected in the changes in unit value. See the SAI for further in-
formation.
Financial statements
The financial statements for the fund and the statutory-basis financial state-
ments for Lincoln Life are located in the SAI. For a free copy of the SAI,
call 1-800-454-6265.
Lincoln National Life Insurance Co.
Lincoln Life was founded in 1905 and is organized under Indiana law. We are
one of the largest stock life insurance companies in the United States. We are
owned by Lincoln National Corp. (LNC) which is also organized under Indiana
law. LNC's primary businesses are insurance and financial services.
Fixed side of the contract
Net purchase payments (Gross Purchase Payments minus sales and administrative
expenses) allocated to the fixed side of the contract become part of Lincoln
Life's general account, and do not participate in the investment experience of
the fund. The general account is subject to regulation and supervision by the
Indiana Department of Insurance as well as the insurance laws and regulations
of the jurisdictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, Lincoln Life has not
registered interests in the general account as securities under the Securities
Act of 1933 and has not registered the general account as an investment com-
pany under the Investment Company Act of 1940. Accordingly, neither the gen-
eral account nor any interests in it are regulated under the Securities Act or
the Investment Company Act. Lincoln Life has been advised that the staff of
the SEC has not reviewed the disclosures included in this Prospectus which re-
late to our general account and to the fixed account under the contract. Cer-
tain provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus may apply to these disclo-
sures, however. This Prospectus serves as a disclosure document only for as-
pects of the contract involving the fund, and therefore contains only selected
information regarding the fixed side of the contract. Complete details regard-
ing the fixed side of the contract are in the contract.
The contract specifies that net purchase payments allocated to the fixed side
of the contract will be credited with a minimum interest rate of at least
3.5%. A net purchase payment allocated to the fixed side of the contract is
credited with interest beginning on the next calendar day following the date
of receipt of that purchase payment, if all data is complete. Lincoln Life may
vary the way in which it credits interest to the fixed side of the contract
from time to time.
ANY INTEREST IN EXCESS OF 3.5% WILL BE DECLARED IN ADVANCE AT LINCOLN LIFE'S
SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF
3.5% WILL BE DECLARED.
Fund A
On September 16, 1966, we established the fund as a segregated investment ac-
count under Indiana Law. It is registered with the SEC as an open-end, diver-
sified management investment company under the provisions of the Investment
Company Act. Diversified means not owning too great a percentage of the secu-
rities of any one company. The fund is a segregated investment account, mean-
ing that its assets may not be charged with liabilities resulting from any
other business that we may conduct. Income, gains and losses, whether realized
or not, from assets allocated to the fund are, in accordance with the applica-
ble contracts, credited to or charged against the fund. They are credited or
charged without regard to any other income, gains or losses of Lincoln Life.
The obligations arising under the contract are obligations of Lincoln Life.
The fund satisfies the definition of separate account under the federal secu-
rities laws. We do not guarantee the investment performance of the fund. Any
investment gain or loss depends on the investment performance of the fund. The
contractowner assumes the full investment risk for all amounts placed in the
fund.
The fund is used to support annuity contracts offered by Lincoln Life other
than the contracts described in this prospectus. The other annuity contracts
may have different charges that could affect performance.
Investment advisor
We are the investment advisor for the fund. We have been registered under the
Investment Advisers Act of 1940 since 1967. For more information about us, see
Lincoln National Life Insurance Co., above; and Management, in the SAI.
The current board of managers for the fund was elected by the contractowners
(See Voting rights.) A majority of these managers are not otherwise interested
persons of Lincoln Life as the term "interested persons"
6
<PAGE>
is defined in the Investment Company Act. The Board is responsible for autho-
rizing investment programs for the fund, for recommending any appropriate
changes to those objectives and policies, and for contracting for certain
services necessary to the operation of the fund.
In performing investment management services, we provide the board of managers
with an investment program for its approval. Once the investment program is
approved, we execute the program by placing orders for the purchase or sale of
the assets of the fund. We also provide overall management of the fund's busi-
ness affairs, subject to the authority of the board of managers.
A sub-advisory agreement is in effect between Lincoln Life and Vantage Invest-
ment Advisors, Inc. ("Vantage"), 630 5th Ave., Suite 2670, New York, NY 10111,
a Delaware corporation. Under it, Vantage may perform substantially all of the
investment advisory services required by the fund. However, we remain primar-
ily responsible for investment decisions affecting the fund, and no additional
compensation from the assets of the fund is assessed as a result of this
agreement.
Investment objective and policies
The primary investment objective of the fund is long-term growth of capital in
relation to the changing value of the dollar. We will make investments with
the objective of providing annuity payments which reflect changes in the value
of the dollar over the long term. A secondary investment objective is the pro-
duction of current income. Generally, we will reinvest income and realized
capital gains.
We usually will invest the fund's assets in a portfolio of equity securities,
mainly common stocks, diversified over industries and companies. Diversifica-
tion means that we will keep the investments spread out over different indus-
tries, and different companies within each industry. We will not concentrate
any more than 25% of the fund's assets in any one industry. Diversification,
however, does not eliminate the risks inherent in the making of equity invest-
ments. These investment objectives and policies are "fundamental." That is,
they may not be changed without approval by a majority of contractowners.
Risks
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 economicconditions.
We will not invest more than 10% of the fund's assets in securities which are
privately placed with financial institutions (and cannot be sold to the public
without registering with the SEC) ("restricted securities"). We limit invest-
ment in restricted securities because the fund may not be able to sell them
quickly at a reasonable price.
Other information
For providing investment services to the fund, we make deductions aggregating
.323% annually of the average daily value of the fund. The fund paid invest-
ment advisory fees of $467,451 in 1999, $441,232 in 1998, and $394,625 in
1997.
Charges and other deductions
We will deduct the charges described below to cover our costs and expenses,
services provided and risks assumed under the contracts. We incur certain
costs and expenses for the distribution and administration of the contracts
and for paying the benefits under the contracts. Our administrative costs in-
clude: salaries, rent, postage, telephone, travel, legal, actuarial and ac-
counting fees, office equipment, and stationery. The risks we assume include:
the risk that annuitants receiving annuity payouts under a contract live
longer than we assumed when we calculated our guaranteed rates (these rates
are incorporated in the contract and cannot be changed); the risk that death
benefits paid under the minimum death benefit option (see below) will exceed
the actual contract value; the risk that more owners than expected will qual-
ify for reduced sales or administrative charges; and the risk that our costs
in providing the services will exceed our revenues from contract charges. The
amount of a charge may not necessarily correspond to the costs associated with
providing the services or benefits for which the charge is made. For example,
the sales expense charge may not fully cover all of the sales and distribution
expenses actually incurred by us.
Deductions from purchase payments
Under periodic payment contracts, we deduct 4.25% for sales expenses and 1%
for administrative expenses from each purchase payment when it is received. We
may deduct a higher combined sales and administrative expense charge from any
year's payment that is more than twice the original year's payment. Under sin-
gle payment contracts, we deduct 2% plus $50 from the single purchase payment
for sales expense and $65 for administrative expenses. Deductions for sales
and administrative expenses made from purchase payments applied to the fixed
side of the contract are the same as those made from purchase payments applied
to the fund.
7
<PAGE>
If the contractowner elected the minimum death benefit, we make an additional
deduction of .75% from each purchase payment. We expect to make a profit from
the sale of this death benefit.
We will deduct from purchase payments any premium tax or other tax levied by
any governmental entity with regard to the contracts of the fund. The applica-
ble premium tax rates that states and other governmental entities impose on the
purchase of an annuity are subject to change by legislation, by administrative
interpretation or by judicial action. These premium taxes generally depend upon
the law of the contractowner's state of residence. The tax ranges from 0% to
5.0%.
Deductions from average daily value of the fund
We assume the risk that annuitants as a class may live longer than expected
(mortality risk) and that expenses may be higher than the deductions for such
expenses (expense risk). In either case, the loss will fall on us. Conversely,
if such deductions are higher than expenses, the excess will be a profit to us.
In return for the assumption of these risks, deductions aggregating 1.002% an-
nually of the average daily value of the fund are made consisting of .9% for
mortality risk and .102% for expense risk.
We also deduct a management fee for investment advisory services equal to
0.323% annually of the average daily value of the fund. See Fund A -- Other in-
formation.
Additional Information
The sales and administrative charges described previously may be reduced or
eliminated for any particular contract. However, these charges will be reduced
only to the extent that we anticipate lower distribution and/or administrative
expenses, or that we perform fewer sales or administrative services than those
originally contemplated in establishing the level of those charges. Lower dis-
tribution and administrative expenses may be the result of economies associated
with (1) the use of mass enrollment procedures, (2) the performance of adminis-
trative or sales functions by the employer, (3) the use by an employer of auto-
mated techniques in submitting deposits or information related to deposits on
behalf of its employees or (4) any other circumstances which reduce distribu-
tion or administrative expenses. The exact amount of sales and administrative
charges applicable to a particular contract will be stated in that contract.
Experience Rating Credit
The variable annuity contracts allow us to grant an "experience rating credit."
Essentially, the experience rating credit allows (but does not require) us to
return any sales and administrative charges that were in excess of the actual
costs. During 1999, we did not pay any experience rating credits. The granting
of experience rating credits in any year in no way obligates us to grant such
credits in ensuing years.
The contracts
Purchase of contracts
We no longer offer contracts for sale. However, existing contractowners can
make purchase payments of at least $25 under the periodic contracts. The total
of periodic purchase payments made in a single year must be at least $600.
Periodic purchase payments
Periodic purchase payments are payable to us at a frequency and in an amount
the contractowner selected in the application. If the contractowner stops mak-
ing purchase payments, the contract will remain in force as a paid-up contract.
However, we may terminate the contract as allowed by the contractowner's
state's non-forfeiture law for individual deferred annuities. Payments may be
made or, if stopped, resumed at any time until the annuity commencement date,
the surrender of the contract, maturity date or the death of the contractowner
(or joint owner, if applicable), whichever comes first.
Valuation date
Accumulation and annuity units will be valued once daily at the close of trad-
ing (currently, normally, 4:00 p.m., New York time) on each day the New York
Stock Exchange is open (valuation date). On any date other than a valuation
date, the accumulation unit value and the annuity unit value will not change.
Allocation of purchase payments
Purchase payments are placed into the fund or into the fixed account, according
to the contractowner's instructions. Net Purchase payments, allocated to the
fund are converted into accumulation units and are credited to the account of
each contractowner. The number of accumulation units credited is determined by
dividing the net purchase payment by the value of an accumulation unit on the
valuation date on which the purchase payment is received at our home office if
received before 4:00 p.m., New York time. If the purchase payment is received
at or after 4:00 p.m., New York time, we will use the accumulation unit value
computed on the next valuation date. The number of accumulation units deter-
mined in this way is not changed by any subsequent change in the value of an
accumulation unit. However, the dollar value of an accumulation unit will vary
depending not only upon how well the fund's investments perform, but also upon
the expenses of the fund.
Valuation of accumulation units
Purchase payments allocated to the fund are converted into accumulation units.
This is done by dividing each purchase payment by the value of an accumulation
unit for the valuation period during which the purchase payment is allocated to
the fund. The accumulation unit value for the fund was established on March 1,
1967, at $1. It may increase or decrease from valuation period to valuation pe-
riod. We determine the value of an accumulation
8
<PAGE>
unit on the last day of any following valuation period as follows:
(1) The total value of the fund by its net asset value at end of the valuation
period; minus
(2) The liabilities of the fund at the end of the valuation period; these lia-
bilities include, daily charges imposed on the fund, and may include a
charge or credit with respect to any taxes paid or reserved for by us that
we determine result from the operations of the fund); and
(3) The result of steps (1) and (2) is divided by the number of fund units
outstanding at the beginning of the valuation period.
The daily charges imposed on the fund for any valuation period are equal to
the daily mortality and expense risk charge and the daily management fee mul-
tiplied by the number of calendar days in the valuation period.
Valuation of annuity units. We set the value of an annuity unit for the period
ending March 1, 1967, at $1. We determine the value of the annuity unit for
any following valuation period by multiplying (a) the annuity unit value from
the previous valuation period by (b) the net investment factor for the valua-
tion period containing the 14th day prior to the last day of the current valu-
ation period by (c) a factor to neutralize the assumed investment rate (AIR)
built into the annuity table 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 on which the NYSE is closed is its
value on the next day on which the NYSE is open. We use the net investment
factor for the 14th day prior to the current valuation date in calculating the
value of an annuity unit in order to calculate amounts of annuity payments and
to mail checks in advance of their due dates. We normally issue and mail such
checks at least three days before the due date.
Transfer from the fund on or before the annuity commencement date
The contractowner may transfer all or any part of the contract value from the
fund to the fixed side of the contract.
The contractowner may also transfer all or any part of the contract value from
the fixed side of the contract to the fund subject to the following restric-
tions: (1) the sum of the percentages of fixed value transferred is limited to
25% of the value of the fixed side in any 12-month period; and (2) the minimum
amount which can be transferred is $300 or the amount in the fixed account.
Transfers after the annuity commencement date
The contractowner may transfer all or a portion of his or her investment in
the fund to the fixed side of the contract. Those transfers will be limited to
three times per contract year. Currently, there is no charge for these trans-
fers. However, we reserve the right to impose a charge. No transfers are al-
lowed from the fixed side of the contract to the fund.
Death benefit before the annuity commencement date
Qualified Contracts. The contractowner may designate a beneficiary during the
life of the annuitant and change the beneficiary by filing a written request
with our home office. Each change of beneficiary revokes any previous designa-
tion. We reserve the right to request that the contract for endorsement of a
change of beneficiary be sent to us.
If the annuitant dies before the annuity commencement date, we will pay the
beneficiary a death benefit equal to the contract value, or, if greater and
you have elected it, the minimum death benefit.
The value of the death benefit will be determined as of the date on which the
death claim is approved for payment. This payment will occur upon receipt of:
(1) proof, satisfactory to us, of the death of the annuitant; (2) written au-
thorization for payment; and (3) our receipt of all required claim forms,
fully completed.
The minimum death benefit is equal to the total purchase payments applied mi-
nus any withdrawals, partial annuitizations, premium taxes incurred and rider
premiums.
If the death benefit becomes payable, the beneficiary may elect to receive
payment either in the form of a lump sum settlement or an annuity payout. Fed-
eral tax law requires that an annuity election be made no later than 60 days
after we receive satisfactory notice of death as discussed previously.
If a lump sum settlement is requested, the proceeds will be mailed within
seven days of receipt of satisfactory claim documentation as discussed previ-
ously, subject to the laws and regulations governing payment of death bene-
fits. If an election has not been made by the end of the 60 day period, a lump
sum settlement will be made to the beneficiary at that time. This payment may
be postponed as permitted by the Investment Company Act.
Payment will be made in accordance with applicable laws and regulations gov-
erning payment of death benefits.
Unless otherwise provided in the beneficiary designation, one of the following
procedures will take place on the death of a beneficiary:
1. If any beneficiary dies before the annuitant, that beneficiary's interest
will go to any other beneficiaries named, according to their respective in-
terests (There are no restrictions on the beneficiary's use of the pro-
ceeds.); and/or
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<PAGE>
2. If no beneficiary survives the annuitant, the proceeds will be paid to the
contractowner, or to the contractowner's estate, as applicable.
Nonqualified Contracts. If the contractowner of a nonqualified contract dies
before the annuity commencement date, then, in compliance with the tax code,
the contract value of the contract will be paid as follows:
1. Upon the death of a nonannuitant contractowner, the contract value shall be
paid to any surviving joint or contingent owner(s). If no joint or contin-
gent owner has been named, then the contract value shall be paid to the an-
nuitant named in the contract; and
2. Upon the death of a contractowner, who is also the annuitant, the death
will be treated as death of the annuitant and the provisions of this con-
tract regarding death of annuitant will control. If the beneficiary is the
surviving spouse of the contractowner, the surviving spouse may elect to
continue the contract, in his or her name as the new contractowner, and the
contract will continue as though no death benefit had been payable.
The tax code requires that any distribution be paid within five years of the
death of the contractowner unless the beneficiary begins receiving, within one
year of the contractowner's death, the distribution in the form of a life an-
nuity or an annuity for a designated period not exceeding the beneficiary's
life expectancy.
Joint/contingent ownership
If a joint owner is named in the application, the joint owners shall be
treated as having equal undivided interests in the contract. Either owner, in-
dependently of the other, may exercise any ownership rights in this contract.
A contingent owner may not exercise ownership rights in this contract while
the contractowner is living.
Surrenders and withdrawals
Before the annuity commencement date, we will allow the surrender of the con-
tract or a withdrawal of a portion of the contract value upon the
contractowner's written request, subject to the rules discussed below. Surren-
der or withdrawal rights after the annuity commencement date depend upon the
annuity option elected by the contractowner.
The contract value available upon surrender/withdrawal is the contract value
at the end of the valuation period during which the written request for
surrender/withdrawal is received at the home office. Unless prohibited,
surrender/withdrawal payments will be mailed within seven days after we re-
ceive a valid written request at the home office. The payment may be postponed
as permitted by the Investment Company Act.
The tax consequences of a surrender are discussed later in this Prospectus.
See Federal tax matters.
Participants in the Texas Optional Retirement Program should refer to the Re-
strictions under the Texas Optional Retirement Program, later in this Prospec-
tus.
We may terminate the contract, if the frequency of purchase payments or the
contract value falls below the contractowner's state's minimum standards.
Delay of Payments
Contract proceeds from the fund will be paid within seven days, except (i)
when the NYSE is closed (except weekends and holidays); (ii) times when market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect contract owners.
Reinvestment privilege
The contractowner may elect to make a reinvestment purchase with any part of
the proceeds of a surrender/withdrawal of the contract without any deductions
by the Company. This election must be made within 30 days of the date of the
surrender/withdrawal, and the repurchase must be of a contract covered by this
Prospectus. The contractowner must represent to us that the proceeds being
used to make the purchase have retained their tax-favored status under an ar-
rangement for which the contracts offered by this Prospectus are designed. The
number of accumulation units which will be credited when the proceeds are re-
invested will be based on the value of the accumulation units on the next val-
uation date (see More information about the fund -- Valuing the fund's as-
sets). This computation will occur following receipt of the proceeds and re-
quest for reinvestment at our home office. The contractowner may utilize the
reinvestment privilege only once. For tax reporting purposes, we will treat a
surrender/withdrawal and a subsequent reinvestment purchase as separate trans-
actions. A tax advisor should be consulted before a request for
surrender/withdrawal or subsequent reinvestment purchase is made.
Amendment of contract
We reserve the right to amend the contract to meet the requirements of the In-
vestment Company Act or other applicable federal or state laws or regulations.
The contractowner will be notified in writing of any changes, modifications or
waivers.
Commissions
The commissions paid to dealers are a maximum of 5.25% of each purchase pay-
ment.
Ownership
The contractowner has all rights under the contract. According to Indiana law,
the assets of the fund are held for the exclusive benefit of all
contractowners and their designated beneficiaries; and the assets of the fund
are not chargeable with liabilities arising from any other
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<PAGE>
business that we may conduct. Qualified contracts may not be assigned or
transferred except as permitted by the Employee Retirement Income Security Act
(ERISA) of 1974 and upon written notification to us. Non-qualified contracts
may not be collaterally assigned. We assume no responsibility for the validity
or effect of any assignment. Consult a tax advisor about the tax consequences
of an assignment.
Contractowner questions
The obligations to purchasers under the contracts are those of Lincoln Life.
Questions about the contracts should be directed to us at 1-800-454-6265.
Annuity payout options
When you applied for a contract, you could select any annuity commencement
date permitted by law. (Please note the following exception: Contracts issued
under qualified employee pension and profit-sharing trusts [described in Sec-
tion 401(a) and tax exempt under Section 501(a) of the tax code] and qualified
annuity plans [described in Section 403(a) of the tax code], including H.R. 10
trusts and plans covering self-employed individuals and their employees, pro-
vide for annuity payouts to start at the date and under the option specified
in the plan.)
The contract provides optional forms of payouts of annuities (annuity op-
tions), each of which is payable on a variable basis, a fixed basis or a com-
bination of both. The contract provides that all or part of the contract value
may be used to purchase an annuity.
You may elect annuity payouts in monthly, quarterly, semi-annual or annual in-
stallments. If the payouts would be or become less than $50, we have the right
to reduce their frequency until the payouts are at least $50 each. Following
are explanations of the annuity payout options available.
Payouts for guaranteed period. This option guarantees periodic payouts during
a designated period, usually 10 or 20 years. However, under contracts issued
in connection with Section 403(b) plans, this option is not available if the
sum of the number of years over which monthly payouts would be made and the
age of the annuitant on the first scheduled payment date is greater than 95.
Life income with payouts for guaranteed period. This option guarantees peri-
odic payouts during a designated period of 10, 15 or 20 years, and then con-
tinues throughout the lifetime of the annuitant. The contractowner selects the
designated period.
Unit refund life annuity. This option offers a periodic payout during the
lifetime of the annuitant with the guarantee that upon death a payout will be
made of the value of the number of annuity units equal to the excess, if any,
of: (a) the total amount applied under this option, divided by the annuity
unit value for the date payouts begin, divided by (b) the annuity units repre-
sented by each payout to the annuitant multiplied by the number of payouts
paid before death. The value of the number of annuity units is computed on the
date the death claim is approved for payment by the home office. (Not avail-
able as a fixed payout).
Payouts of designated amount. This option offers equal annual, semi-annual,
quarterly or monthly payouts of a designated amount (not less than $50 per
year per $1,000 of original proceeds left with us) until the proceeds are ex-
hausted. The minimum amount withdrawable under this option is not necessarily
the recommended amount. This option is not available under contracts issued in
connection with Section 403(b) plans. (Not available as a fixed payout).
Interest income. Under this option, the proceeds may be left on deposit with
us, subject to withdrawal upon demand, and interest will be paid annually,
semi-annually, quarterly or monthly as the contractowner elects. We guarantee
an interest rate of 3% per year. This option is not available under contracts
issued in connection with Section 403(b) plans. (Not available as a variable
payout).
Annuity settlement. This option offers payouts in the form provided by any
single payment immediate annuity contract issued by us on the date the pro-
ceeds become payable. However, the amount of the first payment shall be 103%
of the first payment which such proceeds would otherwise provide under such
annuity contract on the basis of the Company's rates in effect on such date.
In calculating the first payment under the single payment immediate annuity
contract selected under this option, we assume that a deduction for sales and
administrative expenses has been made from the amount applied.
Life annuity. This option offers periodic payouts during the lifetime of the
annuitant and ends with the last payout before the death of the annuitant.
This option offers the highest periodic payout since there is no guarantee of
a minimum number of payouts or provision for a death benefit for beneficia-
ries. However, there is the risk under this option that the recipient would
receive no payouts if the annuitant dies before the date set for the first
payout; only one payout if death occurs before the second scheduled payout,
and so on.
Joint and last survivor annuity. This option offers periodic payouts during
the joint lifetime of the annuitant and a designated second person. The
payouts continue during the lifetime of the survivor.
Joint and two-thirds to survivor annuity. This option provides a periodic
payouts during the joint lifetime of the annuitant and a designated second
person. When one of the joint annuitants dies, the survivor receives two
thirds of the periodic payout made when both were alive.
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<PAGE>
If any payee dies after an annuity payout becomes operative, then we will pay
the following to the payee's estate (unless otherwise specified in the election
option): the present value of unpaid payments under the payouts for guaranteed
period or life income with guaranteed period; the amount payable at the death
of the payee under the unit refund; or the proceeds remaining with Lincoln Life
under the payouts of designated amount or interest income. If the annuity set-
tlement has been selected and becomes operative, when the last payee dies, we
will pay the remainder of the contract in a single sum to the last payee's es-
tate (unless otherwise specified in the election option).
Present values will be based on the Assumed Investment Rate [see Assumed in-
vestment rate (AIR)] used in determining annuity payments. 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 risks.
General information
None of the options listed above currently provides withdrawal features, per-
mitting the contractowner to withdraw commuted values as a lump sum payment.
Other options, with or without withdrawal features, may be made available by
us. Options are only available to the extent they are consistent with the re-
quirements of the contract as well as Sections 72(s) and 401(a)(9) of the tax
code, if applicable.
The annuity commencement date is usually on or before the annuitant's 85th
birthday. The annuity commencement date may be changed upon written notice to
our home office. We must be given at least 30 days notice before the date on
which payouts are to begin. If proceeds become available to a beneficiary in a
lump sum, the beneficiary may choose any annuity payout option.
Unless another option is selected, the contract automatically provides for a
life annuity with annuity payouts guaranteed for 10 years (on a fixed, variable
or combination fixed and variable basis, in proportion to the account alloca-
tions at the time of annuitization) except when a joint life payout is required
by law. Under any option providing for guaranteed payouts, the number of
payouts which remain unpaid at the date of the annuitant's death (or surviving
annuitant's death in the case of a joint life annuity) will be paid to the ben-
eficiary as payouts become due.
Assumed investment rate (AIR)
The contractowner may elect an AIR of 3.5%, 4.5% or 5%, as state law or regula-
tions permit. These AIRs are used to determine the required level of employer
contributions in connection with certain pension plans. They do not reflect how
the value of the fund's investments has grown or will grow.
The contractowner's choice of AIR affects the pattern of annuity payments. A
higher AIR will produce a higher initial payment but a more slowly rising se-
ries of subsequent payments (or a more rapidly falling series of subsequent
payments) than a lower AIR.
The following table shows the annuity unit values at each year end for the dif-
ferent AIRs:
Annuity Unit Values Assumed Investment Rate
<TABLE>
<CAPTION>
December
31 3.5% 4.5% 5%
- ---------------------------
<S> <C> <C> <C>
1990 2.175 1.739 1.556
1991 2.565 2.031 1.809
1992 2.705 2.120 1.476
1993 2.870 2.227 1.964
1994 2.805 2.156 1.892
1995 3.718 2.830 2.472
1996 4.268 3.218 2.797
1997 5.482 4.094 3.541
1998 6.353 4.699 4.045
1999 7.167 5.250 4.500
</TABLE>
Variable annuity payouts
Variable annuity payouts will be determined using:
1. The contract value on the annuity commencement date;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
4. The investment performance of the fund(s) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the contract with a fixed number of annuity units equal to the first
periodic payout divided by the annuity unit value; and
3. Calculate the value of the annuity units each period thereafter.
We may use sex distinct tables in contracts that are not associated with em-
ployer sponsored plans.
When calculating the first payment under a single payment immediate annuity
contract, you should assume that a deduction for sales and administrative ex-
penses (which currently amounts to 2% plus $115 for single payment variable an-
nuity contracts) has been made from the amount applied under this provision.
Immediate annuity contracts. For immediate annuities, the number of annuity
units purchased is specified in the contract. We determine the number of annu-
ity units by (a) multiplying the net single payment (after deductions) by the
applicable annuity factor from the annuity table that we are then using for im-
mediate variable annuity contracts, and then (b) dividing by the value of the
annuity unit based on the net investment factor calculated on the valuation
date of the day or the day after the contract was issued. This number of annu-
12
<PAGE>
ity units does not change during the annuity period, and we determine the dol-
lar amount of the annuity payment by multiplying the number of annuity units
by the then value of an annuity unit.
More information about the fund
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 that day,
then the value of the security is taken to be the average of the reported bid
and asked prices at the time which the value is being determined.
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 or other as-
sets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Managers.
Restrictions
The investments of the fund are subject to the provisions of the Indiana In-
surance Law concerning earnings records, preferred stock overage, self-deal-
ing, 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 instru-
mentalities 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 neces-
sary for the clearance of transactions.
9. Invest in the securities of a company for the purpose of exercising man-
agement or control.
10. Place emphasis upon obtaining short-term trading profits, but it may en-
gage 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 Condensed financial
information for the fund.) The securities markets in general have experi-
enced volatility due to rapidly shifting economic trends. This volatility
can affect turnover.
11. Plan to make investments in securities of other investment companies. How-
ever, 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.
Sales and administrative charges and agreements
The administrative and sales services are provided under a Sales and Adminis-
trative Services Agreement executed by the Company and the fund. For sales and
administrative expenses, the fund paid $6,920 in 1999, $10,852 in 1998 and
$9,784 in 1997.
Custodian
Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, Brooklyn, NY 11245
("Chase") is Custodian for the fund pursuant to a Custodian Agreement effec-
tive October 1, 1998.
Federal tax matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes un-
certain. The Federal income tax rules may vary with your particular circum-
stances. This discussion does not include all the Federal income tax rules
that may affect you and your contract. This discussion also does not address
other Federal tax consequences, or state or local tax consequences, associated
with the contract. As a result, you should always consult a tax adviser about
the application of tax rules to your individual situation.
Taxation of nonqualified annuities
This part of the discussion describes some of the Federal income tax rules ap-
plicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan receiving special tax
treatment under the tax code, such as an IRA or a section 403(b) plan.
13
<PAGE>
Tax Deferral on Earnings
The Federal income tax law generally does not tax any increase in your con-
tract value until you receive a contract distribution. However, for this gen-
eral rule to apply, certain requirements must be satisfied:
. An individual must own the contract (or the tax law must treat the contract
as owned by an individual).
. The investments of the fund must be "adequately diversified" in accordance
with IRS regulations.
. Your right to choose particular investments for a contract must be limited.
. The annuity commencement date must not occur near the end of the annuitant's
life expectancy.
Contracts not owned by an individual
If a contract is owned by an entity (rather than an individual), the tax code
generally does not treat it as an annuity contract for Federal income tax pur-
poses. This means that the entity owning the contract pays tax currently on
the excess of the contract value over the purchase payments for the contract.
Examples of contracts where the owner pays current tax on the contract's earn-
ings are contracts issued to a corporation or a trust. Exceptions to this rule
exist. For example, the tax code treats a contract as owned by an individual
if the named owner is a trust or other entity that holds the contract as an
agent for an individual. However, this exception does not apply in the case of
any employer that owns a contract to provide deferred compensation for its em-
ployees.
Investments in the fund must be diversified
For a contract to be treated as an annuity for Federal income tax purposes,
the investments of the fund must be "adequately diversified." IRS regulations
define standards for determining whether the investments of the fund are ade-
quately diversified. If the fund fails to comply with these diversification
standards, you could be required to pay tax currently on the excess of the
contract value over the contract purchase payments. Although we do not control
the investments of the underlying investment options, we expect that the un-
derlying investment options will comply with the IRS regulations so that the
fund will be considered "adequately diver-sified."
Restrictions
Federal income tax law limits your right to choose particular investments for
the contract. Because the I.R.S. has not issued guidance specifying those lim-
its, the limits are uncertain and your right to allocate contract values among
the subaccounts may exceed those limits. If so, you would be treated as the
owner of the assets of the fund and thus subject to current taxation on the
income and gains from those assets. We do not know what limits may be set by
the I.R.S. in any guidance that it may issue and whether any such limits will
apply to existing contracts. We reserve the right to modify the contract with-
out your consent to try to prevent the tax law from considering you as the
owner of the assets of the fund.
Age at which annuity payouts begin
Federal income tax rules do not expressly identify a particular age by which
annuity payouts must begin. However, those rules do require that an annuity
contract provide for amortization, through annuity payouts, of the contract's
purchase payments and earnings. If annuity payouts under the contract begin or
are scheduled to begin on a date past the annuitant's 85th birthday, it is
possible that the tax law will not treat the contract as an annuity for Fed-
eral income tax purposes. In that event, you would be currently taxable on the
excess of the contract value over the purchase payments of the contract.
Tax Treatment of Payments
We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that your contract will be treated as an annuity for Federal income tax pur-
poses and that the tax law will not tax any increase in your contract value
until there is a distribution from your contract.
Taxation of withdrawals and surrenders
You will pay tax on withdrawals to the extent your contract value exceeds your
purchase payments in the contract. This income (and all other income from your
contract) is considered ordinary income. A higher rate of tax is paid on ordi-
nary income than on capital gains. You will pay tax on a surrender to the ex-
tent the amount you receive exceeds your purchase payments. In certain circum-
stances your purchase payments are reduced by amounts received from your con-
tract that were not included in income.
Taxation of annuity payouts
The tax code imposes tax on a portion of each annuity payout (at ordinary in-
come tax rates) and treats a portion as a nontaxable return of your purchase
payments in the contract. We will notify you annually of the taxable amount of
your annuity payout. Once you have recovered the total amount of the purchase
payment in the contract, you will pay tax on the full amount of your annuity
payouts. If annuity payouts end because of the annuitant's death and before
the total amount of the purchase payments in the contract has been received,
the amount not received generally will be deductible.
Taxation of death benefits
We may distribute amounts from your contract because of the death of a
contractowner or an annuitant. The tax treatment of these amounts depends on
whether you or the annuitant dies before or after the annuity commencement
date.
. Death prior to the annuity commencement date--
. If the beneficiary receives death benefits under an annuity payout op-
tion, they are taxed in the same manner as annuity payouts.
14
<PAGE>
. If the beneficiary does not receive death benefits under an annuity pay-
out option, they are taxed in the same manner as a withdrawal.
. Death after the annuity commencement date--
. If death benefits are received in accordance with the existing annuity
payout option, they are excludible from income if they do not exceed the
purchase payments not yet distributed from the contract. All annuity
payouts in excess of the purchase payments not previously received are
includible in income.
. If death benefits are received in a lump sum, the tax law imposes tax on
the amount of death benefits which exceeds the amount of purchase pay-
ments not previously received.
Penalty taxes payable on withdrawals, surrenders, or annuity payouts
The tax code may impose a 10% penalty tax on any distribution from your con-
tract which you must include in your gross income. The 10% penalty tax does
not apply if one of several exceptions exists. These exceptions include with-
drawals, surrenders, or annuity payouts that:
. you receive on or after you reach age 59 1/2,
. you receive because you became disabled (as defined in the tax law),
. a beneficiary receives on or after your death, or
. you receive as a series of substantially equal periodic payments for your
life (or life expectancy).
Special rules if you own more than one annuity contract
In certain circumstances, you must combine some or all of the nonqualified an-
nuity contracts you own in order to determine the amount of an annuity payout,
a surrender, or a withdrawal that you must include in income. For example, if
you purchase two or more deferred annuity contracts from the same life insur-
ance company (or its affiliates) during any calendar year, the tax code treats
all such contracts as one contract. Treating two or more contracts as one con-
tract could affect the amount of a surrender, a withdrawal or an annuity pay-
out that you must include in income and the amount that might be subject to
the penalty tax described above.
Loans and assignments
Except for certain qualified contracts, the tax code treats any amount re-
ceived as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of your contract value, as a withdrawal of
such amount or portion.
Gifting a contract
If you transfer ownership of your contract to a person other than your spouse
(or to your former spouse incident to divorce), and receive a payment less
than your contract's value, you will pay tax on your contract value to the ex-
tent it exceeds your purchase payments not previously received. The new own-
er's purchase payments in the contract would then be increased to reflect the
amount included in your income.
Charges for a contract's death benefit
Your contract may have a minimum death benefit rider, for which you pay an an-
nual charge, computed daily. It is possible that the tax law may treat all or
a portion of the minimum death benefit rider charge as a contract withdrawal.
Loss of interest deduction
After June 8, 1997, if a contract is issued to a taxpayer that is not an indi-
vidual, or if a contract is held for the benefit of an entity, the entity will
lose a portion of its deduction for otherwise deductible interest expenses.
This disallowance does not apply if you pay tax on the annual increase in the
contract value. Entities that are considering purchasing a contract, or enti-
ties that will benefit from someone else's ownership of a contract, should
consult a tax advisor.
Tax Treatment Of Qualified Contracts
The Federal income tax rules applicable to qualified plans and qualified con-
tracts vary with the type of plan and contract. For example,
. Federal tax rules limit the amount of purchase payments that can be made,
and the tax deduction or exclusion that may be allowed for the purchase pay-
ments. These limits vary depending on the type of qualified plan and the
plan participant's specific circumstances, e.g., the participant's compensa-
tion.
. Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the an-
nuitant must begin receiving payments from the contract in certain minimum
amounts by a certain age, typically age 70 1/2. However, these "minimum dis-
tribution rules" do not apply to a Roth IRA.
. Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) plans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are sub-
ject to a variety of limitations, including restrictions as to the loan
amount, the loan's duration, and the manner of repayment. Your contract or
plan may not permit loans.
15
<PAGE>
Qualified retirement plans
We also designed the contracts for use in connection with certain types of re-
tirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called "quali-
fied contracts." We issue contracts for use with different types of qualified
plans. The Federal income tax rules applicable to those plans are complex and
varied. As a result, this Prospectus does not attempt to provide more than gen-
eral information about use of the contract with the various types of qualified
plans. Persons planning to use the contract in connection with a qualified plan
should obtain advice from a competent tax advisor.
Types of Qualified Contracts and Terms of Contracts
Currently, we issue contracts in connection with the following types of quali-
fied plans:
. Individual Retirement Accounts and Annuities ("Traditional IRAs")
. Roth IRAs
. Simplified Employee Pensions ("SEPs")
. Savings Incentive Matched Plan for Employees ("SIMPLE 401(k) plans")
. Public school system and tax-exempt organization annuity plans ("403(b)
plans")
. Qualified corporate employee pension and profit-sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
. Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
. Deferred compensation plans of state and local governments and tax-exempt or-
ganizations ("457 plans").
We may issue a contract for use with other types of qualified plans in the fu-
ture.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions, regardless of the contract's terms and conditions. In addition, we
are not bound by the terms and conditions of qualified plans to the extent such
terms and conditions contradict the contract, unless we consent.
Tax treatment of payments
Federal income tax rules generally include distributions from a qualified con-
tract in the recipient's income as ordinary income. These taxable distributions
will include purchase payments that were deductible or excludible from income.
Thus, under many qualified contracts the total amount received is included in
income since a deduction or exclusion from income was taken for purchase pay-
ments. There are exceptions. For example, you do not include amounts received
from a Roth IRA in income if certain conditions are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a mini-
mum required distribution exceeds the actual distribution from the qualified
plan.
Federal penalty taxes payable on distributions
The tax code may impose a 10% penalty tax on the amount received from the qual-
ified contract that must be included in income. The tax code does not impose
the penalty tax if one of several exceptions applies. The exceptions vary de-
pending on the type of qualified contract you purchase. For example, in the
case of an IRA, exceptions provide that the penalty tax does not apply to a
withdrawal, surrender, or annuity payout:
.received on or after the annuitant reaches age 59 1/2,
. received on or after the annuitant's death or because of the annuitant's dis-
ability (as defined in the tax law),
. received as a series of substantially equal periodic payments for the
annuitant's life (or life expectancy), or
. received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific re-
quirements of the exception may vary.
Transfers and direct rollovers
In many circumstances, money may be moved between qualified contracts and qual-
ified plans by means of a rollover or a transfer. Special rules apply to such
rollovers and transfers. If the applicable rules are not followed, you may suf-
fer adverse Federal income tax consequences, including paying taxes which might
not otherwise have had to be paid. A qualified advisor should always be con-
sulted before you move or attempt to move funds between any qualified plan or
contract and another qualified plan or contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 401(a) plans, section 403(a) or (b) plans, HR 10
plans, and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs or section 457 plans.)
The direct rollover rules require that we withhold Federal income tax equal to
20% of the eligible rollover distribution from the distribution amount, unless
you elect to have
16
<PAGE>
the amount directly transferred to certain qualified plans or contracts. Be-
fore we send a rollover distribution, we will provide the recipient with a no-
tice explaining these requirements and how the 20% withholding can be avoided
by electing a direct rollover.
Federal income tax withholding
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the distributee notifies us at or
before the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender, or annuity payout is requested, we will give the
recipient an explanation of the withholding requirements.
Tax status of Lincoln Life
Under existing Federal income tax laws, Lincoln Life does not pay tax on in-
vestment income and realized capital gains of the fund. Lincoln Life does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the fund. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the fund, we may impose a charge against
the fund to pay the taxes.
Changes in the law
The above discussion is based on the tax code, IRS regulations, and interpre-
tations existing on the date of this Prospectus. However, Congress, the IRS,
and the courts may modify these authorities, sometimes retroactively.
Voting rights
Contractowners who have interests in the fund may cast votes. The number of
votes the contractowners have the right to cast will be determined as follows:
in the accumulation period, the number of votes equals the number of accumula-
tion units; in the annuity payout period, the number of votes equals (a) the
amount of assets in the fund established to meet the annuity obligations re-
lated to the annuitant divided by (b) the value of an accumulation unit. Frac-
tional shares will be recognized in determining the number of votes.
During the annuity period, every contractowner has the right to give instruc-
tions regarding all votes attributable to the assets established in the fund
to meet the annuity obligations related to that contractowner.
Whenever a meeting of the fund is called, each contractowner having a voting
interest in the fund will receive proxy voting material, reports, and other
materials.
Distribution of the contracts
We are the distributor and principal underwriter of the contracts. The con-
tracts were sold by properly licensed registered representatives of indepen-
dent broker-dealers which in turn have selling agreements with us and have
been licensed by state insurance departments to represent us. We are regis-
tered with the SEC as a broker-dealer, under the Securities Exchange Act of
1934, and are a member of the National Association of Securities Dealers
(NASD).
State regulation
As a life insurance company organized and operating under Indiana law, the
Company is subject to provisions governing life insurers and to regulation by
the Indiana Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Insurance Department at all times. A full examination of our operations is
conducted by the Indiana Department of Insurance at least once every five
years.
Restrictions under the Texas Optional Retirement Program
Title 8, Section 830.105 of the Texas Government Code 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 cer-
tificate of termination from his or her employer before he or she can redeem
his or her account.
Records and reports
As presently required by the Investment Company Act and applicable regula-
tions, we are responsible for maintaining all records and accounts relating to
the fund. We have entered into an agreement with the Delaware Management Com-
pany, 2005 Market Street, Philadelphia, PA, 19203, to provide accounting serv-
ices to the fund. We will mail to each contractowner, at his or her last
known address of record at the home office, at least semiannually after the
first contract year, reports containing information required by the Investment
Company Act or any other applicable law or regu-lation.
17
<PAGE>
Other information
A Registration Statement has been filed with the SEC, under the Securities
Act, for the contracts being offered here. This Prospectus does not contain
all the information in the Registration Statement, its amendments and exhib-
its. Please refer to the Registration Statement for further information about
the fund, Lincoln Life, and the contracts offered. Statements in this Prospec-
tus about the content of the contracts and other legal instruments are summa-
ries. For the complete text of those contracts and instruments, please refer
to those documents as filed with the SEC.
Legal proceedings
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of those proceedings are rou-
tine and in the ordinary course of business. In some instances they include
claims for unspecified or substantial punitive damages and similar types of
relief in addition to amounts for equitable relief. After consultation with
legal counsel and a review of available facts, it is management's opinion that
the ultimate liability, if any, under these suits will not have a material ad-
verse effect on the financial position of Lincoln Life.
Lincoln Life is presently defending several lawsuits in which Plaintiffs seek
to represent national classes of policyholders in connection with alleged
fraud, breach of contract and other claims relating to the sale of interest-
sensitive universal and participating whole life insurance policies. As of the
date of this prospectus, the courts have not certified a class in any of the
suits. Plaintiffs seek unspecified damages and penalties for themselves and on
behalf of the putative class. Although the relief sought in these cases is
substantial, the cases are in the preliminary stages of litigation, and it is
premature to make assessments about potential loss. If any, Management is de-
fending these suits vigorously. The amount of liability, if any, which may ul-
timately arise as a result of these suits cannot be reasonably determined at
his time.
Table of Contents for SAI
<TABLE>
<CAPTION>
Item
<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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Item
<S> <C>
Purchase and Pricing of Securities Being Offered B-3
- -----------------------------------------------------
Calculation of Investment Results B-5
- -----------------------------------------------------
Distribution of Variable Annuity Contracts B-4
- -----------------------------------------------------
Other Services B-4
- -----------------------------------------------------
Underwriters B-5
- -----------------------------------------------------
Determination of Net Asset Value B-5
- -----------------------------------------------------
Financial Statements B-5
</TABLE>
...............................................................................
Please send me a free copy of the current Statement of Additional Information
for Lincoln National Variable Annuity Fund A (Individual):
(Please Print)
Name: ________________________________ Social Security No.: __________________
Address: ______________________________________________________________________
City _________________________________ State ____________
Zip _______________
Mail to Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne,
Indiana 46801
18
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (Individual)
(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 (Individual) dated
May 1, 2000. You may obtain a copy of the Fund A (Individual) Prospectus on
request and without charge. Please write Annuities Customer Service, The Lin-
coln 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
Calculation of Investment Results.......................................... B-5
Distribution of Variable Annuity Contracts................................. B-5
Other Services............................................................. B-5
Underwriters............................................................... B-5
Determination of Net Asset Value........................................... B-5
Financial Statements....................................................... B-5
</TABLE>
---------
The date of this Statement of Additional Information is May 1, 2000
Form 10586 (SAI) 4/99
SAI-AI
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (Individual)
GENERAL INFORMATION AND HISTORY OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
The Lincoln National Life Insurance Company (the Company) is an Indiana in-
surance corporation, engaged primarily in the direct issuance of life insur-
ance contracts and annuities, and is also a professional reinsurer. The Com-
pany is wholly owned by Lincoln National Corporation, a publicly-held insur-
ance holding company domiciled in Indiana that engages in insurance and finan-
cial services.
SPECIAL TERMS
The Special terms used in this SAI are the ones defined in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
This information is discussed in the Prospectus.
MANAGEMENT
Managers and Officers of the Fund
The Fund is managed by a Board of Managers, whose Members are elected annu-
ally by the Contract Owners. The affairs of the Fund are conducted in accor-
dance 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 66 Retired (formerly Director of Investments,
1776 Sherwood Road Northwestern University, Evanston, Illinois)
Des Plaines, IL 60016
*Kelly D. Clevenger Chairman and 47 Vice President, Lincoln National Life Insurance Company
1300 S. Clinton Street Member
Fort Wayne, IN 46802
*Barbara S. Kowalczyk Member 48 Senior Vice President, Lincoln National Corporation
Centre Square, West (formerly
Tower, Senior Vice President Lincoln Investment Management, Inc.)
1500 Market St., Suite
3900
Philadelphia, PA 19102-
2112
Nancy L. Frisby, MBA, CPA Member 58 Vice President/Chief Financial Officer
127 Sinclair Street, S.W. DeSoto Memorial Hospital
Port Charlotte, FL 33952
Kenneth G. Stella Member 56 President, Indiana Hospital and Health Association,
One American Square Indianapolis, Indiana
Indianapolis, IN 46282
*Cynthia A. Rose Secretary to the Board 45 Secretary/AVP, Lincoln National Life Insurance Company
1300 S. Clinton St. of Managers
Fort Wayne, IN 46802
*Janet C. Chrzan Vice President and 51 Vice President and Treasurer, Lincoln National Corporation
Centre Square, West Treasurer
Tower,
1500 Market St., Suite
3900
Philadelphia, PA 19102-
2112
</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 ex-
penses relative to the operation of the Fund, for which it deducts certain
amounts (see the Prospectus).
SAI-AI
B-2
<PAGE>
Code of Ethics
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940 Act
to engage in personal securities transactions, subject to the terms of a Code
of Ethics that has been adopted by the Fund's Board of Managers. Access Per-
sons are required to follow the guidelines established by the Fund's Code of
Ethics in connection with all personal securities transactions and are subject
to certain prohibitions on personal trading. The Fund's Adviser, Sub-Adviser
and Principal Underwriter, pursuant to Rule 17j-1 and other applicable laws
and pursuant to the terms of the Fund's Code of Ethics, must adopt and enforce
their own Codes of Ethics appropriate to their operations. The Fund's Board of
Managers is required to review and approve the Codes of Ethics for its Advis-
er, Sub-Adviser and Principal Underwriter.
The Code of Ethics for the Fund, Adviser, Sub-Adviser and Principal Under-
writer can be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C. The hours of operation of the Public Reference Room are
available by calling 1-202-942-8090. The Codes of Ethics are also available on
the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
Copies are also available for a fee by electronic request at the following e-
mail address: [email protected] or by writing the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington D.C.
20549-0102.
Control of the Fund
No person is the record or beneficial owner of 5% or more of the Fund. In ad-
dition, 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 al-
location 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 trans-
action size and the risk involved, in selecting brokers or dealers or negoti-
ating 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 exe-
cution, 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 in-
vestment 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 ex-
tent permitted by applicable laws and regulations, may aggregate such securi-
ties 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 com-
missions, 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 fi-
duciary obligations to all such clients, including the Fund. In some instanc-
es, the procedures may impact the price and size of the position obtainable
for the Fund.
The advisor may from time to time direct trades to brokers which have pro-
vided specific brokerage or research services for the benefit of the advisor's
clients; in addition the advisor may allocate trades among brokers that gener-
ally provide superior brokerage and research services. During 1999, the advi-
sor directed transactions totaling approximately $77 million to these brokers
and paid commissions of approximately $3,456 in connection with these transac-
tions. Research services furnished by brokers are used for the benefit of all
the advisor's clients and not solely or necessarily for the benefit of the
fund. The advisor believes that the value of research services received is not
determinable and does not significantly reduce its expenses. The fund does not
reduce its fee payable to the advisor by an amount that might be attributable
to the value of such services.
The Fund paid brokerage fees of $56,000 in 1999, $89,107 in 1998 and $78,697
in 1997.
PURCHASE AND PRICING OF SECURITIES BEING OFFERED
Offering to Public; Sales Load
This information is disclosed in the Prospectus.
B-3
SAI-AI
<PAGE>
General Formulas for Determining Value of the Accumulation Unit
The following formulas set out in general terms the computation of the Accumu-
lation 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 exam-
ple. 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 in-
come was $4,000, the net unrealized capital gains were $6,000 and the net real-
ized 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 pro-
duces .14% (.0014). The net investment rate for the valuation period is deter-
mined by deducting .00363% (.0000363) from the gross investment rate, which re-
sults 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 il-
lustrated by the following hypothetical example. Assume a Contractowner or Par-
ticipant 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 pay-
ments commence was $1.15 producing a total value of his individual account of
$34,500. Assume also that the Contractowner or 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 Annuitant's or 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 pay-
ment is due is 1.0019. Multiplying this factor by .99990575 (for a 1 day valua-
tion 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.
B-4
SAI-AI
<PAGE>
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.
CALCULATION OF INVESTMENT RESULTS
Standard investment results:
Standard performance is based on a formula to calculate performance that is
prescribed by the SEC. Under rules issued by the SEC, standard performance must
be included in any marketing material that discusses the performance of the
Fund. This information represents past performance and does not indicate or
represent future performance.
Average annual return for each period is determined by finding the average an-
nual compounded rate of return over each period that would equate the initial
amount invested to the ending redeemable value for that period, according to
the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase payment of $1,000
T = average annual total return for the period in question
N = number of years
ERV = ending redeemable value (as of the end of the period in question)
of a hypothetical $1,000 purchase payment made at the beginning of the 1-
year, 5-year, or 10-year period in question (or fractional period there-
of)
The formula assumes that: (1) all recurring fees have been charged to the
contractowner accounts; (2) all applicable non-recurring charges are de-
ducted from premium payments and (3) there will be a complete redemption
upon the anniversary of the 1-year, 5-year, or 10-year period in ques-
tion.
In accordance with SEC guidelines, we will report standard performance back to
the inception of the Fund.
Standard performance for the period ending December 31, 1999:
<TABLE>
<CAPTION>
5- 10-
1-year year year
------ ----- ----
<S> <C> <C>
9.74% 23.33% 15.24%
</TABLE>
Non-standard investment results:
The Fund may report its results over various periods--daily, monthly, three-
month, six-month, year-to-date, yearly (fiscal year), three, five, ten years or
more and lifetime--and compare its results to indices and other variable annui-
ties in sales materials including advertisements, brochures and reports. It may
or may not reflect the charge for the minimum death benefit that was in effect
during the time periods shown. This performance is referred to as non-standard-
ized performance data. Such results may be computed on a cumulative and/or
annualized basis. We may also report performance assuming that you deposited
$10,000 into the Fund 10 years ago. This non-standard performance may be shown
as a graph illustrating how that deposit would have increased or decreased in
value over time based on the performance of the Fund. This information repre-
sents past performance and does not indicate or represent future performance.
The investment return and value of a Contract will fluctuate so that
contractowner's investment may be worth more or less than the original invest-
ment. Cumulative quotations are arrived at by calculating the change in Accumu-
lation Unit Value between the first and last day of the base period being
measured, and expressing the difference as a percentage of the unit value at
the beginning of the base period. Annualized quotations are arrived at by ap-
plying a formula which reflects the level rate of return, which if earned over
the entire base period, would produce the cumulative return.
Non-standard annualized performance for the period ending December 31, 1999
(without reflecting the sales load or the minimum death benefit charge)
<TABLE>
<CAPTION>
1- 3- 5- 10- Since
YTD year year year year Inception
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
16.74% 16.74% 23.00% 24.86% 15.96% 15.14%
</TABLE>
B-5
SAI-AI
<PAGE>
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Contracts are no longer being offered. Variable annuity contracts were
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 Secu-
rities 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
paid the broker-dealer an amount equivalent to the amount deducted for sales
expenses. The amount paid to the broker-dealer may have been greater during
the first year of a variable annuity contract than the amount deducted for
sales expenses. The Company paid any excess over the amount deducted for sales
expenses.
OTHER SERVICES
Custodian
This information is disclosed in the Prospectus.
Independent Auditors
The financial statements of the Fund and the statutory-basis financial state-
ments of Lincoln Life which have been included in their SAI and Registration
Statement, and the Condensed Financial Information for the Fund appearing in
the Prospectus, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports which also appear elsewhere in this document and
in the Registration Statement. The financial statements audited by Ernst &
Young LLP have been included in this document in reliance on their reports
given on their authority as experts in accounting and auditing.
Keeper of Records
All accounts, books, records and other documents which are required to be
maintained for the Fund are maintained by the Company or by third parties re-
sponsible 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 Years 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 state-
ments of Lincoln Life appear on the following pages.
B-6
SAI-AI
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
Percent Number
of of Market
Net Assets Shares Value
---------- ------ ----------
<S> <C> <C> <C>
INVESTMENTS:
Common Stock:
Aerospace & Defense:............................. 2.4%
General Dynamics................................. 16,700 $ 880,925
Honeywell International.......................... 21,750 1,254,703
United Technologies.............................. 23,600 1,534,000
----------
3,669,628
Automobiles & Auto Parts:........................ 1.9%
AutoNation*...................................... 39,400 364,450
Ford Motor....................................... 25,200 1,346,625
Hertz-Class A.................................... 2,800 140,350
Navistar International *......................... 22,200 1,051,725
----------
2,903,150
Banking, Finance & Insurance:.................... 13.1%
Allstate......................................... 8,600 206,400
AmSouth Bancorporation........................... 58,500 1,129,781
Ambac Financial Group............................ 2,400 125,250
American International Group..................... 20,250 2,189,531
Bank One......................................... 22,095 708,427
Bank of America.................................. 20,600 1,033,863
Bear Stearns..................................... 7,035 300,746
Chase Manhattan.................................. 25,300 1,965,494
Citigroup........................................ 49,498 2,750,233
Conseco.......................................... 44,600 797,225
Dime Bancorp..................................... 32,000 484,000
Federal Home Loan................................ 4,700 221,194
Federal National Mortgage........................ 4,000 249,750
Firstar.......................................... 12,200 257,725
Fleet Boston Financial........................... 18,239 634,945
Lehman Brothers Holdings......................... 5,600 474,250
MBIA............................................. 10,400 549,250
Marsh & McLennan................................. 15,000 1,435,313
Merrill Lynch & Company.......................... 4,200 350,700
Metris........................................... 20,687 738,274
Morgan (J.P.).................................... 7,700 975,013
Paine Webber Group............................... 34,050 1,321,566
SLM Holding...................................... 14,900 629,525
Unionbancal Corporation.......................... 3,800 149,863
Washington Mutual................................ 8,300 215,800
----------
19,894,118
Buildings & Materials:........................... 0.3%
American Standard *.............................. 3,600 165,150
Centex........................................... 8,400 207,375
Vulcan Materials................................. 1,400 55,913
----------
428,438
Cable, Media & Publishing:....................... 3.9%
Donnelley & Sons................................. 16,200 401,963
Gannett.......................................... 1,900 154,969
Knight-Ridder.................................... 12,600 749,700
McGraw-Hill...................................... 16,000 986,000
New York Times................................... 33,200 1,630,950
Omnicom Group.................................... 15,500 1,550,000
R.H. Donnelley *................................. 3,840 72,480
Valassis Communications *........................ 2,400 101,400
Wallace Computer Services........................ 11,900 197,838
----------
5,845,300
Chemicals:....................................... 1.6%
Avery Dennison................................... 2,100 153,038
Cytec Industries *............................... 5,300 122,563
Dow Chemical..................................... 12,000 1,603,500
Lubrizol......................................... 7,600 234,650
W.R. Grace & Company *........................... 23,400 324,675
----------
2,438,426
Computers & Technology:.......................... 20.6%
American Power Conversion *...................... 32,000 843,000
Apple Computer *................................. 16,000 1,644,500
BMC Software *................................... 17,300 1,382,378
Cisco Systems *.................................. 36,100 3,866,084
Dell Computer *.................................. 35,500 1,809,391
</TABLE>
SAI
F-1
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
Statement of Net Assets--Continued
<TABLE>
<CAPTION>
Percent Number
of of Market
Net Assets Shares Value
---------- ------ -----------
<S> <C> <C> <C>
Computers & Technology: (continued).............
EMC *........................................... 15,000 $ 1,638,750
Electronics Arts *.............................. 7,300 613,656
International Business Machines................. 19,400 2,095,200
Lexmark International Group A *................. 18,600 1,683,300
Microsoft *..................................... 67,900 7,925,203
Oracle *........................................ 27,000 3,024,844
Siebel Systems *................................ 3,800 319,675
Sterling Software *............................. 13,900 437,850
Sun Microsystems *.............................. 38,900 3,011,103
Symantec *...................................... 8,800 516,725
Unisys *........................................ 6,800 217,175
Whittman-Hart *................................. 2,800 150,238
-----------
31,179,072
Consumer Products:.............................. 4.3%
Avon Products................................... 5,400 178,200
Clorox.......................................... 22,800 1,148,550
Corning......................................... 6,600 850,988
Kimberly-Clark.................................. 9,500 619,875
Minnesota Mining & Manufacturing................ 2,200 215,325
Procter & Gamble................................ 15,800 1,731,088
Tyco International.............................. 46,200 1,796,025
-----------
6,540,051
Electronics & Electrical Equipment:............. 7.5%
FirstEnergy..................................... 32,100 728,269
General Electric................................ 39,800 6,159,050
Intel........................................... 41,800 3,439,356
Motorola........................................ 3,000 441,750
Solectron *..................................... 3,900 370,988
Texas Instruments............................... 2,000 193,750
-----------
11,333,163
Energy:......................................... 6.6%
Atlantic Richfield.............................. 15,700 1,358,050
Chevron......................................... 1,200 103,950
Conoco.......................................... 5,800 143,550
Enron........................................... 20,000 887,500
Exxon Mobil..................................... 38,100 3,069,431
Occidental Petroleum............................ 29,000 627,125
Royal Dutch Petroleum........................... 32,800 1,982,350
Texaco.......................................... 18,600 1,010,213
USX-Marathon Group.............................. 33,200 819,625
-----------
10,001,794
Food, Beverage & Tobacco:....................... 4.3%
CKE Restaurants *............................... 20,790 122,141
Coca Cola....................................... 24,000 1,398,000
ConAgra......................................... 3,300 74,456
General Mills................................... 31,000 1,108,250
Heinz (H.J.).................................... 22,250 885,828
Philip Morris................................... 45,700 1,059,669
Quaker Oats..................................... 11,200 735,000
RJ Reynolds Tobacco Holdings.................... 5,000 88,125
Suiza Foods *................................... 27,800 1,101,560
-----------
6,573,029
Healthcare & Pharmaceuticals:................... 9.5%
Amgen *......................................... 47,000 2,821,469
Boston Scientific *............................. 13,200 288,750
Bristol-Myers Squibb............................ 29,800 1,912,788
Genzyme-General Division *...................... 2,400 107,850
Johnson & Johnson............................... 11,900 1,108,188
Lilly (Eli)..................................... 12,200 811,300
Lincare Holdings *.............................. 24,800 861,025
Medtronic....................................... 31,062 1,131,822
Merck & Company................................. 32,600 2,186,238
Oxford Health Plans *........................... 4,100 52,147
Pfizer.......................................... 31,900 1,034,756
Schering-Plough................................. 47,400 1,999,688
-----------
14,316,021
Industrial Machinery:........................... 0.5%
Applied Materials *............................. 1,900 240,647
Ingersoll-Rand.................................. 9,250 509,328
-----------
749,975
</TABLE>
SAI
F-2
<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>
Leisure, Lodging & Entertainment:............. 0.6%
Carnival Cruise Lines......................... 15,200 $ 726,750
Eastman Kodak................................. 3,700 245,125
------------
971,875
Metals & Mining:.............................. 0.1%
USX-U.S. Steel Group.......................... 6,700 221,100
Paper & Forrest Products:..................... 0.9%
Georgia-Pacific............................... 7,200 365,400
Georgia-Pacific (Timber Group)................ 12,500 307,813
Temple-Inland................................. 2,000 131,875
Weyerhaeuser.................................. 6,700 481,144
------------
1,286,232
Retail:....................................... 6.9%
American Eagle Outfitters *................... 9,800 441,000
Best Buy *.................................... 5,800 291,088
CDW Computer Centers *........................ 4,700 369,391
Federated Department Stores *................. 1,600 80,900
Gap........................................... 30,550 1,405,300
Home Depot.................................... 21,600 1,480,950
Jostens....................................... 25,800 627,263
Lowe's Companies.............................. 18,000 1,075,500
Safeway *..................................... 21,000 746,813
Sherwin-Williams.............................. 4,500 94,500
TJX........................................... 35,900 733,706
Tupperware.................................... 2,800 47,425
Wal-Mart Stores............................... 43,800 3,027,675
------------
10,421,511
Telecommunications:........................... 10.4%
AT&T.......................................... 35,700 1,811,775
Bell Atlantic................................. 43,016 2,648,173
BellSouth..................................... 55,800 2,612,138
Lucent Technologies........................... 38,500 2,880,281
MCI Worldcom *................................ 3,600 190,913
SBC Communications............................ 52,763 2,572,196
Tellabs *..................................... 26,800 1,719,388
U.S. West..................................... 17,700 1,274,400
------------
15,709,264
Textiles, Apparel & Furniture:................ 1.2%
Johnson Controls.............................. 21,400 1,217,125
Tommy Hilfiger *.............................. 22,800 531,525
------------
1,748,650
Transportation & Shipping:.................... 0.9%
Alaska Air Group *............................ 9,900 347,738
Canadian National Railway..................... 8,400 221,025
Canadian Pacific Ltd.......................... 5,900 127,219
Continental Airlines-Class B *................ 10,900 483,688
Delta Air Lines............................... 3,800 189,288
------------
1,368,958
Utilities:.................................... 1.9%
CenturyTel.................................... 9,100 431,113
General Public Utilities...................... 33,600 1,005,900
Minnesota Power and Light..................... 16,400 277,775
Public Service Enterprise Group............... 7,300 254,131
Sprint........................................ 6,400 430,800
Texas Utilities............................... 14,700 522,769
------------
2,922,488
Total Common Stock: 99.4% 150,522,243
------ ------------
(Cost--$86,727,774)
Total Investments: 99.4% 150,522,243
(Cost--$86,727,774)
Other Assets Over Liabilities: 0.6% 881,440
------ ------------
Net Assets: 100.00% 151,403,683
====== ============
</TABLE>
SAI
F-3
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
Statement of Net Assets--Continued
Percent Number
of of
Net Assets Shares Market Value
---------- ------ ------------
Net Assets are represented by:
<TABLE>
<S> <C> <C> <C>
Value of accumulation units:
6,365,652 units at $21.845 unit value $139,055,084
Annuity reserves:
153,454 units at $21.845 unit value 3,352,162
318,329 units at $28.261 unit value 8,996,437
------------
471,783 $151,403,683
======= ============
</TABLE>
*Non-income producing security
Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Dividends.......................................... $ 1,982,869
Interest........................................... 63,124
------------
2,045,993
Expenses:
Investment management services..................... $ 467,451
Mortality and expense guarantees................... 1,380,183 1,847,634
------------ ------------
<CAPTION>
NET INVESTMENT INCOME 198,359
<S> <C> <C>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................... 19,679,915
Increase in net unrealized appreciation of
investments....................................... 2,724,731
------------
<CAPTION>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 22,404,646
<S> <C> <C>
------------
<CAPTION>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,603,005
<S> <C> <C>
============
Statements of Changes in Net Assets
<CAPTION>
Year Ended December 31
1999 1998
------------ ------------
<S> <C> <C>
Changes from operations:
Net investment income.............................. $ 198,359 $ 674,715
Net realized gain on investments................... 19,679,915 15,158,708
Increase in net unrealized
appreciation/depreciation of investments.......... 2,724,731 9,368,090
------------ ------------
<CAPTION>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 22,603,005 25,201,513
<S> <C> <C>
Net decrease from equity transactions............... (17,266,505) (10,592,393)
------------ ------------
<CAPTION>
TOTAL INCREASE IN NET ASSETS 5,336,500 14,609,120
<S> <C> <C>
Net assets at beginning of period .................. 146,067,183 131,458,063
------------ ------------
<CAPTION>
NET ASSETS AT END OF YEAR $151,403,683 $146,067,183
<S> <C> <C>
============ ============
</TABLE>
See accompanying notes to financial statements.
SAI
F-4
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
Notes to Financial Statements
December 31, 1999
1. Significant Accounting policies
The Fund: The 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 de-
termined 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 An-
nuity 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
accounting principles generally accepted in the United States requires manage-
ment to make estimates and assumptions that affect the reported amounts of as-
sets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases and de-
creases in net assets from operations during the reporting period. Actual re-
sults could differ from those estimates.
2. Investments
The aggregate cost of investments purchased and the aggregate proceeds from in-
vestments sold (exclusive of short-term investments) during the year ended De-
cember 31, 1999 amounted to $34,719,794 and $51,302,554, 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 an-
nual basis). In addition, The Lincoln National Life Insurance Company retained
$6,920 from the proceeds of the sale of annuity contracts during the period for
sales and administrative charges. Accordingly, The Lincoln National Life Insur-
ance Company is responsible for all sales, general, and administrative expenses
applicable to the Fund.
The custodian bank of the Fund has agreed to waive custodial fees when the Fund
maintains a prescribed amount of cash on deposit in certain non-interesting
bearing accounts. For the year ended December 31, 1999, the custodial fee off-
set arrangement was not material to either 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, 1999 consisted of the following:
<TABLE>
<S> <C>
Equity transactions.......................... $(183,069,849)
Accumulated net investment income............ 74,155,461
Accumulated net realized gain on investments. 196,523,602
Net unrealized appreciation of investments... 63,794,469
-------------
$ 151,403,683
=============
</TABLE>
SAI
F-5
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A
Notes to Financial Statements--Continued
5. Summary of Changes in Equity Transactions
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Units Amount Units Amount
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Accumulation Units:
Balance at beginning of
year .................... 7,176,135 $(157,189,530) 7,722,501 $(146,214,289)
Contract purchases........ 77,390 1,512,095 95,911 1,611,124
Terminated contracts...... (887,873) (17,101,691) (642,277) (12,586,365)
--------- ------------- --------- -------------
Balance at End of Year 6,365,652 $(172,779,126) 7,176,135 $(157,189,530)
========= ============= ========= =============
Annuity Reserves:
Balance at beginning of
year..................... 530,280 $ (8,613,814) 600,319 $ (7,078,289)
Annuity payments.......... (58,497) (1,676,909) (84,509) (1,535,525)
Receipt of guarantee
mortality adjustments.... -- -- 14,470 --
--------- ------------- --------- -------------
Balance at End of Year 471,783 $ (10,290,723) 530,280 $ (8,613,814)
========= ============= ========= =============
</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>
Year Ended December 31,
---------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Investment income..................... $ 0.283 $ 0.301 $ 0.286 $ 0.267 $ 0.251
Expenses.............................. 0.256 0.217 0.178 0.139 0.114
------- ------- ------- ------- -------
Net investment income................. 0.027 0.084 0.108 0.128 0.137
Net realized and unrealized gain on
investments.......................... 3.106 3.028 3.755 1.735 2.539
------- ------- ------- ------- -------
Increase in accumulation unit value... 3.133 3.112 3.863 1.863 2.676
Accumulation unit value at beginning
of year.............................. 18.712 15.600 11.737 9.874 7.198
------- ------- ------- ------- -------
Accumulation unit value at end of
year................................. $21.845 $18.712 $15.600 $11.737 $ 9.874
======= ======= ======= ======= =======
Ratio of expenses to average net
assets............................... 1.28% 1.28% 1.27% 1.28% 1.28%
Ratio of net investment income to
average net assets................... 0.51% 0.54% 0.77% 1.17% 1.65%
Portfolio turnover rate............... 21.46% 31.10% 32.56% 49.94% 48.95%
Number of accumulation units
outstanding at end of year (expressed
in thousands)
Accumulation units:................... 6,366 7,176 7,723 8,462 9,569
Reserve units:........................ 472 530 600 700 831
</TABLE>
SAI
F-6
<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 (the "Fund") as of December 31, 1999, 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 (Note 6 to financial statements) 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 auditing standards generally ac-
cepted in the United States. 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 in-
cludes examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements and per unit data and ratios. Our procedures
included confirmation of securities owned as of December 31, 1999 by correspon-
dence with the custodian. An audit also includes assessing the accounting prin-
ciple used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits pro-
vide 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 posi-
tion of the Lincoln National Variable Annuity Fund A at December 31, 1999, the
results of its operations for the year then ended, the changes in its net as-
sets 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 accounting principles generally accepted in the United States.
Fort Wayne, Indiana
February 14, 2000
SAI
F-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------- ---------
(IN MILLIONS)
---------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $22,985.0 $23,830.9
- ------------------------------------------------------------
Preferred stocks 253.8 236.0
- ------------------------------------------------------------
Unaffiliated common stocks 166.9 259.3
- ------------------------------------------------------------
Affiliated common stocks 604.7 322.1
- ------------------------------------------------------------
Mortgage loans on real estate 4,211.5 3,932.9
- ------------------------------------------------------------
Real estate 254.0 473.8
- ------------------------------------------------------------
Policy loans 1,652.9 1,606.0
- ------------------------------------------------------------
Other investments 426.6 434.4
- ------------------------------------------------------------
Cash and short-term investments 1,409.2 1,725.4
- ------------------------------------------------------------ --------- ---------
Total cash and investments 31,964.6 32,820.8
- ------------------------------------------------------------
Premiums and fees in course of collection 115.8 33.3
- ------------------------------------------------------------
Accrued investment income 435.3 432.8
- ------------------------------------------------------------
Reinsurance recoverable 199.0 171.6
- ------------------------------------------------------------
Funds withheld by ceding companies 73.5 53.7
- ------------------------------------------------------------
Federal income taxes recoverable from parent company 61.6 64.7
- ------------------------------------------------------------
Goodwill 43.1 49.5
- ------------------------------------------------------------
Other admitted assets 66.7 89.3
- ------------------------------------------------------------
Separate account assets 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total admitted assets $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $12,184.0 $12,310.6
- ------------------------------------------------------------
Other policyholder funds 16,589.5 16,647.5
- ------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 364.0 897.6
- ------------------------------------------------------------
Funds held under reinsurance treaties 796.9 795.8
- ------------------------------------------------------------
Asset valuation reserve 490.9 484.5
- ------------------------------------------------------------
Interest maintenance reserve 72.3 159.7
- ------------------------------------------------------------
Other liabilities 627.0 504.5
- ------------------------------------------------------------
Short-term loan payable to parent company 205.0 140.0
- ------------------------------------------------------------
Net transfers due from separate accounts (896.5) (789.0)
- ------------------------------------------------------------
Separate account liabilities 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total liabilities 76,538.2 68,058.2
- ------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million
(owned by Lincoln National Corporation) 25.0 25.0
- ------------------------------------------------------------
Surplus notes due to Lincoln National Corporation 1,250.0 1,250.0
- ------------------------------------------------------------
Paid-in surplus 1,942.6 1,930.1
- ------------------------------------------------------------
Unassigned surplus -- deficit (691.1) (640.6)
- ------------------------------------------------------------ --------- ---------
Total capital and surplus 2,526.5 2,564.5
- ------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------- --------- --------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 7,273.6 $12,737.6 $5,589.0
- ------------------------------------------------------------
Net investment income 2,203.2 2,107.2 1,847.1
- ------------------------------------------------------------
Amortization of interest maintenance reserve 29.1 26.4 41.5
- ------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 472.3 179.9 99.7
- ------------------------------------------------------------
Expense charges on deposit funds 146.5 134.6 119.3
- ------------------------------------------------------------
Separate account investment management and administration
service fees 473.9 396.3 325.5
- ------------------------------------------------------------
Other income 88.8 31.3 21.3
- ------------------------------------------------------------ --------- --------- --------
Total revenues 10,687.4 15,613.3 8,043.4
- ------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 8,504.9 13,964.1 4,522.1
- ------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 1,618.3 2,919.4 3,053.9
- ------------------------------------------------------------ --------- --------- --------
Total benefits and expenses 10,123.2 16,883.5 7,576.0
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before dividends to
policyholders, income taxes and net realized gain on
investments 564.2 (1,270.2) 467.4
- ------------------------------------------------------------
Dividends to policyholders 80.3 67.9 27.5
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before federal income taxes and
net realized gain on investments 483.9 (1,338.1) 439.9
- ------------------------------------------------------------
Federal income taxes (credit) 85.4 (141.0) 78.3
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before net realized gain on
investments 398.5 (1,197.1) 361.6
- ------------------------------------------------------------
Net realized gain on investments, net of income tax expense
and excluding net transfers to the interest maintenance
reserve 114.4 46.8 31.3
- ------------------------------------------------------------ --------- --------- --------
Net income (loss) $ 512.9 $(1,150.3) $ 392.9
- ------------------------------------------------------------ ========= ========= ========
</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
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $2,564.5 $2,968.4 $1,868.0
- ------------------------------------------------------------
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income (loss) 512.9 (1,150.3) 392.9
- ------------------------------------------------------------
Difference in cost and admitted investment amounts (101.9) (304.8) (36.2)
- ------------------------------------------------------------
Nonadmitted assets (22.9) (17.1) (0.4)
- ------------------------------------------------------------
Regulatory liability for reinsurance 26.0 (35.2) (3.9)
- ------------------------------------------------------------
Gain on reinsurance of disability income business 71.8 -- --
- ------------------------------------------------------------
Life policy reserve valuation basis -- (0.4) (0.9)
- ------------------------------------------------------------
Asset valuation reserve (6.4) (34.5) (36.9)
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Paid-in surplus, including contribution of common stock of
affiliated company in 1997 12.5 108.4 938.4
- ------------------------------------------------------------
Separate account receivable due to change in valuation -- -- (2.6)
- ------------------------------------------------------------
Dividends to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ -------- -------- --------
Capital and surplus at end of year $2,526.5 $2,564.5 $2,968.4
- ------------------------------------------------------------ ======== ======== ========
</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
1999 1998 1997
--------- ---------- ---------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 7,671.1 $ 13,495.2 $ 6,364.3
- ------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (19.9) (632.4) (649.2)
- ------------------------------------------------------------
Investment income received 2,168.6 2,003.9 1,798.8
- ------------------------------------------------------------
Separate account investment management and administration
service fees 470.6 396.3 325.5
- ------------------------------------------------------------
Benefits paid (8,699.4) (7,395.8) (5,345.2)
- ------------------------------------------------------------
Insurance expenses paid (1,734.5) (2,909.7) (3,193.0)
- ------------------------------------------------------------
Proceeds related to sale of disability income business 71.8 -- --
- ------------------------------------------------------------
Federal income taxes recovered (paid) (81.2) 84.2 (87.0)
- ------------------------------------------------------------
Dividends to policyholders (82.8) (12.9) (28.4)
- ------------------------------------------------------------
Other income received and expenses paid, net 252.1 207.0 (8.7)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) operating activities 16.4 5,235.8 (822.9)
- ------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 6,557.7 10,926.5 12,142.6
- ------------------------------------------------------------
Purchase of investments (5,940.8) (16,950.0) (10,345.0)
- ------------------------------------------------------------
Other sources (uses) including reinsured policy loans (497.0) (778.3) 529.1
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) investing activities 119.9 (6,801.8) 2,326.7
- ------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 12.5 108.4 --
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Proceeds from borrowings from shareholder 205.0 140.0 120.0
- ------------------------------------------------------------
Repayment of borrowings from shareholder (140.0) (120.0) (100.0)
- ------------------------------------------------------------
Dividends paid to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) financing activities (452.5) 1,158.4 (130.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net increase (decrease) in cash and short-term investments (316.2) (407.6) 1,373.8
- ------------------------------------------------------------
Cash and short-term investments at beginning of year 1,725.4 2,133.0 759.2
- ------------------------------------------------------------ --------- ---------- ---------
Cash and short-term investments at end of year $ 1,409.2 $ 1,725.4 $ 2,133.0
- ------------------------------------------------------------ ========= ========== =========
</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 (the "Company") is a wholly
owned subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1999, the Company owned 100% of the outstanding
common stock of four insurance company subsidiaries and four non-insurance
subsidiaries. The Company also owned 85% of the common stock of an Internet
distributor of variable annuities.
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Insurance Department"), which practices differ from accounting
principles generally accepted in the United States ("GAAP"). The more
significant variances from GAAP are as follows:
INVESTMENTS
Bonds and preferred stocks 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 and preferred stocks are
classified as available-for-sale and, accordingly, are reported at fair
value with changes in the fair values reported directly in shareholder's
equity after adjustments for related amortization of deferred acquisition
costs, additional policyholder commitments and deferred income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis. Real estate owned and occupied by the Company is
classified as a real estate investment rather than reported as an operating
asset, and investment income and operating expenses include rent for the
Company's occupancy of those properties. Changes between cost and admitted
asset investment amounts are credited or charged directly to unassigned
surplus rather than to a separate surplus account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the interest maintenance reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by a NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period in which the asset giving rise to the gain or loss is sold and
writedowns 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
insurance subsidiaries are carried at their statutory-basis net equity and
the non-insurance subsidiaries are carried at their GAAP-basis net equity,
adjusted for certain items which would be non-admitted under statutory
accounting principles. Both insurance subsidiaries and non-insurance
subsidiaries are presented in the balance sheet as investments in affiliated
common stocks.
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
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 policy acquisition costs, to the extent recoverable from future
gross profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies consist of the entire premium received.
Under GAAP, premiums received in excess of policy charges are not recognized
as premium revenue.
Premiums and deposits with respect to annuity and other investment-type
contracts are reported as premium revenues; whereas, under GAAP, such
premiums and deposits are treated as liabilities and policy charges
represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits represent the excess of benefits paid over the policy account value
and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Insurance Department to assume such business. Changes to
those amounts are credited or charged directly to unassigned surplus. Under
GAAP, an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity reinsurance agreements is accounted for as a
purchase for GAAP reporting purposes and the ceding commission represents
the purchase price. Under purchase accounting, assets acquired and
liabilities assumed are reported at fair value at the date of the
transaction and the excess of the purchase price over the sum of the amounts
assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory-basis, the ceding commission is expensed when paid
and reinsurance premiums and benefits are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting; whereas, such contracts are accounted
for using deposit accounting under GAAP.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
SURPLUS NOTES DUE TO LNC
Surplus notes due to LNC are reported as surplus rather than as liabilities.
On a statutory-basis, interest on surplus notes is not accrued until
approval is received from the Indiana Insurance Commissioner; whereas, under
GAAP, interest would be accrued periodically based on the outstanding
principal and the interest rate.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
A reconciliation of the Company's net income (loss) and capital and surplus
determined on a statutory-basis with amounts determined in accordance with
GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
----------------------------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1997
----------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory-basis $ 2,526.5 $ 2,564.5 $ 512.9 $(1,150.3) $392.9
-----------------------------------------
GAAP adjustments:
Deferred policy acquisition costs,
present value of future profits and
non-admitted goodwill 3,628.2 3,085.2 135.0 48.5 (98.9)
--------------------------------------
Policy and contract reserves (1,943.1) (2,299.9) (97.9) 1,743.4 (48.6)
--------------------------------------
Interest maintenance reserve 72.3 159.7 (86.6) 24.4 58.7
--------------------------------------
Deferred income taxes 244.5 181.6 (117.4) (218.6) 70.3
--------------------------------------
Policyholders' share of earnings and
surplus on participating business (122.7) (132.8) (1.8) 3.2 5.3
--------------------------------------
Asset valuation reserve 490.9 484.5 -- -- --
--------------------------------------
Net realized gain (loss) on investments (186.4) (174.1) (32.4) (116.7) (20.4)
--------------------------------------
Unrealized gain (loss) on investments (555.2) 1,335.1 -- -- --
--------------------------------------
Nonadmitted assets, including
nonadmitted investments 139.6 119.1 -- -- --
--------------------------------------
Investments in subsidiary companies 460.9 490.4 39.1 41.3 (80.5)
--------------------------------------
Surplus notes and related interest (1,250.0) (1,251.5) 1.5 (1.5) --
--------------------------------------
Other, net (61.0) (120.1) 129.8 103.6 (35.0)
-------------------------------------- --------- --------- --------- --------- ------
Net increase (decrease) 918.0 1,877.2 (30.7) 1,627.6 (149.1)
----------------------------------------- --------- --------- --------- --------- ------
Amounts on a GAAP basis $ 3,444.5 $ 4,441.7 $ 482.2 $ 477.3 $243.8
----------------------------------------- ========= ========= ========= ========= ======
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount
that would have existed had the new effective yield been applied since the
acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items or deferred in IMR, where
applicable, and are amortized over the remaining lives of the hedged items
as adjustments to investment income. 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 amortized 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 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 are
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 cash collateral received which is
typically greater than the market value of the related securities loaned. In
other instances, the Company will hold as collateral securities with a
market value at least equal to the securities loaned. Securities held as
collateral are not recorded in the Company's balance sheet in accordance
with accounting guidance for secured borrowings and collateral. The
Company's agreements with third parties generally contain contractual
provisions to allow for additional collateral to be obtained when necessary.
The Company values collateral daily and obtains additional collateral when
deemed appropriate.
GOODWILL
Goodwill, which represents the excess, subject to certain limitations, of
the ceding commission over statutory-basis net assets of business purchased
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
under an assumption reinsurance agreement, is amortized on a straight-line
basis over ten years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Insurance Department. The Company waives deduction of deferred fractional
premiums on the death of life and annuity policy insureds and returns any
premium beyond the date of death, except for policies issued prior to March
1977. Surrender values on policies do not exceed the corresponding benefit
reserves. Additional reserves are established when the results of cash flow
testing under various interest rate scenerios indicate the need for such
reserves. If net premiums exceed the gross premiums on any insurance
in-force, additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserves released and tabular cost
have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and claims and claim adjustment expenses are
accounted for on bases consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Certain
business is transacted on a funds withheld basis and investment income on
investments managed by the Company are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC and certain LNC subsidiaries.
Pursuant to an intercompany tax sharing agreement with LNC, the Company
provides for income taxes on a separate return filing basis. The tax sharing
agreement also provides that the Company will receive benefit for net
operating losses, capital losses and tax credits which are not usable on a
separate return basis to the extent such items may be utilized in the
consolidated income tax returns of LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of the
intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LNC's common stock at the grant date, or other measurement date, over the
amount an employee or agent must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable life
and variable annuity contracts and for which the contractholder, rather than
the Company, bears the investment risk. Separate account assets are reported
at fair value. The operations of the separate accounts are not included in
the accompanying financial statements. Policy administration and investment
management fees charged on separate account policyholder deposits are
included in income from separate account investment management and
administration service fees. Mortality charges on variable universal life
contracts are included in income from expense charges on deposit funds. Fees
charged relative to variable annuity and variable universal life
administration agreements for separate account products sold by other
insurance companies and not recorded on the Company's financial statements
are included in income from separate account investment management and
administration service fees.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Insurance Department. "Prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
ACCOUNTING PRACTICES AND PROCEDURES MANUAL and a variety of other NAIC
publications. "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state and may
change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change,
to some extent, prescribed statutory accounting practices and may result in
changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory-basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the
state of Indiana must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that
Indiana will adopt Codification, however, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
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
1999 1998 1997
--------------------------------------
(IN MILLIONS)
--------------------------------------
<S> <C> <C> <C>
Income:
Bonds $1,840.6 $1,714.3 $1,524.4
------------------------------------------------------------
Preferred stocks 20.3 19.7 23.5
------------------------------------------------------------
Unaffiliated common stocks 6.3 10.6 8.3
------------------------------------------------------------
Affiliated common stocks 7.8 5.2 15.0
------------------------------------------------------------
Mortgage loans on real estate 321.0 323.6 257.2
------------------------------------------------------------
Real estate 57.8 81.4 92.2
------------------------------------------------------------
Policy loans 101.7 86.5 37.5
------------------------------------------------------------
Other investments 50.6 26.5 28.2
------------------------------------------------------------
Cash and short-term investments 95.9 104.7 70.3
------------------------------------------------------------ -------- -------- --------
Total investment income 2,502.0 2,372.5 2,056.6
------------------------------------------------------------
Expenses:
Depreciation 14.4 19.3 21.0
------------------------------------------------------------
Other 284.4 246.0 188.5
------------------------------------------------------------ -------- -------- --------
Total investment expenses 298.8 265.3 209.5
------------------------------------------------------------ -------- -------- --------
Net investment income $2,203.2 $2,107.2 $1,847.1
------------------------------------------------------------ ======== ======== ========
</TABLE>
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, 1999:
Corporate $17,758.4 $ 229.6 $763.0 $17,225.0
------------------------------------------------
U.S. government 316.8 29.6 21.5 324.9
------------------------------------------------
Foreign government 984.5 49.8 39.9 994.4
------------------------------------------------
Mortgage-backed 3,913.7 46.2 139.0 3,820.9
------------------------------------------------
State and municipal 11.6 -- .5 11.1
------------------------------------------------ --------- -------- ------ ---------
$22,985.0 $ 355.2 $963.9 $22,376.3
========= ======== ====== =========
At December 31, 1998:
Corporate $17,658.4 $1,159.8 $148.2 $18,670.0
------------------------------------------------
U.S. government 900.7 88.8 3.4 986.1
------------------------------------------------
Foreign government 947.8 59.9 61.2 946.5
------------------------------------------------
Mortgage-backed 4,312.1 171.6 33.4 4,450.3
------------------------------------------------
State and municipal 11.9 .7 -- 12.6
------------------------------------------------ --------- -------- ------ ---------
$23,830.9 $1,480.8 $246.2 $25,065.5
========= ======== ====== =========
</TABLE>
The carrying amounts of bonds in the balance sheets at
December 31, 1999 and 1998 reflect adjustments of
$38,900,000 and $11,800,000, respectively, to decrease
amortized cost as a result of the Securities Valuation
Office of the NAIC ("SVO") designating certain investments
as in or near default.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1999, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Maturity:
In 2000 $ 598.0 $ 599.2
------------------------------------------------------------
In 2001-2004 4,359.8 4,313.4
------------------------------------------------------------
In 2005-2009 6,636.0 6,392.9
------------------------------------------------------------
After 2009 7,477.5 7,249.9
------------------------------------------------------------
Mortgage-backed securities 3,913.7 3,820.9
------------------------------------------------------------ --------- ---------
Total $22,985.0 $22,376.3
------------------------------------------------------------ ========= =========
</TABLE>
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investments in bonds during 1999,
1998 and 1997 were $5,351,400,000, $9,395,000,000 and
$9,715,000,000, respectively. Gross gains during 1999, 1998
and 1997 of $95,400,000, $186,300,000 and $218,100,000,
respectively, and gross losses of $195,500,000, $138,000,000
and $78,000,000, respectively, were realized on those sales.
At December 31, 1999 and 1998, investments in bonds, with an
admitted asset value of $116,500,000 and $97,800,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
Unrealized gains and losses on investments in unaffiliated
common stocks are reported directly in unassigned surplus
and are not reported in the statutory-basis Statements of
Operations. The cost or amortized cost, gross unrealized
gains and losses and the fair value of investments in
unaffiliated common stocks and preferred stocks are as
follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------
(IN MILLIONS)
-----------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1999:
Preferred stocks $253.8 $ 1.3 $31.5 $223.6
----------------------------------------
Unaffiliated common stocks 150.4 34.2 17.7 166.9
----------------------------------------
At December 31, 1998:
Preferred stocks $236.0 $ 8.9 $ 2.4 $242.5
----------------------------------------
Unaffiliated common stocks 223.3 62.0 26.0 259.3
----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1999 and 1998 reflects adjustments of
$4,100,000 and $5,800,000, respectively, to decrease
amortized cost as a result of the SVO designating certain
investments as low or lower quality.
During 1999, the minimum and maximum lending rates for
mortgage loans were 6.5% and 11.5%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. All properties covered by
mortgage loans have fire insurance at least equal to the
excess of the loan over the maximum loan that would be
allowed on the land without the building.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Components of the Company's investments in real estate are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------
(IN MILLIONS)
-------------------
<S> <C> <C>
Occupied by the Company:
Land $ 2.5 $ 2.5
------------------------------------------------------------
Buildings 11.1 9.0
------------------------------------------------------------
Less accumulated depreciation (2.2) (1.7)
------------------------------------------------------------ ------ ------
Net real estate occupied by the Company 11.4 9.8
------------------------------------------------------------
Other:
Land 46.2 93.2
------------------------------------------------------------
Buildings 226.8 413.0
------------------------------------------------------------
Other 4.7 7.9
------------------------------------------------------------
Less accumulated depreciation (35.1) (50.1)
------------------------------------------------------------ ------ ------
Net other real estate 242.6 464.0
------------------------------------------------------------ ------ ------
Net real estate $254.0 $473.8
------------------------------------------------------------ ====== ======
</TABLE>
Net realized capital gains are reported net of federal
income taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
Net realized capital gains $ 20.8 $179.7 $209.3
------------------------------------------------------------
Less amount transferred to IMR (net of related taxes
(credits) of ($31.4), $27.3 and $54.0 in 1999, 1998 and
1997, respectively) (58.3) 50.8 100.2
------------------------------------------------------------ ------ ------ ------
79.1 128.9 109.1
Less federal income taxes (credits) on realized gains (35.3) 82.1 77.8
------------------------------------------------------------ ------ ------ ------
Net realized capital gains after transfer to IMR and taxes
(credits) $114.4 $ 46.8 $ 31.3
------------------------------------------------------------ ====== ====== ======
</TABLE>
4. SUBSIDIARIES
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 ("LNY"). The Company also owns 100% of
the outstanding common stock of four non-insurance company
subsidiaries: Lincoln National Insurance Associates
("LNIA"), Sagemark Consulting, Inc. ("Sagemark"), Wakefield
Tower Alpha Limited ("Wakefield"), and Lincoln Realty
Capital
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
Corporation ("LRCC"). The Company also owns 85% of one
non-insurance company subsidiary, AnnuityNet, Inc.
(AnnuityNet). Statutory-basis financial information related
to the insurance subsidiaries is summarized as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,318.7 $434.6 $443.6 $1,888.6
---------------------------------------------------------
Other assets 40.6 55.5 492.6 403.1
--------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,242.2 $394.4 $261.4 $1,802.4
---------------------------------------------------------
Other liabilities 44.3 27.9 614.4 25.6
---------------------------------------------------------
Liabilities related to separate accounts -- -- -- 328.8
---------------------------------------------------------
Capital and surplus 72.8 67.8 60.4 134.9
--------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------
FIRST
PENN LNH&C LNRAC LNY
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $332.7 $263.3 $ 88.4 $ 313.3
-----------------------------------------------------------
Expenses 329.0 346.9 75.4 291.4
-----------------------------------------------------------
Net realized gains (losses) -- -- .2 (2.0)
----------------------------------------------------------- ------ ------ ------ --------
Net income (loss) $ 3.7 $(83.6) $ 13.2 $ 19.9
----------------------------------------------------------- ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,221.1 $333.9 $403.6 $1,938.0
----------------------------------------------------------
Other assets 40.3 31.3 490.0 270.2
---------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,149.8 $266.3 $281.8 $1,814.5
----------------------------------------------------------
Other liabilities 42.0 24.0 553.7 45.1
----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 236.9
----------------------------------------------------------
Capital and surplus 69.6 74.9 58.1 111.7
---------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
</TABLE>
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
FIRST
PENN LNH&C LNRAC LNY
---------------------------------
<S> <C> <C> <C> <C>
Revenues $310.4 $ 165.0 $150.3 $1,402.6
-----------------------------------------------------------
Expenses 310.6 164.4 139.5 1,656.1
-----------------------------------------------------------
Net realized gains (losses) (0.3) 0.9 (0.1) (0.7)
----------------------------------------------------------- ------ ------- ------ --------
Net income (loss) $ (0.5) $ 1.5 $10.7 $ (254.2)
----------------------------------------------------------- ====== ======= ====== ========
</TABLE>
AnnuityNet was formed in 1998 for the distribution of
variable annuities over the Internet and is valued on the
equity method (at 85% of GAAP equity) with an admitted asset
value of $2,400,000 at December 31, 1999. LNIA was purchased
in 1998 for $600,000 and is valued on the equity method with
an admitted asset value of $800,000 at December 31, 1999.
Sagemark is a broker dealer and was acquired in connection
with a reinsurance transaction completed in 1998. Sagemark
is valued on the equity method with an admitted asset value
of $6,400,000 at December 31, 1999. Wakefield was formed in
1999 to engage in the ownership and management of
investments and is valued on the equity method with an
admitted asset value of $248,300,000. Wakefield's assets as
of December 31, 1999 consist entirely of investments in
bonds. LRCC was formed in 1999 to engage in the management
of certain real estate investments. It was capitalized with
cash and three real estate investments of $12,700,000 and is
valued on the equity method with an admitted asset value of
$10,900,000.
The carrying value of all affiliated common stocks, was
$604,700,000 and $322,100,000 at December 31, 1999 and 1998,
respectively. The insurance affiliates are carried at
statutory-basis net equity while other affiliates are
recorded at GAAP-basis net equity, adjusted for certain
items which would be non-admitted under statutory accounting
principles. The cost basis of investments in subsidiaries as
of December 31, 1999 and 1998 was $970,700,000 and
$631,100,000, respectively.
During 1999, 1998 and 1997 the Company's insurance
subsidiaries paid dividends of $5,200,000, $5,200,000 and
$15,000,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate in the accompanying
Statements of Operations differs from the prevailing
statutory tax rate principally due to tax-exempt investment
income, dividends received tax deductions and differences
between statutory accounting and tax return recognition
relative to policy acquisition costs, policy and contract
liabilities and reinsurance ceding commissions.
In 1999, 1998 and 1997, federal income tax expense (benefit)
incurred totaled $85,400,000, ($141,000,000) and
$78,300,000, respectively. In 1999, capital losses of
$151,700,000 were incurred, and carried back to recover
taxes paid in prior years.
The Company paid $45,300,000, $2,300,000 and $164,500,000 to
LNC in 1999, 1998 and 1997, respectively, in federal income
taxes.
Under prior income tax law, one-half of the excess of a life
insurance company's income from operations over its taxable
investment income was not taxed, but was set aside in a
special tax account designated as "Policyholders' Surplus."
The Company has approximately $187,000,000 of untaxed
"Policyholders' Surplus" on which no payment of federal
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
income taxes will be required unless it is distributed as a
dividend, or under other specified conditions. Barring the
passage of unfavorable legislation, the Company does not
believe that any significant portion of the account will be
taxed in the foreseeable future and no related tax liability
has been recognized. If the entire balance of the account
became taxable under the current federal income tax rate,
the tax would be approximately $65,500,000.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption "Reinsurance recoverable" includes
amounts recoverable from other insurers for claims paid by
the Company. The balance sheet caption, "Future policy
benefits and claims," and the balance sheet caption "Other
policyholder funds" have been reduced for insurance ceded as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Insurance ceded $5,340.0 $4,081.8
------------------------------------------------------------
Amounts recoverable from other insurers 81.2 79.9
------------------------------------------------------------
</TABLE>
Reinsurance transactions, excluding assumption reinsurance,
included in the income statement caption, "Premiums and
deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------
(IN MILLIONS)
------------------------------------
<S> <C> <C> <C>
Insurance assumed $2,606.5 $9,018.9 $727.2
------------------------------------------------------------
Insurance ceded 1,675.1 877.1 302.9
------------------------------------------------------------ -------- -------- ------
Net amount included in premiums $ 931.4 $8,141.8 $424.3
------------------------------------------------------------ ======== ======== ======
</TABLE>
The income statement caption, "Benefits and settlement
expenses," is net of reinsurance recoveries of
$2,609,000,000, $2,098,800,000 and $1,240,500,000 for 1999,
1998 and 1997, respectively.
Details underlying the balance sheet caption "Other
policyholder funds" are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Premium deposit funds $16,208.3 $16,285.2
------------------------------------------------------------
Undistributed earnings on participating business 346.9 348.4
------------------------------------------------------------
Other 34.3 13.9
------------------------------------------------------------ --------- ---------
$16,589.5 $16,647.5
========= =========
</TABLE>
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and fees in course of collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $10.8 $ 7.3 $ 3.5
------------------------------------------------------------
Ordinary renewal 54.2 6.8 47.4
------------------------------------------------------------
Group life 13.7 .1 13.6
------------------------------------------------------------ ----- ----- -----
$78.7 $14.2 $64.5
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $ 9.5 $ 3.4 $ 6.1
------------------------------------------------------------
Ordinary renewal (13.7) 11.3 (25.0)
------------------------------------------------------------
Group life 14.2 .2 14.0
------------------------------------------------------------ ----- ----- -----
$10.0 $14.9 $(4.9)
===== ===== =====
</TABLE>
7. ANNUITY RESERVES
At December 31, 1999, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,427.7 4%
------------------------------------------------------------
At book value, less surrender charge 2,237.3 3
------------------------------------------------------------
At market value 44,076.2 68
------------------------------------------------------------ --------- ---
48,741.2 75
Subject to discretionary withdrawal without adjustment at
book value with minimal or no charge or adjustment 13,486.5 21
------------------------------------------------------------
Not subject to discretionary withdrawal 2,622.4 4
------------------------------------------------------------ --------- ---
Total annuity reserves and deposit fund 64,850.1 100%
------------------------------------------------------------ ===
Less reinsurance 1,548.0
------------------------------------------------------------ ---------
Net annuity reserves and deposit fund liabilities, including
separate accounts $63,302.1
------------------------------------------------------------ =========
</TABLE>
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL AND SURPLUS
In 1998, the Company issued two surplus notes to LNC in return for cash of
$1,250,000,000. The first note for $500,000,000 was issued to LNC in
connection with the CIGNA Corporation ("CIGNA")indemnity reinsurance
transaction on January 5, 1998. This note calls for the Company to pay the
principal amount of the notes on or before March 31, 2028 and interest to be
paid quarterly at an annual rate of 6.56%. Subject to approval by the
Indiana Insurance Commissioner, LNC also has a right to redeem the note for
immediate repayment in total or in part once per year on the anniversary
date of the note, but not before January 5, 2003. Any payment of interest or
repayment of principal may be paid only out of the Company's earnings, only
if the Company's surplus exceeds specified levels ($2,315,700,000 at
December 31, 1999), and subject to approval by the Indiana Insurance
Commissioner.
The second note for $750,000,000 was issued on December 18, 1998 to LNC in
connection with the Aetna, Inc. ("Aetna") indemnity reinsurance transaction.
This note calls for the Company to pay the principal amount of the notes on
or before December 31, 2028 and interest to be paid quarterly at an annual
rate of 6.03%. Subject to approval by the Indiana Insurance Commissioner,
LNC also has a right to redeem the note for immediate repayment in total or
in part once per year on the anniversary date of the note, but not before
December 18, 2003. Any payment of interest or repayment of principal may be
paid only out of the Company's earnings, only if the Company's surplus
exceeds specified levels ($2,379,600,000 at December 31, 1999), and subject
to approval by the Indiana Insurance Commissioner.
A summary of the terms of these surplus notes follows (in millions):
<TABLE>
<CAPTION>
PRINCIPAL INCEPTION ACCRUED
OUTSTANDING AT TO DATE INTEREST AT
PRINCIPAL DECEMBER 31, CURRENT YEAR INTEREST DECEMBER 31,
DATE ISSUED AMOUNT OF NOTE 1999 INTEREST PAID PAID 1999
----------- -------------- -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
January 5, 1998 $ 500.0 $ 500.0 $ 32.8 $ 65.1 $ --
-------------------------------
December 18, 1998 750.0 750.0 46.7 46.7 --
-------------------------------
</TABLE>
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1999, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In January 1998, the Company assumed a block of
individual life insurance and annuity business from CIGNA and in
October 1998, the Company assumed a block of individual life insurance
business from Aetna (SEE NOTE 10). The statutory accounting regulations do
not allow goodwill to be recognized on indemnity reinsurance transactions
and therefore, the related ceding commission was expensed in the
accompanying Statement of Operations and resulted in the reduction of
unassigned surplus. As a result of these transactions, the Company's
statutory-basis unassigned surplus is negative as of December 31, 1999 and
it will be necessary for the Company to obtain prior approval of the Indiana
Insurance Commissioner before paying any dividends to LNC until such time as
statutory-basis unassigned surplus is positive. The time frame for
unassigned surplus to return to a positive position is dependent upon future
statutory earnings and dividends paid to LNC. Although no assurance can be
given, management believes that the approvals for the payment of such
dividends in amounts consistent with those paid in the past can be obtained.
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). Effective July 1, 1999, the
agents' postretirement plan was changed to require agents retiring on or
after that date to pay the full premium costs. This change to the plan
resulted in a one-time curtailment gain of $1,400,000 in 1999. 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 Operations 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. Options issued subsequent to 1991
are exercisable in 25% increments on the option issuance anniversary in the
four years following issuance.
As of December 31, 1999, there were 2,072,087 and 1,397,005 shares of LNC
common stock subject to options granted to Company employees and agents,
respectively, under the stock option incentive plans of which 919,749 and
241,097, respectively, were exercisable on that date. The exercise prices of
the outstanding options range from $12.50 to $56.75. During 1999, 1998 and
1997, there were 318,421, 136,469 and 170,789 options exercised,
respectively, and 82,024, 18,288 and 1,846 options 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, 1999 and 1998 is
$221,600,000 and $670,100,000, respectively. This liability is based on the
assumption that the recent experience will continue in the future. If
incidence levels and/or claim termination rates fluctuate significantly from
the assumptions underlying reserves, adjustments to reserves could be
required in the future. Accordingly, this liability may prove to be
deficient or excessive. The Company reviews reserve levels on an ongoing
basis. However, it is management's opinion that such future development will
not materially affect the financial position of the Company.
During 1997, the Company conducted an in-depth review of loss experience on
its disability income business. As a result of this study, the reserve level
was deemed to be inadequate to meet future obligations if current incident
levels were to continue in the future. In order to address this situation,
the Company strengthened its disability income reserves by $80,000,000 in
1997.
PERSONAL ACCIDENT PROGRAMS
In the past, the Company and its wholly owned subsidiary, LNH&C, accepted
personal accident reinsurance programs from other insurance companies. Most
of these programs were presented by independent brokers who represented the
ceding companies. Certain excess-of-loss personal accident reinsurance
programs created in the London market during 1993 through 1996 have produced
and have potential to produce significant losses. The liabilities for these
programs, net of related assets recoverable from reinsurers, were
$174,700,000 and $177,400,000 at December 31, 1999 and 1998, respectively.
Settlement activities relating to the Company's participation in workers'
compensation carve-out (i.e., life and health risks associated with workers'
compensation coverage) programs managed by Unicover Managers, Inc. have
allowed the Company to evaluate the possibility of settlements and to
estimate its potential costs to settle Unicover-related exposures. As of
December 31, 1999, a liability of $62,200,000 has been established for the
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
settlement of the Company's exposure to the Unicover programs.
These amounts are based on various estimates that are subject to
considerable uncertainty. Accordingly, the liabilities may prove to be
deficient or excessive. However, it is management's opinion that future
developments in these programs will not materially affect the financial
position of the Company.
HMO EXCESS-OF-LOSS REINSURANCE PROGRAMS
In light of the continued volatility in the HMO excess-of-loss line of
business, LNH&C discontinued writing new HMO excess-of-loss reinsurance
programs in the third quarter of 1999. The liability for HMO claims, net of
the related assets for amounts recoverable from reinsurers, was $101,900,000
and $55,900,000 at December 31, 1999 and 1998, respectively. LNH&C reviews
reserve levels on an ongoing basis. The liability is based on the assumption
that recent experience will continue in the future. If claims and loss
ratios fluctuate significantly from the assumptions underlying the reserves,
adjustments to reserves could be required in the future. Accordingly, the
liability may prove to be deficient or excessive. However, it is
management's opinion that such future developments will not materially
affect the financial position of the Company.
MARKETING AND COMPLIANCE MATTERS
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 1999, 1998 and 1997 was
$38,900,000, $34,000,000 and $29,300,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
2000 $ 28.7
--------------------------------
2001 28.8
--------------------------------
2002 27.5
--------------------------------
2003 26.2
--------------------------------
2004 26.5
--------------------------------
Thereafter 123.5
-------------------------------- ------
$261.2
======
</TABLE>
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for information technology services for the Fort Wayne
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
operations. Total costs incurred in 1999 and 1998 were $67,400,000 and
$54,800,000, respectively. Future minimum annual costs range from
$33,600,000 to $56,800,000, however future costs are dependent on usage and
could exceed these amounts.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. The Company limits its maximum coverage that
it retains on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been coinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1999, the
reserves associated with these reinsurance arrangements totaled
$1,422,800,000. 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.
Proceeds from the sale of common stock of American States Financial
Corporation ("American States") and proceeds from the January 5, 1998
surplus note, were used to finance an indemnity reinsurance transaction
whereby the Company and LNY reinsured 100% of a block of individual life
insurance and annuity business from CIGNA. The Company paid $1,264,400,000
to CIGNA on January 2, 1998 under the terms of the reinsurance agreement and
recognized a ceding commission expense of $1,127,700,000 in 1998, which is
included in the Statement of Operations line item "Underwriting,
acquisition, insurance and other expenses." At the time of closing, this
block of business had statutory liabilities of $4,780,300,000 that became
the Company's obligation. The Company also received assets, measured on a
historical statutory-basis, equal to the liabilities.
In connection with the completion of the CIGNA reinsurance transaction, the
Company recorded a charge of $31,000,000 to cover certain costs of
integrating the existing operations with the new block of business.
In 1999, the Company and CIGNA reached an agreement through arbitration on
the final statutory-basis values of the assets and liabilities reinsured. As
a result, the Company's ceding commission for this transaction was reduced
by $58.6 million.
Subsequent to this transaction, the Company and LNY announced that they had
reached an agreement to sell the administration rights to a variable annuity
portfolio that had been acquired as part of the block of business assumed on
January 2, 1998. This sale closed on October 12, 1998 with an effective date
of September 1, 1998.
On October 1, 1998, the Company and LNY entered into an indemnity
reinsurance transaction whereby the Company and LNY reinsured 100% of a
block of individual life insurance business from Aetna. The Company paid
$856,300,000 to Aetna on October 1, 1998 under the terms of the reinsurance
agreement and recognized a ceding commission expense of $815,300,000 in
1998, which is included in the Statement of Operations line item
"Underwriting, acquisition, insurance and other expenses." At the time of
closing, this block of business had statutory liabilities of $2,813,800,000
that became the Company's obligation. The Company also received assets,
measured on a historical statutory-basis, equal to the liabilities. The
Company financed this reinsurance transaction with proceeds from short-term
debt borrowings from LNC until the December 18, 1998 surplus note was
approved by the Insurance Department. Subsequent to the Aetna transaction,
the Company and LNY announced that they had reached an agreement to
retrocede the sponsored life business assumed for $87,600,000. The
retrocession agreement closed on October 14, 1998 with an effective date of
October 1, 1998.
On November 1, 1999, the Company closed its previously announced agreement
to transfer a block of disability income business to MetLife. Under this
indemnity reinsurance agreement, the Company transferred $490,800,000 of
cash to MetLife representing the statutory reserves transferred on this
business less $17,800,000 of purchase price consideration. A gain on the
reinsurance transaction of $71,800,000 was recorded directly in unassigned
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
surplus and will be recognized in statutory earnings over the life of the
business.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1999, the Company provided $270,000,000 of
statutory-basis surplus relief to other insurance companies under
reinsurance transactions. The Company retroceded 100% of this accepted
surplus relief to its off-shore reinsurance affiliates. Generally, such
amounts are offset by corresponding receivables from the ceding company,
which are secured by future profits on the reinsured business. However, the
Company is subject to the risk that the ceding company may become insolvent
and the right of offset would not be permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $17,300,000 and $43,400,000 at December 31, 1999
and 1998, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1999, the Company did not have a material concentration of
financial instruments in a single investee or industry. The Company's
investments in mortgage loans principally involve commercial real estate. At
December 31, 1999, 29% of such mortgages ($1,212,700,000) involved
properties located in Texas and California. Such investments consist of
first mortgage liens on completed income-producing properties and the
mortgage outstanding on any individual property does not exceed $70,000,000.
At December 31, 1999, 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 certain claims in excess of $5,000,000. The
degree of applicability of this coverage will depend on the specific facts
of each proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these
proceedings will not have a material adverse affect on the financial
position of the Company.
With the recent filing of a lawsuit alleging fraud in the sale of interest
sensitive universal and whole life insurance policies, the Company now has
several such actions pending. While each of these lawsuits seeks class
action status, the court has not certified a class in any of them. In each
of these lawsuits, plaintiffs seek unspecified damages and penalties for
themselves and on behalf of the putative class. While relief sought in these
lawsuits is substantial, they are in the discovery stages of litigation, and
it is premature to make assessments about potential loss, if any. Management
intends to defend these lawsuits vigorously. The amount of liability, if
any, which may arise as a result of these lawsuits cannot be reasonably
estimated at this time. In another lawsuit, a settlement has been
preliminarily approved by the court, and a class has been conditionally
certified for settlement purposes. Two other similar lawsuits previously
have been resolved and dismissed.
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
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
credit exposure. Outstanding guarantees with off-balance-sheet risks at
December 31, 1999 relate to mortgage loan pass-through certificates. The
Company has sold commercial mortgage loans through grantor trusts that
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued
interest thereon to the date of repurchase. The outstanding guarantees as of
December 31, 1999 and 1998 were $25,900,000 and $30,900,000, respectively.
It is management's opinion that the value of the properties underlying these
commitments is sufficient that in the event of default the impact would not
be material to the Company. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1999 and 1998.
DERIVATIVES
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
government obligations, commodity risk, credit risk 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:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
---------------------------------
NOTIONAL OR CARRYING FAIR CARRYING FAIR
CONTRACT AMOUNTS VALUE VALUE VALUE VALUE
-----------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1999 1999 1998 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $2,508.8 $4,108.8 $ 5.2 $ 3.2 $ 9.3 $ .9
---------------------------------
Swaptions 1,837.5 1,899.5 12.2 10.8 16.2 2.5
---------------------------------
Interest rate swaps 630.9 258.3 -- (19.5) -- 9.9
---------------------------------
Put options 21.3 21.3 -- 1.9 -- 2.2
--------------------------------- -------- -------- ----- ------ ----- -----
4,998.5 6,287.9 17.4 (3.6) 25.5 15.5
Foreign currency derivatives:
Forward contracts -- 1.5 -- -- -- --
---------------------------------
Foreign currency swaps 44.2 47.2 -- (.4) -- .3
--------------------------------- -------- -------- ----- ------ ----- -----
44.2 48.7 -- (.4) -- .3
Commodity derivatives:
Commodity swaps -- 8.1 -- -- -- 2.4
--------------------------------- -------- -------- ----- ------ ----- -----
$5,042.7 $6,344.7 $17.4 $ (4.0) $25.5 $18.2
======== ======== ===== ====== ===== =====
</TABLE>
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
A reconciliation of the notional or contract amounts for the significant
programs using derivative agreements and contracts at December 31 is as
follows:
<TABLE>
<CAPTION>
INTEREST RATE CAPS SWAPTIONS
-----------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $4,108.8 $4,900.0 $1,899.5 $1,752.0
-------------------------------------------------------
New contracts -- 708.8 -- 218.3
-------------------------------------------------------
Terminations and maturities (1,600.0) (1,500.0) (62.0) (70.8)
------------------------------------------------------- -------- -------- -------- --------
Balance at end of year $2,508.8 $4,108.8 $1,837.5 $1,899.5
------------------------------------------------------- ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE SWAPS
-----------------------
1999 1998
-----------------------
<S> <C> <C>
Balance at beginning of year $ 258.3 $ 10.0
------------------------------------------------------------
New contracts 482.4 2,226.6
------------------------------------------------------------
Terminations and maturities (109.8) (1,978.3)
------------------------------------------------------------ ------- ---------
Balance at end of year $ 630.9 $ 258.3
------------------------------------------------------------ ======= =========
</TABLE>
<TABLE>
<CAPTION>
COMMODITY
PUT OPTIONS SWAPS
----------------------------------------
1999 1998 1999 1998
----------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $21.3 $ -- $ 8.1 $ --
------------------------------------------------------------
New contracts -- 21.3 -- 8.1
------------------------------------------------------------
Terminations and maturities -- -- (8.1) --
------------------------------------------------------------ ----- ----- ----- ----
Balance at end of year $21.3 $21.3 $ -- $8.1
------------------------------------------------------------ ===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
(FOREIGN INVESTMENTS)
-------------------------------------------
FOREIGN CURRENCY
SWAPS
FOREIGN EXCHANGE
-------------------------------------------
FORWARD CONTRACTS
1999 1998 1999 1998
-------------------------------------------
(IN MILLIONS)
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 1.5 $ 163.1 $47.2 $15.0
------------------------------------------------------------
New contracts 2.7 419.8 -- 39.2
------------------------------------------------------------
Terminations and maturities (4.2) (581.4) (3.0) (7.0)
------------------------------------------------------------ ----- ------- ----- -----
Balance at end of year $ -- $ 1.5 $44.2 $47.2
------------------------------------------------------------ ===== ======= ===== =====
</TABLE>
INTEREST RATE CAP AGREEMENTS
The interest rate cap agreements, which expire in 2000 through 2006, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the effect
of rising interest rates. The
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
premium paid for the interest rate caps is included in other investments
(amortized costs of $5.2 million as of December 31, 1999) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2000 through 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of rising
interest rates. The premium paid for the swaptions is included in other
investments (amortized cost of $12.2 million as of December 31, 1999) and is
being amortized over the terms of the agreements. This amortization is
included in net investment income.
SPREAD LOCK AGREEMENTS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified
government security 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. While spreadlocks are
used periodically, there are no spreadlock agreements outstanding at
December 31, 1999.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the agreement the stream of variable interest
payments based on the coupon payments hedged bonds, and in turn, receives a
fixed payment from the counterparty at a predetermined interest rate. The
net receipts/payments from interest rate swaps are recorded in net
investment income. The Company also uses interest rate swap agreements to
hedge its exposure to interest rate fluctuations related to the anticipated
purchase of assets to support newly acquired blocks of business or to extend
the duration of certain portfolios of assets. Once the assets are purchased
the gains (losses) resulting from the termination of the swap agreements
will be applied to the basis of the assets. The gains (losses) will be
recognized in earnings over the life of the assets. The anticipated purchase
of assets related to extending the duration of certain portfolios of assets
is expected to be completed in 2000.
PUT OPTIONS
The Company uses put options, combined with various perpetual fixed income
securities, and interest rate swaps to replicate fixed income, fixed
maturity investments. The risk being hedged is a drop in bond prices due to
credit concerns with international bond issuers. The put options allow the
Company to put the bonds back to the counterparties at original par.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts and
foreign currency swaps, 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. A foreign currency swap is a contractual
agreement to exchange the currencies of two different countries at a fixed
rate of exchange in the future.
COMMODITY SWAPS
The Company used a commodity swap to hedge its exposure to fluctuations in
the price of gold. A commodity swap is a contractual agreement to exchange a
certain amount of a particular commodity for a fixed amount of cash. The
Company owned a fixed income security that met its coupon
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
payment obligations in gold bullion. The Company is obligated to pay to the
counterparty the gold bullion, and in return, receives from the counterparty
a stream of fixed income payments. The fixed income payments were the
product of the swap notional multiplied by the fixed rate stated in the swap
agreement. The net receipts or payments from commodity swaps were recorded
in net investment income. The fixed income security was called in the third
quarter of 1999 and the commodity swap expired.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$6,200,000, $10,000,000 and $7,000,000 in 1999, 1998 and 1997, respectively.
Deferred gains of $100,000 as of December 31, 1999, were the result of
terminated interest rate swaps. These gains are included with the related
fixed maturity securities to which the hedge applied or as deferred
liabilities 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 various derivative contracts. 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 less collateral held for such agreements with each
counterparty if the net market value is in the Company's favor. At
December 31, 1999, the exposure was $8,500,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and
assumptions used to determine the estimated fair values of
the Company's financial instruments. Considerable judgment
is required to develop these fair values. Accordingly, the
estimates shown are not necessarily indicative of the
amounts that would be realized in a one-time, current market
exchange of all of the Company's financial instruments.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices,
where available. For bonds not actively traded, fair values
are estimated using values obtained from independent pricing
services. In the case of private placements, fair values are
estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit
quality and maturity of the investments. The fair values of
unaffiliated common stocks are based on quoted market
prices.
PREFERRED STOCK
Fair values of preferred stock are based on quoted market
prices, where available. For preferred stock not actively
traded, fair values are based on values of issues of
comparable yield and quality.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair value of mortgage loans on real estate
was established using a discounted cash flow method based on
credit rating, maturity and future income. The ratings for
mortgages in good standing are based on property type,
location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and
payment record. Fair values for impaired mortgage loans are
based on: 1) the present value of expected future cash flows
discounted at the loan's effective interest rate; 2) the
loan's market price; or 3) the fair value of the collateral
if the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are
calculated on a composite discounted cash flow basis using
Treasury interest rates consistent with the maturity
durations assumed. These durations are based on historical
experience.
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other
investments and cash and short-term investments in the
accompanying statutory-basis balance sheets approximate
their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and
claims" and "Other policyholder funds," include investment
type insurance contracts (i.e.,
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
SHORT-TERM DEBT
For short-term debt, the carrying value approximates fair
value.
SURPLUS NOTES DUE TO LNC
Fair values for surplus notes are estimated using discounted
cash flow analysis based on the Company's current
incremental borrowing rate for similar types of borrowing
arrangements.
GUARANTEES
The Company's guarantees include guarantees related to
mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the
current status, which indicates none of the loans are
delinquent, the fair value liability for the guarantees
related to the mortgage loan pass-through certificates is
zero.
DERIVATIVES
The Company employs several different methods for
determining the fair value of its derivative instruments.
Fair values for these contracts are based on current
settlement values. These values are based on quoted market
prices for the foreign currency exchange contracts and
industry standard models that are commercially available for
interest rate cap agreements, swaptions, spread lock
agreements, interest rate swaps, commodity swaps and put
options.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed
maturity securities (primarily private placements), mortgage
loans on real estate and real estate are based on the
difference between the value of the committed investments as
of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account
changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the
accompanying statutory-basis balance sheets at fair value.
The related liabilities are also reported at fair value in
amounts equal to the separate account assets.
S-28
<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
-------------------------------------------------------------
1999 1998
-------------------------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
--------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 22,985.0 $ 22,376.3 $ 23,830.9 $ 25,065.5
-----------------------------------------------
Preferred stocks 253.8 223.6 236.0 242.5
-----------------------------------------------
Unaffiliated common stocks 166.9 166.9 259.3 259.3
-----------------------------------------------
Mortgage loans on real estate 4,211.5 4,104.0 3,932.9 4,100.1
-----------------------------------------------
Policy loans 1,652.9 1,770.5 1,606.0 1,685.9
-----------------------------------------------
Other investments 426.6 426.6 434.4 434.4
-----------------------------------------------
Cash and short-term investments 1,409.2 1,409.2 1,725.4 1,725.4
-----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,730.4) (17,364.3) (17,845.8) (17,486.4)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (454.7) (465.1) (714.4) (738.2)
--------------------------------------------
Short-term debt (205.0) (205.0) (140.0) (140.0)
-----------------------------------------------
Surplus notes due to LNC (1,250.0) (1,022.1) (1,250.0) (1,335.1)
-----------------------------------------------
Derivatives 17.4 (4.0) 25.5 18.2
-----------------------------------------------
Investment commitments -- (0.8) -- (.6)
-----------------------------------------------
Separate account assets 46,105.1 46,105.1 36,907.0 36,907.0
-----------------------------------------------
Separate account liabilities (46,105.1) (46,105.1) (36,907.0) (36,907.0)
-----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In 1997, LNC contributed 25,000,000 shares of common stock of American
States to the Company. American States is a property casualty insurance
holding company of which LNC owned 83.3%. The contributed common stock was
accounted for as a capital contribution equal to the fair value of the
common stock received by the Company. Subsequently, the American States
common stock owned by the Company, along with all other American States
common stock owned by LNC and its affiliates, was sold. The Company received
proceeds from the sale in the amount of $1,175,000,000. The Company
recognized no gain or loss on the sale of its portion of the common stock
due to the receipt of the stock at fair value. The proceeds from this sale
of stock were used to partially finance the CIGNA indemnity reinsurance
transaction.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Life and Annuity
Distributors, Inc. ("LLAD"), has a nearly exclusive general agent's contract
with the Company under which it sells the Company's products and provides
the service that otherwise would be provided by a home office marketing
department and regional offices. For providing these selling and marketing
services, the Company paid LLAD override commissions of $60,400,000 and
$76,700,000 in 1999 and 1998, respectively, and override commissions and
operating expense allowances of $61,600,000 in 1997. LLAD incurred expenses
of $113,400,000, $102,400,000 and
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
$5,500,000 in 1999, 1998 and 1997, respectively, in excess of the override
commissions and operating expense allowances received from the Company,
which the Company is not required to reimburse. Effective in January 1998,
the Company and LLAD agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1999 and 1998 include the
Company's participation in a short-term investment pool with LNC of
$390,300,000 and $383,600,000, respectively. Related investment income
amounted to $16,700,000, $16,800,000 and $15,500,000 in 1999, 1998 and 1997,
respectively. Short-term loan payable to parent company at December 31, 1999
and 1998 represent notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $49,400,000, $92,100,000 and
$48,500,000 in 1999, 1998 and 1997, 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
1999 1998 1997
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C> <C>
Insurance assumed $ 19.7 $ 13.7 $ 11.9
----------------------
Insurance ceded 777.6 290.1 100.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Future policy benefits
and claims assumed
$ 413.7 $ 197.3
------------------------
Future policy benefits
and claims ceded 1,680.4 1,125.0
------------------------
Amounts recoverable on
paid and unpaid losses 146.4 84.2
------------------------
Reinsurance payable on
paid losses 8.8 6.0
------------------------
Funds held under
reinsurance treaties --
net liability 2,106.4 1,375.4
------------------------
</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 $917,300,000 and $318,300,000 at December 31, 1999 and 1998,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1999 and 1998, LNC had guaranteed $818,900,000 and $237,000,000,
respectively, of these letters of credit. At December 31, 1999 and 1998, the
Company has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $118,800,000 and $122,400,000,
respectively, for statutory surplus relief received under financial
reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets held by the Company consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds and are
carried at market value. Substantially none of the separate accounts have
any minimum guarantees and the investment risks associated with market
S-30
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
value changes are borne entirely by the policyholder.
Separate account premiums, deposits and other considerations amounted to
$4,572,600,000, $3,953,300,000 and $4,821,800,000 in 1999, 1998 and 1997,
respectively. Reserves for separate accounts with assets at fair value were
$45,198,900,000 and $36,145,900,000 at December 31, 1999 and 1998,
respectively. All reserves are subject to discretionary withdrawal at market
value.
A reconciliation of transfers to (from) separate accounts is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of Operations of the
various separate accounts:
Transfers to separate accounts $ 4,573.2 $ 3,954.9 $ 4,824.0
------------------------------------------------------------
Transfers from separate accounts (4,933.8) (4,069.8) (2,943.8)
------------------------------------------------------------ --------- --------- ---------
Net transfers to (from) separate accounts as reported in the
Summary of Operations $ (360.6) $ (114.9) $ 1,880.2
------------------------------------------------------------ ========= ========= =========
</TABLE>
15. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of the Company's
business. The Company was particularly concerned with Year 2000 issues that
related to the Company's computer systems and interfaces with the computer
systems of vendors, suppliers, customers and business partners. From 1996
through 1999 the Company and its operating subsidiaries redirected a large
portion of internal Information Technology ("IT") efforts and contracted
with outside consultants to update systems to address Year 2000 issues.
Experts were engaged to assist in developing work plans and cost estimates
and to complete remediation activities.
For the year ended December 31, 1999, the Company identified expenditures of
$39,500,000 to address this issue. This brings the expenditures for 1996
through 1999 to $75,300,000. Because updating systems and procedures is an
integral part of the Company's on-going operations, most of the expenditures
shown above are expected to continue after all Year 2000 issues have been
resolved. All Year 2000 expenditures have been funded from operating cash
flows.
The scope of the overall Year 2000 program included the following four major
project areas: 1) addressing the readiness of business applications,
operating systems and hardware on mainframe, personal computer and local
area network platforms (IT); 2) addressing the readiness of non-IT embedded
software and equipment (non-IT); 3) addressing the readiness of key business
partners and 4) establishing Year 2000 contingency plans. The Company
completed these projects prior to year-end.
The Company's businesses have not identified any major problems in their
business processing. Minor problems have been resolved quickly. The
Company's businesses have not experienced any significant interruption in
service to clients or business partners or in reporting to regulators.
S-31
<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 (the "Company"),
a wholly owned subsidiary of Lincoln National Corporation, as of
December 31, 1999 and 1998, and the related statutory-basis
statements of operations, changes in capital and surplus and
cash flows for each of the three years in the period ended
December 31, 1999. 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 auditing standards
generally accepted in the United States. 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 accounting principles
generally accepted in the United States. The variances between
such practices and accounting principles generally accepted in
the United States 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 accounting
principles generally accepted in the United States, the
financial position of The Lincoln National Life Insurance
Company at December 31, 1999 and 1998, or the results of its
operations or its cash flows for each of the three years in the
period ended December 31, 1999.
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, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
January 31, 2000
S-32
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY FUND A (INDIVIDUAL)
Post-Effective Amendment No. 49 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 Net Assets--
December 31, 1999
Statement of Operations--Year ended
December 31, 1999
Statements of Changes in Net Assets--
Years ended December 31, 1999 and 1998
Notes to Financial Statements--
December 31, 1999
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
3.
The following Statutory - Basis Financial Statements of Lincoln National Life
Insurance Company are included in Part B of this Registration Statement:
Balance Sheets -- Statutory - Basis December 31, 1999 and 1998
Statement of Operations -- Statutory Basis -- Years ended December 31, 1999,
1998 and 1997
Statements of Changes in Capital and Surplus -- Statutory Basis - Years ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows -- Statutory Basis -- Years ended December 31, 1999,
1998 and 1997
Notes to Statutory-Basis Financial Statements -- December 31, 1999
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 (filed with
Post-Effective Amendment No. 46 to this Registration Statement, on April
28, 1998)
(2) Fund Bylaws or Instruments corresponding thereto (filed with Post-Effective
Amendment No. 46 to this Registration Statement, on April 28, 1998)
(3) Custodian Agreement (filed with Post-Effective Amendment No. 46 to this
Registration Statement, on April 28, 1998)
(4) (a) Investment Advisory Contract (filed with Post-Effective Amendment No.
46 to this Registration Statement, on April 28, 1998)
(b) Investment Sub-advisory Contract (filed with Post-Effective Amendment
No. 46 to this Registration Statement, on April 28, 1998)
(5) Not applicable
(6) Variable Annuity Contract (filed with Post-Effective Amendment No. 46 to
this Registration Statement, on April 28, 1998)
(7) Application (filed with Post-Effective Amendment No. 46 to this
Registration Statement, on April 28, 1998)
(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 (filed with
Post-Effective Amendment No. 46 to this Registration Statement, on April
28, 1998)
(13) Consent of Ernst & Young LLP, Independent Auditors
(14) Not applicable
(15) Not applicable
(16) Not applicable
(17) (a) "Form of" Code of Ethics-Fund A
(b) "Form of" Code of Ethics-Lincoln Life
(c) Code of Ethics-Vantage Investment Advisors is incorporated herein to
Post-Effective No. 21 on Form N-IA (2-80741) filed on April 10, 2000.
(18) General
(a) Organizational Chart of the Lincoln National Insurance Holding Company
System
(b) Books and Records Report
(19) (a) Power of Attorney - Todd Stephenson
(b) Power of Attorney - Lawrence T. Rowland is incorporated herein by
reference to Post-Effective Amendment No. 48 to
this Registration Statement, filed on April 28,
1999.
(c) Power of Attorney - Keith J. Ryan
(d) Power of Attorney - H. Thomas McMeekin is incorporated herein by
reference to Post-Effective Amendment No. 48 to
this Registration Statement, filed on April 28,
1999.
(e) Power of Attorney - Richard C. Vaughn is incorporated herein by
reference to Post-Effective Amendment No. 48 to
this Registration Statement, filed on April 28,
1999.
(f) Power of Attorney - Jon A. Boscia
Item 29.
DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
Name and Principal Positions and Offices Positions and Offices
Business Address with Insurance Company with Registrant
- ---------------- ---------------------- ---------------------
JON A. BOSCIA** President and Director
JOHN H. GOTTA**** Chief Executive Officer
of Life Insurance,
Senior Vice President,
and Director
<PAGE>
STEPHEN LEWIS* Interim Chief Executive Officer of Annuities
Senior Vice President, and Director
H. THOMAS MCMEEKIN***** Director
CYNTHIA A. ROSE* Secretary and Assistant Vice President
LAWRENCE T. ROWLAND*** Executive Vice President and Director
KEITH J. RYAN* Vice President, Controller and Chief
Accounting Officer
TODD R. STEPHENSON* Senior Vice President, Chief Financial Officer
and Assistant Treasurer
ELDON J. SUMMERS* Second Vice President and Treasurer
RICHARD C. VAUGHAN** Director
ROY V. WASHINGTON* Vice President and Chief Compliance Officer
Footnotes:
* The principal business address is 1300 South Clinton Street, Fort Wayne,
Indiana 46802-3506.
** Principal business address is Centre Square, West Tower, 1500 Market
Street, Suite 3900, Philadelphia, PA 19102-2112
*** Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne, Indiana 46804-1538
**** Principal business address is 350 Church Street, Hartford, CT 06103
*****Principal business address is One Commerce Square, 2005 Market St. 39th
Floor, Philadelphia, PA 19103
<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 29, 2000, there were 7,496 Individual contractowners of qualified
and non-qualified contracts.
Item 32.
INDEMNIFICATION--UNDERTAKING
(a) Brief description of indemnification provisions. (filed with Post-Effective
Amendment No. 48 to this Registration Statement on April 28, 1998)
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities Act of
1933. (filed with Post-Effective Amendment No. 48 to this Registration
Statement on April 28, 1998)
Item 33. Business and Other Connections of Investment Adviser.
The Lincoln National Life Insurance Company, 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 National Life Insurance Company 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 Variable Annuity Account C; Lincoln National Flexible Premium Variable
Life Account D; Lincoln National Flexible Premium Variable Life Account F;
Lincoln Life Flexible Premium Variable Life Account J; Lincoln Life Flexible
Premium Variable Life Account K; Lincoln Life Flexible Premium Variable Life
Account M; Lincoln Life Variable Annuity Account N; Lincoln Life Flexible
Premium Variable Life Account R;Lincoln Life Flexible Premium Variable Life
Account S; Lincoln Life Variable Annuity Account Q; Lincoln National Variable
Annuity Account 53.
(b) Not Applicable.
(c) Commissions and other compensations received by the Lincoln National Life
Insurance Company from Lincoln National Variable Annuity Fund A during the
fiscal year which ended December 31, 1999.
(1) (2) (3) (4) (5)
Net Underwriting
Name of Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemptions Commissions Compensation
- --------------------------------------------------------------------------------
The Lincoln National
Life Insurance Company NONE $6,920 NONE $1,847,634
Item 35. Location of Accounts and Records
See Exhibit 18(b)
Item 36. Not Applicable
Item 37. Undertakings
37. Undertakings
a. Not applicable
b. Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that
the audited financial statements in the registration statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
c. Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication
affixed to or included in the Prospectus that the applicant can remove
to send for a Statement of Additional Information.
d. Registrant undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request to Lincoln Life
at the address or phone number listed in the Prospectus.
e. Lincoln Life hereby represents that the fees and charges deducted
under the contract, in the aggregate, are reasonable in relation to
the services rendered, the expense expected to be incurred, and the
risks assumed by Lincoln Life.
f. Registrant hereby represents that it is relying on the American
Council of Life Insurance (avail. Nov. 28, 1988) no-action letter with
respect to Contracts used in connection with retirement plans meeting
the requirements of Section 403(b) of the Internal Revenue Code, and
represents further that it will comply with the provisions of
paragraphs (1) through (4) set forth in that no-action letter.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Amendment and has caused this Amendment
to the Registration Statement to be signed on its behalf, in the City of Fort
Wayne, and the State of Indiana on this 24th day of April, 2000.
LINCOLN NATIONAL VARIABLE ANNUITY
Variable Annuity Fund A (Individual)
By: /s/ Kelly D. Clevenger
---------------------------------------
Kelly D. Clevenger, Chairperson
Board of Managers
(Signature and Title)
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
By: /s/ Stephen H. Lewis
---------------------------------------
Stephen H. Lewis
Interim Chief Executive Officer &
Senior Vice President, LNL
(Name and title of officer of Depositor)
(b) As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed for the Depositors by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
** President & Director April 24, 2000
- ---------------------------- (Principal Executive Officer)
Jon A. Boscia
* Executive Vice President April 24, 2000
- ---------------------------- and Director
Lawrence T. Rowland
** Vice President, and Controller April 24, 2000
- ---------------------------- (Principal Accounting Officer)
Keith J. Ryan
** Senior Vice President, April 24, 2000
- ---------------------------- Chief Financial Officer
Todd R. Stephenson and Assistant Treasurer
(Principal Financial Officer)
Chief Executive Officer of April __, 2000
- ---------------------------- Life Insurance, Senior Vice
John H. Gotta President and Director
/s/ Stephen H. Lewis Interim Chief Executive Officer April 24, 2000
- ---------------------------- of Annuities, Senior Vice
Stephen H. Lewis President and Director
* Director April 24, 2000
- ----------------------------
H. Thomas McMeekin
* Director April 24, 2000
- ----------------------------
Richard C. Vaughan
*By:/s/ Steven M. Kluever Pursuant to a Power of Attorney filed with
------------------------ Post-Effective Amendment No. 55 to the
Steven M. Kluever Registration Statement
**By:/s/ Steven M. Kluever Pursuant to a Power of Attorney filed with
------------------------ this Registration Statement
Steven M. Kluever
<PAGE>
Exhibit 13
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Accumulation Unit
Values" and "Independent Auditors" in the Post-Effective Amendment No. 49 to the
Registration Statement (Form N-3 No. 2-26342) and related Prospectus and
Statement of Additional Information appearing therein and pertaining to the
Lincoln National Variable Annuity Fund A (Individual) and to the use therein of
our reports dated (a) January 31, 2000, with respect to the statutory-basis
financial statements of The Lincoln National Life Insurance Company, and (b)
February 14, 2000, with respect to the financial statements of Lincoln National
Variable Annuity Fund A.
Fort Wayne, Indiana
April 24, 2000
/s/ Ernst & Young LLP
<PAGE>
Form of
Code of Ethics
Lincoln National Variable Annuity Funds A and B
Lincoln National Life Insurance Company
Section 1 - Purpose
This Code of Ethics is adopted to prescribe standards and procedures which
are designed to prevent conduct which is in contravention of Section 17(j) of
the Investment Company Act of 1940 (15 U.S.C. 80q-17(j)].
Section 2 - Definition
(a) "Fund" means collectively or individually Lincoln National Variable
Annuity Funds A and B.
(b) "Advisor" means The Lincoln National Life Insurance Company, which is
the investment advisor and principal underwriter for the Fund.
(c) "Access person" means (1) any manager, officer or advisory person of
the Fund, and (2) any director, officer or advisory person of the Advisor who,
with respect to the Fund, makes any recommendation, participates in the
determination of which recommendation should be made, or whose principal
function or duties relate to the determination of which recommendation shall be
made to any registered investment company with respect to the purchase or sale
of securities for the Fund; or who, in connection with his duties, obtains any
information concerning securities recommendations being made by such investment
advisor to any registered investment company.
(d) "Advisory person" means
(i) Any employee of the Fund, of the Advisor or of Lincoln National
Corporation, who in connection with his regular functions or duties, makes,
participates in, or obtains current information regarding any security
transaction by or for the Fund, or whose functions or duties relate to the
making of any recommendations regarding such transaction; and
(ii) Any natural person in a control relationship to the Fund or to
the Advisor who obtains information concerning current recommendations made to
the Fund with regard to security transactions.
(e) "Manager" means each member of the Board of Managers of the Fund.
(f) "Independent manager" means each Fund manager who is not an
"interested person" of the Advisor under the provisions of Section 2 (a) (19) of
the Investment Company Act of 1940 [15 U.S.C. 80a-2(a)(19)].
(g) A security is "to be considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
(h) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 [IS U.S.C. 78p] and the rules and
regulations thereunder, except that the determination of direct and indirect
beneficial ownership shall apply to all securities which an access person has or
acquires.
(i) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act of 1940, [15 U.S.C. SOa-2(a)(9)].
<PAGE>
(j) "Purchase or sale of a security" and "security transaction" includes,
inter alia , the writing of an option to purchase or sell a security.
(k) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Investment Company Act of 1940 [15 U.S.C. 80a-2(a)(36)], except that it shall
not include securities issued by the government of the United States as defined
in Section 2(a)(16) of the Investment Company Act [15 U.S.C. 80a-2(a)(16)] which
definition includes: banker's acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end investment companies or short
term debt securities. The term "security" includes any option right related to a
security.
(1) "Security held or to be acquired" by the Fund means any security as
defined above which, within the most recent 15 days, (i) is or has been held by
the Fund, or (ii) is being or has been considered by the Fund or the Advisor for
purchase by the Fund.
Section 2 - Exempted Transactions
The prohibitions of Section 3 of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
(b) Purchases or sales of securities which are not eligible for purchase
or sale by the Fund;
(c) Purchases or sales which are non-violational on the part of either the
access person or the Fund;
(d) Purchases which are part of an automatic dividend reinvestment plan;
(e) Purchases effected upon the exercise of the rights issued by an issuer
or pro rata to all holders of a class of its securities, to the pro rata rights
--------
were acquired from such issuer, and sales of such rights so acquired;
(f) Purchases or sales which are only remotely potentially harmful to the
Fund because they would be very unlikely to affect a highly institutional
market, or because they clearly are not related economically to the securities
held or to be acquired by the Fund.
Section 3 - Prohibitions
No access person shall purchase or sell, directly or indirectly, any
security in which he has, or by reason of such transactions acquires, any direct
or indirect beneficial ownership and which to his actual knowledge at the time
of such purchase or sale:
(a) Is currently being considered for purchase or sale by the Fund; or
(b) Is currently being purchased or sold by the Fund.
Section 4 - Reports
Except as provided below under "Exceptions," each access person shall
report not later than ten (10) days after the end of a calendar quarter, each
transaction during such calendar quarter in any security in which such access
person has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership in the security. Such transactions may involve any of the
following:
(a) A security in which the access person, the access person's spouse or
minor children, or any relative residing in the access person's home, has any
direct or indirect beneficial interest, including any
<PAGE>
beneficial interest through or by means of a trust for the benefit of any such
person or company controlled by any such person.
(b) A security in which the access person, the access person's spouse or
minor children may, by reason of any agreement or understanding, vest or revest
any beneficial interest in himself or herself, including by reason of being the
settlor of a revocable trust.
(c) A security whose purchase or sale was or may be controlled or
influenced by the access person, including securities for the account of a trust
of which the access person is a trustee.
Exceptions
- ----------
A. No report is required of security transactions of any account over
which the access person does not have any direct or indirect influence or
control.
B. Independent managers who would be required to make a report solely by
reason of being a manager are required only to report those security
transactions where such manager knew or, in the ordinary course of fulfilling
his official duties as a manager of the Fund, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the manager, such security is or was purchased or sold by or on
behalf of the Fund or such purchase or sale is or was considered by the Fund or
the Advisor. No manager shall be presumed to know such matters solely by reason
of his being a manager or serving on any committee of the Board of Managers.
Form of Report
- --------------
Each report shall be made on a form provided for this purpose. A copy of
the report form is attached hereto. All relevant information must be completed
as to each transaction. Until further notice, all reports shall be filed with
William P. Zeh, Senior vice President, Lincoln National Investment Management
Company. Please mail this form to William P. Zeh, Mail Location Code 0667, 111
West Washington Street, Chicago, Illinois 60602.
An access person need not file a report under this Code of Ethics if such
person has made a report of personal transactions under another Code of Ethics;
provided, however, that the persons charged with compliance with this Code of
Ethics have access to such reports.
Use of the Form
- ---------------
The filed report will be reviewed by the compliance officers of the Fund
and of the Advisor. It will be confidential and subject only to disclosure to
the SEC staff as required by law pursuant to a periodic, special or other
examination. The reports of persons other than independent managers may be
disclosed to other senior officers of the Fund or of the Advisor or to legal
counsel as deemed necessary for compliance purposes and to otherwise administer
the Code of Ethics. Reports of independent managers will be subject to
disclosure only to the person with whom they are filed, the SEC staff as
required by law, independent managers of the Fund involved, relevant committees
--------
composed of such managers, and the Fund's legal counsel (if such managers or
such committees shall determine to-consult counsel in respect to any such
report).
Notwithstanding Section 4 of this Code of Ethics, an access person need not
make a report where the report would duplicate information recorded pursuant to
Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisor's Act of 1940.
Section 5 - Sanction
On discovering a violation of this Code of Ethics, the Fund or the Advisor
may impose such sanctions as it deems appropriate, including, inter alia , a
letter of censure or a suspension or termination of the employment of the
violator. All material violations of this Code of Ethics and any sanctions
imposed with respect hereto shall be reported periodically to the Board of
Managers of the Fund.
<PAGE>
Sign, detach and return acknowledgement to Al Hoeppner, Equities
Department, Lincoln National Life Insurance Company.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ACKNOWLEDGEMENT
---------------
I hereby acknowledge receipt and review of the Code of Ethics for Lincoln
National Variable Annuity Funds A and B and for Lincoln National Life Insurance
Company. I understand its provisions and its applicability to me.
Signed: _______________________________________ Date: _____________________
Position: _____________________________________
Company: ______________________________________
<PAGE>
CONSENT TO RELEASE
REPORTS OF PERSONAL TRANSACTIONS
To: Al Hoeppner
I am reporting my personal securities transactions to William P. Zeh,
Senior Vice
President, Lincoln National Investment Management Company, under the Code
of Ethics
For _______________________________________________. I hereby consent any
(Name of Company or Fund)
to having copies of all reports which I file made available so long as I am
an access person with respect to Lincoln National Variable Annuity Funds A
and B.
Signed:______________________________ Date ______________________
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
On behalf of The Lincoln National Life Insurance Company, I do
hereby adopt the attached Code of Ethics to be effective May 1, 1981,
as required by Rule 17 j-1 of the Investment Company Act of 1940 as
amended. This Code of Ethics may be amended from time to time.
Ian M. Rolland
Chief Executive officer and
Chairman of the Board
April______, 1981
<PAGE>
Code of Ethics
Lincoln National Variable Annuity Funds A and B
Lincoln National Life Insurance Company
Section 1 - Purpose
This Code of Ethics is adopted to prescribe standards and procedures which
are designed to prevent conduct which is in contravention of Section 17(j) of
the Investment Company Act of 1940 [15 U.S.C. 80q-17(j)3.
Section 2 - Definition
(a) "Fund" means collectively or individually Lincoln National Variable
Annuity Funds A and B.
(b) "Advisor" means The Lincoln National Life Insurance Company, which is
the investment advisor and principal underwriter for the Fund.
(c) "Access person" means (1) any manager, officer or advisory person of
the Fund, and (2) any director, officer or advisory person of the Advisor who,
with respect to the Fund, makes any recommen-dation, participates in the
determination of which recommendation should be made, or whose principal
function or duties relate to the determination of which recommendation shall be
made to any registered investment company with respect to the purchase or sale
of securities for the Fund; or who, in connection with his duties, obtains any
information concerning securities recommendations being made by such investment
advisor to any registered investment company.
(d) "Advisory person" means
(i) Any employee of the Fund, of the Advisor or of Lincoln National
Corporation, who in connection with his regular functions or duties, makes,
participates in, or obtains current information regarding any security
transaction by or for the Fund, or whose functions or duties relate to the
making of any recommendations regarding such transaction; and
(ii) Any natural person in a control relationship to the Fund or to
the Advisor who obtains information concerning current recommendations made to
the Fund with regard to security transactions.
(e) "Manager" means each member of the Board of Managers of the Fund.
(f) "Independent manager" means each Fund manager who is not an
"interested person" of the Advisor under the provisions of Section 2(a)(19) of
the Investment Company Act of 1940 [15 U.S.C. 80a-2(a)(19)].
(g) A security is "to be considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
(h) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and
regulations thereunder, except that the determination of direct and indirect
beneficial ownership shall apply to all securities which an access person has or
acquires.
(i) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the investment Company Act of 1940, [15 U.S.C. 80a-2(a)(9)].
<PAGE>
(j) "Purchase or sale of a security" and "security transaction" includes,
inter alia, the writing of an option to purchase or sell a security.
(k) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Investment Company Act of 1940 C15 U.S.C. 80a-2(a)(36)], except that it shall
not include securities issued by the government of the United States as defined
in Section 2(a)(16) of the Investment Company Act [15 U.S.C. 80a-2(a)(16)] which
definition includes: banker's acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end investment companies or short
term debt securities. The term "security" includes any option right related to a
security.
(1) "Security held or to be acquired" by the Fund means any security as
defined above which, within the most recent 15 days, (i) is or has been held by
the Fund, or (ii) is being or has been considered by the Fund or the Advisor for
purchase by the Fund.
Section 2 - Exempted Transactions
The prohibitions of Section 3 of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
(b) Purchases or sales of securities which are not eligible for purchase
or sale by the Fund;
(c) Purchases or sales which are non-violational on the part of either the
access person or the Fund;
(d) Purchases which are part of an automatic dividend reinvestment plan;
(e) Purchases effected upon the exercise of the rights issued by an issuer
or pro rata to all holders of a class of its securities, to-the extent such
--------
rights were acquired from such issuer, and sales of such rights so acquired;
(f) Purchases or sales which are only remotely potentially harmful to the
Fund because they would be very unlikely to affect a highly institutional
market, or because they clearly are not related economically to the securities
held or to be acquired by the Fund.
Section 3 - Prohibitions
No access person shall purchase or sell, directly or indirectly, any
security in which he has, or by reason of such transactions acquires, any direct
or indirect beneficial ownership and which to his actual knowledge at the time
of such purchase or sale:
(a) Is currently being considered for purchase or sale by the Fund; or
(b) Is currently being purchased or sold by the Fund.
Section 4 - Reports
Except as provided below under "Exceptions," each access person shall
report not later than ten (10) days after the end of a calendar quarter, each
transaction during such calendar quarter in any security in which such access
person has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership in the security. Such transactions may involve any of the
following:
<PAGE>
(a) A security in which the access person, the access person's spouse or
minor children, or any relative residing in the access person's home, has any
direct or indirect beneficial interest, including any beneficial interest
through or by means of a trust for the benefit of any such person or company
controlled by any such person.
(b) A security in which the access person, the access person's spouse or
minor children may, by reason of any agreement or understanding, vest or revest
any beneficial interest in himself or herself, including by reason of being the
settlor of a revocable trust.
(c) A security whose purchase or sale was or may be controlled or
influenced by the access person, including securities for the account of a trust
of which the access person is a trustee.
Exceptions
----------
A. No report is required of security transactions of any account over
which the access person does not have any direct or indirect influence or
control.
B. Independent managers who would be required to make a report solely by
reason of being a manager are required only to report those security
transactions where such manager knew or, in the ordinary course of fulfilling
his official duties as a manager of the Fund, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the manager, such security is or was purchased or sold by or on
behalf of the Fund or such purchase or sale is or was considered by the Fund or
the Advisor. No manager shall be presumed to know such matters solely by reason
of his being a manager or serving on any committee of the Board of Managers.
Form of Report
--------------
Each report shall be made on a form provided for this purpose. A copy of
the report form is attached hereto. All relevant information must be completed
as to each transaction. Until further notice, all reports shall be filed with
William P. Zeh, Senior Vice President, Lincoln National Investment Management
Company. Please mail this form to William P. Zeh, Mail Location Code 0667, 111
West Washington Street, Chicago, Illinois 60602.
An access person need not file a report under this Code of Ethics if such
person has made a report of personal transactions under another Code of Ethics;
provided, however, that the persons charged with compliance with this Code of
Ethics have access to such reports.
Use of the Form
---------------
The filed report will be reviewed by the compliance officers of the Fund
and of the Advisor. It will be confidential and subject only to disclosure to
the SEC staff as required by law pursuant to a periodic, special or other
examination. The reports of persons other than independent managers may be
disclosed to other senior officers of the Fund or of the Advisor or to legal
counsel as deemed necessary for compliance purposes and to otherwise administer
the Code of Ethics. Reports of independent managers will be subject to
disclosure only to the person with whom they are filed, the SEC staff as
required by law, independent managers of the Fund involved, relevant committees
composed of such managers, and the Fund's legal counsel (if such managers or
such committees shall determine to-consult counsel in respect to any such
report).
Notwithstanding Section 4 of this Code of Ethics, an access person need not
make a report where the report would duplicate information recorded pursuant to
Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisor's Act of 1940.
Section 5 - Sanction
<PAGE>
On discovering a violation of this Code of Ethics, the Fund or the Advisor
may impose such sanctions as it deems appropriate, including, inter alia , a
----------
letter of censure or a suspension or termination of the employment of the
violator. All material violations of this Code of Ethics and any sanctions
imposed with respect hereto shall be reported periodically to the Board of
Managers of the Fund.
Sign, detach and return acknowledgement to Al Hoeppner, Equities
Department, Lincoln National Life Insurance Company.
ACKNOWLEDGEMENT
---------------
I hereby acknowledge receipt and review of the Code of Ethics for Lincoln
National Variable Annuity Funds A and B and for Lincoln National Life Insurance
Company. I understand its provisions and its applicability to me.
Signed: _______________________________ Date: _________________________
Position: _____________________________
Company: ______________________________
<PAGE>
CONSENT TO RELEASE
REPORTS OF PERSONAL TRANSACTIONS
To: Al Hoeppner
I am reporting my personal securities transactions to William P. Zeh,
Senior Vice President, Lincoln National Investment Management Company,
under the Code of Ethics for _____________________________________________.
(Name of Company or Fund)
I hereby consent to having copies of all reports which I file made
available so long as I am an access person with respect to Lincoln National
Variable Annuity Funds A and B.
Signed: ____________________________________ Date _________________________
<PAGE>
PC Docs 12752 3/8/99
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
|
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life|
| | assurance & pension products |
|
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| |
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| |
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| | | Financial Investment Services, Inc. |
| |--| (fka Financial Services Department, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| | | Financial Investments, Inc. |
| |--| (fka Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| |
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| |
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| |
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
|
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
|
| | Lincoln Life and Annuity Distributors, Inc. |
|--| (fka Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Lincoln Financial Advisors Corporation |
| | | (fka LNC Equity Sales Corporation) |
| | | 100% - Indiana - Broker-Dealer |
| |
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | | Inc. ("LLAD")has subsidiaries of which LLAD owns from |
| | | 80%-100% of the common stock (see Attachment #1). These |
| | | subsidiaries serve as the corporate agency offices for the |
| | | marketing and servicing of products of The Lincoln National |
| | | Life Insurance Company. Each subsidiary's assets are less |
| | | than 1% of the total assets of the ultimate controlling |
| | | person. |
| |
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
|
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
|
|
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
|
|
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |--| Delaware International Advisers Ltd.|
| | | | | 81.1% - England - Investment Advisor |
| | |
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service|
| | | |
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Mktg & Admin Services|
| | | | |
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Holding Company |
| | | | | | ________________________________________
| | | | | |--|Delaware Management Business Trust |
| | | | | | |100% - Delaware - Investment Advisor |
| | | | | | |consists of: |
| | | | | | |Delaware Management Company Series |
| | | | | | | and Delaware Investment Advisers
Series |
| | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-MutualFund Distrib. |
| | | | | | |& Broker/Dealer |
| | | | | | |1%Equity-Delaware Capital |
| | | | |Management, Inc. |
| | | | |1% Equity-Delaware Distributors, |
| | | | |Inc.(G.P) |
| | | | | |
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General
| | | | | | | Partner |
| | | | | |
| | | | | |--| Founders CBO, L.P. |
| | | | | | |1%-Delaware-Investment |
| | | | | | | Partnership |
| | | | | | |99% held by outside |
| | | | | | |investors |
| | | | | |
| | | | | |--|Founders CBO Corporation|
| | | | |100%-Delaware-Co-Issuer |
| | | | |with Founders CBO |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Distributors, Inc.
| | | | | | | 100% - Delaware - General Partner |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-Mutual Fund Distributor & |
| | | | | | |Broker/Dealer |
| | | | | |1% Equity-Delaware Capital |
| | | | | |Management, Inc. |
| | | | | |1% Equity-Delaware Distributors, Inc.|
| | | | | |(G.P) |
| | | | | |
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(fka Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & |
Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital
| | | | | | | Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, |
| | | | | | | Inc. |
| | | | |--| Delaware Service Company, Inc. |
| | | | |100%-Delaware-Shareholder Services & |
| | | | |Transfer Agent |
| | | | | |
| | | | |__| Retirement Financial Services, Inc. |
| | | | | |(fka Delaware Investment & Retirement
| | | | | | Services,Inc.) |
| | | | | | 100% - Delaware - Registered Transfer
| | | | | | Agent & I/A |
| | |
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | |
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | |
| | | | Vantage Global Advisors, Inc. |
| | |--| (fka Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| | | Lincoln Investment Management, Inc. |
| |--| (fka Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| |--|AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | |
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| |
| |--|Lincoln National Insurance Associates, Inc.|
| | | (fka Cigna Associates, Inc.) |
| | | 100% - Connecticut - Insurance Agency |
| | |
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | | 100% - Alabama - Insurance Agency |
| | |
| | | | Lincoln National Insurance Associates of Massachusetts,|
| | | | Inc. (fka Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| |
| |--|Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| |
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| |
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (fka Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (fka Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| |
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| |
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| |
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
|
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
|
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
|
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Reinsurance Company Limited |
| | (fka Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| |
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
|
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
|
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Allied Westminster & Company Limited |
| | | (fka One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| |
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| |
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| |
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| |
| |--| Lincoln Financial Advisers Limited |
| | | (fka: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln ISA Management Limited |
| | | | (fka Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln Milldon Limited |
| | | |(fka: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | |
| | |--| Lincoln Management Services Limited |
| | | |(fka: Laurentian Management Services Limited) |
| | | | 100% - England/Wales - Management Services |
| | | |
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| |
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| |
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | |
| | |--| UK Mortgage Securities Limited |
| | | | 100% - England/Wales - Inactive |
| |
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| |
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | | |
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | |
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | |
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | |
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment
| | | | |(Inactive) |
| | | |
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | |
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | |
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension |
| | | | | Fund (Inactive) |
| | | |
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| | |
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | |
| |--| LIV Limited (fka Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | |
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| |
| |--| Lincoln Independent Limited |
| | |(fka: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | |
| |--| Lincoln Investment Management Limited |
| | |(fka: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| |
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| |
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| |
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| |
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| |
| |--| Lincoln Independent (Jersey) Limited |
| | | (fka Lincoln National (Jersey) Limited) |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln National(Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln SBP Trustee Limited |
| | | 100% - England/Wales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
| | Linsco Reinsurance Company |
|--| (fka Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
|
|
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| |
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | |
| | |--|Solutions Reinsurance Limited |
| | | | 100% - Bermuda - Class III Insurance Co|
|
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
|
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
|
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
Footnotes:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(fka: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (fka: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (fka: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act ast Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (fka Laurentian
Financial Group PLC); Lincoln Milldon Limited (fka Laurentian Milldon
Limited); Lincoln Management Services Limited (fka Laurentian Management
Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was
dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved effective
March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company
then changed its name to Delvoy, Inc. The acquisition included the mutual
fund group of companies as part of the Voyager acquisition. The following
companies all then were moved under the newly formed holding company,
Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors,
Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager
Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund
Distributors, Inc. is to merge into Delaware Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros,
Grupo Financiero InverMexico. Stock was sold to Grupo Financiero
InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National Financial
Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc.
effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc.
surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a
newly formed company Voyager Fund Distributors (Delaware), Inc.,
incorporated as a Delaware corporation on May 23, 1997. Voyager Fund
Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P.
effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Southwest Financial Group, Inc. -- company's term of
existence expired July 18, 1998.
<PAGE>
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 Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance Eric Jones Permanently, the first two
years in an easily accessible
place
</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.
<TABLE>
<CAPTION>
Purchases and Sales Journals
- ----------------------------
<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)
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Debit and Delaware Fund Accounting Permanently, the first two
Credit Advices years in an easily accessible
from Bankers place
Trust Company
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
Daily Delaware Fund Accounting Permanently, the first two
Journals 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.
<TABLE>
<CAPTION>
General Ledger
- --------------
<S> <C> <C> <C>
LNL trial Delaware Fund Accounting Permanently, the first two
balance (4000 years in an easily accessible
series) place
Securities in Transfer
- ----------------------
Bank Advices Delaware Fund Accounting Permanently, the first two
years in an easily accessible
place
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Notification Treasurers- Ken Hobson Permanently, the first two
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
of Securities Sec. Custody years in an easily accessible
Transactions. place
(Original
records main-
tained by
custodian bank.)
Securities in Physical Possession
- ---------------------------------
Securities Treasurers- Ken Hobson Permanently, the first two
Ledger. Sec. Custody years in an easily accessible
(Portfolio place
report
available on
request from
Bankers Trust
Company -
Keeper of
original
records).
Monthly Securities Nate Wagley Permanently, the first two
Portfolio Compliance years in an easily accessible
Listings place
Securities Borrowed and Loaned
- ------------------------------
AOS file Treasurers- Ken Hobson Permanently, the first two
Sec. Custody years in an easily accessible
place
Monies Borrowed and Loaned
- --------------------------
Not Applicable.
Dividends and Interest Received
- -------------------------------
Interest File Delaware Fund Accounting Permanently, the first two
Accrual Activity years in an easily accessible
Journal place
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
Dividends Receivable and Interest Accrued
- -----------------------------------------
Interest File Delaware Fund Accounting Permanently, the first two
Accrual Activity years in an easily accessible
Journal place
Dividend Master Delaware Fund Accounting Permanently, the first two
File Display years in an easily accessible
place
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Investment Delaware Fund Accounting Permanently, the first two
Journal years in an easily accessible
place
</TABLE>
<PAGE>
(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.
<TABLE>
<CAPTION>
Ledger Account for each portfolio Security
- ------------------------------------------
<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.
<TABLE>
<CAPTION>
Shareholder Accounts
- --------------------
<S> <C> <C> <C>
Master file Finance 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 Division Permanently, the fist two
Custodian of Trust years in an easily accessible
Securities Company 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.
<TABLE>
<CAPTION>
Corporate Documents
- -------------------
<S> <C> <C> <C>
Bylaws and Secretary Cindy Rose Permanently, the first two
minute books. 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 Operation Six years, the first two
Purchase Order Global years in easily accessible
place
Confirmations Vantage Mutual Funds Operation Six years, the first two
Global years in an easily accessible
place
Notification Investment Pat Roller Six years, the first two
Form (Generate Admin. years in an easily accessible
from AOS place
trading system)
</TABLE>
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
<TABLE>
<CAPTION>
Short-Term Investments
- ----------------------
<S> <C> <C> <C>
Notification Investment Pat Roller Six years, the first two
Form (Generate Admin. years in an easily accessible
from AOS place
trading system)
Bank Advice and LIM Ann Warner Six years, the first two
Issuer years in an easily accessible
Confirmation 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
(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>
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
</TABLE>
<PAGE>
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<TABLE>
<CAPTION>
Trial Balance
- -------------
<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 accessible
Report 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 Operation Six years, the first two
Authorization Vantage years in an easily accessible
Global place
Advisory Law Division Products and Distribution, Six years, the first two
Agreements LNL Law Division years in an easily accessible
place
</TABLE>
(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 Operation Six years, the first two
Vantage years in an easily accessible
Global place
</TABLE>
<PAGE>
(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 accessible
Product 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 easily accessible
and Cash place
Reconciliations
Proxy State- Annuities Nancy Alford Six years, the first two
ments and Division - years in an easily accessible
Proxy Cards Admin. place
</TABLE>
March 24, 2000
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Fund A (Individual), which were
previously executed by me and do hereby severally constitute and appoint Kelly
D. Clevenger, Jeffrey K. Dellinger, and Steven M. Kluever, my true and lawful
attorneys-in-fact, with full power in each of them to sign for me, in my name
and in the capacities indicated below, any and all amendments to Registration
Statement No. 2-26342 filed with the Securities and Exchange Commission under
the Securities Act of 1933, on behalf of the Company in its own name or in the
name of one of its Separate Accounts, hereby ratifying and confirming my
signature as it may be signed by any of my attorneys-in-fact to any such
amendment to that Registration Statement. The power of attorney was signed on
April 30, 1999.
SIGNATURE TITLE
- --------- -----
/s/ Todd R. Stephenson Senior Vice President, Chief Financial Officer
Todd R. Stephenson and Assistant Treasurer
(Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
30th day of April, 1999.
/s/ Kimberly J. DeLong
---------------------------------------
Notary public
Commission Expires: 1-29-2007
---------
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Fund A (Individual), which were
previously executed by me and do hereby severally constitute and appoint Kelly
D. Clevenger, Jeffrey K. Dellinger, and Steven M. Kluever, my true and lawful
attorneys-in-fact, with full power in each of them to sign for me, in my name
and in the capacities indicated below, any and all amendments to Registration
Statement No. 2-26342 filed with the Securities and Exchange Commission under
the Securities Act of 1933, on behalf of the Company in its own name or in the
name of one of its Separate Accounts, hereby ratifying and confirming my
signature as it may be signed by any of my attorneys-in-fact to any such
amendment to that Registration Statement. The power of attorney was signed on
April 29, 1999.
SIGNATURE TITLE
- --------- -----
/s/ Keith J. Ryan Vice President and Controller
- ----------------- (Principal Accounting Officer)
Keith J. Ryan
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN )
Subscribed and sworn to before me this
29th day of April, 1999.
/s/ Janet L. Lindenberg
--------------------------------------
Notary public
Commission Expires: 7-10-2001
----------
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Fund A (Individual), which were
previously executed by me and do hereby severally constitute and appoint Kelly
D. Clevenger, Jeffrey K. Dellinger, and Steven M. Kluever, my true and lawful
attorneys-in-fact, with full power in each of them to sign for me, in my name
and in the capacities indicated below, any and all amendments to Registration
Statement No. 2-26342 filed with the Securities and Exchange Commission under
the Securities Act of 1933, on behalf of the Company in its own name or in the
name of one of its Separate Accounts, hereby ratifying and confirming my
signature as it may be signed by any of my attorneys-in-fact to any such
amendment to that Registration Statement. The power of attorney was signed on
January 6, 2000.
SIGNATURE TITLE
- --------- -----
/s/ Jon A. Boscia President and Director
- ----------------- (Principal Executive Officer)
Jon A. Boscia
STATE OF PENNSYLVANIA )
)SS:
COUNTY OF PHILADELPHIA)
Subscribed and sworn to before me this
6th day of January, 2000.
Judith M. Callihan
--------------------------------------
Notary public
Commission Expires: Oct. 18, 2003
