-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pql5dR+Vaj9bvthMrtCphyMMNhaKE6TlhOwVPb0cLnQR5MqCVU5ic7wloDciVvow jU9Jkw+rirmDbh7wn8oaSw== 0001047469-98-016119.txt : 19980424 0001047469-98-016119.hdr.sgml : 19980424 ACCESSION NUMBER: 0001047469-98-016119 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19980422 EFFECTIVENESS DATE: 19980422 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C CENTRAL INDEX KEY: 0000353894 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 350472300 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-25990 FILM NUMBER: 98598925 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03214 FILM NUMBER: 98598926 BUSINESS ADDRESS: STREET 1: P O BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 BUSINESS PHONE: 2194553018 MAIL ADDRESS: STREET 1: P O BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN NATIONAL PENSION VARIABLE ANNUITY ACCOUNT C DATE OF NAME CHANGE: 19890508 485BPOS 1 485BPOS As filed with the Securities and Exchange Commission on April 21, 1998 Registration No. 33-25990 811-3214 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 15 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 27 (Check appropriate box or boxes.) LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C ------------------------------------------- (Exact Name of Registrant) LINCOLN NATIONAL LIFE INSURANCE COMPANY ------------------------------------------- (Name of Depositor) 1300 South Clinton Street Fort Wayne, Indiana 46802 ------------------------------------------- (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code: (219)455-2000 Jack D. Hunter, Esq. 200 East Berry Street Fort Wayne, Indiana 46802 Telephone No. (219)455-2000 ------------------------------------------- (Name and Address of Agent for Service) Copies of all communications to Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, N.W., Suite 825 Washington, D.C. Attention: Gary O. Cohen, Esq. Approximate Date of Public Offering: Continuous ---------- It is proposed that this filing will become effective: ----- immediately upon filing pursuant to paragraph (b) of Rule 485 X on 5/1/98 pursuant to paragraph (b) of Rule 485 ----- ----- 60 days after filing pursuant to paragraph (a)(1) of Rule 485 on (date) pursuant to paragraph (a)(1) of Rule 485 ----- Title of Securities Being Registered: Units of Interest Under Variable Annuity Contracts ACCOUNT C CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
N-4 ITEM CAPTION IN PROSPECTUS (PART A) - -------- ------------------------------ 1. Cover Page 2. Special Terms 3.(a) Expense Table (b) Not Applicable (c) Not Applicable (d) For Your Information 4.(a) Condensed Financial Information (b) Condensed Financial Information (c) Financial Statements 5.(a) Cover Page; Lincoln National Life Insurance Company (b) Cover Page; Variable Annuity Account; Investments of the Variable Annuity Account (c) Investments of the Variable Account (d) Cover Page (e) Voting Rights (f) Not Applicable 6.(a) For Your Information; Charges and Other Deductions (b) Charges and Other Deductions (c) Charges and Other Deductions (d) Charges and Other Deductions (e) Charges and Other Deductions (f) Charges and Other Deductions 7.(a) The Contracts; Investments of the Variable Account; Annuity Payments; Voting Rights; Return Privilege (b) Investments of the Variable Account; The Contracts; Cover Page (c) The Contracts (d) The Contracts
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
N-4 ITEM CAPTION IN PROSPECTUS (PART A) - -------- ------------------------------ 1. Cover Page 8. (a) Annuity Payments (b) Annuity Payments (c) Annuity Payments (d) Annuity Payments (e) Cover Page; Annuity Payments (f) The Contracts; Annuity Payments 9. (a) The Contracts; Annuity Payments (b) The Contracts; Annuity Payments 10.(a) The Contracts; Cover Page; Charges and Other Deductions (b) The Contracts; Investments of the Variable Account (c) The Contracts (d) Distribution of the Contracts 11.(a) The Contracts (b) Restrictions Under the Texas Optional Retirement Program (c) The Contracts (d) The Contracts (e) Return Privilege 12.(a) Federal Tax Status (b) Cover Page; Federal Tax Status (c) Federal Tax Status 13. 14. Table of Contents to the Statement of Additional Information (SAI) for Lincoln National Variable Annuity Account C
CROSS REFERENCE SHEET TO ITEMS REQUIRED BY FORM N-4
CAPTION IN STATEMENT OF ADDITIONAL ---------------------------------- N-4 ITEM INFORMATION (PART B) - -------- -------------------- 15. Cover Page for Part B 16. Cover Page for Part B 17.(a) Not Applicable (b) Not Applicable (c) General Information and History of Lincoln National Life Insurance Co. (Lincoln Life) 18.(a) Not Applicable (b) Not Applicable (c) Services (d) Not Applicable (e) Not Applicable (f) Services 19.(a) Purchase of Securities Being Offered (b) Not Applicable 20.(a) Underwriters (b) Underwriters (c) Underwriters (d) Underwriters 21. Calculation of Performance Data 22. Annuity Payouts 23.(a) Financial Statements -- Lincoln National Variable Annuity Account C (b) Statutory-basis Financial Statements -- Lincoln National Life Insurance Co. (Lincoln Life)
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C TABLE OF CONTENTS POST-EFFECTIVE AMENDMENT NO. 15 UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 27 UNDER THE INVESTMENT COMPANY ACT OF 1940 ON FORM N-4 Cover Page Table of Contents Cross Reference Sheets Prospectus (Part A) Statement of Additional Information Other Information (Part C) SIGNATURES Exhibit Index LINCOLN LIFE -Registered Trademark- MULTI FUND -Registered Trademark- PROSPECTUSES Variable Annuity Account C, and the underlying funds May 1, 1998 LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY: Lincoln National Life Insurance Co. 1300 South Clinton Street Fort Wayne, Ind. 46801 This Prospectus describes individual VARIABLE ANNUITY CONTRACTS issued by Lincoln National Life Insurance Co. (LINCOLN LIFE). They are for use with the following retirement plans qualified for special tax treatment (qualified CONTRACTS) under the Internal Revenue Code of 1986, as amended (the CODE): 1. Public school systems and 501(c)(3) tax-exempt organizations (403(b)); 2. Qualified corporate employee pension and profit-sharing trusts and qualified annuity plans; 3. Corresponding plans of self-employed individuals (H.R. 10 or Keogh); 4. Individual retirement annuities (IRA); 5. Government deferred compensation plans (457); 6. Simplified employee pension plans (SEP); 7. Roth IRA; and 8. SIMPLE IRA (consult your representative as to the availability of this CONTRACT for SIMPLE IRAs). The CONTRACTS described in this Prospectus are also offered to plans established by persons who are not entitled to participate in one of the previously mentioned plans (nonqualified CONTRACTS). This Prospectus offers you, as CONTRACTOWNER, CONTRACTS of the following types: 1. SINGLE PREMIUM DEFERRED ANNUITY; 2. FLEXIBLE PREMIUM DEFERRED ANNUITY (Multi Fund-Registered Trademark- 2, 3 AND 4); AND 3. PERIODIC PREMIUM DEFERRED ANNUITY (Multi Fund-Registered Trademark- 1). The CONTRACTS offer you the accumulation of CONTRACT VALUE and payment of periodic annuity benefits. These benefits may be paid on a variable or fixed basis or a combination of both. Benefits start at an ANNUITY COMMENCEMENT DATE which you select. If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE, a DEATH BENEFIT will be paid to the BENEFICIARY. The minimum initial PURCHASE PAYMENT for each of the three types of CONTRACT is: 1. SINGLE PREMIUM DEFERRED CONTRACT: $1,000 for Roth IRAs, IRAs and SEPs; $3,000 for all others; 2. FLEXIBLE PREMIUM DEFERRED CONTRACT: $1,000 for Roth IRAs, IRAs and SEPs; $3,000 for all others (subsequent PURCHASE PAYMENTS: minimum $100); and 3. PERIODIC PREMIUM DEFERRED CONTRACT: $600 per CONTRACT YEAR (minimum $25 per PURCHASE PAYMENT). All investments (PURCHASE PAYMENTS) for benefits on a variable basis will be placed in Lincoln National Variable Annuity Account C (VARIABLE ANNUITY ACCOUNT [VAA]). The VAA is a segregated investment account of LINCOLN LIFE, which is the Depositor. Based upon your instructions, the VAA invests PURCHASE PAYMENTS (at net asset value) in specified mutual funds (the FUND or FUNDS and SERIES). Both the value of a CONTRACT before the ANNUITY COMMENCEMENT DATE and the amount of payouts afterward will depend upon the investment performance of the FUND(S) or SERIES selected. Investments in these FUNDS and SERIES are neither insured nor guaranteed by the U.S. Government or by any other person or entity. PURCHASE PAYMENTS for benefits on a fixed basis will be placed in the fixed side of the CONTRACT, which is part of our general account. However, this Prospectus deals only with those elements of the CONTRACTS relating to the VAA, except where reference to the fixed side is made. Special limits apply to withdrawals and transfers from the fixed side of the CONTRACT. We may not offer a CONTRACT continuously or in every state. The Multi Fund-Registered Trademark- 4 CONTRACT and the ENHANCED GUARANTEED MINIMUM DEATH BENEFIT available in most states. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus details the information regarding the VAA that you should know before investing. This Prospectus is printed in a booklet that also includes a current Prospectus for each of the following FUNDS: Lincoln National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National Social Awareness Fund, Inc., and Lincoln National Special Opportunities Fund, Inc. and a current Prospectus for the Delaware Group Premium Fund, Inc., which contains information regarding the Decatur Total Return Series, Global Bond Series and the Trend Series. All Prospectuses should be read carefully and kept for future reference. A STATEMENT OF ADDITIONAL INFORMATION (SAI), dated May 1, 1998, concerning the VAA has been filed with the SEC and is incorporated by this reference into this Prospectus. If you would like a free copy, write, Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). A table of contents for the SAI appears on the last page of this Prospectus. This Prospectus is dated May 1, 1998. FOR YOUR INFORMATION: If you surrender your CONTRACT or withdraw CONTRACT VALUE, a SURRENDER CHARGE of up to 8% may be deducted. The amount of the SURRENDER CHARGE depends on the type of CONTRACT and its duration. However, no SURRENDER CHARGE is assessed when ANNUITY PAYOUTS begin or at the ANNUITANT'S DEATH. See charges and other deductions. Also, you may be subject to a penalty tax under Section 72 (q) of the CODE (see federal tax status) should you withdraw CONTRACT VALUE or surrender the CONTRACT before the ANNUITY COMMENCEMENT DATE. These CONTRACTS contain a free-look provision. See Return Privilege. TABLE OF CONTENTS
PAGE - ---------------------------------------------------------- Special Terms 3 - ---------------------------------------------------------- Expense Tables 5 - ---------------------------------------------------------- Condensed financial information for the VAA 8 - ---------------------------------------------------------- Financial statements 10 - ---------------------------------------------------------- Lincoln National Life Insurance Co. 10 - ---------------------------------------------------------- Variable annuity account (VAA) 10 - ---------------------------------------------------------- Investments of the variable annuity account 11 - ---------------------------------------------------------- Charges and other deductions 13 - ---------------------------------------------------------- The contracts 15 - ---------------------------------------------------------- Annuity payouts 19 - ---------------------------------------------------------- PAGE - ---------------------------------------------------------- Federal tax status 20 - ---------------------------------------------------------- Voting rights 22 - ---------------------------------------------------------- Distribution of the contracts 23 - ---------------------------------------------------------- Return privilege 23 - ---------------------------------------------------------- State regulation 23 - ---------------------------------------------------------- Restrictions under the Texas Optional Retirement Program 23 - ---------------------------------------------------------- Records and reports 23 - ---------------------------------------------------------- Other information 24 - ---------------------------------------------------------- Statement of additional information table of contents for VAA 25 - ----------------------------------------------------------
2 SPECIAL TERMS (Throughout this Prospectus, in order to make the following documents more understandable to you, we have italicized the special terms.) ACCOUNT OR VARIABLE ANNUITY ACCOUNT (VAA) -- The segregated investment account, Account C, into which LINCOLN LIFE sets aside and invests the assets for the VARIABLE ANNUITY CONTRACTS offered in this Prospectus. ACCUMULATION UNIT -- A measure used to calculate CONTRACT VALUE for the variable side of the CONTRACT before the ANNUITY COMMENCEMENT DATE. See The contracts. ADVISOR OR INVESTMENT ADVISOR -- Lincoln Investment Management, Inc. (LINCOLN INVESTMENT), which provides investment management services to each of the FUNDS. See Investment advisor. ANNUITANT -- The person upon whose life the ANNUITY benefit payments made after the ANNUITY COMMENCEMENT DATE will be based. ANNUITY COMMENCEMENT DATE -- The VALUATION DATE when the FUNDS or SERIES are withdrawn or converted into ANNUITY UNITS or fixed dollar payout for payment of ANNUITY BENEFITS under the ANNUITY PAYOUT OPTION selected. For purposes of determining whether an event occurs before or after the ANNUITY COMMENCEMENT DATE, the ANNUITY COMMENCEMENT DATE is deemed to begin at the VALUATION PERIOD. ANNUITY OPTION -- One of the optional forms of payout of the annuity available within the CONTRACT. See Annuity payouts. ANNUITY PAYOUT -- An amount paid after the ANNUITY COMMENCEMENT DATE at regular intervals under one of several options available to the ANNUITANT and/or any other payee. This amount may be paid on a variable or fixed basis, or a combination of both. ANNUITY UNIT -- A measure used to calculate the amount of ANNUITY PAYOUTS after the ANNUITY COMMENCEMENT DATE. See Annuity payouts. BENEFICIARY -- The person whom you designate to receive the DEATH BENEFIT, if any, in case of the ANNUITANT'S death. CASH SURRENDER VALUE -- Upon SURRENDER, the CONTRACT VALUE less any applicable charges, fees, and taxes. CODE -- The Internal Revenue Code of 1986, as amended. CONTRACT (VARIABLE ANNUITY CONTRACT) -- The agreement between you and us providing a variable annuity. CONTRACTOWNER (you, your, owner) -- The person who has the ability to exercise the rights within the CONTRACT (decides on investment allocations, transfers, payout options; designates the BENEFICIARY, etc.). Usually, but not always, the owner is also the ANNUITANT. CONTRACT VALUE -- At a given time, the total value of all ACCUMULATION UNITS for a CONTRACT plus the value of the fixed side of the CONTRACT. CONTRACT YEAR -- Each one-year period starting with the effective date of the CONTRACT and starting with each CONTRACT anniversary after that. DEATH BENEFIT -- The amount payable to your designated BENEFICIARY if the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE. See The contracts. ENHANCED GUARANTEED MINIMUM DEATH BENEFIT (EGMDB) -- The EGMDB is the greater of: (1) the CONTRACT VALUE at the end of the VALUATION PERIOD when the death claim is approved for payment by LINCOLN LIFE or (2) the higher of: a. the CONTRACT VALUE at the end of the VALUATION PERIOD when the EGMDB becomes effective and; b. the highest CONTRACT value at the end of the VALUATION PERIOD that includes any CONTRACT anniversary date up to and including age 75 following election of the EGMDB; increased by PURCHASE PAYMENTS and decreased by any WITHDRAWALS, annuitizations, and premium taxes incurred after the CONTRACT anniversary or EGMDB effective date the highest CONTRACT VALUE occurred. See The contracts. DELAWARE MANAGEMENT -- Delaware Management Company, Inc. FLEXIBLE PREMIUM DEFERRED CONTRACT (Multi Fund-Registered Trademark- 2, 3, AND 4) -- An annuity CONTRACT with an initial PURCHASE PAYMENT, allowing additional PURCHASE PAYMENTS to be made, and with ANNUITY PAYOUTS beginning at a future date. FUND -- Any of the eleven individual Lincoln National underlying investment options in which your PURCHASE PAYMENTS are invested. HOME OFFICE -- The headquarters of Lincoln National Life Insurance Co., located at 1300 South Clinton Street, Fort Wayne, Indiana 46802. LINCOLN INVESTMENT -- Lincoln Investment Management, Inc. LINCOLN LIFE (we, us, our) -- Lincoln National Life Insurance Co. 3 LUMP SUM -- A one-time PURCHASE PAYMENT of $5,000 or more ($1,000 for IRAs and SEPs) made to a PERIODIC PREMIUM DEFERRED CONTRACT. PERIODIC PREMIUM DEFERRED CONTRACT (Multi Fund-Registered Trademark- 1) -- An annuity CONTRACT with PURCHASE PAYMENTS due periodically and with ANNUITY PAYOUTS beginning at a future date. PURCHASE PAYMENTS -- Amounts paid into the contract to purchase an annuity. QUALIFIED PLAN -- A retirement plan qualified for special tax treatment under the Code, as amended, including Sections 401, 403, 408 and 457. SERIES -- Any of the three underlying portfolios of the Delaware Group Premium Fund, Inc., in which your PURCHASE PAYMENTS are invested. SINGLE PREMIUM DEFERRED CONTRACT -- An annuity CONTRACT with a single PURCHASE PAYMENT and with ANNUITY PAYOUTS beginning at a future date. STATEMENT OF ADDITIONAL INFORMATION (SAI) -- A document required by the SEC to be provided upon request to a prospective purchaser of a CONTRACT, you. This free document gives more information about LINCOLN LIFE, the VAA, and the VARIABLE ANNUITY CONTRACT. SUBACCOUNT -- That portion of the VAA that reflects investments in ACCUMULATION and ANNUITY UNITs of a particular FUND and SERIES. There is a separate SUBACCOUNT which corresponds to each FUND. SURRENDER -- A CONTRACT right that allows you to terminate your CONTRACT and receive your CASH SURRENDER VALUE. See The contracts. SURRENDER CHARGE -- The term that refers to what is known in the industry as a contingent deferred sales charge. See Charges and other deductions. VALUATION DATE -- Each day the New York Stock Exchange (NYSE) is open for trading. VALUATION PERIOD -- The period starting at the close of trading (currently 4:00 p.m. New York time) on each day that the NYSE is open for trading and ending at the close of such trading on the next VALUATION DATE. WITHDRAWAL -- A CONTRACT right that allows you to obtain a portion of your CASH SURRENDER VALUE. 4 EXPENSE TABLES CONTRACTOWNER TRANSACTION EXPENSES -- SINGLE PREMIUM AND PERIODIC PREMIUM DEFERRED CONTRACTS: SURRENDER CHARGE (as a percentage of CONTRACT VALUE surrendered/withdrawn): 7% (SINGLE PREMIUM) 8% (PERIODIC PREMIUM)
(Note: Upon the first WITHDRAWAL of CONTRACT VALUE in any CONTRACT YEAR, up to 15% of CONTRACT VALUE may be withdrawn free of this charge.) REDUCED SURRENDER CHARGES OVER TIME: The SURRENDER CHARGE percentages listed above are the maximum percentages charged as a percentage of CONTRACT VALUE withdrawn. The later a SURRENDER/WITHDRAWAL occurs, the lower the SURRENDER CHARGE percentage applied, according to the following table:
CONTRACT TYPE CONTRACT YEAR - ------------------------------------------------------------------------------------------------------------------------------ 1 2 3 4 5 6 7 8 9 10 Single premium 7% 6 5 4 3 2 1 0 0 0 Periodic premium 8% 8 8 8 8 4 4 4 4 4 - ------------------------------------------------------------------------------------------------------------------------------ CONTRACT TYPE - ---------------- 11+ Single premium 0 Periodic premium 0 - ----------------
CONTRACTOWNER TRANSACTION EXPENSES -- FLEXIBLE PREMIUM DEFERRED CONTRACT: SURRENDER CHARGE (as a percentage of PURCHASE PAYMENTS surrendered/withdrawn) 7% (FLEXIBLE PREMIUM)
(Note: Upon the first WITHDRAWAL of PURCHASE PAYMENTS in any CONTRACT YEAR, up to 15% of those PURCHASE PAYMENTS may be withdrawn free of this charge.) REDUCED SURRENDER CHARGE OVER TIME: The SURRENDER CHARGE percentage listed above is the maximum percentage charged as a percentage of PURCHASE PAYMENTS withdrawn. This charge is calculated separately for each CONTRACT YEAR'S PURCHASE PAYMENTS. The later a SURRENDER/WITHDRAWAL occurs, the lower the SURRENDER CHARGE percentage applied, according to the following table:
COMPLETED CONTRACT YEARS BETWEEN DATE OF PURCHASE PAYMENTS AND DATE OF CONTRACT TYPE SURRENDER/WITHDRAWAL - ---------------------------------------------------------------------------------------------------------------------------------- 0 1 2 3 4 5 6 7+ Flexible premium 7% 6 5 4 3 2 1 0 - ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL CONTRACT FEE: $-0-(SINGLE PREMIUM AND FLEXIBLE PREMIUM Multi Fund-Registered Trademark- 3 AND 4) $25 (PERIODIC AND FLEXIBLE PREMIUM Multi Fund-Registered Trademark- 2) This fee is a single charge assessed against CONTRACT VALUE on the last VALUATION DATE of each CONTRACT YEAR and upon full SURRENDER; it is NOT a separate charge for each SUBACCOUNT. VAA ANNUAL EXPENSES (as a percentage of average account value for each SUBACCOUNT)*:
CONTRACTS WITH CONTRACTS WITHOUT EGMDB EGMDB Mortality and expense risk fees 1.00 % 1.00 % EGMDB charge .30 -- --- --- Total Account C annual expenses 1.30 % 1.00 %
*The VAA is divided into 14 separately-named SUBACCOUNTs, each of which, in turn, invests PURCHASE PAYMENTS in its respective FUND or SERIES. 5 ANNUAL EXPENSES OF THE FUNDS and SERIES for the year ended 1997 (as a percentage of each FUND'S and SERIES' average net assets):
MANAGEMENT OTHER TOTAL FEES + EXPENSES = EXPENSES - --------------------------------------------------------------------------------------- 1. Aggressive Growth (AG) .73% .08% .81% - --------------------------------------------------------------------------------------- 2. Bond (B) .46 .07 .53 - --------------------------------------------------------------------------------------- 3. Capital Appreciation (CA)* .75* .09 .84 - --------------------------------------------------------------------------------------- 4. Equity-Income (EI)* .75* .07 .82 - --------------------------------------------------------------------------------------- 5. Global Asset Allocation (GAA) .72 .17 .89 - --------------------------------------------------------------------------------------- 6. Growth and Income (GI) .32 .03 .35 - --------------------------------------------------------------------------------------- 7. International (I) .79 .14 .93 - --------------------------------------------------------------------------------------- 8. Managed (M) .37 .05 .42 - --------------------------------------------------------------------------------------- 9. Money Market (MM) .48 .11 .59 - --------------------------------------------------------------------------------------- 10. Social Awareness (SA) .36 .05 .41 - --------------------------------------------------------------------------------------- 11. Special Opportunities (SO) .37 .05 .42 - --------------------------------------------------------------------------------------- 12. Trend Series (TS)** .67** .13 .80 - --------------------------------------------------------------------------------------- 13. Decatur Total Return Series (DTRS)** .60** .11 .71 - --------------------------------------------------------------------------------------- 14. Global Bond Series (GBS)** .47** .33 .80 - ---------------------------------------------------------------------------------------
*The management fee for the Capital Appreciation Fund has been decreased from .80% to .75% effective May 1, 1998, and for the Equity-Income Fund it has been decreased from .95% to .75% effective January 1, 1998 and the expense information in this table has been restated to reflect current fees. **The investment advisors for the series currently voluntarily waive the management fee to the extent necessary to maintain the series total expense ratio at a maximum of .80%. The management fee and total expense, absent the waiver, would have been .75% and .88% for TS and .75% and 1.08% for GBS. Should they cease to waive those amounts in the future, these management fee percentages and total expenses may be higher in future years. EXAMPLES (reflecting expenses of the VAA, the FUNDS and SERIES): If you SURRENDER your CONTRACT at the end of the applicable time period, you would pay the following expenses on a $1,000 investment, assuming a 5% annual return:
1 YEAR 3 YEARS FLEXIBLE FLEXIBLE FLEXIBLE FLEXIBLE MULTI MULTI MULTI MULTI FUND FUND FUND FUND -REGISTERED -REGISTERED -REGISTERED -REGISTERED TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- 3 SINGLE 2 3 & 4 PERIODIC SINGLE 2 & 4 PERIODIC - ------------------------------------------------------------------------------------------------------------ 1. AG $91 $88 $88 $101 $112 $107 $107 $145 - ------------------------------------------------------------------------------------------------------------ 2. B 88 86 86 98 104 98 98 137 - ------------------------------------------------------------------------------------------------------------ 3. CA 91 89 89 102 114 109 109 147 - ------------------------------------------------------------------------------------------------------------ 4. EI 93 91 91 103 118 113 113 151 - ------------------------------------------------------------------------------------------------------------ 5. GAA 91 89 89 102 114 109 109 147 - ------------------------------------------------------------------------------------------------------------ 6. GI 86 84 84 97 98 93 93 132 - ------------------------------------------------------------------------------------------------------------ 7. I 92 90 90 102 115 111 111 148 - ------------------------------------------------------------------------------------------------------------ 8. M 87 84 84 97 101 95 95 134 - ------------------------------------------------------------------------------------------------------------ 9. MM 89 86 86 99 106 100 100 139 - ------------------------------------------------------------------------------------------------------------ 10. SA 87 84 84 97 100 95 95 133 - ------------------------------------------------------------------------------------------------------------ 11. SO 87 84 84 97 101 95 95 134 - ------------------------------------------------------------------------------------------------------------ 12. TS 91 88 88 101 112 107 107 144 - ------------------------------------------------------------------------------------------------------------ 13. DTRS 90 87 87 100 109 104 104 142 - ------------------------------------------------------------------------------------------------------------ 14. GBS 91 88 88 101 112 107 107 144 - ------------------------------------------------------------------------------------------------------------ 5 YEARS 10 YEARS FLEXIBLE FLEXIBLE FLEXIBLE FLEXIBLE MULTI MULTI MULTI MULTI FUND FUND FUND FUND -REGISTERED -REGISTERED -REGISTERED -REGISTERED TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- SINGLE 2 3 & 4 PERIODIC SINGLE 2 3 & 4 PERIODIC - --- --------------------------------------------------------------------------------------------- 1. $133 $128 $128 $191 $213 $212 $213 $267 - --- --------------------------------------------------------------------------------------------- 2. 119 113 114 178 183 182 183 238 - --- --------------------------------------------------------------------------------------------- 3. 137 132 132 195 221 221 221 221 - --- --------------------------------------------------------------------------------------------- 4. 144 139 139 201 235 234 235 288 - --- --------------------------------------------------------------------------------------------- 5. 137 132 132 195 221 221 221 275 - --- --------------------------------------------------------------------------------------------- 6. 110 104 104 169 163 162 163 219 - --- --------------------------------------------------------------------------------------------- 7. 139 134 134 197 226 225 226 279 - --- --------------------------------------------------------------------------------------------- 8. 114 108 108 173 170 170 170 226 - --- --------------------------------------------------------------------------------------------- 9. 122 117 117 181 189 189 189 244 - --- --------------------------------------------------------------------------------------------- 10. 113 107 107 172 169 169 169 225 - --- --------------------------------------------------------------------------------------------- 11. 114 108 108 173 170 170 170 226 - --- --------------------------------------------------------------------------------------------- 12. 133 127 128 191 212 211 212 266 - --- --------------------------------------------------------------------------------------------- 13. 128 123 123 187 202 202 202 257 - --- --------------------------------------------------------------------------------------------- 14. 133 127 128 191 212 211 212 266 - --- ---------------------------------------------------------------------------------------------
6 If you do not surrender your CONTRACT, (whether SINGLE, FLEXIBLE or PERIODIC), or if you annuitize, you would pay the following expenses on a $1,000 investment, assuming a 5% annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINGLE, SINGLE, PERIODIC, PERIODIC, FLEXIBLE, FLEXIBLE, SINGLE, FLEXIBLE SINGLE, FLEXIBLE PERIODIC PERIODIC FLEXIBLE MULTI FLEXIBLE MULTI MULTI MULTI MULTI FUND FUND MULTI FUND FUND FUND FUND -REGISTERED -REGISTERED -REGISTERED -REGISTERED -REGISTERED -REGISTERED TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- 3 AND 4 2 3 AND 4 2 - -------------------------------------------------------------------------------------------- 1. AG $18 $57 $ 98 $ 98 $213 $212 - -------------------------------------------------------------------------------------------- 2. B 16 48 84 83 183 182 - -------------------------------------------------------------------------------------------- 3. CA 19 59 102 102 221 221 - -------------------------------------------------------------------------------------------- 4. EI 21 63 109 109 235 234 - -------------------------------------------------------------------------------------------- 5. GAA 19 59 102 102 221 221 - -------------------------------------------------------------------------------------------- 6. GI 14 43 74 74 163 162 - -------------------------------------------------------------------------------------------- 7. I 20 61 104 104 226 225 - -------------------------------------------------------------------------------------------- 8. M 14 45 78 78 170 170 - -------------------------------------------------------------------------------------------- 9. MM 16 50 87 87 189 189 - -------------------------------------------------------------------------------------------- 10. SA 14 45 77 77 169 169 - -------------------------------------------------------------------------------------------- 11. SO 14 45 78 78 170 170 - -------------------------------------------------------------------------------------------- 12. TS 18 57 98 97 212 211 - -------------------------------------------------------------------------------------------- 13. DTRS 17 54 93 93 202 202 - -------------------------------------------------------------------------------------------- 14. GBS 18 57 98 97 212 211 - --------------------------------------------------------------------------------------------
This table is provided to assist you in understanding the various costs and expenses that you will bear directly or indirectly. The table reflects expenses of the VAA, the 11 FUNDS and the three SERIES for the year ended December 31, 1997, although the expenses have been restated to reflect current fees for Capital Appreciation and Equity-Income. For more complete descriptions of the various costs and expenses involved, see Charges and other deductions in this Prospectus, and Management of the FUNDS in the Appendix to the FUNDS' Prospectuses and the Prospectus for Delaware Group Premium Fund, Inc. Premium taxes may also be applicable, although they do not appear in the table. In addition, we reserve the right to impose a charge on transfers between SUBACCOUNTS as well as to and from the fixed account, although we do not currently do so. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. This table is unaudited. These examples reflect expenses assuming that the EGMDB is NOT in effect. If the EGMDB is in effect, these examples will be higher. 7 CONDENSED FINANCIAL INFORMATION FOR THE VAA ACCUMULATION UNIT VALUES The following information relating to ACCUMULATION UNIT values (not including the GMDB charge) and number of ACCUMULATION UNITS for each of the 10 years in the period ended December 31, 1997 comes from the VAA'S financial statements. It should be read in conjunction with the VAA'S financial statements and notes which are all included in the SAI.
1997 1996 1995 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------- Aggressive Growth subaccount Accumulation unit value - - Beginning of period $ 1.384 1.196 .896 1.000 1.000* - - End of period $ 1.687 1.384 1.196 .896 1.000* trading began in 1994. Number of accumulation units - - End of period (000's omitted) 199,221 172,630 114,518 67,547 110 - --------------------------------------------------------------------------------------------------------- Bond subaccount Accumulation unit value - - Beginning of period $ 4.283 4.228 3.585 3.780 3.398 3.181 2.737 2.591 - - End of period $ 4.632 4.283 4.228 3.585 3.780 3.398 3.181 2.737 Number of accumulation units - - End of period (000's omitted) 60,078 62,709 62,644 57,900 62,765 52,842 46,830 40,983 - --------------------------------------------------------------------------------------------------------- Capital Appreciation subaccount Accumulation unit value - - Beginning of period $ 1.520 1.294 1.017 1.000 1.000 * - - End of period $ 1.884 1.520 1.294 1.017 1.000 * trading began in 1994. Number of accumulation units - - End of period (000's omitted) 234,328 174,073 98,067 52,125 110 - --------------------------------------------------------------------------------------------------------- Equity-Income subaccount Accumulation unit value - - Beginning of period $ 1.663 1.391 1.046 1.000 1.000 * - - End of period $ 2.150 1.663 1.391 1.046 1.000 * trading began in 1994. Number of accumulation units - - End of period (000's omitted) 371,051 275,632 171,817 75,383 110 - --------------------------------------------------------------------------------------------------------- Global Asset Allocation subaccount Accumulation unit value - - Beginning of period $ 2.302 2.013 1.642 1.689 1.453 1.378 1.174 1.175 - - End of period $ 2.720 2.302 2.013 1.642 1.689 1.453 1.378 1.174 Number of accumulation units - - End of period (000's omitted) 159,590 140,242 126,558 122,061 92,778 67,873 57,199 50,149 - --------------------------------------------------------------------------------------------------------- Growth and Income subaccount Accumulation unit value - - Beginning of period $ 7.453 6.292 4.593 4.579 4.084 4.050 3.125 3.126 - - End of period $ 9.650 7.453 6.292 4.593 4.579 4.084 4.050 3.125 Number of accumulation units - - End of period (000's omitted) 357,850 332,885 291,063 253,621 226,072 188,659 144,515 114,974 - --------------------------------------------------------------------------------------------------------- 1989 1988 - --------------------------------- Aggressive Growth subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Bond subaccount Accumulation unit value - - Beginning of period 2.312 2.162 - - End of period 2.591 2.312 Number of accumulation units - - End of period (000's omitted) 37,671 28,146 - --------------------------------- Capital Appreciation subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Equity-Income subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Global Asset Allocation subaccount Accumulation unit value - - Beginning of period 1.005 .914 - - End of period 1.175 1.005 Number of accumulation units - - End of period (000's omitted) 39,835 27,750 - --------------------------------- Growth and Income subaccount Accumulation unit value - - Beginning of period 2.611 2.436 - - End of period 3.126 2.611 Number of accumulation units - - End of period (000's omitted) 96,161 81,066 - ---------------------------------
* These values do not reflect a full year's experience because they are calculated for the period from the beginning of investment activity of the subaccounts, through December 31. 8
1997 1996 1995 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------- International subaccount Accumulation unit value - - Beginning of period $ 1.488 1.368 1.271 1.243 .901 .990 1.000* trading began in - - End of period $ 1.562 1.488 1.368 1.271 1.243 .901 .990* 1991. Number of accumulation units - - End of period (000's omitted) 294,705 294,570 261,509 248,639 129,551 50,718 21,088 - --------------------------------------------------------------------------------------------------------- Managed subaccount Accumulation unit value - - Beginning of period $ 3.913 3.515 2.747 2.827 2.558 2.492 2.065 2.015 - - End of period $ 4.714 3.913 3.515 2.747 2.827 2.558 2.492 2.065 Number of accumulation units - - End of period (000's omitted) 179,210 178,496 172,789 167,184 162,485 139,606 115,929 104,011 - --------------------------------------------------------------------------------------------------------- Money Market subaccount Accumulation unit value - - Beginning of period $ 2.324 2.235 2.137 2.079 2.044 1.996 1.907 1.783 - - End of period $ 2.419 2.324 2.235 2.137 2.079 2.044 1.996 1.907 Number of accumulation units - - End of Period (000's omitted) 36,107 40,057 35,136 37,106 39,763 46,993 77,812 57,377 - --------------------------------------------------------------------------------------------------------- Social Awareness subaccount Accumulation unit value - - Beginning of period $ 3.638 2.843 2.005 2.021 1.796 1.750 1.285 1.357 - - End of period $ 4.950 3.638 2.843 2.005 2.021 1.796 1.750 1.285 Number of accumulation units - - End of period (000's omitted) 251,168 175,970 106,204 83,069 69,006 50,838 30,735 19,486 - --------------------------------------------------------------------------------------------------------- Special Opportunities subaccount Accumulation unit value - - Beginning of period $ 6.505 5.618 4.303 4.392 3.740 3.519 2.481 2.710 - - End of period $ 8.249 6.505 5.618 4.303 4.392 3.740 3.519 2.481 Number of accumulation units - - End of period (000's omitted) 101,475 97,744 88,993 73,673 62,314 51,056 37,798 33,837 - --------------------------------------------------------------------------------------------------------- Trend subaccount Accumulation unit value - - Beginning of period $ 0.991 1.000 * - - End of period $ 1.191 0.991 * trading began in 1996 Number of accumulation units - - End of period (000's omitted) 46,558 23,508 - --------------------------------------------------------------------------------------------------------- Decatur Total Return subaccount Accumulation unit value - - Beginning of period 1.126 1.000 * - - End of period 1.461 1.126 * trading began in 1996 Number of accumulation units - - End of period (000's omitted) 64,052 12,220 - --------------------------------------------------------------------------------------------------------- Global Bond subaccount Accumulation unit value - - Beginning of period $ 1.111 1.000 * - - End of period $ 1.109 1.111 * trading began in 1996 Number of accumulation units - - End of period (000's omitted) 11,177 7,613 - --------------------------------------------------------------------------------------------------------- 1989 1988 - --------------------------------- International subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Managed subaccount Accumulation unit value - - Beginning of period 1.737 1.609 - - End of period 2.015 1.737 Number of accumulation units - - End of period (000's omitted) 95,285 84,586 - --------------------------------- Money Market subaccount Accumulation unit value - - Beginning of period 1.651 1.553 - - End of period 1.783 1.651 Number of accumulation units - - End of Period (000's omitted) 53,287 37,890 - --------------------------------- Social Awareness subaccount Accumulation unit value - - Beginning of period 1.042 1.000* - - End of period 1.357 1.042* trading began in 1988 Number of accumulation units - - End of period (000's omitted) 7,127 1,984 - --------------------------------- Special Opportunities subaccount Accumulation unit value - - Beginning of period 2.054 1.997 - - End of period 2.710 2.054 Number of accumulation units - - End of period (000's omitted) 27,789 31,068 - --------------------------------- Trend subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Decatur Total Return subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - --------------------------------- Global Bond subaccount Accumulation unit value - - Beginning of period - - End of period Number of accumulation units - - End of period (000's omitted) - ---------------------------------
* These values do not reflect a full year's experience because they are calculated for the period from the beginning of investment activity of the subaccounts, through December 31. ADDITIONAL INFORMATION FOR THE MONEY MARKET SUBACCOUNT: Seven-day yield: 4.37%; Length of base period-7 days; Date of last day of base period: December 31, 1997. 9 PERFORMANCE DATA: At times the VAA may advertise the Money Market SUBACCOUNT's yield. The yield refers to the income generated by an investment in the SUBACCOUNT over a seven- day period. This income is then annualized. The process of annualizing results when the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. THE YIELD FIGURE IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The VAA advertises the annual performance of the SUBACCOUNTs for the FUNDS and SERIES on both a standardized and nonstandardized basis. The standardized calculation measures average annual total return. This is based on a hypothetical $1,000 payment made at the beginning of a one-year, a five-year, and a 10-year period. This calculation reflects all fees and charges that are or could be imposed on all CONTRACTOWNER accounts. The nonstandardized calculation compares changes in ACCUMULATION UNIT values from the beginning of the most recently completed calendar year to the end of that year. It may also compare changes in ACCUMULATION UNIT values over shorter or longer time periods. This calculation reflects mortality and expense risk fees. It also reflects management fees and other expenses of the FUND. It does not include SURRENDER CHARGEs or the account charge; if included, they would decrease the performance. For additional information about performance calculations, please refer to the SAI. FINANCIAL STATEMENTS The financial statements of the VAA and the statutory-basis financial statements and schedule of LINCOLN LIFE are located in the SAI. You may obtain a free copy by writing Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or calling 1-800-4LINCOLN (454-6265). LINCOLN NATIONAL LIFE INSURANCE CO. LINCOLN LIFE was founded in 1905 and is organized under Indiana law. We are one of the largest stock life insurance companies in the United States. We are the issuer of the variable annuity contracts. The obligations set forth in the contracts, other than those of the contract holder or participant are our obligations. We also serve as the principal underwriter for the CONTRACTS. We are owned by Lincoln National Corp. (LNC) which is also organized under Indiana law. LNC's primary businesses are insurance and financial services. VARIABLE ANNUITY ACCOUNT (VAA) On June 3, 1981, the VAA was established as an insurance company separate account under Indiana law. It is registered with the SEC as a unit investment trust under the provisions of the Investment Company Act of 1940 (1940 Act). The SEC does not supervise the VAA or LINCOLN LIFE. The VAA is a segregated investment account, meaning that its assets may not be charged with liabilities resulting from any other business that we may conduct. Income, gains and losses, whether realized or not, from assets allocated to the VAA are, in accordance with the applicable annuity CONTRACTS, credited to or charged against the VAA. They are credited or charged without regard to any other income, gains or losses of LINCOLN LIFE. The VAA satisfies the definition of separate account under the federal securities laws. We do not guarantee the investment performance of the VAA. Any investment gain or loss depends on the investment performance of the FUNDS and SERIES. YOU ASSUME THE FULL INVESTMENT RISK FOR ALL AMOUNTS PLACED IN THE VAA. FIXED SIDE OF THE CONTRACT PURCHASE PAYMENTS allocated to the fixed side of the CONTRACT become part of LINCOLN LIFE'S general account, and DO NOT participate in the investment experience of the VAA. The general account is subject to regulation and supervision by the Indiana Insurance Department as well as the insurance laws and regulations of the jurisdictions in which the CONTRACTS are distributed. IN RELIANCE ON CERTAIN EXEMPTIONS, EXCLUSIONS AND RULES, LINCOLN LIFE HAS NOT REGISTERED INTERESTS IN THE GENERAL ACCOUNT AS A SECURITY UNDER THE SECURITIES ACT OF 1933 AND HAS NOT REGISTERED THE GENERAL ACCOUNT AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS THEREIN ARE SUBJECT TO REGULATION UNDER THE 1933 ACT OR THE 1940 ACT. LINCOLN LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT MADE A REVIEW OF THE DISCLOSURES WHICH ARE INCLUDED IN THIS PROSPECTUS WHICH RELATE TO OUR GENERAL ACCOUNT AND TO THE FIXED ACCOUNT UNDER THE CONTRACT. THESE DISCLOSURES, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES. THIS PROSPECTUS IS GENERALLY INTENDED TO SERVE AS A DISCLOSURE DOCUMENT ONLY FOR ASPECTS OF THE CONTRACT INVOLVING THE VAA, AND THEREFORE CONTAINS ONLY SELECTED INFORMATION REGARDING THE FIXED SIDE OF THE CONTRACT. COMPLETE DETAILS REGARDING THE FIXED SIDE OF THE CONTRACT ARE IN THE CONTRACT. PURCHASE PAYMENTS allocated to the fixed side of the CONTRACT are guaranteed to be credited with a minimum interest rate, specified in the CONTRACT, of at least 3.0%. A 10 PURCHASE PAYMENT allocated to the fixed side of the CONTRACT is credited with interest beginning on the next calendar day following the date of receipt if all data is complete. LINCOLN LIFE may vary the way in which it credits interest to the fixed side of the CONTRACT from time to time. ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE IN LINCOLN LIFE'S SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0% WILL BE DECLARED. INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT You decide the SUBACCOUNT(S) to which you allocate PURCHASE PAYMENTS. There is a separate SUBACCOUNT which corresponds to each FUND and SERIES. You may change your allocations without penalty or charges. Shares of the FUNDS and SERIES will be sold at net asset value (See the Appendix to the FUNDS' Prospectuses for an explanation of net asset value) to the VAA in order to fund the CONTRACTS. The FUNDS and SERIES are required to redeem their shares at net asset value upon our request. We reserve the right to add, delete or substitute FUNDS and SERIES. INVESTMENT ADVISOR LINCOLN INVESTMENT (owned by LNC) is the ADVISOR for each of the FUNDS and is primarily responsible for the investment decisions affecting the FUNDS. The services it provides are explained in the Prospectuses of the FUNDS. Under an advisory agreement with each FUND, LINCOLN INVESTMENT provides portfolio management and investment advice to that FUND, subject to the supervision of the FUND'S Board of Directors. Additionally, LINCOLN INVESTMENT currently has six sub-advisory agreements in which the sub-advisor may perform some or substantially all of the investment advisory services required by those respective FUNDS. No additional compensation from the assets of those FUNDS will be assessed as a result of the sub-advisory agreements. Following is a chart that shows the FUND names and the six sub-advisors under LINCOLN INVESTMENT (the ADVISOR):
SUB-ADVISOR FUND - --------------------------------------------------- Delaware International Advisors, Ltd. International - --------------------------------------------------- Fidelity Management Trust Co. Equity-Income - --------------------------------------------------- Janus Capital Corp. Capital Appreciation - --------------------------------------------------- Lynch & Mayer, Inc. Aggressive Growth - --------------------------------------------------- Putnam Investment Management, Inc. Global Asset Allocation - --------------------------------------------------- Vantage Investment Advisors Growth and Income; Managed (for stock portfolio); Social Awareness; and Special Opportunities - ---------------------------------------------------
The Bond and Money Market FUNDS do not have sub-advisors. DELAWARE MANAGEMENT, an indirect subsidiary of LNC, is the advisor for the TREND SERIES AND DECATUR TOTAL RETURN SERIES and is primarily responsible for the investment decisions affecting these SERIES. Delaware International Advisers Ltd. (Delaware International), an affiliate of DELAWARE MANAGEMENT, furnishes investment management services to the Global Bond SERIES. Additional information about DELAWARE MANAGEMENT and Delaware International may be found in the Delaware Group Premium Fund, Inc. Prospectus enclosed in this booklet under Management of the Fund. FUNDS/SERIES Following are brief summaries of the investment objectives and policies of the FUNDS. The year in which each FUND started trading is in parentheses. There is more detailed information in the current Prospectuses for the FUNDS, which are included in this booklet. All of the FUNDS with the exception of the Special Opportunities Fund are diversified, open-end management investment companies. Diversified means not owning too great a percentage of the securities of any one company. An open-end company is one which, in this case, permits LINCOLN LIFE to sell its shares back to the FUND or SERIES when you make a WITHDRAWAL, surrender the CONTRACT or transfer from one FUND to another. Management investment company is the legal term for a mutual fund. The Special Opportunities Fund is open-end, but is non-diversified. Non-diversified means the FUND may own a larger percentage of the securities of particular companies than will a diversified company. These definitions are very general. The precise legal definitions for these terms are contained in the 1940 Act. PLEASE BE ADVISED THAT THERE IS NO ASSURANCE THAT ANY OF THE FUNDS OR SERIES WILL ACHIEVE ITS STATED OBJECTIVES. 11 FUNDS 1. Aggressive Growth Fund (1994) -- The investment objective is to maximize capital appreciation. The FUND invests in stocks of smaller, lesser-known companies which have a chance to grow significantly in a short time. 2. Bond Fund (1981) -- The investment objective is maximum current income consistent with prudent investment strategy. The FUND invests primarily in medium-and long-term corporate and government bonds. 3. Capital Appreciation Fund (1994) -- The investment objective is long-term growth of capital in a manner consistent with preservation of capital. The FUND primarily buys stocks in a large number of companies of all sizes if the companies are competing well and if their products or services are in high demand. It may also buy some money market securities and bonds, including junk (high-risk) bonds. 4. Equity-Income Fund (1994) -- The investment objective is to achieve reasonable income by investing primarily in income-producing equity securities. The FUND invests mostly in high-income stocks and some high-yielding bonds (including junk bonds). 5. Global Asset Allocation Fund (1987) -- The investment objective is long-term total return consistent with preservation of capital. The FUND allocates its assets among several categories of equity and fixed-income securities, both of U.S. and foreign issuers. 6. Growth and Income Fund (1981) -- The investment objective is long-term capital appreciation. The FUND buys stocks of established companies. 7. International Fund (1991) -- The investment objective is long-term capital appreciation. The FUND trades in securities issued outside the United States--mostly stocks, with an occasional bond or money market security. 8. Managed Fund (1983) -- The investment objective is maximum long-term total return (capital gains plus income) consistent with prudent investment strategy. The FUND invests in a mix of stocks, bonds, and money market securities, as determined by an investment committee. 9. Money Market Fund (1981) -- The investment objective is maximum current income consistent with the preservation of capital. The FUND invests in short-term obligations issued by U.S. corporations; the U.S. Government; and federally-chartered banks and U.S. branches of foreign banks. 10. Social Awareness Fund (1988) -- The investment objective is long-term capital appreciation. The FUND buys stocks of established companies which adhere to certain specific social criteria. 11. Special Opportunities Fund (1981) -- The investment objective is maximum capital appreciation. The FUND primarily invests in mid-size companies whose stocks have significant growth potential. Current income is a secondary consideration. SERIES Following are brief summaries of the investment objectives and policies of the three SERIES being offered by Delaware Group Premium Fund, Inc. More detailed information may be obtained from the current prospectus for those SERIES, which is included in this booklet. PLEASE BE ADVISED THAT THERE IS NO ASSURANCE THAT ANY OF THE SERIES WILL ACHIEVE ITS STATED OBJECTIVES. 1. Decatur Total Return Series -- seeks the highest possible total rate of return by selecting issues that exhibit the potential for capital appreciation while providing higher than average dividend income. Decatur Total Returns invests, but not exclusively, in common stocks and income-producing securities convertible into common stocks, consistent with the SERIES' objective. 2. Trend Series -- seeks long-term capital appreciation by investing primarily in small-cap common stocks and convertible securities of emerging and other growth-oriented companies. These securities will have been judged to be responsive to changes in the market place and to have fundamental characteristics to support growth. Income is not an objective. 3. Global Bond Series -- seeks current income consistent with preservation of principal by investing primarily in fixed income securities that may also provide the potential for capital appreciation. This SERIES is a global fund. As such, at least 65% of the SERIES' assets will be invested in fixed income securities of issuers organized or having a majority of their assets in or deriving a majority of their operating income in at least three different countries, one of which may be the United States. Shares of the FUNDS and SERIES are sold to LINCOLN LIFE for investment of the assets of the VAA and of Lincoln Life Flexible Premium Variable Life Account K, for variable life insurance contracts. Shares of some, but not all, of the FUNDS are also sold to LINCOLN LIFE for investment of the assets of Lincoln Life Flexible Premium Variable Life Accounts D and G, also to fund variable life insurance contracts. In addition, shares of the Delaware Group Premium Fund, Inc. are sold to separate accounts of life insurance companies other than LINCOLN LIFE. See Other 12 information. Shares of the FUNDS and SERIES are not sold directly to the general public. We will purchase shares of the FUNDS and SERIES at net asset value and direct them to the appropriate SUBACCOUNTs of the VAA. We will redeem sufficient shares of the appropriate FUNDS and SERIES to pay ANNUITY PAYOUTS, DEATH BENEFITS, SURRENDER/WITHDRAWAL proceeds or for purposes described in the CONTRACT. If you desire to transfer all or part of your investment from one SUBACCOUNT to another, we may redeem shares held in the first and purchase shares for the other SUBACCOUNT. The shares are retired, but they may be reissued later. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS All of the investment objectives of the FUNDS and SERIES are fundamental which means that no changes may be made without the affirmative vote of a majority of the outstanding voting securities of each respective FUND or SERIES. The extent to which the particular investment policies, practices or restrictions for each FUND or SERIES are fundamental or nonfundamental depends on the particular FUND or SERIES. If they are nonfundamental, they may be changed by the Board of Directors of the FUNDS or SERIES without shareholder approval. You are urged to consult the Prospectuses in this booklet and SAIs for each individual FUND or SERIES for additional information regarding the fundamental and non-fundamental policies, practices and restrictions of each of the FUNDS and SERIES. REINVESTMENT All dividend and capital gain distributions of the FUNDS and SERIES are automatically reinvested in shares of the distributing FUNDS and SERIES at their net asset value on the date of distribution. Dividends are not paid out to CONTRACTOWNERs as additional units, but are reflected in changes in unit values. ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS We reserve the right, within the law, to make additions, deletions and substitutions for the FUNDS and SERIES held by the VAA. (We may substitute shares of another series or of other funds for shares already purchased, or to be purchased in the future, under the CONTRACT. This substitution might occur if shares of a FUND and SERIES should no longer be available, or if investment in any FUND'S and SERIES' shares should become inappropriate, in the judgement of our management, for the purposes for the CONTRACT.) No substitution of the shares attributable to your account may take place without notice to you and prior approval of the SEC, in accordance with the 1940 Act. CHARGES AND OTHER DEDUCTIONS DEDUCTIONS FROM PURCHASE PAYMENTS There are no front-end deductions for sales charges made from PURCHASE PAYMENTS. However, we will deduct premium taxes, when applicable. ACCOUNT CHARGE There is no account charge for SINGLE PREMIUM DEFERRED CONTRACTS AND FLEXIBLE PREMIUM DEFERRED CONTRACTS, Multi Fund-Registered Trademark- 3 and 4. For PERIODIC AND FLEXIBLE PREMIUM, Multi Fund-Registered Trademark- 2 DEFERRED CONTRACTS, we will deduct $25 from the CONTRACT VALUE on the last VALUATION DATE of each CONTRACT YEAR to compensate us for the administrative services provided to you; this $25 account charge will also be deducted from the CONTRACT VALUE upon SURRENDER. Administrative services include processing applications; issuing CONTRACTS; processing purchase and redemptions of FUND shares; maintaining records; administering ANNUITY PAYOUTS; providing accounting, valuation, regulatory and reporting services. SURRENDER CHARGES There are charges associated with the SURRENDER of a CONTRACT or the WITHDRAWAL of CONTRACT VALUE (or of PURCHASE PAYMENTS, for FLEXIBLE CONTRACTS) before the ANNUITY COMMENCEMENT DATE. The SURRENDER CHARGES associated with SURRENDER or WITHDRAWAL are paid to us to compensate us for the loss we experience on CONTRACT distribution costs when CONTRACTOWNERS surrender or withdraw before distribution costs have been recovered. Charges are the same for SURRENDERS/WITHDRAWALS except that, for the first WITHDRAWAL in a CONTRACT YEAR, up to 15% of CONTRACT VALUE (PURCHASE PAYMENTS for FLEXIBLE CONTRACTS) may be withdrawn free of charges. This 15% WITHDRAWAL exception does not apply to a SURRENDER of a CONTRACT. A. PERIODIC PREMIUM DEFERRED CONTRACT For the first WITHDRAWAL in a CONTRACT YEAR in excess of 15%, for any subsequent WITHDRAWALs in the same CONTRACT YEAR, or for SURRENDER of the CONTRACT, there will be a SURRENDER CHARGE of 8% for years 1-5; 4% in years 6-10; and no charge after the CONTRACT has been in force for 10 years. In addition, as explained previously, an account charge will be deducted for a SURRENDER. SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday, the ANNUITANT should become totally and permanently disabled [as defined in Section 22(e)(3) of the CODE], SURRENDER CHARGES will also be waived. In addition, for 403(b) and 457 CONTRACTS only, SURRENDER CHARGES will be waived in the event the ANNUITANT: (1) has terminated employment with the employer that sponsored the CONTRACT; and (2) has been in the CONTRACT for at least five years (the 13 five year date beginning either November 1, 1991 or the date of the CONTRACT, whichever is later); and (3) is at least age 55. B. SINGLE PREMIUM DEFERRED CONTRACT OR NONRECURRING LUMP SUM PAYMENT TO PERIODIC PREMIUM DEFERRED CONTRACT For a SINGLE PREMIUM DEFERRED CONTRACT or a nonrecurring LUMP SUM payment made to a PERIODIC PREMIUM DEFERRED CONTRACT, the SURRENDER/WITHDRAWAL CHARGES (when applicable as described previously) will be:
CONTRACT YEAR IN WHICH SURRENDER/WITHDRAWAL OCCURS - --------------------------------------------------- 1 2 3 4 5 6 7 8+ Charge as a percent of proceeds withdrawn 7% 6 5 4 3 2 1 0
Investment gains attributable to a nonrecurring LUMP SUM payment made to a PERIODIC PREMIUM DEFERRED CONTRACT will be subject to SURRENDER CHARGES of 8% in years 1-5, 4% in years 6-10, and no charge after the CONTRACT has been in force for 10 years. LUMP SUM payments may be deposited into a PERIODIC PREMIUM DEFERRED CONTRACT within 12 months of the effective date of the CONTRACT. After the 12-month period, a new CONTRACT must be established for a LUMP SUM payment. For PERIODIC PREMIUM DEFERRED CONTRACTS under which a nonrecurring LUMP SUM has been received, WITHDRAWALS will be made first from any amount subject to the lowest charge until that amount is gone. SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday, the ANNUITANT should become totally and permanently disabled, SURRENDER charges will also be waived. C. FLEXIBLE PREMIUM DEFERRED CONTRACT For a FLEXIBLE PREMIUM DEFERRED CONTRACT, the SURRENDER/WITHDRAWAL charges (when applicable as described previously) will be:
COMPLETED CONTRACT YEARS BETWEEN DATE OF PURCHASE PAYMENTS AND DATE OF SURRENDER/WITHDRAWAL* - --------------------------------------------------- 0 1 2 3 4 5 6 7+ Charge as a percent of total PURCHASE PAYMENTS surrendered/withdrawn in a contract year 7% 6 5 4 3 2 1 0
* The SURRENDER CHARGE is calculated separately for each CONTRACT YEAR'S PURCHASE PAYMENTS. For the first WITHDRAWAL of PURCHASE PAYMENTS in each CONTRACT YEAR, up to 15% of PURCHASE PAYMENTS will be free of these charges. In addition, as explained previously, an account charge will be deducted for a SURRENDER on Multi Fund-Registered Trademark- 2 FLEXIBLE PREMIUM CONTRACTS. SURRENDER CHARGES will be waived in the event of the death of the ANNUITANT. If between the effective date of the CONTRACT and the ANNUITANT'S 65th birthday, the ANNUITANT should become totally and permanently disabled, SURRENDER CHARGES will also be waived. The SURRENDER CHARGE is calculated separately for each CONTRACT YEAR'S PURCHASE PAYMENTS to which a charge applies. (FOR PURPOSES OF CALCULATING THIS CHARGE, WE ASSUME THAT PURCHASE PAYMENTS ARE WITHDRAWN ON A FIRST IN-FIRST OUT BASIS, AND THAT ALL PURCHASE PAYMENTS ARE WITHDRAWN BEFORE ANY EARNINGS ARE WITHDRAWN.) The SURRENDER CHARGES associated with SURRENDER or WITHDRAWAL are paid to us to compensate us for the loss we experience on CONTRACT distributions costs when CONTRACTOWNERS surrender or withdraw before distribution costs have been recovered. ADDITIONAL INFORMATION Participants in the Texas Optional Retirement Program should refer to Restrictions under the Texas Optional Retirement Program, later in this Prospectus booklet. The charges associated with SURRENDER/WITHDRAWAL are paid to us to compensate us for the cost of distributing the CONTRACTS. As required by the National Association Securities Dealers, in no event will the aggregate SURRENDER CHARGES under a CONTRACT exceed 8.5% of your total PURCHASE PAYMENTS. The SURRENDER and account charges described previously may be reduced or eliminated for any particular CONTRACT. However these charges will be reduced only to the extent that we anticipate lower distribution and/or administrative expenses or that we perform fewer sales or administrative services than those originally contemplated in establishing the level of those charges. Lower distribution and administrative expenses may be the result of economies associated with (1) the use of mass enrollment procedures, (2) the performance of administrative or sales functions by the employer, (3) the use by an employer of automated techniques in submitting deposits or information related to deposits on behalf of its employees, or (4) any other circumstances which reduce distribution or administrative expenses. The exact amount of SURRENDER and account charges applicable to a particular CONTRACT will be stated in that CONTRACT. For example, in certain circumstances, a holder of an annuity contract issued by Lincoln Life may exchange it for a CONTRACT. In this circumstance, the surrender charge applicable to such CONTRACT in the future will be calculated as if (i) the date of purchase of the CONTRACT is the date the original annuity contract was purchased and (ii) each purchase payment had been made on the actual date of such payment, whether under the annuity contract or the CONTRACT. An exchange of an annuity contract for a CONTRACT may or may not be advantageous, 14 based on all of the circumstances, including a comparison of contractual terms and conditions such as investment options and charges and deductions other than surrender charges. Generally speaking, an exchange would not involve an exchange fee or be subject to taxes. We may pay a commission to the agent assisting on the exchange. Additional information on exchanges, as well as a copy of the prospectus for the annuity contract, is available upon request. DEDUCTIONS FROM THE VAA FOR ASSUMPTION OF MORTALITY AND EXPENSE RISKS We deduct from the VAA an amount, computed daily, which is equal to an annual rate of 1.002% of the daily net asset value, to compensate us for our assumption of certain risks described below. This charge is made up of two parts: (1) our assumption of mortality risks (0.900%) and (2) our assumption of expense risks (0.102%). The level of this charge is guaranteed not to change. Our assumption of mortality risks guarantees that the ANNUITY PAYOUTS made to our CONTRACTOWNERS will not be affected by the mortality experience (life span) either of persons receiving those payouts or of the general population. We assume this mortality risk through guaranteed annuity rates incorporated into the CONTRACT which cannot be changed. We also assume the risk that the charges for administrative expenses, which cannot be changed by us, will be insufficient to cover actual administrative costs. If the 1.002% charge proves insufficient to cover underwriting and administrative costs in excess of the charges made for administrative expenses, we will absorb the loss. However, if the amount deducted proves more than sufficient, we will keep the profit. DEDUCTIONS FOR PREMIUM TAXES Any premium tax or other tax levied by any governmental entity as a result of the existence of the CONTRACTS or the VAA will be deducted from the CONTRACT VALUE when incurred, or at another time of our choosing. The applicable premium tax rates that states and other governmental entities impose on the purchase of an annuity are subject to change by legislation, by administrative interpretation, or by judicial action. These premium taxes will generally depend upon the law of your state of residence. The tax ranges from 0.5% to 4.0%. DEDUCTION FOR THE EGMDB When the EGMDB becomes effective, we will begin deducting from the VAA an amount, computed daily, which is equal to an annual rate of 0.30% of the daily net asset value. This charge will start at the beginning of the next VALUATION PERIOD. This charge will continue for all future CONTRACT YEARS unless the owner elects to discontinue the EGMDB. If the EGMDB is discontinued, the 0.30% annual charge will cease at the end of the VALUATION PERIOD when the EGMDB is terminated. See The contracts -- Death benefit before the annuity commencement date. OTHER CHARGES AND DEDUCTIONS There are deductions from and expenses paid out of the assets of the eleven FUNDS and the three SERIES that are described later in this booklet in the Appendix to the FUNDS' Prospectuses and in the Prospectus for the SERIES respectively. THE CONTRACTS PURCHASE OF CONTRACTS If you wish to purchase a CONTRACT, you must apply for it through one of our authorized sales representatives. The completed application is sent to us and we decide whether to accept or reject it. If the application is accepted, a CONTRACT is prepared and executed by our legally authorized officers. The CONTRACT is then sent to you through your sales representative. See Distribution of the contracts. If a completed application and all other information necessary for processing a purchase order are received, an initial PURCHASE PAYMENT will be priced no later than two business days after we receive the order. While attempting to finish an incomplete application, we may hold the initial PURCHASE PAYMENT for no more than five business days. If the incomplete application cannot be completed within those five days, you will be informed of the reasons, and the PURCHASE PAYMENT will be returned immediately (unless you specifically authorize us to keep it until the application is complete). Once the application is complete, the initial PURCHASE PAYMENT must be priced within two business days. WHO CAN INVEST To apply for a PERIODIC PREMIUM DEFERRED CONTRACT, you must be of legal age in a state where the CONTRACTS may be lawfully sold and also be eligible to participate in any of the qualified or nonqualified plans for which the CONTRACTS are designed. The ANNUITANT cannot be older than age 74. To apply for a FLEXIBLE PREMIUM DEFERRED CONTRACT, a SINGLE PREMIUM DEFERRED CONTRACT or to make a nonrecurring LUMP SUM payment to a PERIODIC PREMIUM DEFERRED CONTRACT, you must meet the same requirements as for an application of a PERIODIC PREMIUM DEFERRED CONTRACT, except that the ANNUITANT cannot be older than age 84. PURCHASE PAYMENTS PURCHASE PAYMENTS are payable to us at a frequency and in an amount selected by you in the application. The minimum PURCHASE PAYMENT for a SINGLE PREMIUM DEFERRED 15 VALUATION DATE ACCUMULATION and ANNUITY UNITS will be valued once daily as of the close of trading (currently 4:00 p.m., New York time) on each day that the NYSE is open for trading (VALUATION DATE). On any date other than a VALUATION DATE, the ACCUMULATION UNIT value and the ANNUITY UNIT value will not change. ALLOCATION OF PURCHASE PAYMENTS PURCHASE PAYMENTS are placed into the VAA'S SUBACCOUNTS, each of which invests in shares of its corresponding FUND or SERIES, according to your instructions. The minimum amount of any PURCHASE PAYMENT which can be put into any one SUBACCOUNT is $20 under PERIODIC PREMIUM DEFERRED CONTRACTS, $1,000 under SINGLE PREMIUM DEFERRED CONTRACTS and $100 under FLEXIBLE PREMIUM DEFERRED CONTRACTS. Upon allocation to the appropriate SUBACCOUNT, PURCHASE PAYMENTS are converted into ACCUMULATION UNITS. The number of ACCUMULATION UNITS credited is determined by dividing the amount allocated to each SUBACCOUNT by the value of an ACCUMULATION UNIT for that SUBACCOUNT on the VALUATION DATE on which the PURCHASE PAYMENT is received at the HOME OFFICE if received before 4:00 p.m., New York time. If the PURCHASE PAYMENT is received at or after 4:00 p.m., New York time, we will use the ACCUMULATION UNIT value computed on the next VALUATION DATE. The number of ACCUMULATION UNITS determined in this way shall not be changed by any subsequent change in the value of an ACCUMULATION UNIT. However, the dollar value of an ACCUMULATION UNIT will vary depending not only upon how well the investments perform, but also upon the related expenses of the VAA and the underlying FUNDS and SERIES. VALUATION OF ACCUMULATION UNITS PURCHASE PAYMENTS allocated to the VAA are converted into ACCUMULATION UNITS. This is done by dividing each PURCHASE PAYMENT by the value of an ACCUMULATION UNIT for the VALUATION PERIOD during which the PURCHASE PAYMENT is allocated to the VAA. The ACCUMULATION UNIT value for each SUBACCOUNT was or will be established at the inception of the SUBACCOUNT. It may increase or decrease from VALUATION PERIOD to VALUATION PERIOD. The ACCUMULATION UNIT value for a SUBACCOUNT for a later valuation period is determined as follows: (1) The total value of the FUND OR SERIES shares held in the SUBACCOUNT is calculated by multiplying the number of FUND OR SERIES shares owned by the SUBACCOUNT at the beginning of the VALUATION PERIOD by the net asset value per share of the FUND OR SERIES at the end of the VALUATION PERIOD, and adding any dividend or other distribution of the FUND OR SERIES if an ex-dividend date occurs during the VALUATION PERIOD; minus (2) The liabilities of the SUBACCOUNT at the end of the VALUATION PERIOD; these liabilities include daily charges imposed on the SUBACCOUNT, and may include a charge or credit with respect to any taxes paid or reserved for by us that we determine result from the operations of the VAA; and (3) Dividing the result by the number of SUBACCOUNT units outstanding at the beginning of the VALUATION PERIOD. The daily charges imposed on a SUBACCOUNT for any VALUATION PERIOD are equal to the daily mortality and expense risk charge multiplied by the number of calendar days in the VALUATION PERIOD. Because a different daily charge is made for CONTRACTS with the EGMDB than for those without, each of the two types of CONTRACTS will have different corresponding ACCUMULATION UNIT values on any given day. TRANSFERS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE You may transfer all or a portion of your investment from one SUBACCOUNT to another. A transfer involves the SURRENDER of ACCUMULATION UNITS in one SUBACCOUNT and the purchase of ACCUMULATION UNITS in the other SUBACCOUNT. A transfer will be done using the respective ACCUMULATION UNIT values as of the VALUATION DATE immediately following receipt of the transfer request. Transfers between SUBACCOUNTS are restricted to once every 30 days; although, we reserve the right to waive this 30-day period. The minimum amount which may be transferred between SUBACCOUNTS is $500 or the entire amount in the SUBACCOUNT, if less than $500. If the transfer from a SUBACCOUNT would leave you with less than $100 in the SUBACCOUNT, we may transfer the total balance of the SUBACCOUNT. (We have the right to reduce these minimum amounts.) A transfer may be made by writing to the HOME OFFICE or, if a Telephone Exchange Authorization form (available from us) is on file with us, by a toll-free telephone call. In order to prevent unauthorized or fraudulent telephone transfers, we may require a CONTRACTOWNER to provide certain identifying information before we will act upon their instructions. We may also assign the CONTRACTOWNER a Personal Identification Number (PIN) to serve as identification. We will not be liable for following telephone instructions we reasonably believe are genuine. Telephone tranfer requests may be recorded and written confirmation of all transfer requests will be mailed to the CONTRACTOWNER on the next VALUATION DATE. Telephone transfers will be processed on the VALUATION DATE that they are received when they are received at our customer service center before 4:00 PM New York time. You may also transfer all or any part of the CONTRACT VALUE from the SUBACCOUNT(S) to the fixed side of the CONTRACT. Transfers from the fixed side of the CONTRACT to the various SUBACCOUNT(S) are allowed subject to the following restrictions: (1) the sum of the percentages of the fixed 16 value transferred is limited to 25% of the value of the fixed side in any 12 month period; and (2) the minimum amount which can be transferred is $500 or the amount in the fixed account. We reserve the right to waive any of these restrictions. When thinking about a transfer of CONTRACT VALUE, you should consider the inherent risk involved. Frequent transfers based on short-term expectations may increase the risk that a transfer will be made at an inopportune time. There is no charge to you for a transfer. However, we reserve the right to impose a charge in the future for any transfers. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE You may transfer all or a portion of your investment in one SUBACCOUNT to another SUBACCOUNT or to the fixed side of the CONTRACT. Those transfers will be limited to three times per CONTRACT YEAR. HOWEVER, AFTER THE ANNUITY COMMENCEMENT DATE, NO TRANSFERS ARE ALLOWED FROM THE FIXED SIDE OF THE CONTRACT TO THE SUBACCOUNTS. DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE You may designate a BENEFICIARY during the life of the ANNUITANT and change the BENEFICIARY by filing a written request with the HOME OFFICE. Each change of BENEFICIARY revokes any previous designation. We reserve the right to request that you send us the CONTRACT for endorsement of a change of BENEFICIARY. If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the EGMDB is not in effect, a DEATH BENEFIT equal to the CONTRACT VALUE will be paid to your designated BENEFICIARY. An optional EGMDB is available for nonqualified, Roth IRA and IRA FLEXIBLE PREMIUM DEFERRED ANNUITY CONTRACTS, for ANNUITANTS up to age 75. (Please check with your representative for availability to current CONTRACTOWNERS.) The EGMDB will take effect on the VALUATION DATE when the EGMDB election form is approved at our HOME OFFICE, if before 4:00 p.m. New York time. The OWNER may discontinue the EGMDB at any time. If discontinued, the EGMDB will terminate on the VALUATION DATE written notice is received at our HOME OFFICE, if before 4:00 p.m. New York time. If after 4:00 p.m. New York time, the EGMDB election or termination will be effective with the next VALUATION DATE. The OWNER may not reelect the EGMDB once it is discontinued. As of the annuity commencement date the EGMDB will be discontinued and the charge for the EGMDB will cease. See Charges and other deductions -- Deduction for the EGMDB. If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE and the EGMDB is in effect, the DEATH BENEFIT paid to your designated BENEFICIARY will be the greater of: 1. the CONTRACT VALUE at the end of the VALUATION PERIOD when the death claim is approved for payment by LINCOLN LIFE, or 2. the higher of: (a) the CONTRACT VALUE at the end of the VALUATION PERIOD when the EGMDB becomes effective and; (b) the highest CONTRACT VALUE, at the end of the VALUATION PERIOD, on any contract anniversary date up to and including age 75 following election of the EGMDB; increased by PURCHASE PAYMENTS and decreased by any WITHDRAWALS, annuitizations, and premium taxes incurred after the contract anniversary or EGMDB effective date the highest CONTRACT VALUE occurred. The CONTRACT VALUE available upon death is the value of the CONTRACT at the end of the VALUATION PERIOD during which the death claim is approved for payment by LINCOLN LIFE. The approval of the death claim payment will occur after receipt of: (1) proof, satisfactory to us, of the death of the ANNUITANT; (2) written authorization for payment; and (3) our receipt of all required claim forms fully completed. The EGMDB may not be elected on or after the ANNUITY COMMENCEMENT DATE. At any time during a 60-day period the BENEFICIARY may elect to receive payment either in the form of a lump sum settlement or an ANNUITY PAYOUT. If a LUMP SUM settlement is requested and the amount of the settlement is $10,000 or more, a SecureLine-Registered Trademark- account will be established in the name of the BENEFICIARY for that amount. If the LUMP SUM amount is less than $10,000, it will be sent to the BENEFICIARY. In either event, the proceeds will be disbursed within seven days of receipt of satisfactory claim documentation, as discussed previously, subject to the laws and regulations governing payment of DEATH BENEFITS. If an election has not been made by the end of the 60-day period, a LUMP SUM settlement will be made at that time using SecureLine-Registered Trademark- if the amount is $10,000 or more; if the amount is under $10,000 it will be sent to the BENEFICIARY. This payment may be postponed as permitted by the 1940 Act. SecureLine-Registered Trademark- is an interest-bearing checking account established in the name of the BENEFICIARY which is administered by State Street Bank and Trust Company of Boston, MA. Once the SecureLine-Registered Trademark- account is established, only the BENEFICIARY can authorize checks to be drawn on the account. Annuity payouts will be made in accordance with applicable laws and regulations governing payment of DEATH BENEFITS. 17 Unless otherwise provided in the BENEFICIARY designation, one of the following procedures will take place on the death of a BENEFICIARY: 1. If any BENEFICIARY dies before the ANNUITANT, that BENEFICIARY's interest will go to any other beneficiaries named, according to their respective interests. There are no restrictions on the BENEFICIARY's use of the proceeds; and/or 2. If no BENEFICIARY survives the ANNUITANT, the proceeds will be paid to the CONTRACTOWNER or to his/her estate, as applicable. JOINT/CONTINGENT OWNERSHIP If joint owners are named in the application, the joint owners shall be treated as having equal undivided interests in the CONTRACT. Either owner, independently of the other, may exercise any ownership rights in this CONTRACT. Only the spouse can be a joint owner on Multi Fund-Registered Trademark- 4, FLEXIBLE PREMIUM DEFERRED ANNUITY CONTRACTS. A contingent owner may exercise ownership rights in this CONTRACT only after the CONTRACTOWNER dies. DEATH OF CONTRACTOWNER If the CONTRACTOWNER of a nonqualified contract dies before the ANNUITY COMMENCEMENT DATE, then, in compliance with the CODE, the CASH SURRENDER VALUE of the CONTRACT will be paid as follows: 1. Upon the death of a NON-ANNUITANT CONTRACTOWNER, the proceeds shall be paid to any surviving joint or contingent owner(s). If no joint or contingent owner has been named, then the CASH SURRENDER VALUE shall be paid to the ANNUITANT named in the CONTRACT; and 2. Upon the death of a CONTRACTOWNER, who is also the ANNUITANT, the death will be treated as death of the ANNUITANT and the provisions of this CONTRACT regarding death of ANNUITANT will control. If the recipient of the proceeds is the surviving spouse of the CONTRACTOWNER, the CONTRACT may be continued in the name of that spouse as the new CONTRACTOWNER. The CODE requires that any distribution be paid within five years of the death of the CONTRACTOWNER unless the BENEFICIARY begins receiving, within one year of the CONTRACTOWNER's death, the distribution in the form of a life annuity or an annuity for a period certain not exceeding the BENEFICIARY's life expectancy. SURRENDERS AND WITHDRAWALS Before the ANNUITY COMMENCEMENT DATE, we will allow the SURRENDER of the CONTRACT or a WITHDRAWAL of the CONTRACT VALUE upon your written request, subject to the rules below. Special restrictions on SURRENDERS/WITHDRAWALS apply if your CONTRACT is purchased as part of a retirement plan of a public school system or Section 501(c)(3) organization under Section 403(b) of the CODE. Beginning January 1, 1989, in order for a CONTRACT to retain its tax-qualified status, Section 403(b) prohibits a WITHDRAWAL from a Section 403(b) CONTRACT of post-1988 contributions (and earnings on those contributions) pursuant to a salary reduction agreement. However, this restriction does not apply if the ANNUITANT attains age (a) 59 1/2 (b) separates from service, (c) dies, (d) becomes totally and permanently disabled and/or (e) experiences financial hardship (in which event the income attributable to those contributions may not be withdrawn). A SURRENDER/WITHDRAWAL after the ANNUITY COMMENCEMENT DATE depends upon the ANNUITY OPTION selected. Pre-1989 contributions and earnings through December 31, 1988, are not subject to the previously stated restriction. The CONTRACT VALUE available upon SURRENDER/WITHDRAWAL is the CASH SURRENDER VALUE at the end of the VALUATION PERIOD during which the written request for SURRENDER/WITHDRAWAL is received at the HOME OFFICE. Unless a request for WITHDRAWAL specifies otherwise, WITHDRAWALS will be made from all SUBACCOUNTS within the VAA and from the general account in the same proportion that the amount of WITHDRAWAL bears to the total CONTRACT VALUE. The minimum amount which can be withdrawn is $100, and the remaining CONTRACT VALUE must be at least $300. Where permitted by CONTRACT, SURRENDER/WITHDRAWAL payments will be mailed within seven days after we receive a valid written request at the HOME OFFICE. The payment may be postponed as permitted by the 1940 Act. You may specify that the charges be deducted from the amount you request withdrawn or from the remaining CONTRACT VALUE. There are charges associated with SURRENDER of a CONTRACT or WITHDRAWAL of CONTRACT VALUE before the ANNUITY COMMENCEMENT DATE. See Charges and other deductions. The tax consequences of a SURRENDER/WITHDRAWAL are discussed later in this booklet. See Federal tax status. If the total CONTRACT VALUE is less than $600, and if no PURCHASE PAYMENTS have been made for at least two years, we reserve the right to terminate the CONTRACT. REINVESTMENT PRIVILEGE You may elect to make a reinvestment purchase with any part of the proceeds of a SURRENDER/WITHDRAWAL, and we will recredit the SURRENDER/WITHDRAWAL charges previously deducted. This election must be made within 30 days of the date of the SURRENDER/WITHDRAWAL, and the repurchase must be of a CONTRACT covered by this Prospectus. In the case of a qualified CONTRACT, a representation must be made that the proceeds being used to make the purchase have retained their tax-favored status under an arrangement for which the CONTRACTS offered by this Prospectus are designed. The number of ACCUMULATION UNITS which will be credited when the proceeds are reinvested will be based on the value of the 18 ACCUMULATION UNIT(S) on the next VALUATION DATE. This computation will occur following receipt of the proceeds and request for reinvestment at the HOME OFFICE. You may utilize the reinvestment privilege only once. For tax reporting purposes, we will treat a SURRENDER/WITHDRAWAL and a subsequent reinvestment purchase as separate transactions. You should consult a tax advisor before you request a SURRENDER/WITHDRAWAL or subsequent reinvestment purchase. AMENDMENT OF CONTRACT We reserve the right to amend the CONTRACT to meet the requirements of the 1940 Act or other applicable federal or state laws or regulations. You will be notified in writing of any changes, modifications or waivers. COMMISSIONS For the FLEXIBLE PREMIUM DEFERRED ANNUITY Multi Fund-Registered Trademark- 2 and 3 CONTRACTS, the maximum commission which could be paid to dealers is equal to 5.25% on each PURCHASE PAYMENT; plus up to 0.10% of the value of PURCHASE PAYMENTS in the VARIABLE ANNUITY ACCOUNT while the EGMDB is in effect. For FLEXIBLE PREMIUM DEFERRED ANNUITY Multi Fund-Registered Trademark- 4 CONTRACTS, the maximum commission which could be paid to dealers is equal to 4.50% on each PURCHASE PAYMENT; plus an annual continuing commission up to .40% of the value of the CONTRACT PURCHASE PAYMENTS invested for at least 15 months; plus up to 0.10% of the value of PURCHASE PAYMENTS in the VARIABLE ANNUITY ACCOUNT while the EGMDB is in effect. For the PERIODIC PREMIUM DEFERRED ANNUITY CONTRACT, the maximum commission which could be paid to dealers is 9% on the total PURCHASE PAYMENTS received during the first CONTRACT YEAR and 5.25% on each PURCHASE PAYMENT in renewal CONTRACT YEARS (or an equivalent schedule). OWNERSHIP As CONTRACTOWNER, you have all rights under the CONTRACT. According to Indiana law, the assets of the VAA are held for the exclusive benefit of all CONTRACTOWNERS and their designated BENEFICIARIES. The assets of the VAA are not chargeable with liabilities arising from any other business that we may conduct. CONTRACTS used for QUALIFIED PLANS may not be assigned or transferred except as permitted by the Employee Retirement Income Security Act (ERISA) of 1974 and upon written notification to us. We assume no responsibility for the validity or effect of any assignment. Consult your tax ADVISOR about the tax consequences of an assignment. CONTRACTOWNER QUESTIONS The obligations to purchasers under the CONTRACTS are those of LINCOLN LIFE. Your questions and concerns should be directed to us at 1-800-4LINCOLN (454-6265). ANNUITY PAYOUTS When you apply for a CONTRACT, you may select any ANNUITY COMMENCEMENT DATE permitted by law. (PLEASE NOTE THE FOLLOWING EXCEPTION: CONTRACTS issued under qualified employee pension and profit-sharing trusts [described in Section 401(a) and tax exempt under Section 501(a) of the CODE] and qualified annuity plans [described in Section 403(a) of the CODE], including H.R. 10 trusts and plans covering self-employed individuals and their employees, provide for ANNUITY PAYOUTS to start at the date and under the option specified in the plan.) The CONTRACT provides that all or part of the CONTRACT VALUE may be used to purchase an annuity. Optional forms of payout of annuities (ANNUITY OPTIONS) are available, each of which is payable on a variable basis, a fixed basis or a combination of both. We may choose to make other ANNUITY OPTIONS available in the future. You may elect ANNUITY PAYOUTS in monthly, quarterly, semiannual or annual installments. If the payouts from any SUBACCOUNT would be or become less than $50, we have the right to reduce their frequency until the payouts are at least $50 each. Following are explanations of the ANNUITY OPTIONS available. ANNUITY OPTIONS LIFE ANNUITY. This option offers a periodic payout during the lifetime of the ANNUITANT and ends with the last payout before the death of the ANNUITANT. This option offers the highest periodic payout since there is no guarantee of a minimum number of payouts or provision for a DEATH BENEFIT for BENEFICIARIES. HOWEVER, THERE IS THE RISK UNDER THIS OPTION THAT THE ANNUITANT WOULD RECEIVE NO PAYOUTS IF DEATH OCCURS BEFORE THE DATE SET FOR THE FIRST PAYOUT; ONLY ONE PAYOUT IF DEATH OCCURS BEFORE THE SECOND SCHEDULED PAYOUT, AND SO ON. LIFE INCOME WITH PAYOUTS GUARANTEED FOR DESIGNATED PERIOD. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and then continues throughout the lifetime of the ANNUITANT. The designated period is selected by the CONTRACTOWNER. JOINT LIFE ANNUITY. This option offers a periodic payout during the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. JOINT LIFE ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and continues during the joint lifetime of the ANNUITANT and a designated joint annuitant. The payouts continue during the lifetime of 19 the survivor. The designated period is selected by the CONTRACTOWNER. JOINT-AND-TWO-THIRDS SURVIVOR ANNUITY. This option provides a periodic payout during the joint lifetime of the ANNUITANT and a designated joint annuitant. When one of the joint annuitants dies, the survivor, during their lifetime, receives two thirds of the periodic payout made when both were alive. UNIT REFUND LIFE ANNUITY. This option offers a periodic payout during the lifetime of the ANNUITANT with the guarantee that upon death a payout will be made of the value of the number of ANNUITY UNITS (see Variable annuity payouts) equal to the excess, if any, of: (a) the total amount applied under this option divided by the ANNUITY UNIT value for the date payouts begin, divided by (b) the ANNUITY UNITS represented by each payout to the ANNUITANT multiplied by the number of payouts paid before death. The value of the number of ANNUITY UNITS is computed on the date the death claim is approved for payment by the HOME OFFICE. None of the options listed above currently provide WITHDRAWAL features, permitting the CONTRACTOWNER to WITHDRAW commuted values as a LUMP SUM payment. Other options may be made available by us. Options are only available to the extent they are consistent with the requirements of the CONTRACT and Section 72(s) of the CODE, if applicable. The mortality and expense risk charge will be assessed on all VARIABLE ANNUITY PAYOUTS, including options that do not have a life contingency and therefore no mortality risk. The ANNUITY COMMENCEMENT DATE is usually on or before the ANNUITANT'S 85th birthday; however you may change the ANNUITY COMMENCEMENT DATE, change the ANNUITY OPTION, or change the allocation of the investment among SUBACCOUNTS up to 30 days before the scheduled ANNUITY COMMENCEMENT DATE, upon written notice to the HOME OFFICE. You must give us at least 30 days notice before the date on which you want payouts to begin. If proceeds become available to a BENEFICIARY in a LUMP SUM, the BENEFICIARY may choose any ANNUITY PAYOUT OPTION. Unless you select another option, the CONTRACT automatically provides for a life with a 10 year guaranteed period annuity (on a fixed, variable or combination fixed and variable basis, in proportion to the account allocation at the time of annuitization), except when a joint life payout is required by law. Under any option providing for guaranteed payouts, the number of payouts which remain unpaid at the date of the ANNUITANT'S death (or surviving ANNUITANT'S death in the case of a joint life annuity) will be paid to your BENEFICIARY as payouts become due. The CONTRACT contains no provision under which an ANNUITANT or a BENEFICIARY may surrender their CONTRACT or make a WITHDRAWAL and receive a LUMP-SUM settlement once ANNUITY PAYOUTS have begun. See Surrenders and withdrawals. Options are only available to the extent they are consistent with the requirements of Section 72(s) of the CODE, if applicable. VARIABLE ANNUITY PAYOUTS VARIABLE ANNUITY PAYOUTS will be determined using: 1. The CONTRACT VALUE on the ANNUITY COMMENCEMENT DATE; 2. The annuity tables contained in the CONTRACT; 3. The ANNUITY OPTION selected; and 4. The investment performance of the FUND(S) selected. To determine the amount of payouts, we make this calculation: 1. Determine the dollar amount of the first periodic payout; then 2. Credit the CONTRACT with a fixed number of ANNUITY UNITS equal to the first periodic payout divided by the ANNUITY UNIT value; and 3. Calculate the value of the ANNUITY UNITS each month thereafter. We assume an investment return of 5% per year, as applied to the applicable mortality table. The amount of each payout after the initial payout will depend upon how the underlying FUND(S) and SERIES perform, relative to the 5% assumed rate. There is a more complete explanation of this calculation in the SAI. FEDERAL TAX STATUS This section is a discussion of the Federal income tax rules applicable to the CONTRACTS as of the date of this Prospectus. More information is provided in the SAI. THESE DISCUSSIONS AND THOSE IN THE SAI ARE NOT INTENDED AS TAX ADVICE. This section does not discuss the Federal tax consequences resulting from every possible situation. No attempt has been made to consider any applicable state, local or foreign tax law, other than the imposition of any state premium taxes (See Charges and other deductions). If you are concerned about the tax implications with respect to the CONTRACTS, you should consult a tax advisor. The following discussion is based upon our understanding of the present Federal income tax laws as they are currently interpreted by the Internal Revenue Service (IRS). The United States Congress has in the past and may again in the future enact legislation changing the tax treatment of annuities in both the non-qualified and the qualified markets. The Treasury Department may issue new or amended regulations or other interpretations of existing tax law. Judicial interpretations may also affect the tax treatment of annuities. It is possible that such changes could have retroactive effect. We suggest that you consult your legal or tax adviser on these issues. 20 TAXATION OF NONQUALIFIED CONTRACTS You are generally not taxed on increases in the value of your CONTRACT until a distribution occurs. This distribution can be in the form of a LUMP SUM payout received by requesting all or part of the CASH SURRENDER VALUE (i.e. SURRENDERS/WITHDRAWALS) or as ANNUITY PAYOUTS. For this purpose, the assignment or pledge of, or the agreement to assign or pledge, any portion of the value of a CONTRACT will be treated as a distribution. A transfer of ownership of a CONTRACT, or designation of an ANNUITANT (or other BENEFICIARY) who is not also the CONTRACTOWNER, may also result in tax consequences. The taxable portion of a distribution (in the form of a LUMP SUM payout or an annuity) is taxed as ordinary income. For PURCHASE PAYMENTS made after February 28, 1986, a CONTRACTOWNER who is not a natural person (for example, a corporation) [subject to limited exceptions] will be taxed on any increase in the CONTRACT'S cash value over the investment in the CONTRACT during the taxable year, even if no distribution occurs. The next discussion applies to CONTRACTS owned by natural persons. In the case of a SURRENDER under the CONTRACT or WITHDRAWAL of CONTRACT VALUE, generally amounts received are first treated as taxable income to the extent that the cash value of the CONTRACT immediately before the SURRENDER exceeds the investment in the CONTRACT at that time. Any additional amount withdrawn is not taxable. In the case of a SURRENDER under a CONTRACT issued before August 14, 1982, and allocable to an investment in the CONTRACT made before that date, amounts received are treated as taxable income only to the extent that they exceed the investment in the CONTRACT. The investment in the CONTRACT generally equals the portion, if any, of any PURCHASE PAYMENT paid by or on behalf of an individual under a CONTRACT which is not excluded from the individual's gross income. Even though the tax consequences may vary depending on the form of ANNUITY PAYOUT selected under the CONTRACT, the CONTRACTOWNER of an ANNUITY PAYOUT generally is taxed on the portion of such payout that exceeds the investment in the CONTRACT. For variable ANNUITY PAYOUTS, the taxable portion is determined by a formula that establishes a specific dollar amount of each payout that is not taxed. The dollar amount is determined by dividing the investment in the CONTRACT by the total number of expected periodic payouts. For fixed ANNUITY PAYOUTS, there generally is no tax on the portion of each payout that represents the same ratio that the investment in the CONTRACT bears to the total expected value of payouts for the term of the annuity; the remainder of each payout is taxable. For individuals whose annuity starting date is after December 31, 1986, the entire distribution (whether fixed or variable) will be fully taxable once the recipient is deemed to have recovered the dollar amount of the investment in the CONTRACT. There may be imposed a penalty tax on distributions equal to 10% of the amount treated as taxable income. The penalty tax is not imposed in certain circumstances, which generally are distributions: 1. Received on or after age 59 1/2; 2. Made as a result of death or disability of CONTRACTOWNER; 3. Received in substantially equal periodic payments as a life annuity (subject to special recapture rules if the series of payouts is subsequently modified); 4. Allocable to the investment in the CONTRACT before August 14, 1982; 5. Under a qualified funding asset in a structured settlement; 6. Under an immediate annuity contract as defined in the CODE; and/or 7. Under a CONTRACT purchased in connection with the termination of certain retirement plans. TAXATION OF QUALIFIED CONTRACTS The CONTRACTS may be purchased in connection with the following types of tax-favored retirement plans: 1. CONTRACTS purchased for employees of public school systems and certain tax-exempt organizations, qualified under Section 403(b) of the CODE; 2. Pension and profit-sharing plans of self-employed individuals (H.R. 10 or Keogh plans) or corporations, qualified under Section 401(a) or 403(a) of the CODE; 3. IRAs, qualified under Section 408 of the CODE; 4. Roth IRAs qualified under Section 408A of the CODE; 5. Deferred compensation plans of state or local governments, qualified under Section 457 of the CODE; 6. SEPs, qualified under Section 408(k) of the CODE; and/or 7. Simple plans, qualified under Sections 401(k)(11) and 408(k) of the CODE. The tax rules applicable to these plans, including restrictions on contributions and benefits, taxation of distributions and any tax penalties, vary according to the type of plan and its terms and conditions. Participants under such plans, as well as CONTRACTOWNERS, ANNUITANTS and BENEFICIARIES, should be aware that the rights of any person to any benefits under such plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the CONTRACTS. Purchasers of CONTRACTS for use with any qualified plan, as well as plan participants and BENEFICIARIES, should consult counsel and other advisors as to the suitability of the CONTRACTS to their specific needs, and as to applicable CODE limitations and tax consequences. 21 contract is $3,000 ($1,000 for IRAs and SEPs). The minimum initial PURCHASE PAYMENT for a FLEXIBLE PREMIUM DEFERRED CONTRACT is $3,000 ($1,000 for IRAs and SEPs), and subsequent PURCHASE PAYMENTS must be at least $100. For a PERIODIC PREMIUM DEFERRED CONTRACT, the minimum amount of any scheduled PURCHASE PAYMENT is $25, and the scheduled PURCHASE PAYMENTS must total at least $600 per year. PURCHASE PAYMENTS in any one CONTRACT YEAR which exceed twice the amount of PURCHASE PAYMENTS made in the first CONTRACT YEAR may be made only with our permission. PURCHASE PAYMENTS in total may not exceed $1 million for each ANNUITANT. If you stop making PURCHASE PAYMENTS, the CONTRACT will remain in force as a paid-up CONTRACT as long as the total CONTRACT VALUE is at least $600. Payments may be resumed at any time until the ANNUITY COMMENCEMENT DATE, the maturity date, the SURRENDER of the CONTRACT, or payment of any DEATH BENEFIT, whichever comes first. MULTIPLE CONTRACTS All CONTRACTS entered into after October 21, 1988, and issued by the same insurance company (or its affiliates) to the same CONTRACTOWNER during any calendar year will be treated as a single CONTRACT for tax purposes. INVESTOR CONTROL The Treasury Department has indicated that guidelines may be issued under which a variable annuity CONTRACT will not be treated as an annuity CONTRACT for tax purposes if the CONTRACTOWNER has excessive control over the investments underlying the CONTRACT. They may consider the number of investment options or the number of transfer opportunities available between options as relevant when determining excessive control. The issuance of those guidelines may require us to impose limitations on your right to control the investment. We do not know whether any such guidelines would have a retroactive effect. Section 817(h) of the CODE and the related regulation that the Treasury Department has adopted require that assets underlying a variable annuity CONTRACT be adequately diversified. The regulations provide that a variable annuity CONTRACT which does not satisfy the diversification standards will not be treated as an annuity CONTRACT, unless the failure to satisfy the regulations was inadvertent, the failure is corrected, and the CONTRACTOWNER or we pay an amount to the IRS. The amount will be based on the tax that would have been paid by the CONTRACTOWNER if the income, for the period the CONTRACT was not diversified, had been received by the CONTRACTOWNER. If the failure to diversify is not corrected in this manner, the CONTRACTOWNER of an annuity CONTRACT will be deemed the owner of the underlying securities and will be taxed on the earnings of his or her account. We believe, under our interpretation of the CODE and regulations thereunder, that the investments underlying this CONTRACT meet these diversification standards. WITHHOLDING Generally, pension and annuity distributions are subject to withholding for the recipient's Federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients, however, generally are provided the opportunity to elect not to have tax withheld from distributions. Under the CODE, 20% income tax withholding may apply to eligible rollover distributions. All taxable distributions from qualified plans and Section 403(b) annuities are eligible rollover distributions, except (1) annuities paid out over life or life expectancy, (2) installments paid for a period spanning 10 years or more, and (3) required minimum distributions. The CODE imposes a mandatory 20% income tax withholding on any eligible rollover distribution that the CONTRACTOWNER does not elect to have paid in a direct rollover to another qualified plan, Section 403(b) annuity or individual retirement account. Distributions from Section 457 plans are subject to the general wage withholding rules. VOTING RIGHTS As required by law, we will vote the FUND and SERIES shares held in the VAA at meetings of the shareholder of the various FUNDS and SERIES. The voting will be done according to the instructions of CONTRACTOWNERS who have interests in any SUBACCOUNTS which invest in a FUND or FUNDS and SERIES. If the 1940 Act or any regulation under it should be amended or if present interpretations should change, and if as a result we determine that we are permitted to vote the FUND shares in our own right, we may elect to do so. The number of votes which you have the right to cast will be determined by applying your percentage interest in a SUBACCOUNT to the total number of votes attributable to the SUBACCOUNT. In determining the number of votes, fractional shares will be recognized. After the annuity commencement date, the votes attributable to a CONTRACT will decrease. FUND shares held in a SUBACCOUNT for which no timely instructions are received will be voted by us in proportion to the voting instructions which are received for all CONTRACTS participating in that SUBACCOUNT. Voting instructions to abstain on any item to be voted on will be applied on a pro rata basis to reduce the number of votes eligible to be cast. Maryland law and the bylaws of each FUND and SERIES allow investment companies registered under the 1940 Act to dispense with annual meetings of shareholders in certain cases where the meetings are only a formality. The Board of Directors of each FUND will decide each year whether or not to hold the shareholder's annual meeting for that year. 22 The dispensing with annual meetings of the shareholder in effect results in retaining the existing Directors in office. Consequently, the SEC requires the FUNDS to assure CONTRACTOWNERs that a majority of those Directors have at some point been elected by the shareholder. The SEC also requires that the FUNDS comply with Section 16(c) of the 1940 Act, concerning procedures by which shareholders may remove Directors. For a more detailed explanation of this procedure, see Description of shares in the Appendix to the Prospectuses for the FUNDS; also see the Prospectus for the series. Annual meetings of each FUND and of the SERIES normally will not be held, unless the Board of Directors decides to hold them. Special meetings of the shareholder may be called for any valid purpose. Whenever a shareholder's meeting is called, each person having a voting interest in a SUBACCOUNT will be sent proxy voting material, reports and other materials relating to the FUND, and SERIES involved. DISTRIBUTION OF THE CONTRACTS We are the distributor of the CONTRACTS. They will be sold by registered representatives who have been licensed by state insurance departments. The CONTRACTS will also be sold by broker-dealers who generally have been licensed by state insurance departments (or such broker-dealers have made other arrangements to comply with state insurance laws) to represent us and who have selling agreements with us. We are registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and are a member of the National Association of Securities Dealers (NASD). LINCOLN LIFE will offer CONTRACTS in all states where it is licensed to do business. RETURN PRIVILEGE Within the free-look period after you first receive the CONTRACT, you may cancel it for any reason by delivering or mailing it postage prepaid, to the HOME OFFICE at P.O. Box 2340, 1300 South Clinton Street, Fort Wayne, Indiana, 46801. A CONTRACT canceled under this provision will be void. With respect to the fixed portion of a CONTRACT, we will return PURCHASE PAYMENTS. With respect to the VAA, except as explained in the following paragraph, we will return the CONTRACT VALUE as of the date of receipt of the cancellation, plus any account charge and any premium taxes which had been deducted. No SURRENDER CHARGE will be made. A PURCHASER WHO PARTICIPATES IN THE VAA IS SUBJECT TO THE RISK OF A MARKET LOSS DURING THE FREE-LOOK PERIOD. For CONTRACTS written in those states whose laws require that we assume this market risk during the free-look period, a CONTRACT may be canceled, subject to the conditions explained before, except that we will return only the PURCHASE PAYMENT(S). STATE REGULATION As a life insurance company organized and operated under Indiana law, we are subject to provisions governing life insurers and to regulation by the Indiana Commissioner of Insurance. Our books and accounts are subject to review and examination by the Indiana Insurance Department at all times. A full examination of our operations is conducted by that Department at least once every five years. RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM Title 8, Section 830.105 of the Texas Government Code, consistent with prior interpretations of the Attorney General of the State of Texas, permits participants in the Texas Optional Retirement Program (ORP) to redeem their interest in a VARIABLE ANNUITY CONTRACT issued under the ORP only upon: 1. Termination of employment in all institutions of higher education as defined in Texas law; 2. Retirement; or 3. Death. Accordingly, participants in the ORP will be required to obtain a certificate of termination from their employer(s) before accounts can be redeemed. RECORDS AND REPORTS As presently required by the 1940 Act and applicable regulations, we are responsible for maintaining all records and accounts relating to the VAA. We will mail to you, at your last known address of record at the HOME OFFICE, at least semiannually after the first CONTRACT YEAR, reports containing information required by the 1940 Act or any other applicable law or regulation. We have entered into an agreement with the DELAWARE SERVICE COMPANY, INC., 2005 Market Street, Philadelphia, PA 19203, to provide accounting services to the VAA. 23 OTHER INFORMATION A Registration Statement has been filed with the SEC, under the Securities Act of 1933 as amended, for the CONTRACTS being offered by this Prospectus. This Prospectus does not contain all the information in the Registration Statement, its amendments and exhibits. Please refer to the Registration Statement for further information about the VAA, LINCOLN LIFE and the CONTRACTS offered. Statements in this Prospectus about the content of CONTRACTS and other legal instruments are summaries. For the complete text of those CONTRACTS and instruments, please refer to those documents as filed with the SEC. Lincoln National Flexible Premium Variable Life Accounts D, G and K, segregated investment accounts of ours registered under the 1940 Act, are authorized to invest assets in the following FUNDS and SERIES: Bond, Growth and Income, Managed, Money Market and Special Opportunities (for Account D); Growth and Income and Special Opportunities (for Account G) and all FUNDS and SERIES for Account K. Through the VAA and the Variable Life Accounts we are the sole shareholder in the eleven FUNDS. However, we are not the sole shareholder of SERIES shares in the Delaware Group Premium Fund, Inc. Collectively, the VAA and the Variable Life Accounts may be referred to in this booklet and in the SAI as the VARIABLE ACCOUNTS. Due to differences in redemption rates, tax treatment or other considerations, the interests of CONTRACTOWNERs under the Variable Life Accounts could conflict with those of CONTRACTOWNERS under the VAA. In those cases where assets from variable life and VARIABLE ANNUITY SEPARATE ACCOUNTS are invested in the same FUND or FUNDS or SERIES (i.e., where mixed funding occurs), the Boards of Directors of the FUNDS involved will monitor for any material conflicts and determine what action, if any, should be taken. If it becomes necessary for any separate account to replace shares of any FUND or SERIES with another investment, that FUND or SERIES may have to liquidate securities on a disadvantageous basis. Refer to the Prospectus for each FUND and for the SERIES FUND for more information about mixed funding. In the future, we may purchase shares in the FUNDS and SERIES for one or more unregistered segregated investment accounts. ADVERTISEMENTS/SALES LITERATURE In marketing the VARIABLE ANNUITY CONTRACTS, we and our various sales representatives may refer to certain ratings assigned to us under the Rating System of the A.M. Best Co., Oldwick, New Jersey. The objective of Best's Rating System is to evaluate the various factors affecting the overall performance of an insurance company in order to provide Best's opinion about that company's relative financial strength and ability to meet its contractual obligations. The procedure includes both a quantitative and qualitative review of the insurance company. In marketing the CONTRACTS and the underlying FUNDS and SERIES, we may at times use data published by other nationally-known independent statistical services. These service organizations provide relative measures of such factors as an insurer's claim-paying ability, the features of particular CONTRACTS, and the comparative investment performance of the FUNDS and SERIES with other portfolios having similar objectives. A few such services are: Duff & Phelps, the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS. There is more information about each of these services under Advertising and sales literature in the SAI. Marketing materials may employ illustrations of compound interest and dollar-cost averaging; discuss automatic withdrawal services; describe our customer base, assets, and our relative size in the industry. They may also discuss other features of LINCOLN LIFE, the VAA, the FUNDS, the SERIES and their investment management. PREPARING FOR YEAR 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. LINCOLN LIFE, as part of its year 2000 updating process, is responsible for the updating of the VAA related computer systems. An affiliate of LINCOLN LIFE, Delaware Service Company (Delaware), provides substantially all of the necessary accounting and valuation services for the VAA. Delaware, for its part, is responsible for updating all of its computer systems, including those which service VAA, to accommodate the year 2000. LINCOLN LIFE and Delaware have begun formal discussions with each other to assess the requirements for their respective systems to interface properly in order to facilitate the accurate and orderly operation of the VAA beginning in the year 2000. The year 2000 issue is pervasive and complex and affects virtually every aspect of the businesses of both LINCOLN LIFE and Delaware (the Companies). The computer systems of the Companies and their interfaces with the computer systems of vendors, suppliers, customers and other business partners are particularly vulnerable. The inability to properly recognize date-sensitive electronic information and to transfer data between systems could cause errors or even complete failure of systems, which would result in a temporary inability to process transactions correctly and engage in normal business activities for the VAA. The Companies respectively are redirecting significant portions of their internal information technology efforts and are contracting, as needed, with outside consultants to help update their 24 systems to accommodate the year 2000. Also, in addition to the discussions with each other noted above, the Companies have respectively initiated formal discussions with other critical parties that interface with their systems to gain an understanding of the progress by those parties in addressing year 2000 issues. While the Companies are making substantial efforts to address their own systems and the systems with which they interface, it is not possible to provide assurance that operational problems will not occur. The Companies presently believe that, with the modification of existing computer systems, updates by vendors and conversion to new software and hardware, the year 2000 issue will not pose significant operations problems for their respective computer systems. In addition, the Companies are incorporating potential issues surrounding year 2000 into their contingency planning process, in the event that, despite these substantial efforts, there are unresolved year 2000 problems. If the remediation efforts noted above are not completed timely or properly, the year 2000 issue could have a material adverse impact on the operation of the businesses of LINCOLN LIFE or Delaware, or both. The cost of addressing year 2000 issues and the timeliness of completion will be closely monitored by management of the respective Companies and, for each company, will be based on its management's best estimates which are derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. Nevertheless, there can be no guarantee either by LINCOLN LIFE or by Delaware that estimated costs will be achieved, and actual results could differ significantly from those anticipated. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer problems, and other uncertainties. LEGAL PROCEEDINGS LINCOLN LIFE is involved in various pending or threatened legal proceedings arising from the conduct of its business. Most of these proceedings are routine and in the ordinary course of business. In some instances these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. After consultation with legal counsel and a review of available facts, it is management's opinion that the ultimate liability, if any, under these suits will not have a material adverse effect on the financial position of LINCOLN LIFE. During the 1990's class action lawsuits alleging sales practices fraud have been filed against many life insurance companies, and Lincoln Life has not been immune. Two lawsuits alleging fraud in the sale of interest-sensitive universal and whole life insurance policies have been filed against LINCOLN LIFE. These two suits have been filed as class actions, although as of the date of this Prospectus the court had not certified a class in either case. Plaintiffs seek unspecified damages and penalties for themselves and on behalf of the putative class. Although the relief sought in these cases is substantial, the cases are in the early stages of litigation, and it is premature to make assessments about potential loss, if any. Management denies the allegations and intends to defend these suits vigorously. The amount of liability, if any, which may arise as a result of these suits (exclusive of any indemnification from professional liability insurers) cannot be reasonably estimated at this time. STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS FOR VAA ITEM - -------------------------------------------------- General information and history of Lincoln Life Special terms Services Purchase of securities being offered Underwriters Calculation of performance data For a free copy of the SAI please see page one of this booklet. ITEM - -------------------------------------------------- Annuity payouts Federal tax status Advertising and sales literature/graphics Financial statements 25 THIS PAGE WAS INTENTIONALLY LEFT BLANK. 26 BULK RATE U.S. POSTAGE PAID BROOKLYN, NY PERMIT NO. 148 [LOGO] Fort Wayne, Indiana 46801 - -C- 1998 Lincoln National Life Insurance Co. May 98 [LOGO] LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C (VAA) (REGISTRANT) LINCOLN NATIONAL LIFE INSURANCE COMPANY (DEPOSITOR) STATEMENT OF ADDITIONAL INFORMATION (SAI) This SAI should be read in conjunction with the Prospectus of the VAA dated May 1, 1998. You may obtain a copy of the VAA Prospectus on request and without charge. Please write Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN (454-6265). TABLE OF CONTENTS
PAGE - ------------------------------------------------------- GENERAL INFORMATION AND HISTORY OF LINCOLN LIFE B-2 - -------------------------------------------- SPECIAL TERMS B-2 - -------------------------------------------- SERVICES B-2 - -------------------------------------------- PURCHASE OF SECURITIES BEING OFFERED B-2 - -------------------------------------------- UNDERWRITERS B-2 - -------------------------------------------- CALCULATION OF PERFORMANCE DATA B-2 - -------------------------------------------- PAGE - ------------------------------------------------------- ANNUITY PAYOUTS B- 6 - -------------------------------------------- FEDERAL TAX STATUS B- 7 - -------------------------------------------- DETERMINATION OF ACCUMULATION AND ANNUITY UNIT VALUE B-10 - -------------------------------------------- ADVERTISING AND SALES LITERATURE/GRAPHICS B-10 - -------------------------------------------- FINANCIAL STATEMENTS B-12 - --------------------------------------------
SPECIAL NOTICE TO CONTRACTOWNERS ABOUT THIS YEAR'S LINCOLN LIFE FINANCIAL STATEMENTS. The financial statements are presented in statutory form. Both statutory and GAAP (known as Generally Accepted Accounting Principles) financials fairly represent the financial position of LINCOLN LIFE. To avoid extra costs, only statutory statements are shown here. THIS SAI IS NOT A PROSPECTUS. The date of this SAI is May 1, 1998. B-1 GENERAL INFORMATION AND HISTORY OF LINCOLN NATIONAL LIFE INSURANCE CO. (LINCOLN LIFE) The prior Depositor of the ACCOUNT, Lincoln National Pension Insurance Co., was merged into LINCOLN LIFE, effective January 1, 1989. LINCOLN LIFE, organized in 1905, is an Indiana stock insurance corporation, engaged primarily in insurance and financial services. LINCOLN LIFE is owned by Lincoln National Corp., a publicly held insurance holding company domiciled in Indiana. SPECIAL TERMS The special terms used in this SAI are the ones defined in the Prospectus. They are italicized to make this document more understandable. SERVICES INDEPENDENT AUDITORS The financial statements of the VAA and the statutory-basis financial statements and schedules of LINCOLN LIFE appearing in this SAI and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports which also appear elsewhere in this document and in the Registration Statement. The financial statements and schedules audited by Ernst & Young LLP have been included in this document in reliance on their reports given on their authority as experts in accounting and auditing. KEEPER OF RECORDS All accounts, books, records and other documents which are required to be maintained for the VAA are maintained by LINCOLN LIFE. No separate charge against the assets of the VAA is made by LINCOLN LIFE for this service. We have entered into an agreement with DELAWARE SERVICE CO., 2005 Market Street, Philadelphia, PA 19203, to provide accounting services to the VAA. PRINCIPAL UNDERWRITER LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS. PURCHASE OF SECURITIES BEING OFFERED The VARIABLE ANNUITY CONTRACTS are offered to the public through licensed insurance agents who specialize in selling LINCOLN LIFE products; through independent insurance brokers; and through certain securities broker/dealers selected by LINCOLN LIFE whose personnel are legally authorized to sell annuity products. There are no special purchase plans for any class of prospective buyers. However, under certain limited circumstances described in the Prospectus under the section Charges and other deductions, the CONTRACT and/or the SURRENDER CHARGES may be waived. There are exchange privileges between SUBACCOUNTS, and between the VAA and LINCOLN LIFE'S General Account (See Transfers of accumulation units between SUBACCOUNTS in the Prospectus.) No exchanges are permitted between the VAA and other separate accounts. UNDERWRITERS LINCOLN LIFE has contracted with some broker/dealers, and may contract with others, to sell the VARIABLE ANNUITY CONTRACTS through certain legally authorized persons and organizations. These dealers are compensated under a standard Compensation Schedule. LINCOLN LIFE is the principal underwriter for the VARIABLE ANNUITY CONTRACTS. We may not offer a contract continuously or in every state. LINCOLN LIFE retains no underwriting commissions from the sale of the VARIABLE ANNUITY CONTRACTS. CALCULATION OF PERFORMANCE DATA A. MONEY MARKET FUNDED SUBACCOUNTS: 1. Seven-day yield: 4.37% Length of base period used in computing the yield: 7 days Last Day in the base period: December 31, 1997 2. The yield reported above and in the table of condensed financial information in the Prospectus is determined by calculating the change in unit value for the base period (the 7-day period ended December 31, 1997); then dividing this figure by the account value at the beginning of the period; then annualizing this result by the factor of 365/7. This yield includes all deductions charged to the CONTRACTOWNER'S account, and excludes any realized gains and losses from the sale of securities. B-2 B. OTHER SUBACCOUNTS: 1. TOTAL RETURN -- the tables below show, for the various SUBACCOUNTS of the VAA, an average annual total return as of the stated periods, based upon a hypothetical initial PURCHASE PAYMENT of $1,000, calculated according to the formula set out after the table. The first table below sets out performance data for each of the SUBACCOUNTS for CONTRACTS without the EGMDB. The second table below sets out hypothetical performance data for each of the SUBACCOUNTS for CONTRACTS with the EGMDB. The hypothetical performance shown in the second table is based on the actual performance of the SUBACCOUNTS, but reflects the charges that hypothetically would have been made had the EGMDB been available under the CONTRACTS for the period indicated. AVERAGE ANNUAL TOTAL RETURN PERIOD ENDING DECEMBER 31, 1997 CONTRACTS WITHOUT EGMDB
1-YEAR 5-YEARS 10-YEARS SINGLE & SINGLE & SINGLE & PERIODIC FLEXIBLE PERIODIC FLEXIBLE PERIODIC FLEXIBLE PYMT. PREM. PYMT. PREM. PYMT. PREM. MULTI MULTI FUND MULTI MULTI FUND MULTI MULTI FUND FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS - ---------------------------------------------------------------------------------------------------------------------------------- Bond Commenced Activity on December 21, 1981 -0.55% 1.61% 5.46% 5.90% 7.83% 7.83% - --------------------------------------- Growth and Income Commenced Activity on December 21, 1981 19.06% 21.65% 17.73% 18.22% 14.66% 14.66% - --------------------------------------- International Commenced Activity on May 1, 1991 -3.51% -1.41% 10.65% 11.10% 6.18% 6.67% - --------------------------------------- Managed Commenced Activity on April 29, 1983 10.77% 13.18% 12.02% 12.48% 11.26% 11.26% - --------------------------------------- Global Asset Allocation Commenced Activity on August 3, 1987 8.65% 11.02% 12.37% 12.83% 11.42% 11.42% - --------------------------------------- Social Awareness Commenced Activity on May 2, 1988 25.12% 27.84% 21.41% 21.91% 17.39% 17.89%* - --------------------------------------- Special Opportunities Commenced Activity on December 21, 1981 16.61% 19.14% 16.11% 16.59% 15.14% 15.14% - --------------------------------------- Aggressive Growth Commenced Activity on January 3, 1994 12.05% 14.49% * * 11.57%* 12.76%* - --------------------------------------- Capital Appreciation Commenced Activity on January 3, 1994 14.01% 16.49% * * 14.70%* 15.93%* - --------------------------------------- Equity-Income Commenced Activity on January 3, 1994 18.89% 21.47% * * 18.55%* 19.81%* - --------------------------------------- Trend Series Commenced Activity on May 1, 1996 10.50% 12.90% * * 5.56%* 6.93%* - --------------------------------------- Decatur Total Return Series Commenced Activity on May 1, 1996 19.28% 21.88% * * 19.28%* 20.83%* - --------------------------------------- Global Bond Series Commenced Activity on May 1, 1996 -8.17% -6.17% * * 1.15%* 2.46%* - ---------------------------------------
* The lifetime of this SUBACCOUNT is less than the complete period indicated. The performance shown is for the period from commencement of activity. B-3 AVERAGE ANNUAL TOTAL RETURN PERIOD ENDING DECEMBER 31, 1997 CONTRACTS WITH EGMDB
1-YEAR 5-YEARS 10-YEARS SINGLE & SINGLE & SINGLE & PERIODIC FLEXIBLE PERIODIC FLEXIBLE PERIODIC FLEXIBLE PYMT. PREM. PYMT. PREM. PYMT. PREM. MULTI MULTI FUND MULTI MULTI FUND MULTI MULTI FUND FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 FUND 1 2, 3, & 4 CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS CONTRACTS - ------------------------------------------------------------------------------------------------------------------------------------ Bond Commenced Activity on December 21, 1981 -0.85% 1.30% 5.14% 5.58% 7.50% 7.50% - --------------------------------------- Growth and Income Commenced Activity on December 21, 1981 18.70% 21.28% 17.38% 17.86% 14.32% 14.32% - --------------------------------------- International Commenced Activity on May 1, 1991 -3.80% -1.71% 10.31% 10.77% 5.86% 6.35% - --------------------------------------- Managed Commenced Activity on April 29, 1983 10.43% 12.83% 11.68% 12.14% 10.92% 10.92% - --------------------------------------- Global Asset Allocation Commenced Activity on August 3, 1987 8.32% 10.68% 12.03% 12.49% 11.09%* 11.09%* - --------------------------------------- Social Awareness Commenced Activity on May 2, 1988 24.74% 27.45% 21.05% 21.55% 17.04%* 17.53%* - --------------------------------------- Special Opportunities Commenced Activity on December 21, 1981 16.25% 18.78% 15.76% 16.24% 14.80% 14.80% - --------------------------------------- Aggressive Growth Commenced Activity on January 3, 1994 11.71% 14.14% * * 11.22%* 12.41%* - --------------------------------------- Capital Appreciation Commenced Activity on January 3, 1994 13.67% 16.14% * * 14.34%* 15.57%* - --------------------------------------- Equity-Income Commenced Activity on January 3, 1994 18.53% 21.10% * * 18.18%* 19.44%* - --------------------------------------- Trend Series Commenced Activity on May 1, 1996 10.16% 12.56% * * 5.25%* 6.61%* - --------------------------------------- Decatur Total Return Series Commenced Activity on May 1, 1996 18.92% 21.51% * * 18.92%* 20.46%* - --------------------------------------- Global Bond Series Commenced Activity on May 1, 1996 -8.45% -6.46% * * 0.84%* 2.15%* - ---------------------------------------
* The lifetime of this SUBACCOUNT is less than the complete period indicated. The performance shown is for the period from commencement of activity. The length of the periods and the last day of each period used in the above tables are set out in the table headings. The Average annual total return for each period was determined by finding the average annual compounded rate of return over each period that would equate the initial amount invested to the ending redeemable value for that period, according to the following formula -- P (1 + T)(n) = ERV Where: P = a hypothetical initial PURCHASE PAYMENT of $1,000 T = average annual total return for the period in question n = number of years ERV = redeemable value (as of the end of the period in question) of a hypothetical $1,000 PURCHASE PAYMENT made at the beginning of the 1-year, 5-year, or 10-year period in question (or fractional portion thereof) The formula assumes that: 1) all recurring fees have been charged to CONTRACTOWNER accounts; 2) all applicable nonrecurring charges are deducted at the end of the period in question; and 3) there will be a complete redemption at the end of the period in question. The performance figures shown in the tables above relate to the contract form containing the highest level of charges. B-4 2. NONSTANDARDIZED PERFORMANCE DATA The VAA advertises the performance of its various SUBACCOUNTS by observing how they perform over various time periods -- monthly, year-to-date, yearly (fiscal year); and over periods of three years and more. Monthly, year-to-date and yearly performance are computed on a cumulative basis; performance for a three-year period and for greater periods is computed both on a cumulative and on an annualized basis. Cumulative quotations are arrived at by calculating the change in the ACCUMULATION UNIT value between the first and last day of the base period being measured, and expressing the difference as a percentage of the unit value at the beginning of the base period. The calculation reflects the mortality and expense risk fees under the CONTRACTS and the management fees and other expenses of the FUND and SERIES. The calculation does not include SURRENDER CHARGES or the account charge, which, if included, would decrease the performance. Annualized quotations are arrived at by applying a formula which determines the level rate of return which, if earned over the entire base period, would produce the cumulative return. The first table below sets out performance data for each of the SUBACCOUNTS for CONTRACTS without the EGMDB. The second table below sets out hypothetical performance data for each of the SUBACCOUNTS for CONTRACTS with the EGMDB. The hypothetical performance shown in the second table is based on the actual performance of the SUBACCOUNTS, but reflects the charges that hypothetically would have been made had the EGMDB been available under the CONTRACTS for the period indicated. The tables below set out representative performance quotations, according to the definitions above, for each of the SUBACCOUNTS, for the following base periods: 1) monthly; 2) year-to-date; 3) yearly; and 4) a three-year period. For all quotations except 2), the end of the base period is December 31, 1996. For quotation 2, the end of the base period is November 30, 1996. (The year-to-date quotation would equal the yearly quotation if the end of the base period selected for the former were December 31.) In addition, the VAA may advertise by quotations with base periods of more than three years. These will be calculated in an identical manner to the method used to calculate the quotation for the three-year period; the only difference is that the base period utilized in the formula will be longer. NONSTANDARDIZED PERFORMANCE DATA SUBACCOUNTS OF ACCOUNT C (CONTRACTS WITHOUT EGMDB)
TYPE OF PERFORMANCE SUBACCOUNT DATA AG B CA EI GAA GI I M - ----------------------------------------------------------------------------- Monthly (12/31/97) 0.71% 0.98% 0.61% 2.38% 0.94% 1.84% 1.39% 1.15% Year-to-Date (11/30/97) 21.00 7.11 23.23 26.28 17.06 27.14 3.50 19.09 Yearly (12/31/97) 21.86 8.15 23.99 29.29 18.16 29.48 4.94 20.46 3-Year Cumulative 88.24 29.22 85.26 105.41 65.67 110.11 22.86 71.61 3-Year Annualized 23.47 8.92 22.82 27.12 18.33 28.08 7.10 19.72
TYPE OF PERFORMANCE SUBACCOUNT DATA MM SA SO TS DTRS GBS - ----------------------------------------------------------------------------- Monthly (12/31/97) 0.35% 2.27% 1.86% 1.32% 3.21% -1.21% Year-to-Date (11/30/97) 3.70 33.04 24.50 18.60 25.69 1.10 Yearly (12/31/97) 4.06 36.06 26.81 20.17 29.72 -0.13 3-Year Cumulative 13.18 146.90 91.68 * * * 3-Year Annualized 4.21 35.16 24.22 * * *
Key: AG=Aggressive Growth; B=Bond; CA=Capital Appreciation; EI=Equity-Income; GAA=Global Asset Allocation; GI=Growth and Income; I=International; M=Managed; MM=Money Market; SA=Social Awareness; SO=Special Opportunities; TS=Trend Series; DTRS=Decatur Total Return Series; GBS=Global Bond Series * The lifetime of this SUBACCOUNT is less than the complete period indicated. All performance quotations may be advertised on a cumulative basis; performance quotations with a base period of two years or longer may also be advertised on an annualized basis. B-5 NONSTANDARDIZED PERFORMANCE DATA SUBACCOUNTS OF ACCOUNT C (CONTRACTS WITH EGMDB)
TYPE OF PERFORMANCE SUBACCOUNT DATA AG B CA EI GAA GI I M - ---------------------------------------------------------------------------- Monthly (12/31/97) 0.68% 0.95% 0.59% 2.35% 0.91% 1.81% 1.37% 1.13% Year-to-Date (11/30/97) 20.66 6.81 22.89 25.93 16.74 26.79 3.21 18.76 Yearly (12/31/97) 21.49 7.82 23.61 28.89 17.80 29.08 4.62 20.10 3-Year Cumulative 86.54 28.06 83.60 103.56 64.18 108.22 21.76 70.06 3-Year Annualized 23.10 8.59 22.45 26.74 17.97 27.70 6.78 19.36
TYPE OF PERFORMANCE SUBACCOUNT DATA MM SA SO DTRS TS GBS - ----------------------------------------------------------------------------- Monthly (12/31/97) 0.33% 2.25% 1.83% 3.18% 1.29% -1.24% Year-to-Date (11/30/97) 3.41 32.67 24.15 25.34 18.27 0.82 Yearly (12/31/97) 3.75 35.65 26.42 29.33 19.80 -0.43 3-Year Cumulative 12.16 144.68 89.95 * * * 3-Year Annualized 3.90 34.75 23.85 * * *
Key: AG=Aggressive Growth; B=Bond; CA=Capital Appreciation; EI=Equity-Income; GAA=Global Asset Allocation; GI=Growth and Income; I=International; M=Managed; MM=Money Market; SA=Social Awareness; SO=Special Opportunities; TS=Trend Series; DTRS=Decatur Total Return Series; GBS=Global Bond Series * The lifetime of this SUBACCOUNT is less than the complete period indicated. All performance quotations may be advertised on a cumulative basis; performance quotations with a base period of two years or longer may also be advertised on an annualized basis. ANNUITY PAYOUTS VARIABLE ANNUITY PAYOUTS Variable ANNUITY PAYOUTS will be determined on the basis of: (1) the value of the contract on the ANNUITY COMMENCEMENT DATE; (2) the annuity tables contained in the CONTRACT; (3) the type of ANNUITY OPTION selected; and (4) the investment performance of the eligible FUND(S) selected. In order to determine the amount of variable ANNUITY PAYOUTS, LINCOLN LIFE makes the following calculation: first, it determines the dollar amount of the first payout; second, it credits the ANNUITANT with a fixed number of ANNUITY UNITS based on the amount of the first payout; and third, it calculates the value of the ANNUITY UNITS each period thereafter. These steps are explained below. The dollar amount of the first variable ANNUITY PAYOUT is determined by applying the total value of the ACCUMULATION UNITS credited under the CONTRACT valued as of the ANNUITY COMMENCEMENT DATE (less any premium taxes) to the annuity tables contained in the CONTRACT. The first variable ANNUITY PAYOUT will be paid 14 days after the ANNUITY COMMENCEMENT DATE. This date will become the date on which all future ANNUITY PAYOUTS will be paid. Amounts shown in the tables are based on the 1971 Individual Annuity Mortality Tables for the SINGLE PREMIUM, PERIODIC PREMIUM and FLEXIBLE PREMIUM Multi Fund 2 and 3 ANNUITY CONTRACTS and the 1983(a) Individual Mortality Table for FLEXIBLE PREMIUM ANNUITY CONTRACT Multi Fund 4 modified, with an assumed investment return at the rate of 5% per annum. The first ANNUITY PAYOUT is determined by multiplying the benefit per $1,000 of value shown in the CONTRACT tables by the number of thousands of dollars of CONTRACT VALUE under the CONTRACT. These annuity tables vary according to the form of annuity selected and the age of the ANNUITANT at the ANNUITY COMMENCEMENT DATE. The 5% interest rate stated above is the measuring point for subsequent ANNUITY PAYOUTS. If the actual Net Investment Rate (annualized) exceeds 5%, the payment will increase at a rate equal to the amount of such excess. Conversely, if the actual rate is less than 5%, ANNUITY PAYOUTS will decrease. If the B-6 assumed rate of interest were to be increased, ANNUITY PAYOUTS would start at a higher level but would decrease more rapidly or increase more slowly. LINCOLN LIFE may use sex distinct annuity tables in CONTRACTS that are not associated with employer sponsored plans where not prohibited by law. At an ANNUITY COMMENCEMENT DATE, the ANNUITANT is credited with ANNUITY UNITS for each SUBACCOUNT on which variable ANNUITY PAYOUTS are based. The number of ANNUITY UNITS to be credited is determined by dividing the amount of the first payout by the value of an ANNUITY UNIT in each SUBACCOUNT selected. Although the number of ANNUITY UNITS is fixed by this process, the value of such units will vary with the value of the underlying eligible FUNDS. The amount of the second and subsequent ANNUITY PAYOUTS is determined by multiplying the CONTRACTOWNER'S fixed number of ANNUITY UNITS in each SUBACCOUNT by the appropriate ANNUITY UNIT value for the VALUATION DATE ending 14 days before the date that payment is due. The value of each SUBACCOUNT ANNUITY UNIT was set initially at $1.00. The ANNUITY UNIT value for each SUBACCOUNT at the end of any VALUATION DATE is determined by multiplying the SUBACCOUNT ANNUITY UNIT value for the immediately preceding VALUATION DATE by the product of: a. The net investment factor of the SUBACCOUNT for the VALUATION PERIOD for which the ANNUITY UNIT value is being determined, and b. A factor to neutralize the assumed investment return in the annuity table. The value of the ANNUITY UNITS is determined as of a VALUATION DATE 14 days before the payout date in order to permit calculation of amounts of ANNUITY PAYOUTS and mailing of checks in advance of their due dates. Such checks will normally be issued and mailed at least three days before the due date. PROOF OF AGE, SEX AND SURVIVAL LINCOLN LIFE may require proof of age, sex or survival of any payee upon whose age, sex or survival PAYOUTS depend. FEDERAL TAX STATUS GENERAL The operations of the VAA form a part of, and are taxed with, the operations of LINCOLN LIFE under the Internal Revenue Code of 1986, as amended (the CODE). Investment income and realized net capital gains on the assets of the VAA are reinvested and taken into account in determining the ACCUMULATION and ANNUITY UNIT values. As a result, such investment income and realized net capital gains are automatically retained as part of the reserves under the CONTRACT. Under existing federal income tax law, LINCOLN LIFE believes that VAA investment income and realized net capital gains are not taxed to the extent they are retained as part of the reserves under the CONTRACTS. Accordingly, LINCOLN LIFE does not anticipate that it will incur any federal income tax liability attributable to the VAA, and therefore it does not intend to make any provision for such taxes. However, if changes in the federal tax laws or interpretations thereof result in LINCOLN LIFE'S being taxed on income or gains attributable to the VAA, then LINCOLN LIFE may impose a charge against the VAA in order to make provision for payment of such taxes. TAX STATUS OF NONQUALIFIED CONTRACTS The CODE (Section 72(s)) provides that CONTRACTS issued after January 18, 1985, will not be treated as annuity CONTRACTS for purposes of Section 72 unless the CONTRACT provides that (A) if any CONTRACTOWNER dies on or after the annuity starting date, but before the time the entire interest in the CONTRACT has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution in effect at the time of the CONTRACTOWNER'S death; and (B) if any CONTRACTOWNER dies before the annuity starting date, the entire interest must be distributed within five years after the death of the CONTRACTOWNER. These requirements are considered satisfied to the extent that any portion of the CONTRACTOWNER'S interest that is payable to or for the benefit of a designated BENEFICIARY is distributed over that designated BENEFICIARY'S life, or a period not extending beyond the designated BENEFICIARY'S life expectancy, and if that distribution begins within one year of the CONTRACTOWNER'S death. The designated BENEFICIARY must be a natural person. CONTRACTS issued after January 18, 1985 contain provisions intended to comply with these CODE requirements, although regulations interpreting these requirements have yet to be issued. LINCOLN LIFE intends to review such provisions and modify them if necessary to assure that they comply with the requirements of Section 72(s) when clarified by regulation or otherwise. QUALIFIED CONTRACTS The rules governing the tax treatment of contributions and distributions under qualified plans, as set forth in the CODE and applicable rulings and regulations, are complex and subject to change. These rules also vary according to the type of plan and the terms and conditions of the plan itself. Therefore, no attempt is made herein to provide more than general information about the use of CONTRACTS with the various types of plans, based on LINCOLN LIFE'S understanding of the current federal tax laws as interpreted by the Internal Revenue Service (IRS). Purchasers of CONTRACTS for use with such a plan and plan participants and BENEFICIARIES should consult counsel and other competent advisors as to the suitability of the plan and the CONTRACT to their specific B-7 needs, and as to applicable CODE limitations and tax consequences. Participants under such plans, as well as CONTRACTOWNERS, ANNUITANTS and BENEFICIARIES, should also be aware that the rights of any person to any benefits under such plans may be subject to the terms and conditions of the plans themselves regardless of the terms and conditions of the CONTRACT. Following are brief descriptions of the various types of plans and of the use of CONTRACTS in connection therewith. PUBLIC SCHOOL SYSTEMS AND SECTION 501(C)(3) ORGANIZATIONS (403(B)) Payments made to purchase annuity CONTRACTS by public school systems or certain Section 501(c)(3) organizations for their employees are excludable from the gross income of the employee to the extent that aggregate payments for the employee do not exceed the exclusion allowance provided by Section 403(b) of the CODE, the over-all limits for excludable contributions of Section 415 of the CODE or the limit on elective contributions. Furthermore, the investment results of the FUND credited to the account are not taxable until benefits are received either in the form of ANNUITY PAYOUTS or in a single sum. If an employee's individual account is surrendered, usually the full amount received would be includable in income for that year at ordinary rates. QUALIFIED CORPORATE EMPLOYEE'S PENSION AND PROFIT-SHARING TRUSTS AND QUALIFIED ANNUITY PLANS Payments made by a corporate employer and the increments on all payments for qualified corporate plans are not taxable as income to the employee until distributed. However, the employee may be required to include these amounts in gross income before distribution if the qualified plan or trust loses its qualification. Corporate plans qualified under Sections 401(a) or 403(a) of the CODE are subject to extensive rules, including limitations on maximum contributions or benefits. Distributions of amounts in excess of nondeductible employee contributions allocated to such distributions are generally taxable as ordinary income. If an employee or BENEFICIARY receives a LUMP SUM distribution, that is, if the employee or BENEFICIARY receives in a single tax year the total amounts payable with respect to that employee and the benefits are paid as a result of the employee's death or separation from service or after the employee attains 59 1/2, taxable gain may be either eligible for special LUMP SUM averaging treatment or, if the recipient was age 50 before January 1, 1986, eligible for taxation at a 20% rate to the extent the distribution reflects payouts made before January 1, 1974. For plan years beginning after December 31, 1996, tax exempt organizations (except state or local governments) may have 401(k) plans. These special tax rules are not available in all cases. SELF-EMPLOYED INDIVIDUALS (H.R. 10 OR KEOGH) Under CODE provisions, self-employed individuals may establish plans commonly known as H.R. 10 or Keogh plans for themselves and their employees. The tax consequences to participants under such plans depend upon the plan itself. Such plans are subject to special rules in addition to those applicable to qualified corporate plans, although certain of these rules have been repealed or modified effective in 1984. Purchasers of the CONTRACTS to use with H.R. 10 plans should seek competent advice as to suitability of plan documents and the funding contracts. INDIVIDUAL RETIREMENT ANNUITIES (IRA) Under Section 408 of the CODE, individuals may participate in a retirement program known as an IRA. An individual may make an annual IRA contribution of up to the lesser of $2,000 (or $4,000 if IRAs are maintained for both the individual and the nonworking spouse and they file a joint tax return) or 100% of compensation. However, IRA contributions may be nondeductible in whole or in part if (1) the individual or the spouse is an active participant in certain other retirement programs and (2) the income of the individual (or of the individual and the spouse) exceeds a specified amount. Distributions from certain types of retirement plans may be rolled over to an IRA on a tax-deferred basis if certain requirements are met. Distributions from IRA's are subject to certain restrictions. Deductible IRA contributions and all earnings will be taxed as ordinary income when distributed. The failure to satisfy certain CODE requirements with respect to an IRA results in adverse tax consequences. ROTH IRAS Beginning in 1998, individuals may purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase payments for a Roth IRA are limited to $2,000 per year. This limitation is phased out for adjusted gross income between $95,000 and $110,000 in the case of single taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing joint returns, and between $0 and $15,000 in the case of married taxpayers filing separately. An overall $2,000 annual limitation continues to apply to all of a taxpayer's IRA contributions, including Roth IRAs and non-Roth IRAs. Qualified distributions from Roth IRAs are entirely tax free. A qualified distribution requires that the individual has held the Roth IRA for at least five years and, in addition, that the distribution is made either after the individual reaches age 59 1/2, on the individual's death or disability, or as a qualified first-time home purchase, B-8 subject to a $10,000 lifetime maximum, for the individual, a spouse, child, grandchild, or ancestor. An individual may make a rollover contribution from a non-Roth IRA to a Roth IRA, unless the individual has adjusted gross income over $100,000 or the individual is a married taxpayer filing a separate return. The individual must pay tax on any portion of the non-Roth IRA being rolled over that represents income or a previously deductible IRA contribution. For rollovers in 1998, the individual may pay that tax ratably in 1998 and over the succeeding three years. There are no similar limitations on rollovers from a Roth IRA to another Roth IRA. DEFERRED COMPENSATION PLANS (457 PLANS) Under the CODE provisions, employees and independent contractors (participants) performing services for state and local governments and tax-exempt organizations may establish deferred compensation plans. Plans of state or local governments established on August 20, 1996, or later, must hold all assets and income in trust (or custodial accounts or an ANNUITY CONTRACT) for the exclusive benefit of participants and their BENEFICIARIES. Section 457 plans that were in existence before August 20, 1996 are allowed until January 1, 1999 to meet this requirement. While participants in such plans may be permitted to specify the form of investment in which their plan accounts will participate, all such investments are owned by the sponsoring employer and are subject to the claims of its creditors. The amounts deferred under a plan which meet the requirements of Section 457 of the CODE are not taxable as income to the participant until paid or otherwise made available to the participant or BENEFICIARY. Deferrals are taxed as compensation from the employer when they are actually or constructively received by the employee. As a general rule, the maximum amount which can be deferred in any one year is the lesser of $7,500 (as indexed) or 33 1/3% of the participant's includable compensation. However, in the limited circumstances, up to $15,000 may be deferred in each of the last three years before retirement. SIMPLIFIED EMPLOYEE PENSION PLANS (SEP) An employer may make contributions on behalf of employees to a SEP as provided by Section 408(k) of the CODE. The contributions and distribution dates are limited by the CODE provisions. All distributions from the plan will be taxed as ordinary income. For tax years after 1996, salary reduction SEP's (SAR/SEP) may no longer be established. However, SAR/SEPs in existence prior to January 1, 1997 may continue to receive contributions. Any distribution before the employee attains age 59 1/2 (except in the event of death or disability) or the failure to satisfy certain other CODE requirements may result in adverse tax consequences. SAVINGS INCENTIVE MATCHED PLAN FOR EMPLOYEES (SIMPLE) Employers with 100 or fewer employees who earned $5,000 during the proceeding year, may establish SIMPLEs. For tax years beginning after December 31, 1996, SIMPLE plans are available and may be in the form of an IRA or part of a 401(k) plan. Under a SIMPLE IRA, employees are permitted to make elective contributions to an IRA, stated as a percentage of the employees compensation, but not to exceed $6,000 annually as indexed. Such deferrals are not subject to income tax until withdrawn. WITHDRAWALS made by an employee in the first two years of the employees participation are subject to a 25% penalty. Later WITHDRAWALS are subject to penalties applicable to IRAs. Under a SIMPLE 401(k), employee deferrals are limited to no more than $6,000 annually. Employer contributions are usually required for each type of SIMPLE. TAX ON DISTRIBUTIONS FROM QUALIFIED CONTRACTS The following rules generally apply to distributions from CONTRACTS purchased in connection with the plans discussed previously, other than deferred compensation plans and Roth IRAs. The portion, if any, of any contribution under a CONTRACT made by or on behalf of an individual which is not excluded from the employee's gross income (generally, the employee's own nondeductible contributions) constitutes the investment in the CONTRACT. If a distribution is made in the form of ANNUITY PAYOUTS, the employee's investment in the CONTRACT (adjusted for certain refund provisions) divided by the life expectancy (or other period for which ANNUITY PAYOUTS are expected to be made) constitutes a tax-free return of capital each year. The dollar amount of ANNUITY PAYOUTS received in any year in excess of such return is taxable as ordinary income. All distributions will be fully taxable once the employee is deemed to have recovered the dollar amount of the investment in the CONTRACT. If a SURRENDER of or WITHDRAWAL from the CONTRACT is effected and distribution is made from the plan in a single payout, the proceeds may qualify for special LUMP SUM distribution treatment under certain qualified plans, as discussed above. Otherwise, the amount by which the payment exceeds the investment in the CONTRACT (adjusted for any prior WITHDRAWAL) allocated to that payment, if any, will be taxed as ordinary income in the year of receipt. Rules generally provide that all distributions which are not received as an annuity will be taxed as a pro rata distribution of taxable and nontaxable amounts (rather than as a distribution first of nontaxable amounts). Distributions from qualified plans, Keoghs, SEPs, 403(b) plans and IRAs will be subject to a 10% penalty tax if made before age 59 1/2 unless certain other exceptions B-9 apply. Failure to meet certain minimum distribution requirements for the above plans, as well as for Section 457 plans, will result in a 50% excise tax. Various other adverse tax consequences may also be potentially applicable in certain circumstances to these types of plans. Upon an employee's death, the taxation of benefits payable to the BENEFICIARY generally follows these same principles, subject to a variety of special rules. OTHER CONSIDERATIONS It should be understood that the foregoing comments about the federal tax consequences under these CONTRACTS are not exhaustive and that special rules are provided with respect to other tax situations not discussed herein. Further, the foregoing discussion does not address any applicable state, local or foreign tax laws. Finally, in recent years numerous changes have been made in the federal income tax treatment of CONTRACTS and retirement plans, which are not fully discussed above. Before an investment is made in any of the CONTRACTS, a competent tax advisor should be consulted. DETERMINATION OF ACCUMULATION AND ANNUITY UNIT VALUE A description of the days on which ACCUMULATION and ANNUITY UNITS will be valued is given in the Prospectus. The New York Stock Exchange's (NYSE) most recent announcement (which is subject to change) states that in 1998 it will be closed on New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. It may also be closed on other days. Since the portfolios of some of the FUNDS and SERIES will consist of securities primarily listed on foreign exchanges or otherwise traded outside the United States, those securities may be traded (and the net asset value of those FUNDS and SERIES and of the VARIABLE ACCOUNT could therefore be significantly affected) on days when the investor has no access to those FUNDS and SERIES. ADVERTISING AND SALES LITERATURE As set forth in the Prospectus, LINCOLN LIFE may refer to the following organizations (and others) in its marketing materials: A.M. BEST'S RATING SYSTEM evaluates the various factors affecting the overall performance of an insurance company in order to provide an opinion as to an insurance company's relative financial strength and ability to meet its contractual obligations. The procedure includes both a quantitative and qualitative review of each company. DUFF & PHELPS insurance company claims paying ability (CPA) service provides purchasers of insurance company policies and contracts with analytical and statistical information on the solvency and liquidity of major U.S licensed insurance companies, both mutual and stock. EAFE Index is prepared by Morgan Stanley Capital International (MSCI). It measures performance of securities in Europe, Australia and the Far East. The index reflects the movements of world stock markets by representing the evolution of an unmanaged portfolio. The EAFE Index offers international diversification with over 1000 companies across 20 different countries. LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a publisher of statistical data covering the investment company industry in the United States and overseas. Lipper is recognized as the leading source of data on open-end and closed-end funds. Lipper currently tracks the performance of over 5,000 investment companies and publishes numerous specialized reports, including reports on performance and portfolio analysis, fee and expense analysis. MOODY'S insurance claims-paying rating is a system of rating insurance company's financial strength, market leadership and ability to meet financial obligations. The purpose of Moody's ratings is to provide investors with a simple system of gradation by which the relative quality of insurance companies may be noted. MORNINGSTAR is an independent financial publisher offering comprehensive statistical and analytical coverage of open-end and closed-end funds and VARIABLE ANNUITY CONTRACTS. STANDARD & POOR's CORP. insurance claims-paying ability rating is an assessment of an operating insurance company's financial capacity to meet obligations under an insurance policy in accordance with the terms. The likelihood of a timely flow of funds from the insurer to the trustee for the bondholders is a key element in the rating determination for such debt issues. VARDS (Variable Annuity Research Data Service) provides a comprehensive guide to VARIABLE ANNUITY CONTRACT features and historical fund performance. The service also provides a readily understandable analysis of the comparative characteristics and market performance of funds inclusive in variable contracts. B-10 STANDARD & POOR'S 500 INDEX (S&P 500) -- broad-based measurement of changes in stock-market conditions based on the average performance of 500 widely held common stocks; commonly known as the S&P 500. The selection of stocks, their relative weightings to reflect differences in the number of outstanding shares and publication of the index itself are services of Standard & Poor's Corp., a financial advisory, securities rating and publishing firm. NASDAQ-OTC Price Index -- this index is based on the National Association of Securities Dealers Automated Quotations (NASDAQ) and represents all domestic over-the-counter stocks except those traded on exchanges and those having only one market maker, a total of some 3,500 stocks. It is market value-weighted and was introduced with a base of 100.00 on February 5, 1971. DOW JONES INDUSTRIAL AVERAGE (DJIA) -- price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including American Express Co. and American Telephone and Telegraph Co. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. The average is quoted in points, not dollars. INTERNET -- As an electronic communications network may be used to provide information regarding LINCOLN LIFE performance of the SUBACCOUNTS and advertisement literature. In its advertisements and other sales literature for the VAA and the eligible FUNDS, LINCOLN LIFE intends to illustrate the advantages of the CONTRACTS in a number of ways: COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of the VARIABLE ANNUITY CONTRACT. For example, but not by way of limitation, the literature may emphasize the potential savings through tax deferral; the potential advantage of the VARIABLE ACCOUNT over the fixed side; and the compounding effect when a client makes regular contributions to his or her account. DOLLAR-COST AVERAGING ILLUSTRATIONS. These illustrations will generally discuss the price-leveling effect of making regular purchases in the same SUBACCOUNTS over a period of time, to take advantage of the trends in market prices of the portfolio securities purchased for those SUBACCOUNTS. AUTOMATIC WITHDRAWAL SERVICE. A service provided by LINCOLN LIFE, through which a CONTRACTOWNER may take any distribution allowed by CODE Section 401(a)(9) in the case of qualified CONTRACTS, or permitted under CODE Section 72 in the case of nonqualified CONTRACTS, by way of an automatically generated payment. EARNINGS SWEEP. A service provided by LINCOLN LIFE which allows a client to designate one of the variable SUBACCOUNTS or the fixed side as a holding account, and to transfer earnings from that side to any other variable SUBACCOUNT. The CONTRACTOWNER chooses a specific FUND as the holding account. At specific intervals, account value in the holding account fund that exceeds a certain designated baseline amount is automatically transferred to another specified FUND(S). The minimum account value required for the Earnings Sweep feature is $10,000. LINCOLN LIFE'S CUSTOMERS. Sales literature for the VAA, the FUNDS and series may refer to the number of employers and the number of individual annuity clients which LINCOLN LIFE serves. As of March 17, 1998, LINCOLN LIFE was serving over 13,000 organizations and had more than 1 million annuity clients. LINCOLN LIFE'S ASSETS, SIZE. LINCOLN LIFE may discuss its general financial condition (see, for example, the reference to A.M. Best Co., above); it may refer to its assets; it may also discuss its relative size and/or ranking among companies in the industry or among any subclassification of those companies, based upon recognized evaluation criteria. For example, at year-end 1997, LINCOLN LIFE was the 6th largest U.S. stock life insurance company based on overall assets. Sales literature may reference the Multi Fund newsletter which is a newsletter distributed quarterly to clients of the VAA. The contents of the newsletter will be a commentary on general economic conditions and, on some occasions, referencing matters in connection with the Multi Fund annuity. Sales literature and advertisements may reference these and other similar reports from Best's or other similar publications which report on the insurance and financial services industries. The graphs below compare accumulations attributable to contributions to conventional savings vehicles such as savings accounts at a bank or credit union, nonqualified CONTRACTS purchased with after tax contributions, and qualified CONTRACTS purchased with pre-tax contributions under tax-favored retirement programs. B-11 THE POWER OF TAX DEFERRED GROWTH The hypothetical chart below compares the results of contributing $1,200 per year ($100 per month) during the time periods illustrated. Each graph assumes a 28% tax rate and an 8% fixed rate of return (before fees EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CONVENTIONAL NONQUALIFIED TAX DEFERRED Savings annuity contracts annuity with tax deferred retirement growth program 10 years $16,049 $18,013 $25,017 15 years $28,143 $33,761 $46,890 20 years $44,145 $56,900 $79,028 10 years $16,193 $17,012 15 years $29,340 $33,761 20 years $47,688 $56,900
and charges). For tax deferred annuities (TDA), the results are based on contributing $1,666.66 ($138.88 per month) during the time periods illustrated. The additional $38.88 per month is the amount of federal taxes paid by those contributing to the conventional savings accounts or nonqualified CONTRACTS. In this example, it has been invested by the contributors to the qualified CONTRACTS. The deduction of fees and charges is also indicated in the graph. The dotted lines represent the amount remaining after deducting any taxes due and all fees (including SURRENDER CHARGES). See Charges and other deductions in the Prospectus for discussion of charges. Additionally, a 10% tax penalty (not included here) may apply to WITHDRAWALS before age 59 1/2. The contributions and interest earnings on conventional savings accounts are usually taxed currently. For nonqualified CONTRACTS contributions are usually taxed currently, while earnings are not usually subject to income tax until withdrawn. However, contributions to and earnings on qualified plans are ordinarily not subject to income tax until withdrawn. Therefore, having greater amounts re-invested in a qualified or nonqualified plan increases the accumulation power of savings over time. As you can see, a tax deferred plan can provide a much higher account value over a long period of time. Therefore, tax deferral is an important component of a retirement plan or other long-term financial goals. (The above chart is for illustrative purposes and should not be construed as representative of actual results, which may be more or less). TAX BENEFITS TODAY When you put a portion of your salary in a tax deferred retirement plan, your contributions don't appear as taxable income on your W-2 form at the end of the calendar year. So while you are contributing, you can reduce your taxes and increase your income after savings and taxes, as compared to saving the same amount in a plan that is not tax-deferred. Here's an example: Let's assume you are single, your taxable income is $50,000, and you are in the 28% tax bracket.
SAVINGS OF TRADITIONAL PRE-TAX SAVINGS PLAN DOLLARS - -------------------------------------------------------- Your income $ 50,000 $ 50,000 Tax-deferred savings -0- 2,400 Taxable income 50,000 47,600 *Estimated federal income taxes 10,481 9,809 Income after taxes 39,519 37,791 After-tax savings 2,400 -0- Remaining income after savings and taxes 37,119 37,791
With a tax-deferred plan, you have $672 more spendable income each year because you are paying less taxes currently. *The above chart assumes a 28% marginal federal tax rate on conventional contributions. TDA contributions are generally taxed as ordinary income when withdrawn. Federal tax penalties generally apply to distributions before age 59 1/2. For illustrative purposes only. FINANCIAL STATEMENTS Financial statements for the VAA and statutory-basis financial statements and schedules of Lincoln Life appear on the following pages. For more information about the financial statements for Lincoln Life provided in this SAI, please see the cover page of this SAI. B-12 THIS PAGE WAS INTENTIONALLY LEFT BLANK. B-13 LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITY DECEMBER 31, 1997
DELAWARE PERCENT AGGRESSIVE CAPITAL EMERGING OF NET GROWTH APPRECIATION GROWTH ASSETS COMBINED ACCOUNT BOND ACCOUNT ACCOUNT SERIES - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at net asset value: - Lincoln National Aggressive Growth Fund, Inc. - 20,538,876.338 shares at $16.39 per share (cost - $240,321,099) 3.6% $ 336,538,224 $ 336,538,224 - --------------------------------------- - Lincoln National Bond Fund, Inc. - 21,673,088.212 shares at $12.86 per share (cost - $256,731,556) 3.0 278,728,827 $ 278,728,827 - --------------------------------------- - Lincoln National Capital Appreciation Fund, Inc. - 25,239,693.100 shares at $17.53 per share (cost - $332,345,658) 4.7 442,461,845 $ 442,461,845 - --------------------------------------- - Delaware Emerging Growth Series 3,188,970.924 shares at $17.39 per share (cost - $49,181,353) 0.6 55,456,204 $ 55,456,204 - --------------------------------------- - Delaware Equity/Income Series 5,012,656.118 shares at $18.80 per share (cost - $85,288,396) 1.0 94,237,935 - --------------------------------------- - Delaware Global Bond Series 1,181,485.729 shares at $10.50 per share (cost - $12,389,777) 0.1 12,405,600 - --------------------------------------- - Lincoln National Equity-Income Fund, Inc. - 39,782,391.791 shares at $20.12 per share (cost - $555,166,058) 8.5 800,339,302 - --------------------------------------- - Lincoln National Global Asset Allocation Fund, Inc. - 27,866,136.046 shares at $15.63 per share (cost - $336,837,273) 4.6 435,502,051 - --------------------------------------- - Lincoln National Growth and Income Fund, Inc. - 83,235,581.825 shares at $41.95 per share (cost - $2,099,399,866) 37.0 3,491,608,711 - --------------------------------------- - Lincoln National International Fund, Inc. - 31,426,189.646 shares at $14.67 per share (cost - $394,676,976) 4.9 461,109,004 - --------------------------------------- - Lincoln National Managed Fund, Inc. - 43,887,686.344 shares at $19.30 per share (cost - $597,984,621) 9.0 847,217,671 - --------------------------------------- - Lincoln National Money Market Fund, Inc. - 8,746,828.400 shares at $10.00 per share (cost - $87,468,284) 0.9 87,468,284 - --------------------------------------- - Lincoln National Social Awareness Fund, Inc. - 34,938,768.165 shares at $35.66 per share (cost - $826,939,759) 13.2 1,245,806,391 - --------------------------------------- - Lincoln National Special Opportunities Fund, Inc. - 23,910,129.802 shares at $35.06 per share (cost - $602,317,122) 8.9 838,185,104 - --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------ - --------------------------------------- TOTAL INVESTMENTS & TOTAL ASSETS (Cost - $6,477,047,798) 100.0 9,427,065,153 336,538,224 278,728,827 442,461,845 55,456,204 - --------------------------------------- LIABILITY - Payable to The Lincoln National Life Insurance Company 0.0 258,012 9,083 7,626 12,070 1,491 - --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------ - --------------------------------------- NET ASSETS 100.0% $ 9,426,807,141 $ 336,529,141 $ 278,721,201 $ 442,449,775 $ 55,454,713 - --------------------------------------- ------- --------------- ------------- ------------- ------------- ------------ ------- --------------- ------------- ------------- ------------- ------------ - --------------------------------------- NET ASSETS ARE REPRESENTED BY: MULTIFUND WITHOUT GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 198,261,432 59,831,710 232,364,459 45,956,994 - --------------------------------------- Annuity reserves units 254,392 94,218 489,213 0 - --------------------------------------- Unit value $1.687 $4.632 $1.884 $1.191 - --------------------------------------- Value in accumulation period 334,483,346 277,147,745 437,833,856 54,740,484 - --------------------------------------- Annuity reserves 429,181 436,433 921,803 -- - --------------------------------------- ------------- ------------- ------------- ------------ 334,912,527 277,584,178 438,755,659 54,740,484 ------------- ------------- ------------- ------------ MULTIFUND WITH GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 959,741 245,847 1,963,593 600,523 - --------------------------------------- Annuity reserves units - --------------------------------------- Unit value $1.684 $4.625 $1.881 $1.189 - --------------------------------------- Value in accumulation period 1,616,614 1,137,023 3,694,116 714,229 - --------------------------------------- ------------- ------------- ------------- ------------ TOTAL NET ASSETS $ 336,529,141 $ 278,721,201 $ 442,449,775 $ 55,454,713 - --------------------------------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------ DELAWARE DELAWARE EQUITY/ GLOBAL INCOME BOND SERIES SERIES - --------------------------------------- ASSETS Investments at net asset value: - Lincoln National Aggressive Growth Fund, Inc. - 20,538,876.338 shares at $16.39 per share (cost - $240,321,099) - --------------------------------------- - Lincoln National Bond Fund, Inc. - 21,673,088.212 shares at $12.86 per share (cost - $256,731,556) - --------------------------------------- - Lincoln National Capital Appreciation Fund, Inc. - 25,239,693.100 shares at $17.53 per share (cost - $332,345,658) - --------------------------------------- - Delaware Emerging Growth Series 3,188,970.924 shares at $17.39 per share (cost - $49,181,353) - --------------------------------------- - Delaware Equity/Income Series 5,012,656.118 shares at $18.80 per share (cost - $85,288,396) $ 94,237,935 - --------------------------------------- - Delaware Global Bond Series 1,181,485.729 shares at $10.50 per share (cost - $12,389,777) $ 12,405,600 - --------------------------------------- - Lincoln National Equity-Income Fund, Inc. - 39,782,391.791 shares at $20.12 per share (cost - $555,166,058) - --------------------------------------- - Lincoln National Global Asset Allocation Fund, Inc. - 27,866,136.046 shares at $15.63 per share (cost - $336,837,273) - --------------------------------------- - Lincoln National Growth and Income Fund, Inc. - 83,235,581.825 shares at $41.95 per share (cost - $2,099,399,866) - --------------------------------------- - Lincoln National International Fund, Inc. - 31,426,189.646 shares at $14.67 per share (cost - $394,676,976) - --------------------------------------- - Lincoln National Managed Fund, Inc. - 43,887,686.344 shares at $19.30 per share (cost - $597,984,621) - --------------------------------------- - Lincoln National Money Market Fund, Inc. - 8,746,828.400 shares at $10.00 per share (cost - $87,468,284) - --------------------------------------- - Lincoln National Social Awareness Fund, Inc. - 34,938,768.165 shares at $35.66 per share (cost - $826,939,759) - --------------------------------------- - Lincoln National Special Opportunities Fund, Inc. - 23,910,129.802 shares at $35.06 per share (cost - $602,317,122) - --------------------------------------- ------------ ------------ - --------------------------------------- TOTAL INVESTMENTS & TOTAL ASSETS (Cost - $6,477,047,798) 94,237,935 12,405,600 - --------------------------------------- LIABILITY - Payable to The Lincoln National Life Insurance Company 2,567 342 - --------------------------------------- ------------ ------------ - --------------------------------------- NET ASSETS $ 94,235,368 $ 12,405,258 - --------------------------------------- ------------ ------------ ------------ ------------ - --------------------------------------- NET ASSETS ARE REPRESENTED BY: MULTIFUND WITHOUT GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 62,514,884 10,909,411 - --------------------------------------- Annuity reserves units 450,356 8,169 - --------------------------------------- Unit value $1.461 $1.109 - --------------------------------------- Value in accumulation period 91,334,715 12,099,923 - --------------------------------------- Annuity reserves 657,974 9,060 - --------------------------------------- ------------ ------------ 91,992,689 12,108,983 ------------ ------------ MULTIFUND WITH GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 1,537,440 267,546 - --------------------------------------- Annuity reserves units - --------------------------------------- Unit value $1.459 $1.107 - --------------------------------------- Value in accumulation period 2,242,679 296,275 - --------------------------------------- ------------ ------------ TOTAL NET ASSETS $ 94,235,368 $ 12,405,258 - --------------------------------------- ------------ ------------ ------------ ------------
See accompanying notes. B-14
EQUITY- GLOBAL ASSET GROWTH AND INCOME ALLOCATION INCOME INTERNATIONAL MANAGED ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ------------------------------------------------------------------------------------------------------------------------ ASSETS Investments at net asset value: - Lincoln National Aggressive Growth Fund, Inc. - 20,538,876.338 shares at $16.39 per share (cost - $240,321,099) - --------------------------------------- - Lincoln National Bond Fund, Inc. - 21,673,088.212 shares at $12.86 per share (cost - $256,731,556) - --------------------------------------- - Lincoln National Capital Appreciation Fund, Inc. - 25,239,693.100 shares at $17.53 per share (cost - $332,345,658) - --------------------------------------- - Delaware Emerging Growth Series 3,188,970.924 shares at $17.39 per share (cost - $49,181,353) - --------------------------------------- - Delaware Equity/Income Series 5,012,656.118 shares at $18.80 per share (cost - $85,288,396) - --------------------------------------- - Delaware Global Bond Series 1,181,485.729 shares at $10.50 per share (cost - $12,389,777) - --------------------------------------- - Lincoln National Equity-Income Fund, Inc. - 39,782,391.791 shares at $20.12 per share (cost - $555,166,058) $ 800,339,302 - --------------------------------------- - Lincoln National Global Asset Allocation Fund, Inc. - 27,866,136.046 shares at $15.63 per share (cost - $336,837,273) $ 435,502,051 - --------------------------------------- - Lincoln National Growth and Income Fund, Inc. - 83,235,581.825 shares at $41.95 per share (cost - $2,099,399,866) $ 3,491,608,711 - --------------------------------------- - Lincoln National International Fund, Inc. - 31,426,189.646 shares at $14.67 per share (cost - $394,676,976) $ 461,109,004 - --------------------------------------- - Lincoln National Managed Fund, Inc. - 43,887,686.344 shares at $19.30 per share (cost - $597,984,621) $ 847,217,671 - --------------------------------------- - Lincoln National Money Market Fund, Inc. - 8,746,828.400 shares at $10.00 per share (cost - $87,468,284) - --------------------------------------- - Lincoln National Social Awareness Fund, Inc. - 34,938,768.165 shares at $35.66 per share (cost - $826,939,759) - --------------------------------------- - Lincoln National Special Opportunities Fund, Inc. - 23,910,129.802 shares at $35.06 per share (cost - $602,317,122) - --------------------------------------- ------------- ------------- --------------- ------------- ------------- - --------------------------------------- TOTAL INVESTMENTS & TOTAL ASSETS (Cost - $6,477,047,798) 800,339,302 435,502,051 3,491,608,711 461,109,004 847,217,671 - --------------------------------------- LIABILITY - Payable to The Lincoln National Life Insurance Company 21,918 11,944 95,677 12,728 23,189 - --------------------------------------- ------------- ------------- --------------- ------------- ------------- - --------------------------------------- NET ASSETS $ 800,317,384 $ 435,490,107 $ 3,491,513,034 $ 461,096,276 $ 847,194,482 - --------------------------------------- ------------- ------------- --------------- ------------- ------------- ------------- ------------- --------------- ------------- ------------- - --------------------------------------- NET ASSETS ARE REPRESENTED BY: MULTIFUND WITHOUT GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 367,650,521 158,528,476 356,437,044 293,362,761 178,408,049 - --------------------------------------- Annuity reserves units 1,261,113 521,791 3,955,002 502,083 511,247 - --------------------------------------- Unit value $2.150 $2.720 $9.650 $1.562 $4.714 - --------------------------------------- Value in accumulation period 790,308,116 431,188,333 3,439,732,725 458,218,383 841,011,899 - --------------------------------------- Annuity reserves 2,710,910 1,419,239 38,167,051 784,229 2,410,011 - --------------------------------------- ------------- ------------- --------------- ------------- ------------- 793,019,026 432,607,572 3,477,899,776 459,002,612 843,421,910 ------------- ------------- --------------- ------------- ------------- MULTIFUND WITH GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 3,400,524 1,061,444 1,412,921 1,342,514 801,564 - --------------------------------------- Annuity reserves units - --------------------------------------- Unit value $2.146 $2.716 $9.635 $1.560 $4.707 - --------------------------------------- Value in accumulation period 7,298,358 2,882,535 13,613,258 2,093,664 3,772,572 - --------------------------------------- ------------- ------------- --------------- ------------- ------------- TOTAL NET ASSETS $ 800,317,384 $ 435,490,107 $ 3,491,513,034 $ 461,096,276 $ 847,194,482 - --------------------------------------- ------------- ------------- --------------- ------------- ------------- ------------- ------------- --------------- ------------- ------------- MARKET AWARENESS OPPORTUNITIES ACCOUNT ACCOUNT ACCOUNT - --------------------------------------- ASSETS Investments at net asset value: - Lincoln National Aggressive Growth Fund, Inc. - 20,538,876.338 shares at $16.39 per share (cost - $240,321,099) - --------------------------------------- - Lincoln National Bond Fund, Inc. - 21,673,088.212 shares at $12.86 per share (cost - $256,731,556) - --------------------------------------- - Lincoln National Capital Appreciation Fund, Inc. - 25,239,693.100 shares at $17.53 per share (cost - $332,345,658) - --------------------------------------- - Delaware Emerging Growth Series 3,188,970.924 shares at $17.39 per share (cost - $49,181,353) - --------------------------------------- - Delaware Equity/Income Series 5,012,656.118 shares at $18.80 per share (cost - $85,288,396) - --------------------------------------- - Delaware Global Bond Series 1,181,485.729 shares at $10.50 per share (cost - $12,389,777) - --------------------------------------- - Lincoln National Equity-Income Fund, Inc. - 39,782,391.791 shares at $20.12 per share (cost - $555,166,058) - --------------------------------------- - Lincoln National Global Asset Allocation Fund, Inc. - 27,866,136.046 shares at $15.63 per share (cost - $336,837,273) - --------------------------------------- - Lincoln National Growth and Income Fund, Inc. - 83,235,581.825 shares at $41.95 per share (cost - $2,099,399,866) - --------------------------------------- - Lincoln National International Fund, Inc. - 31,426,189.646 shares at $14.67 per share (cost - $394,676,976) - --------------------------------------- - Lincoln National Managed Fund, Inc. - 43,887,686.344 shares at $19.30 per share (cost - $597,984,621) - --------------------------------------- - Lincoln National Money Market Fund, Inc. - 8,746,828.400 shares at $10.00 per share (cost - $87,468,284) $ 87,468,284 - --------------------------------------- - Lincoln National Social Awareness Fund, Inc. - 34,938,768.165 shares at $35.66 per share (cost - $826,939,759) $ 1,245,806,391 - --------------------------------------- - Lincoln National Special Opportunities Fund, Inc. - 23,910,129.802 shares at $35.06 per share (cost - $602,317,122) $ 838,185,104 - --------------------------------------- ------------ --------------- ------------- - --------------------------------------- TOTAL INVESTMENTS & TOTAL ASSETS (Cost - $6,477,047,798) 87,468,284 1,245,806,391 838,185,104 - --------------------------------------- LIABILITY - Payable to The Lincoln National Life Insurance Company 2,400 34,120 22,857 - --------------------------------------- ------------ --------------- ------------- - --------------------------------------- NET ASSETS $ 87,465,884 $ 1,245,772,271 $ 838,162,247 - --------------------------------------- ------------ --------------- ------------- ------------ --------------- ------------- - --------------------------------------- NET ASSETS ARE REPRESENTED BY: MULTIFUND WITHOUT GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 35,963,168 249,012,275 101,002,630 - --------------------------------------- Annuity reserves units 56,935 524,138 137,167 - --------------------------------------- Unit value $2.419 $4.950 $8.249 - --------------------------------------- Value in accumulation period 86,979,858 1,232,525,060 833,140,183 - --------------------------------------- Annuity reserves 137,700 2,594,303 1,131,452 - --------------------------------------- ------------ --------------- ------------- 87,117,558 1,235,119,363 834,271,635 ------------ --------------- ------------- MULTIFUND WITH GUARANTEED MINIMUM DEATH BENEFIT Units in accumulation period 144,247 2,155,674 472,405 - --------------------------------------- Annuity reserves units - --------------------------------------- Unit value $2.415 $4.942 $8.236 - --------------------------------------- Value in accumulation period 348,326 10,652,908 3,890,612 - --------------------------------------- ------------ --------------- ------------- TOTAL NET ASSETS $ 87,465,884 $ 1,245,772,271 $ 838,162,247 - --------------------------------------- ------------ --------------- ------------- ------------ --------------- -------------
B-15 LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES THE ACCOUNT: The Lincoln National Variable Annuity Account C (the Variable Account) is a segregated investment account of The Lincoln National Life Insurance Company (the Company) and is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. The Variable Account consists of one product offering a guaranteed minimum death benefit (GMDB) rider option. INVESTMENTS: The Variable Account invests in the Lincoln National Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln National Growth and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National Social Awareness Fund, Inc., Lincoln National Special Opportunities Fund, Inc., Delaware Emerging Growth Series, Delaware Equity/Income Series and the Delaware Global Bond Series (the Funds). Investments in the Funds are stated at the closing net values per share on December 31, 1997. The Funds are registered as open ended investment management companies. Investment transactions are accounted for on a trade-date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by the average-cost method. DIVIDENDS: Dividends are automatically reinvested in shares of the Funds on the payable date. FEDERAL INCOME TAXES: Operations of the Variable Account form a part of and are taxed with operations of the Company, which is taxed as a "life insurance company" under the Internal Revenue Code. Using current law, no federal income taxes are payable with respect to the Variable Account's net investment income and the net realized gain on investments. ANNUITY RESERVES: Reserves on contracts not involving life contingencies are calculated using an assumed investment rate of 5%. Reserves on contracts involving life contingencies are calculated using a modification of the 1971 Individual Annuitant Mortality Table and an assumed investment rate of 5%. 2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE Amounts are paid to the Company for mortality and expense guarantees at a percentage of the current value of the Variable Account each day. The rates are as follows: - Multifund at a daily rate of .00274525% (1.002% on an annual basis). - Multifund with GMDB at a daily rate of .00356712328% (1.302% on an annual basis). In addition, amounts retained by the Company from the proceeds of the sales of annuity contracts for contract charges and surrender charges were as follows during 1997: Lincoln National Aggressive Growth Account $ 97,296 - --------------------------------------- Lincoln National Bond Account 715,809 - --------------------------------------- Lincoln National Capital Appreciation Account 114,914 - --------------------------------------- Delaware Emerging Growth Account 11,915 - --------------------------------------- Delaware Equity Income Account 10,069 - --------------------------------------- Delaware Global Bond Account 1,315 - --------------------------------------- Lincoln National Equity-Income Account 203,095 - --------------------------------------- Lincoln National Global Asset Allocation Account 449,871 - --------------------------------------- Lincoln National Growth and Income Account 3,920,982 - --------------------------------------- Lincoln National International Account 631,218 - --------------------------------------- Lincoln National Managed Account 927,374 - --------------------------------------- Lincoln National Money Market Account 813,396 - --------------------------------------- Lincoln National Social Awareness Account 1,123,658 - --------------------------------------- Lincoln National Special Opportunities Account 906,949 - --------------------------------------- ---------- - --------------------------------------- $9,927,861 - --------------------------------------- ---------- ----------
Accordingly, the Company is responsible for all sales, general, and administrative expenses applicable to the Variable Account. B-20 THIS PAGE WAS INTENTIONALLY LEFT BLANK. B-21 LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED 3. NET ASSETS Net Assets at December 31, 1997 consisted of the following:
DELAWARE DELAWARE AGGRESSIVE CAPITAL EMERGING EQUITY/ GROWTH BOND APPRECIATION GROWTH INCOME COMBINED ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - --------------------------------------------------------------------------------------------------------------------------- Unit Transactions: Accumulation units $5,043,582,942 $227,902,481 $138,519,777 $317,396,112 $48,914,475 $82,726,689 - --------------------------------------- Annuity reserves 24,597,907 288,056 304,719 650,131 -- 575,923 - --------------------------------------- -------------- ------------ ------------ ------------ ----------- ----------- - --------------------------------------- 5,068,180,849 228,190,537 138,824,496 318,046,243 48,914,475 83,302,612 Accumulated net investment income (loss) 1,306,316,744 8,667,056 118,141,970 13,022,186 (67,760) 1,861,288 - --------------------------------------- Accumulated net realized gain (loss) on investments 102,292,193 3,454,423 (242,536) 1,265,159 333,147 121,929 - --------------------------------------- Net unrealized appreciation on investments 2,950,017,355 96,217,125 21,997,271 110,116,187 6,274,851 8,949,539 - --------------------------------------- -------------- ------------ ------------ ------------ ----------- ----------- - --------------------------------------- $9,426,807,141 $336,529,141 $278,721,201 $442,449,775 $55,454,713 $94,235,368 - --------------------------------------- -------------- ------------ ------------ ------------ ----------- ----------- -------------- ------------ ------------ ------------ ----------- ----------- DELAWARE GLOBAL BOND ACCOUNT - --------------------------------------- Unit Transactions: Accumulation units $11,765,918 - --------------------------------------- Annuity reserves 8,550 - --------------------------------------- ----------- - --------------------------------------- 11,774,468 Accumulated net investment income (loss) 528,215 - --------------------------------------- Accumulated net realized gain (loss) on investments 86,752 - --------------------------------------- Net unrealized appreciation on investments 15,823 - --------------------------------------- ----------- - --------------------------------------- $12,405,258 - --------------------------------------- ----------- -----------
B-22
EQUITY- GLOBAL ASSET GROWTH AND MONEY INCOME ALLOCATION INCOME INTERNATIONAL MANAGED MARKET ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- Unit Transactions: Accumulation units $535,946,820 $251,871,731 $1,552,007,990 $354,234,434 $358,852,074 $32,036,377 - --------------------------------------- Annuity reserves 1,666,670 839,047 15,948,964 591,808 1,268,810 102,206 - --------------------------------------- ------------ ------------ -------------- ------------ ------------ ----------- - --------------------------------------- 537,613,490 252,710,778 1,567,956,954 354,826,242 360,120,884 32,138,583 Accumulated net investment income (loss) 16,292,020 81,067,677 504,470,847 27,627,063 226,415,207 55,327,301 - --------------------------------------- Accumulated net realized gain (loss) on investments 1,238,630 3,046,874 26,876,388 12,210,943 11,425,341 -- - --------------------------------------- Net unrealized appreciation on investments 245,173,244 98,664,778 1,392,208,845 66,432,028 249,233,050 -- - --------------------------------------- ------------ ------------ -------------- ------------ ------------ ----------- - --------------------------------------- $800,317,384 $435,490,107 $3,491,513,034 $461,096,276 $847,194,482 $87,465,884 - --------------------------------------- ------------ ------------ -------------- ------------ ------------ ----------- ------------ ------------ -------------- ------------ ------------ ----------- AWARENESS OPPORTUNITIES ACCOUNT ACCOUNT - --------------------------------------- Unit Transactions: Accumulation units $ 748,397,217 $383,010,847 - --------------------------------------- Annuity reserves 1,743,548 609,475 - --------------------------------------- -------------- ------------ - --------------------------------------- 750,140,765 383,620,322 Accumulated net investment income (loss) 72,287,389 180,676,285 - --------------------------------------- Accumulated net realized gain (loss) on investments 4,477,485 37,997,658 - --------------------------------------- Net unrealized appreciation on investments 418,866,632 235,867,982 - --------------------------------------- -------------- ------------ - --------------------------------------- $1,245,772,271 $838,162,247 - --------------------------------------- -------------- ------------ -------------- ------------
B-23 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY BALANCE SHEETS -- STATUTORY BASIS
DECEMBER 31 1997 1996 --------- --------- (IN MILLIONS) -------------------- ADMITTED ASSETS CASH AND INVESTMENTS: Bonds $18,560.7 $19,389.6 - ------------------------------------------------------------------------------------ Preferred stocks 257.3 239.7 - ------------------------------------------------------------------------------------ Unaffiliated common stocks 436.0 358.3 - ------------------------------------------------------------------------------------ Affiliated common stocks 412.1 241.5 - ------------------------------------------------------------------------------------ Mortgage loans on real estate 3,012.7 2,976.7 - ------------------------------------------------------------------------------------ Real estate 584.4 621.3 - ------------------------------------------------------------------------------------ Policy loans 660.5 626.5 - ------------------------------------------------------------------------------------ Other investments 335.5 282.7 - ------------------------------------------------------------------------------------ Cash and short-term investments 2,133.0 759.2 - ------------------------------------------------------------------------------------ --------- --------- Total cash and investments 26,392.2 25,495.5 - ------------------------------------------------------------------------------------ Premiums and fees in course of collection 42.4 60.9 - ------------------------------------------------------------------------------------ Accrued investment income 343.5 343.6 - ------------------------------------------------------------------------------------ Funds withheld by ceding companies 44.1 25.8 - ------------------------------------------------------------------------------------ Other admitted assets 216.0 355.7 - ------------------------------------------------------------------------------------ Separate account assets 31,330.9 23,735.1 - ------------------------------------------------------------------------------------ --------- --------- Total admitted assets $58,369.1 $50,016.6 - ------------------------------------------------------------------------------------ --------- --------- --------- --------- LIABILITIES AND CAPITAL AND SURPLUS LIABILITIES: Future policy benefits and claims $ 5,872.9 $ 5,954.0 - ------------------------------------------------------------------------------------ Other policyholder funds 16,360.1 17,262.4 - ------------------------------------------------------------------------------------ Amounts withheld or retained by Company as agent or trustee 878.2 250.2 - ------------------------------------------------------------------------------------ Funds held under reinsurance treaties 720.4 564.6 - ------------------------------------------------------------------------------------ Asset valuation reserve 450.0 375.5 - ------------------------------------------------------------------------------------ Interest maintenance reserve 135.4 76.7 - ------------------------------------------------------------------------------------ Other liabilities 413.9 490.9 - ------------------------------------------------------------------------------------ Federal income taxes 0.8 4.3 - ------------------------------------------------------------------------------------ Net transfers due from separate accounts (761.9) (659.7) - ------------------------------------------------------------------------------------ Separate account liabilities 31,330.9 23,735.1 - ------------------------------------------------------------------------------------ --------- --------- Total liabilities 55,400.7 48,054.0 - ------------------------------------------------------------------------------------ CAPITAL AND SURPLUS: Common stock, $2.50 par value: Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National Corporation) 25.0 25.0 - ------------------------------------------------------------------------------------ Paid-in surplus 1,821.8 883.4 - ------------------------------------------------------------------------------------ Unassigned surplus 1,121.6 1,054.2 - ------------------------------------------------------------------------------------ --------- --------- Total capital and surplus 2,968.4 1,962.6 - ------------------------------------------------------------------------------------ --------- --------- Total liabilities and capital and surplus $58,369.1 $50,016.6 - ------------------------------------------------------------------------------------ --------- --------- --------- ---------
See accompanying notes. S-1 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF INCOME -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1997 1996 1995 --------- --------- --------- (IN MILLIONS) ------------------------------- PREMIUMS AND OTHER REVENUES: Premiums and deposits $ 5,589.0 $ 7,268.5 $ 4,899.1 - ----------------------------------------------------------------------------- Net investment income 1,847.1 1,756.3 1,772.2 - ----------------------------------------------------------------------------- Amortization of interest maintenance reserve 41.5 27.2 34.0 - ----------------------------------------------------------------------------- Commissions and expense allowances on reinsurance ceded 99.7 90.9 98.3 - ----------------------------------------------------------------------------- Expense charges on deposit funds 119.3 100.7 83.2 - ----------------------------------------------------------------------------- Other income 21.3 16.8 14.5 - ----------------------------------------------------------------------------- --------- --------- --------- Total revenues 7,717.9 9,260.4 6,901.3 - ----------------------------------------------------------------------------- BENEFITS AND EXPENSES: Benefits and settlement expenses 4,522.1 5,989.9 4,184.0 - ----------------------------------------------------------------------------- Underwriting, acquisition, insurance and other expenses 2,728.4 2,878.5 2,345.7 - ----------------------------------------------------------------------------- --------- --------- --------- Total benefits and expenses 7,250.5 8,868.4 6,529.7 - ----------------------------------------------------------------------------- --------- --------- --------- Gain from operations before dividends to policyholders, income taxes and net realized gain on investments 467.4 392.0 371.6 - ----------------------------------------------------------------------------- Dividends to policyholders 27.5 27.3 27.3 - ----------------------------------------------------------------------------- --------- --------- --------- Gain from operations before federal income taxes and net realized gain on investments 439.9 364.7 344.3 - ----------------------------------------------------------------------------- Federal income taxes 78.3 83.6 103.7 - ----------------------------------------------------------------------------- --------- --------- --------- Gain from operations before net realized gain on investments 361.6 281.1 240.6 - ----------------------------------------------------------------------------- Net realized gain on investments, net of income tax expense and excluding net transfers to the interest maintenance reserve 31.3 53.3 43.9 - ----------------------------------------------------------------------------- --------- --------- --------- Net income $ 392.9 $ 334.4 $ 284.5 - ----------------------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
See accompanying notes. S-2 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1997 1996 1995 --------- --------- --------- (IN MILLIONS) ------------------------------- Capital and surplus at beginning of year $ 1,962.6 $ 1,732.9 $ 1,679.6 - ----------------------------------------------------------------------------- Correction of prior years' asset valuation reserve (Note 15) (37.6) -- -- - ----------------------------------------------------------------------------- Correction of prior year's admitted assets (Note 15) (57.0) -- -- - ----------------------------------------------------------------------------- --------- --------- --------- 1,868.0 1,732.9 1,679.6 CAPITAL AND SURPLUS INCREASE (DECREASE): Net income 392.9 334.4 284.5 - ----------------------------------------------------------------------------- Difference in cost and admitted investment amounts (36.2) 38.6 143.2 - ----------------------------------------------------------------------------- Nonadmitted assets (0.4) (3.0) 2.9 - ----------------------------------------------------------------------------- Regulatory liability for reinsurance (3.9) 0.6 (2.0) - ----------------------------------------------------------------------------- Life policy reserve valuation basis (0.9) (0.4) 2.9 - ----------------------------------------------------------------------------- Asset valuation reserve (36.9) (105.5) (112.5) - ----------------------------------------------------------------------------- Mortgage loan, real estate and other investment reserves -- -- 2.2 - ----------------------------------------------------------------------------- Paid-in surplus, including contribution of common stock of affiliated company in 1997 938.4 100.0 15.1 - ----------------------------------------------------------------------------- Separate account receivable due to change in valuation (2.6) -- 27.0 - ----------------------------------------------------------------------------- Dividends to shareholder (150.0) (135.0) (310.0) - ----------------------------------------------------------------------------- --------- --------- --------- Capital and surplus at end of year $ 2,968.4 $ 1,962.6 $ 1,732.9 - ----------------------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
See accompanying notes. S-3 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1997 1996 1995 ---------- ---------- ---------- (IN MILLIONS) ---------------------------------- OPERATING ACTIVITIES Premiums, policy proceeds and other considerations received $ 6,364.3 $ 8,059.4 $ 5,430.9 - ----------------------------------------------------------------------- Allowances and reserve adjustments paid on reinsurance ceded (649.2) (767.5) (383.6) - ----------------------------------------------------------------------- Investment income received 1,798.8 1,700.6 1,713.2 - ----------------------------------------------------------------------- Benefits paid (5,345.2) (4,050.4) (3,239.6) - ----------------------------------------------------------------------- Insurance expenses paid (2,867.5) (2,972.2) (2,513.5) - ----------------------------------------------------------------------- Federal income taxes recovered (paid) (87.0) (72.3) 38.4 - ----------------------------------------------------------------------- Dividends to policyholders (28.4) (27.7) (16.5) - ----------------------------------------------------------------------- Other income received and expenses paid, net (42.7) 6.3 14.4 - ----------------------------------------------------------------------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (856.9) 1,876.2 1,043.7 - ----------------------------------------------------------------------- INVESTING ACTIVITIES Sale, maturity or repayment of investments 12,142.6 12,542.0 13,183.9 - ----------------------------------------------------------------------- Purchase of investments (10,345.0) (14,175.4) (14,049.6) - ----------------------------------------------------------------------- Other sources (uses) 563.1 (266.5) (64.0) - ----------------------------------------------------------------------- ---------- ---------- ---------- Net cash provided by (used in) investing activities 2,360.7 (1,899.9) (929.7) - ----------------------------------------------------------------------- FINANCING ACTIVITIES Surplus paid-in -- 100.0 15.1 - ----------------------------------------------------------------------- Proceeds from borrowings from shareholder 120.0 100.0 63.0 - ----------------------------------------------------------------------- Repayment of borrowings from shareholder (100.0) (63.0) (63.0) - ----------------------------------------------------------------------- Dividends paid to shareholder (150.0) (135.0) (310.0) - ----------------------------------------------------------------------- ---------- ---------- ---------- Net cash provided by (used in) financing activities (130.0) 2.0 (294.9) - ----------------------------------------------------------------------- ---------- ---------- ---------- Net increase (decrease) in cash and short-term investments 1,373.8 (21.7) (180.9) - ----------------------------------------------------------------------- Cash and short-term investments at beginning of year 759.2 780.9 961.8 - ----------------------------------------------------------------------- ---------- ---------- ---------- Cash and short-term investments at end of year $ 2,133.0 $ 759.2 $ 780.9 - ----------------------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes. S-4 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND OPERATIONS The Lincoln National Life Insurance Company ("Company") is a wholly owned subsidiary of Lincoln National Corporation ("LNC") and is domiciled in Indiana. As of December 31, 1997, the Company owns 100% of the outstanding common stock of four insurance company subsidiaries: First Penn-Pacific Life Insurance Company ("First Penn"), Lincoln National Health & Casualty Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC") and Lincoln Life & Annuity Company of New York ("LLANY"). The Company's principal businesses consist of underwriting annuities, deposit-type contracts and life and health insurance through multiple distribution channels and the reinsurance of individual and group life and health business. The Company is licensed and sells its products in 49 states, Canada and several U.S. territories. USE OF ESTIMATES The nature of the insurance and investment management businesses requires management to make estimates and assumptions that affect the amounts reported in the statutory-basis financial statements and accompanying notes. Actual results could differ from those estimates. BASIS OF PRESENTATION The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Indiana Department of Insurance ("Department"), which practices differ from generally accepted accounting principles ("GAAP"). The more significant variances from GAAP are as follows: INVESTMENTS Bonds are reported at cost or amortized cost or fair value based on their National Association of Insurance Commissioners ("NAIC") rating. For GAAP, the Company's bonds are classified as available-for-sale and, accordingly, are reported at fair value with changes in the fair values reported directly in shareholder's equity after adjustments for related amortization of deferred acquisition costs, additional policyholder commitments and deferred income taxes. Investments in real estate are reported net of related obligations rather than on a gross basis. Changes between cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than to a separate surplus account. Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the individual security sold. The net deferral is reported as the Interest Maintenance Reserve ("IMR") in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. The asset valuation reserve ("AVR") is determined by an NAIC prescribed formula and is reported as a liability rather than unassigned surplus. Under GAAP, realized capital gains and losses are reported in the income statement on a pre-tax basis in the period that the asset giving rise to the gain or loss is sold and valuation allowances are provided when there has been a decline in value deemed other than temporary, in which case, the provision for such declines are charged to income. SUBSIDIARIES The accounts and operations of the Company's subsidiaries are not consolidated with the accounts and operations of the Company as would be required by GAAP. Under statutory accounting principles, the Company's subsidiaries are carried at their statutory basis net equity and presented in the balance sheet as affiliated common stocks. POLICY ACQUISITION COSTS The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance, to the extent recoverable from future policy revenues, are deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance, annuity and other investment-type products, deferred S-5 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) policy acquisition costs, to the extent recoverable from future gross profits, are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality and expense margins. NONADMITTED ASSETS Certain assets designated as "nonadmitted," principally furniture and equipment and certain receivables, are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. PREMIUMS Premiums and deposits with respect to universal life policies and annuity and other investment-type contracts are reported as premium revenues; whereas, under GAAP, such premiums and deposits are treated as liabilities and policy charges represent revenues. BENEFIT RESERVES Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP. Death benefits paid, policy and contract withdrawals, and the change in policy reserves on universal life policies, annuity and other investment-type contracts are reported as benefits and settlement expenses in the accompanying statements of income; whereas, under GAAP, withdrawals are treated as a reduction of the policy or contract liabilities and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values. REINSURANCE Premiums, claims and policy benefits and contract liabilities are reported in the accompanying financial statements net of reinsurance amounts. For GAAP, all assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. A liability for reinsurance balances has been provided for unsecured policy and contract liabilities and unearned premiums ceded to reinsurers not authorized by the Department to assume such business. Changes to those amounts are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible is established through a charge to income. Commissions on business ceded are reported as income when received rather than deferred and amortized with deferred policy acquisition costs. Certain reinsurance contracts meeting risk transfer requirements under statutory-basis accounting practices have been accounted for using traditional reinsurance accounting whereas such contracts would be accounted for using deposit accounting under GAAP. INCOME TAXES Deferred income taxes are not provided for differences between financial statement amounts and tax bases of assets and liabilities. POLICYHOLDER DIVIDENDS Policyholder dividends are recognized when declared rather than over the term of the related policies. STATEMENTS OF CASH FLOWS Cash and short-term investments in the statements of cash flows represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding captions of cash and cash equivalents include cash balances and investments with initial maturities of three months or less. S-6 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A reconciliation of the Company's net income and capital and surplus determined on a statutory accounting basis with amounts determined in accordance with GAAP is as follows:
CAPITAL AND SURPLUS NET INCOME ----------------------------------------------------- DECEMBER 31 YEAR ENDED DECEMBER 31 1997 1996 1997 1996 1995 ----------------------------------------------------- (IN MILLIONS) ----------------------------------------------------- Amounts reported on a statutory basis $ 2,968.4 $ 1,962.6 $ 392.9 $ 334.4 $ 284.5 - --------------------------------------------- GAAP adjustments: Deferred policy acquisition costs and present value of future profits 958.3 1,119.1 (98.9) 66.7 (63.0) ------------------------------------------ Policy and contract reserves (1,672.9) (1,405.3) (48.6) (57.1) (55.3) ------------------------------------------ Interest maintenance reserve 135.4 76.7 58.7 (39.7) 60.9 ------------------------------------------ Deferred income taxes (13.0) (27.4) 70.3 1.8 38.3 ------------------------------------------ Policyholders' share of earnings and surplus on participating business (79.8) (81.9) 5.3 (.3) .2 ------------------------------------------ Asset valuation reserve 450.0 375.5 -- -- -- ------------------------------------------ Net realized gain (loss) on investments (91.5) (72.0) (20.4) 78.7 30.0 ------------------------------------------ Unrealized gain on investments 1,245.5 825.2 -- -- -- ------------------------------------------ Nonadmitted assets, including nonadmitted investments 61.0 (7.1) -- -- -- ------------------------------------------ Investments in subsidiary companies 188.8 156.6 (80.5) 29.9 34.3 ------------------------------------------ Other, net (162.5) (99.0) (35.0) (82.6) (7.3) ------------------------------------------ --------- --------- --------- --------- --------- Net increase (decrease) 1,019.3 860.4 (149.1) (2.6) 38.1 - --------------------------------------------- --------- --------- --------- --------- --------- Amounts on a GAAP basis $ 3,987.7 $ 2,823.0 $ 243.8 $ 331.8 $ 322.6 - --------------------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
S-7 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Other significant accounting practices are as follows: INVESTMENTS The discount or premium on bonds is amortized using the interest method. For mortgage-backed bonds, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. Short-term investments include investments with maturities of less than one year at the date of acquisition. The carrying amounts for these investments approximate their fair values. Preferred stocks are reported at cost or amortized cost. Unaffiliated common stocks are reported at fair value as determined by the Securities Valuation Office of the NAIC and the related unrealized gains (losses) are reported in unassigned surplus without adjustment for federal income taxes. Policy loans are reported at unpaid balances. The Company uses various derivative instruments as part of its overall liability-asset management program for certain investments and life insurance and annuity products. The Company values all derivative instruments on a basis consistent with that of the hedged item. Upon termination, gains and losses on those instruments are included in the carrying values of the underlying hedged items and are amortized over the remaining lives of the hedged items as adjustments to investment income or benefits from the hedged items through the IMR. Any unamortized gains or losses are recognized when the underlying hedged items are sold. The premiums paid for interest rate caps and swaptions are deferred and amoritized to net investment income on a straight-line basis over the term of the respective derivative. Hedge accounting is applied as indicated above after the Company determines that the items to be hedged expose the Company to interest rate fluctuations, the widening of bond yield spreads over comparable maturity U.S. Government obligations, increased liabilities associated with certain reinsurance agreements and foreign exchange risk. Moreover, the derivatives used are designated as a hedge and reduce the indicated risk by having a high correlation between changes in the value of the derivatives and the items being hedged at both the inception of the hedge and throughout the hedge period. Should such criteria not be met or if the hedged items have been sold, terminated or matured, the change in value of the derivatives is included in net income. Mortgage loans on real estate are reported at unpaid balances, less allowances for impairments. Real estate is reported at depreciated cost. Realized investment gains and losses on investments sold are determined using the specific identification method. Changes in admitted asset carrying amounts of bonds, mortgage loans and common and preferred stocks are credited or charged directly in unassigned surplus. LOANED SECURITIES Securities loaned are treated as collateralized financing transactions and a liability is recorded equal to the amount to be paid to reacquire the security. It is the Company's policy to take possession of securities with a market value at least equal to the value of the securities loaned. Securities loaned are recorded at amortized cost as long as the value of the related collateral is sufficient. The Company's agreements with third parties generally contain contractual provisions to allow for additional collateral to be obtained when necessary. The Company values collateral daily and obtains additional collateral when deemed appropriate. GOODWILL Goodwill, which represents the excess of the ceding commission over statutory-basis net assets of business purchased under an assumption reinsurance agreement, is amortized on a straight-line basis over ten years. S-8 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMIUMS Life insurance and annuity premiums are recognized as revenue when due. Accident and health premiums are earned pro rata over the contract term of the policies. BENEFITS Life, annuity and accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed policy cash values or the amounts required by the Department. The Company waives deduction of deferred fractional premiums on the death of life and annuity policy insureds and returns any premium beyond the date of death, except for policies issued prior to March 1977. Surrender values on policies do not exceed the corresponding benefit reserves. Additional reserves are established when the results of cash flow testing under various interest rate scenerios indicate the need for such reserves. If net premiums exceed the gross premiums on any insurance in-force, additional reserves are established. Benefit reserves for policies underwritten on a substandard basis are determined using the multiple table reserve method. The tabular interest, tabular less actual reserve released and the tabular cost have been determined by formula or from the basic data for such items. Tabular interest funds not involving life contingencies were determined using the actual interest credited to the funds plus the change in accrued interest. Liabilities related to guaranteed investment contracts and policyholder funds left on deposit with the Company generally are equal to fund balances less applicable surrender charges. CLAIMS AND CLAIM ADJUSTMENT EXPENSES Unpaid claims and claim adjustment expenses on accident and health policies represent the estimated ultimate net cost of all reported and unreported claims incurred during the year. The Company does not discount claims and claim adjustment expense reserves. The reserves for unpaid claims and claim adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in claim severity and frequency. Although considerable variability is inherent in such estimates, management believes that the reserves for claims and claim adjustment expenses are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations. REINSURANCE CEDED AND ASSUMED Reinsurance premiums and claims and claim adjustment expenses are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Certain business is transacted on a funds withheld basis and investment income on funds withheld are reported in net investment income. PENSION BENEFITS Costs associated with the Company's defined benefit pension plans is systematically accrued during the expected period of active service of the covered employees. INCOME TAXES The Company and eligible subsidiaries have elected to file consolidated federal and state income tax returns with LNC. Pursuant to an intercompany tax sharing agreement with LNC, the Company provides for income taxes on a separate return filing basis. The tax sharing agreement also provides that the Company will receive benefit for net operating losses, capital losses and tax credits which are not usable on a separate return basis to the extent such items may be utilized in the consolidated income tax returns of LNC. STOCK OPTIONS The Company recognizes compensation expense for its stock option incentive plans using the intrinsic value method of accounting. Under the terms of the intrinsic value method, compensation cost is the excess, if any, of the quoted market price of LNC's common stock at the grant date, or other S-9 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) measurement date, over the amount an employee must pay to acquire the stock. ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE ACCOUNTS These assets and liabilities represent segregated funds administered and invested by the Company for the exclusive benefit of pension and variable life and annuity contractholders. The fees received by the Company for administrative and contractholder maintenance services performed for these separate accounts are included in the Company's statements of income. 2. PERMITTED STATUTORY ACCOUNTING PRACTICES The Company's statutory-basis financial statements are prepared in accordance with accounting practices prescribed or permitted by the Department. "Prescribed" statutory accounting practices include state laws, regulations and general administrative rules, as well as a variety of publications of the NAIC. "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, may differ from company to company within a state and may change in the future. The NAIC currently is in the process of recodifying statutory accounting practices ("Codification"). Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification, which is expected to be approved by the NAIC in 1998, will require adoption by the various states before it becomes the prescribed statutory-basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the state of Indiana must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Department. At this time, it is unclear whether Indiana will adopt Codification. However, based on the current draft guidance, management believes that the impact of Codification will not be material to the Company's statutory-basis financial statements. The Company has received written approval from the Department to record surrender charges applicable to separate account liabilities for variable life and annuity products as a liability in the separate account financial statements payable to the Company's general account. In the accompanying financial statements, a corresponding receivable is recorded with the related income impact recorded in the accompanying statement of operations as a change in reserves or change in premium and other deposit funds. S-10 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:
YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------- (IN MILLIONS) ------------------------------- Income: Bonds $ 1,524.4 $ 1,442.2 $ 1,457.4 ---------------------------------------------------------------- Preferred stocks 23.5 9.6 6.4 ---------------------------------------------------------------- Unaffiliated common stocks 8.3 6.5 5.2 ---------------------------------------------------------------- Affiliated common stocks 15.0 9.5 12.6 ---------------------------------------------------------------- Mortgage loans on real estate 257.2 269.3 252.0 ---------------------------------------------------------------- Real estate 92.2 114.4 110.0 ---------------------------------------------------------------- Policy loans 37.5 35.0 32.1 ---------------------------------------------------------------- Other investments 28.2 22.4 62.6 ---------------------------------------------------------------- Cash and short-term investments 70.3 48.9 53.2 ---------------------------------------------------------------- --------- --------- --------- Total investment income 2,056.6 1,957.8 1,991.5 - ------------------------------------------------------------------- Expenses: Depreciation 21.0 25.0 25.9 ---------------------------------------------------------------- Other 188.5 176.5 193.4 ---------------------------------------------------------------- --------- --------- --------- Total investment expenses 209.5 201.5 219.3 - ------------------------------------------------------------------- --------- --------- --------- Net investment income $ 1,847.1 $ 1,756.3 $ 1,772.2 - ------------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
Nonadmitted accrued investment income at December 31, 1997 and 1996 amounted to $2,600,000 and $2,500,000, respectively, consisting principally of interest on bonds in default and mortgage loans. S-11 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:
COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------------------------------------------- (IN MILLIONS) ---------------------------------------------- At December 31, 1997: Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9 ------------------------------------------------ U.S. government 436.3 67.9 -- 504.2 ------------------------------------------------ Foreign government 1,202.1 104.9 5.4 1,301.6 ------------------------------------------------ Mortgage-backed 3,874.3 215.2 27.1 4,062.4 ------------------------------------------------ State and municipal 44.2 .3 -- 44.5 ------------------------------------------------ --------- ----------- ----------- --------- $18,560.7 $ 1,330.5 $ 92.6 $19,798.6 --------- ----------- ----------- --------- --------- ----------- ----------- --------- At December 31, 1996: Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0 ------------------------------------------------ U.S. government 1,088.7 43.2 18.0 1,113.9 ------------------------------------------------ Foreign government 1,234.0 105.1 1.4 1,337.7 ------------------------------------------------ Mortgage-backed 4,478.4 183.3 27.4 4,634.3 ------------------------------------------------ State and municipal 40.4 .1 -- 40.5 ------------------------------------------------ --------- ----------- ----------- --------- $19,389.6 $ 918.2 $ 113.4 $20,194.4 --------- ----------- ----------- --------- --------- ----------- ----------- ---------
The carrying amount of bonds in the balance sheets at December 31, 1997 and 1996 reflects NAIC adjustments of $5,500,000 and $2,700,000, respectively, to decrease amortized cost. Fair values for bonds are based on quoted market prices, where available. For bonds not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the coupon rate, credit quality and maturity of the investments. S-12 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS (CONTINUED) A summary of the cost or amortized cost and fair value of investments in bonds at December 31, 1997, by contractual maturity, is as follows:
COST OR AMORTIZED FAIR COST VALUE -------------------- (IN MILLIONS) -------------------- Maturity: In 1998 $ 490.1 $ 494.9 -------------------------------------------------------------------------- In 1999-2002 3,088.7 3,185.4 -------------------------------------------------------------------------- In 2003-2007 4,762.7 4,971.0 -------------------------------------------------------------------------- After 2007 6,344.9 7,084.9 -------------------------------------------------------------------------- Mortgage-backed securities 3,874.3 4,062.4 -------------------------------------------------------------------------- --------- --------- Total $18,560.7 $19,798.6 - ----------------------------------------------------------------------------- --------- --------- --------- ---------
The expected maturities may differ from the contractual maturities in the foregoing table because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 1997, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic location. Proceeds from sales of investments in bonds during 1997, 1996 and 1995 were $9,715,000,000, $10,996,900,000 and $12,234,100,000, respectively. Gross gains during 1997, 1996 and 1995 of $218,100,000, $169,700,000 and $225,600,000, respectively, and gross losses of $78,000,000, $177,000,000 and $83,100,000, respectively, were realized on those sales. At December 31, 1997 and 1996, investments in bonds, with an admitted asset value of $76,200,000 and $70,700,000, respectively, were on deposit with state insurance departments to satisfy regulatory requirements. The cost or amortized cost, gross unrealized gains and losses and the fair value of investments in unaffiliated common stocks and preferred stocks are as follows:
COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------------------------------------- (IN MILLIONS) -------------------------------------------- At December 31, 1997: Preferred stocks $257.3 $12.1 $ .7 $268.7 - ---------------------------------------- Unaffiliated common stocks 357.0 98.5 19.5 436.0 - ---------------------------------------- At December 31, 1996: Preferred stocks $239.7 $10.5 $ 1.7 $248.5 - ---------------------------------------- Unaffiliated common stocks 289.9 84.6 16.2 358.3 - ----------------------------------------
The carrying amount of preferred stocks in the balance sheets at December 31, 1997 and 1996 reflects NAIC adjustments of $4,000,000 and $700,000, respectively, to decrease amortized cost. S-13 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS (CONTINUED) During 1997, the minimum and maximum lending rates for mortgage loans were 7.09% and 9.25%, respectively. At the issuance of a loan, the percentage of loan to value on any one loan does not exceed 75%. At December 31, 1997, the Company did not hold any mortgages with interest overdue beyond one year. All properties covered by mortgage loans have fire insurance at least equal to the excess of the loan over the maximum loan that would be allowed on the land without the building. Realized capital gains are reported net of federal income taxes and amounts transferred to the IMR as follows:
1997 1996 1995 ------------------------------- (IN MILLIONS) ------------------------------- Realized capital gains $ 209.3 $ 69.3 $ 186.8 - ------------------------------------------------------------------------ Less amount transferred to IMR (net of related taxes (credit) of $54.0, $(6.7) and $51.1 in 1997, 1996 and 1995, respectively) 100.2 (12.4) 94.8 - ------------------------------------------------------------------------ --------- --------- --------- 109.1 81.7 92.0 Less federal income taxes on realized gains 77.8 28.4 48.1 - ------------------------------------------------------------------------ --------- --------- --------- Net realized capital gains $ 31.3 $ 53.3 $ 43.9 - ------------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
4. SUBSIDIARIES Statutory-basis financial information related to the Company's four wholly-owned subsidiaries is summarized as follows (in millions):
DECEMBER 31, 1997 -------------------------------------------- FIRST PENN LNH&C LNRAC LLANY -------------------------------------------- Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3 - ----------------------------------------------------------- Other assets 36.9 77.3 481.6 130.8 - ----------------------------------------------------------- --------- ----------- --------- --------- Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1 - ----------------------------------------------------------- --------- ----------- --------- --------- --------- ----------- --------- --------- Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7 - ----------------------------------------------------------- Other liabilities 48.4 21.7 546.4 5.8 - ----------------------------------------------------------- Liabilities related to separate accounts -- -- -- 164.7 - ----------------------------------------------------------- Capital and surplus 70.7 73.7 54.9 212.9 - ----------------------------------------------------------- --------- ----------- --------- --------- Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1 - ----------------------------------------------------------- --------- ----------- --------- --------- --------- ----------- --------- ---------
DECEMBER 31, 1997 ------------------------------------------ FIRST PENN LNH&C LNRAC LLANY ------------------------------------------ Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0 - ------------------------------------------------------------ Expenses 262.6 244.2 114.6 224.4 - ------------------------------------------------------------ Net realized gains (losses) .1 .6 (.1) (.1) - ------------------------------------------------------------ --------- --------- --------- --------- Net income $ 5.1 $ (108.2) $ 10.6 $ 5.5 - ------------------------------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
S-14 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 4. SUBSIDIARIES (CONTINUED)
DECEMBER 31, 1996 ------------------------------------------------ FIRST PENN LNH&C LNRAC LLANY ------------------------------------------------ Cash and invested assets $ 1,090.7 $ 146.4 $ 406.7 $ 664.3 - ----------------------------------------------------------- Other assets 31.8 17.7 503.1 9.1 - ----------------------------------------------------------- --------- ----------- ----------- ----------- Total admitted assets $ 1,122.5 $ 164.1 $ 909.8 $ 673.4 - ----------------------------------------------------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- Insurance reserves $ 1,013.5 $ 72.7 $ 261.8 $ 601.1 - ----------------------------------------------------------- Other liabilities 41.3 18.7 597.2 22.1 - ----------------------------------------------------------- Capital and surplus 67.7 72.7 50.8 50.2 - ----------------------------------------------------------- --------- ----------- ----------- ----------- Total liabilities and capital and surplus $ 1,122.5 $ 164.1 $ 909.8 $ 673.4 - ----------------------------------------------------------- --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
DECEMBER 31, 1996 ------------------------------------------------ FIRST PENN LNH&C LNRAC LLANY ------------------------------------------------ Revenues $ 246.5 $ 104.9 $ 120.8 $ 642.7 - ------------------------------------------------------------- Expenses 247.1 97.1 114.1 661.3 - ------------------------------------------------------------- Net realized gains (losses) (.6) -- -- -- - ------------------------------------------------------------- --------- ----------- ----------- ----------- Net income (loss) $ (1.2) $ 7.8 $ 6.7 $ (18.6) - ------------------------------------------------------------- --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
The carrying value of affiliated common stocks, representing their statutory-basis net equity, was $412,100,000 and $241,500,000 at December 31, 1997 and 1996, respectively. The cost basis of investments in subsidiaries as of December 31, 1997 and 1996 was $466,200,000 and $194,000,000, respectively. During 1997 and 1996, the Company's insurance subsidiaries paid dividends of $15,000,000 and $10,500,000, respectively. 5. FEDERAL INCOME TAXES The effective federal income tax rate for financial reporting purposes differs from the prevailing statutory tax rate principally due to tax-exempt investment income, dividends-received tax deductions, differences in policy acquisition costs and policy and contract liabilities for tax return and financial statement purposes. Federal income taxes incurred of $78,300,000, $83,600,000 and $103,700,000 in 1997, 1996 and 1995, respectively, would be subject to recovery in the event that the Company incurs net operating losses within three years of the years for which such taxes were paid. Prior to 1984, a portion of the Company's current income was not subject to current income tax, but was accumulated for income tax purposes in a memorandum account designated as "policyholders' surplus." The Company's balance in the "policyholders' surplus" account at December 31, 1983 of $187,000,000 was "frozen" by the Tax Reform Act of 1984 and, accordingly, there have been no additions to the accounts after that date. That portion of current income on which income taxes have been paid will continue to be accumulated in a memorandum account designated as "shareholder's surplus," and is available for dividends to the shareholder without additional payment of tax by the Company. The December 31, 1997 memorandum account balance for "shareholder's surplus" S-15 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 5. FEDERAL INCOME TAXES (CONTINUED) was $1,905,000,000. Should dividends to the shareholder exceed its respective "shareholder's surplus," amounts would need to be transferred from the "policyholders' surplus" and would be subject to federal income tax at that time. Under existing or foreseeable circumstances, the Company neither expects nor intends that distributions will be made that will result in any such tax. 6. SUPPLEMENTAL FINANCIAL DATA The balance sheet caption, "Other Admitted Assets", includes amounts recoverable from other insurers for claims paid by the Company, and the balance sheet caption, "Future Policy Benefits and Claims," has been reduced for insurance ceded as follows:
DECEMBER 31 1997 1996 -------------------- (IN MILLIONS) -------------------- Insurance ceded $ 1,431.0 $ 1,154.5 - ------------------------------------------------------------------------------- Amounts recoverable from other insurers 35.9 16.0 - -------------------------------------------------------------------------------
Reinsurance transactions included in the income statement caption, "Premiums and Deposits," are as follows:
YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------- (IN MILLIONS) ------------------------------- Insurance assumed $ 727.2 $ 241.3 $ 667.7 - ------------------------------------------------------------------------ Insurance ceded 302.9 193.3 453.1 - ------------------------------------------------------------------------ --------- --------- --------- Net amount included in premiums $ 424.3 $ 48.0 $ 214.6 - ------------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
The income statement caption, "Benefits and Settlement Expenses," is net of reinsurance recoveries of $1,240,500,000, $787,900,000 and $1,407,000,000 for 1997, 1996 and 1995, respectively. S-16 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:
DECEMBER 31, 1997 ----------------------------------- NET OF GROSS LOADING LOADING ----------------------------------- (IN MILLIONS) ----------------------------------- Ordinary new business $ 3.2 $ 2.4 $ .8 - ------------------------------------------------------------------------ Ordinary renewal 17.8 3.2 14.6 - ------------------------------------------------------------------------ Group life 10.6 .2 10.4 - ------------------------------------------------------------------------ --------- --- ----- $ 31.6 $ 5.8 $ 25.8 --------- --- ----- --------- --- -----
DECEMBER 31, 1996 ----------------------------------- NET OF GROSS LOADING LOADING ----------------------------------- (IN MILLIONS) ----------------------------------- Ordinary new business $ 3.9 $ 1.9 $ 2.0 - ------------------------------------------------------------------------ Ordinary renewal 35.1 3.0 32.1 - ------------------------------------------------------------------------ Group life 9.4 (.1) 9.5 - ------------------------------------------------------------------------ --------- --- ----- $ 48.4 $ 4.8 $ 43.6 --------- --- ----- --------- --- -----
The Company has entered into non-exclusive managing general agent agreements with International Benefit Services Corp., HRM Claim Management, Inc. and Pediatrics Insurance Consultants, Inc. to write group life and health business. Direct premiums written related to the agreements amounted to $2,000,000, $2,600,000 and $8,800,000 in 1997 and $26,200,000, $3,800,000 and $8,600,000 in 1996, respectively. During 1996, LNC Administrative Services Corporation entered into a similar agreement with the Company with direct premiums written amounting to $7,200,000 and 6,200,000 in 1997 and 1996, respectively. Authority granted by the managing general agents agreements include underwriting, claims adjustment and claims payment services. 7. ANNUITY RESERVES At December 31, 1997, the Company's annuity reserves and deposit fund liabilities, including separate accounts, that are subject to discretionary withdrawal with adjustment, S-17 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 7. ANNUITY RESERVES (CONTINUED) subject to discretionary withdrawal without adjustment and not subject to discretionary withdrawal provisions are summarized as follows:
AMOUNT PERCENT ---------------------- (IN MILLIONS) ---------------------- Subject to discretionary withdrawal with adjustment: With market value adjustment $ 2,426.3 5% ----------------------------------------------------------------------------- At book value, less surrender charge 4,225.8 8 ----------------------------------------------------------------------------- At market value 30,064.7 59 ----------------------------------------------------------------------------- --------- --- 36,716.8 72 Subject to discretionary withdrawal without adjustment at book value with minimal or no charge or adjustment 11,657.7 23 - -------------------------------------------------------------------------------- Not subject to discretionary withdrawal 2,531.1 5 - -------------------------------------------------------------------------------- --------- --- Total annuity reserves and deposit fund liabilities -- before reinsurance 50,905.6 100% - -------------------------------------------------------------------------------- --- --- Less reinsurance 1,797.5 - -------------------------------------------------------------------------------- --------- Net annuity reserves and deposit fund liabilities, including separate accounts $49,108.1 - -------------------------------------------------------------------------------- --------- ---------
8. CAPITAL AND SURPLUS Life insurance companies are subject to certain Risk-Based Capital ("RBC") requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life insurance company is to be determined based on the various risk factors related to it. At December 31, 1997, the Company exceeds the RBC requirements. The payment of dividends by the Company is limited and cannot be made except from earned profits. The maximum amount of dividends that may be paid by life insurance companies without prior approval of the Indiana Insurance Commissioner is subject to restrictions relating to statutory surplus and net gain from operations. In 1998, the Company can pay dividends of $361,600,000 without prior approval of the Indiana Insurance Commissioner. 9. EMPLOYEE BENEFIT PLANS LNC maintains defined benefit pension plans for its employees (including Company employees) and a defined contribution plan for the Company's agents. LNC also maintains 401(k) plans, deferred compensation plans and postretirement medical and life insurance plans for its employees and agents (including the Company's employees and agents). The aggregate expenses and accumulated obligations for the Company's portion of these plans are not material to the Company's statutory-basis financial statements of income or financial position for any of the periods shown. LNC has various incentive plans for key employees, agents and directors of LNC and its subsidiaries that provide for the issuance of stock options, stock appreciation rights, restricted stock awards and stock incentive awards. These plans are comprised primarily of stock option incentive plans. Stock options granted under the stock option incentive plans are at the market value at the date of grants and, subject to termination of employment, expire ten years from the date of grant. Such options are transferable only upon death and are exercisable one year from the date of grant for options issued prior to 1992. Option issued subsequent to 1991 are exercisable in 25% increments on the option issuance anniversary in the four years following issuance. As of December 31, 1997, 716,211 shares of LNC common stock were subject to options granted to Company employees and agents under the stock option incentive plans of which 370,239 were exercisable on that date. The exercise prices of the outstanding options range from $23.50 to $75.66. During 1997, 1996 and 1995, 170,789, 72,405 and S-18 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) 117,806 options were exercised, respectively, and 1,846, 10,950 and 11,473 options were forfeited, respectively. 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES DISABILITY INCOME CLAIMS The liability for disability income claims net of the related asset for amounts recoverable from reinsurers at December 31, 1997 and 1996 is a net liability of $516,900,000 and $572,000,000, respectively. This liability is based on the assumption that the recent experience will continue in the future. If incidence levels or claim termination rates fluctuate significantly from the assumptions underlying reserves, adjustments to reserves may be required in the future. Accordingly, this liability may prove to be deficient or excessive. However, it is management's opinion that such future development will not materially affect the financial position of the Company. The Company reviews reserve levels on an ongoing basis. During 1995, the Company completed an in-depth review of the experience of its disability income business. As a result of this study, and based on the assumption that recent experience will continue in the future, net income decreased by $15,200,000 as a result of strengthening the disability income reserve. Because of continuing adverse experience and worsening projections of future experience, the Company conducted an additional in-depth review of loss experience on its disability income business during 1997. As a result of this study, the reserve level was deemed to be inadequate to meet future obligations if current incident levels were to continue in the future. In order to address this situation, the Company strengthened its disability income reserve by $80,000,000 (pre-tax). MARKETING AND COMPLIANCE ISSUES Regulators continue to focus on market conduct and compliance issues. Under certain circumstances companies operating in the insurance and financial services markets have been held responsible for providing incomplete or misleading sales materials and for replacing existing policies with policies that were less advantageous to the policyholder. The Company's management continues to monitor the Company's sales materials and compliance procedures and is making an extensive effort to minimize any potential liability. Due to the uncertainty surrounding such matters, it is not possible to provide a meaningful estimate of the range of potential outcomes at this time; however, it is management's opinion that such future development will not materially affect the financial position of the Company. GROUP PENSION ANNUITIES The liabilities for guaranteed interest and group pension annuity contracts, which are no longer being sold by the Company, are supported by a single portfolio of assets that attempts to match the duration of these liabilities. Due to the long-term nature of group pension annuities and the resulting inability to exactly match cash flows, a risk exists that future cash flows from investments will not be reinvested at rates as high as currently earned by the portfolio. Accordingly, these liabilities may prove to be deficient or excessive. However, it is management's opinion that such future development will not materially affect the financial position of the Company. LEASES The Company leases its home office properties through sale-leaseback agreements. The agreements provide for a 25 year lease period with options to renew for six additional terms of five years each. The agreements also provide the Company with the right of first refusal to purchase the properties during the term of the lease, including renewal periods, at a price as defined in the agreements. The Company also has the option to purchase the leased properties at fair market value as defined in the agreements on the last day of the initial 25-year lease ending in 2009 or on the last day of any of the renewal periods. Total rental expense on operating leases in 1997, 1996 and 1995 was $29,300,000, $26,400,000 and S-19 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED) $22,500,000, respectively. Future minimum rental commitments are as follows (in millions): 1998 $ 18.5 - -------------------------------------- 1999 18.9 - -------------------------------------- 2000 20.1 - -------------------------------------- 2001 20.4 - -------------------------------------- 2002 20.7 - -------------------------------------- Thereafter 152.2 - -------------------------------------- --------- $ 250.8 --------- ---------
The future commitments include amounts for space and equipment to be used by the personnel that were added on January 2, 1998 as a result of the purchase of a block of individual life and annuity business (see NOTE 12). INFORMATION TECHNOLOGY COMMITMENT In February 1998, the Company signed a seven-year contract with IBM Global Services for providing information technology services for the Fort Wayne operations. Annual costs are estimated to range from $33,600,000 to $56,800,000. INSURANCE CEDED AND ASSUMED The Company cedes insurance to other companies, including certain affiliates. The portion of risks exceeding the Company's retention limit is reinsured with other insurers. Industry regulations prescribe the maximum coverage that the Company can retain on an individual insured. Prior to December 31, 1997, the Company limited its maximum coverage that it retained on an individual to $3,000,000. Based on a review of the capital and business in-force (including the addition of the block of business described in NOTE 12), effective in January 1998, the Company changed the amount it will retain on an individual to $10,000,000. Portions of the Company's deferred annuity business have also been reinsured with other companies to limit its exposure to interest rate risks. At December 31, 1997, the reserves associated with these reinsurance arrangements totaled $1,760,000,000. To cover products other than life insurance, the Company acquires other insurance coverages with retentions and limits that management believes are appropriate for the circumstances. The Company remains liable if its reinsurers are unable to meet their contractual obligations under the applicable reinsurance agreements. The Company assumes insurance from other companies, including certain affiliates. At December 31, 1997, the Company has provided $12,400,000 of statutory surplus relief to other insurance companies under reinsurance transactions. Generally, such amounts are offset by corresponding receivables from the ceding company, which are secured by future profits on the reinsured business. However, the Company is subject to the risk that the ceding company may become insolvent and the right of offset would not be permitted. The regulatory required liability for unsecured reserves ceded to unauthorized reinsurers was $8,200,000 and $4,300,000 at December 31, 1997 and 1996, respectively. VULNERABILITY FROM CONCENTRATIONS At December 31, 1997, the Company did not have a concentration of: 1) business transactions with a particular customer, lender or distributor; 2) revenues from a particular product or service; 3) sources of supply of labor or services used in the business; or 4) a market or geographic area in which business is conducted that makes it vulnerable to an event that is at least reasonably possible to occur in the near term and which could cause a severe impact to the Company's financial condition. OTHER CONTINGENCY MATTERS The Company is involved in various pending or threatened legal proceedings arising from the conduct of business. Most of these proceedings are routine in the ordinary course of business. The Company maintains professional liability insurance coverage for claims in excess of $5,000,000. The degree of applicability of this coverage depends on the specific facts of each proceeding. In some instances, these proceedings include claims for compensatory and punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. After consultation with legal counsel and a review of available facts, it is management's opinion that the ultimate liability, if any, under these suits will S-20 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED) not have a material adverse affect on the financial position or results of operations of the Company. Two lawsuits involve alleged fraud in the sale of interest sensitive universal life and whole life insurance policies. These two suits have been filed as class actions against the Company, although the court has not certified a class in either case. Plaintiffs seek unspecified damages and penalties for themselves and on behalf of the putative class while the relief sought in these cases in substantial, the cases are in the early stages of litigation, and it is premature to make assessments about potential loss, if any. Management intends to defend these suits vigorously. The amount of liability, if any, which may arise as a result of these suits cannot be reasonably estimated at this time. The number of insurance companies that are under regulatory supervision has resulted, and is expected to continue to result, in assessments by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments may be partially recovered through a reduction in future premium taxes in some states. The Company has accrued for expected assessments net of estimated future premium tax deductions. GUARANTEES The Company has guarantees with off-balance-sheet risks whose contractual amounts represent credit exposure. Outstanding guarantees with off- balance-sheet risks, shown in notional or contract amounts, are as follows:
NOTIONAL OR CONTRACT AMOUNTS -------------------- DECEMBER 31 -------------------- 1997 1996 -------------------- (IN MILLIONS) -------------------- Mortgage loan pass-through certificates $ 41.6 $ 50.3 - ------------------------------ Real estate partnerships -- .5 - ------------------------------ --------- --------- $ 41.6 $ 50.8 --------- --------- --------- ---------
The Company has invested in real estate partnerships that use conventional mortgage loans to finance their projects. In some cases, the terms of these arrangements involve guarantees by each of the partners to indemnify the mortgagor in the event a partner is unable to pay its principal and interest payments. In addition, the Company has sold commercial mortgage loans through grantor trusts which issued pass-through certificates. The Company has agreed to repurchase any mortgage loans which remain delinquent for 90 days at a repurchase price substantially equal to the outstanding principal balance plus accrued interest thereon to the date of repurchase. It is management's opinion that the value of the properties underlying these commitments is sufficient that in the event of default the impact would not be material to the Company. Accordingly, both the carrying value and fair value of these guarantees is zero at December 31, 1997 and 1996. DERIVATIVES The Company has derivatives with off-balance-sheet risks whose notional or contract amounts exceed the credit exposure. The Company has entered into derivative transactions to reduce its exposure to fluctuations in interest rates, the widening of bond yield spreads over comparable maturity U.S. Government obligations, increased liabilities associated with reinsurance agreements and foreign exchange risks. In addition, the Company is subject to the risks associated with changes in the value of its derivatives; however, such changes in value generally are offset by changes in the value of the items being hedged by such contracts. Outstanding derivatives with off-balance-sheet risks, shown in notional or contract amounts along with their carrying value and estimated fair values, are as follows: S-21 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
NOTIONAL OR ASSETS (LIABILITIES) CONTRACT AMOUNTS ----------------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ------------------------------------------------------- DECEMBER 31 DECEMBER 31 DECEMBER 31 1997 1996 1997 1997 1996 1996 ------------------------------------------------------- (IN MILLIONS) ------------------------------------------------------- Interest rate derivatives: Interest rate cap agreements $4,900.0 $5,500.0 $13.9 $ .9 $20.8 $ 8.2 --------------------------------- Swaptions 1,752.0 672.0 6.9 6.9 11.0 10.6 --------------------------------- Financial futures contracts -- 147.7 -- -- (2.4) (2.4) --------------------------------- Interest rate swaps 10.0 -- -- (1.8) -- -- --------------------------------- -------- -------- -------- ----- -------- ------ 6,662.0 6,319.7 20.8 6.0 29.4 16.4 Foreign currency derivatives: Forward contracts 163.1 251.5 5.4 5.4 .2 (.2) --------------------------------- Foreign currency options -- 43.9 -- -- .6 .4 --------------------------------- Foreign currency swaps 15.0 15.0 -- (2.1) -- (2.1) --------------------------------- -------- -------- -------- ----- -------- ------ 178.1 310.4 5.4 3.3 .8 (1.9) -------- -------- -------- ----- -------- ------ $6,840.1 $6,630.1 $26.2 $ 9.3 $30.2 $ 14.5 -------- -------- -------- ----- -------- ------ -------- -------- -------- ----- -------- ------
A reconciliation and discussion of the notional or contract amounts for the significant programs using derivative agreements and contracts at December 31 is a follows:
---------------------------------------------------------------- INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS 1997 1996 1997 1996 1997 1996 ---------------------------------------------------------------- (IN MILLIONS) ---------------------------------------------------------------- Balance at beginning of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ -- - ----------------------------------- New contracts -- 390.0 50.0 15.0 1,080.0 672.0 - ----------------------------------- Terminations and maturities (600.0) -- (50.0) (615.0) -- -- - ----------------------------------- --------- --------- --------- --------- --------- --------- Balance at end of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0 - ----------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
FINANCIAL FUTURES INTEREST RATE SWAPS CONTRACTS ------------------------------------------ 1997 1996 1997 1996 ------------------------------------------ Balance at beginning of year $ 147.7 $ -- $ -- $ 5.0 - ------------------------------------------------------------ New contracts 88.3 7,918.8 10.0 -- - ------------------------------------------------------------ Terminations and maturities (236.0) (7,771.1) -- (5.0) - ------------------------------------------------------------ --------- --------- --------- --------- Balance at end of year $ -- $ 147.7 $ 10.0 $ -- - ------------------------------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
S-22 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
FOREIGN CURRENCY DERIVATIVES ---------------------------------------------------------------- FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY FORWARD CONTRACTS OPTIONS SWAPS 1997 1996 1997 1996 1997 1996 ---------------------------------------------------------------- (IN MILLIONS) ---------------------------------------------------------------- Balance at beginning of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0 - -------------------------------------- New contracts 833.1 406.9 -- 1,168.8 -- -- - -------------------------------------- Terminations and maturities (921.6) (171.1) (43.9) (1,224.1) -- -- - -------------------------------------- --------- --------- --------- --------- --------- --------- Balance at end of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0 - -------------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
INTEREST RATE CAPS The interest rate cap agreements, which expire in 1998 through 2003, entitle the Company to receive quarterly payments from the counterparties on specified future reset dates, contingent on future interest rates. For each cap, the amount of such payments, if any, is determined by the excess of a market interest rate over a specified cap rate multiplied by the notional amount divided by four. The purpose of the Company's interest rate cap agreement program is to protect its annuity line of business from the effect of rising interest rates. The premium paid for the interest rate caps is included in other assets ($13,900,000 as of December 31, 1997) and is being amortized over the terms of the agreements. This amortization is included in net investment income. SWAPTIONS Swaptions, which expire in 2002 and 2003, entitle the Company to receive settlement payments from the counterparties on specified expiration dates, contingent on future interest rates. For each swaption, the amount of such settlement payments, if any, is determined by the present value of the difference between the fixed rate on a market rate swap and the strike rate multiplied by the notional amount. The purpose of the Company's swaption program is to protect its annuity line of business from the effect of fluctuating interest rates. The premium paid for the swaptions is included in other assets ($6,900,000 as of December 31, 1997) and is being amortized over the terms of the agreements. This amortization is included in net investment income. SPREAD LOCKS Spread-lock agreements provide for a lump sum payment to or by the Company, depending on whether the spread between the swap rate and a specified Government note is larger or smaller than a contractually specified spread. Cash payments are based on the product of the notional amount, the spread between the swap rate and the yield of an equivalent maturity Government security and the price sensitivity of the swap at that time. The purpose of the Company's spread-lock program is to protect a portion of its fixed maturity securities against widening of spreads. FINANCIAL FUTURES The Company uses exchange-traded financial futures contracts to hedge against interest rate risks and to manage duration of a portion of its fixed maturity securities. Financial futures contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price. They may be settled in cash or through delivery of the financial instrument. Cash settlements on the change in market values of financial futures contracts are made daily. INTEREST RATE SWAPS The Company uses interest rate swap agreements to hedge its exposure to floating rate bond coupon payments, replicating a fixed rate bond. An interest rate swap is a contractual agreement to exchange payments at one or more times based on the actual or expected price, level, performance or value of one or more underlying interest rates. The Company is required to pay the counterparty to the S-23 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED) agreements the stream of variable coupon payments generated from the bonds, and in turn, receives a fixed payment from the counterparty at a predetermined interest rate. The net receipts/payments from interest rate swaps are recorded in net investment income. FOREIGN CURRENCY DERIVATIVES The Company uses a combination of foreign exchange forward contracts, foreign currency options and foreign currency swaps, all of which are traded over-the-counter, to hedge some of the foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. The foreign currency forward contracts obligate the Company to deliver a specified amount of currency at a future date at a specified exchange rate. Foreign currency options give the Company the right, but not the obligation, to buy or sell a foreign currency at a specific exchange rate during a specified time period. A foreign currency swap is a contractual agreement to exchange the currencies of two different countries pursuant to an agreement to re-exchange the two currencies at the same rate of exchange at a specified future date. ADDITIONAL DERIVATIVE INFORMATION Expenses for the agreements and contracts described above amounted to $7,000,000, $6,900,000 and $5,600,000 in 1997, 1996 and 1995, respectively. Deferred losses of $2,600,000 as of December 31, 1997, were the result of: 1) terminated and expired spread-lock agreements and; 2) financial futures contracts. These losses are included with the related fixed maturity securities to which the hedge applied and are being amortized over the life of such securities. The Company is exposed to credit loss in the event of nonperformance by counterparties on interest rate cap agreements, swaptions, spread-lock agreements, interest rate swaps, foreign exchange forward contracts, foreign currency options and foreign currency swaps. However, the Company does not anticipate nonperformance by any of the counterparties. The credit risk associated with such agreements is minimized by purchasing such agreements from financial institutions with long-standing, superior performance records. The amount of such exposure is essentially the net replacement cost or market value for such agreements with each counterparty if the net market value is in the Company's favor. At December 31, 1997, the exposure was $11,700,000. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following discussion outlines the methodologies and assumptions used to determine the estimated fair values of the Company's financial instruments. Considerable judgment is required to develop these fair values. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of the Company's financial instruments. BONDS AND UNAFFILIATED COMMON STOCK Fair values of bonds are based on quoted market prices, where available. For bonds not actively traded, fair values are estimated using values obtained from independent pricing services. In the case of private placements, fair values are estimated by discounting expected future cash flows using a current market rate applicable to the coupon rate, credit quality and maturity of the investments. The fair values of unaffiliated common stocks are based on quoted market prices. MORTGAGE LOANS ON REAL ESTATE The estimated fair values of mortgage loans on real estate are established using a discounted cash flow method based on credit rating, maturity and future income. The rating for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan to value, caliber of tenancy, borrower and payment record. Fair values for impaired mortgage loans are based on: 1) the present value of expected future cash flows discounted at the loan's effective interest rate; 2) the loan's market price; or 3) the fair value of the collateral if the loan is collateral dependent. POLICY LOANS The estimated fair values of investments in policy loans are calculated on a composite discounted cash flow basis using Treasury interest rates consistent with the maturity durations assumed. These durations are based on historical experience. S-24 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS The carrying values for assets classified as other investments and cash and short-term investments in the accompanying statutory-basis balance sheets approximate their fair value. INVESTMENT-TYPE INSURANCE CONTRACTS The balance sheet captions, "Future Policy Benefits and Claims" and "Other Policyholder Funds," include investment type insurance contracts (i.e., deposit contracts and guaranteed interest contracts). The fair values for the deposit contracts and certain guaranteed interest contracts are based on their approximate surrender values. The fair values for the remaining guaranteed interest and similar contracts are estimated using discounted cash flow calculations. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. The remainder of the balance sheet captions "Future Policy Benefits and Claims" and "Other Policyholder Funds," that do not fit the definition of "investment-type insurance contracts" are considered insurance contracts. Fair value disclosures are not required for these insurance contracts and have not been determined by the Company. It is the Company's position that the disclosure of the fair value of these insurance contracts is important because readers of these financial statements could draw inappropriate conclusions about the Company's capital and surplus determined on a fair value basis. It could be misleading if only the fair value of assets and liabilities defined as financial instruments are disclosed. The Company and other companies in the insurance industry are monitoring the related actions of the various rule-making bodies and attempting to determine an appropriate methodology for estimating and disclosing the "fair value" of their insurance contract liabilities. SHORT-TERM DEBT Fair values of short-term debt approximates carrying values. GUARANTEES The Company's guarantees include guarantees related to real estate partnerships and mortgage loan pass-through certificates. Based on historical performance where repurchases have been negligible and the current status, which indicates none of the loans are delinquent, the fair value liability for the guarantees related to the mortgage loan pass-through certificates is insignificant. DERIVATIVES The Company's derivatives include interest rate cap agreements, swaptions, spread-lock agreements, foreign currency exchange contracts, financial futures contracts, interest rate swaps, foreign currency options and foreign currency swaps. Fair values for these contracts are based on current settlement values. These values are based on: 1) quoted market prices for the foreign currency exchange contracts and financial future contracts and; 2) brokerage quotes that utilize pricing models or formulas using current assumptions for all other swaps and agreements. INVESTMENT COMMITMENTS Fair values for commitments to make investment in fixed maturity securities (primarily private placements), mortgage loans on real estate and real estate are based on the difference between the value of the committed investments as of the date of the accompanying balance sheets and the commitment date. These estimates would take into account changes in interest rates, the counterparties' credit standing and the remaining terms of the commitments. S-25 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:
DECEMBER 31 ---------------------------------------------- 1997 1996 ---------------------------------------------- CARRYING CARRYING ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE - ----------------------------------------------------------------------------------------------- (IN MILLIONS) ---------------------------------------------- Bonds $ 18,560.7 $ 19,798.6 $ 19,389.6 $ 20,194.4 - ----------------------------------------------- Preferred stock 257.3 268.7 239.7 248.5 - ----------------------------------------------- Unaffiliated common stock 436.0 436.0 358.3 358.3 - ----------------------------------------------- Mortgage loans on real estate 3,012.7 3,179.2 2,976.7 3,070.9 - ----------------------------------------------- Policy loans 660.5 648.3 626.5 612.7 - ----------------------------------------------- Other investments 335.5 335.5 282.7 282.7 - ----------------------------------------------- Cash and short-term investments 2,133.0 2,133.0 759.2 759.2 - ----------------------------------------------- Investment-type insurance contracts: Deposit contracts and certain guaranteed interest contracts (17,324.2) (16,887.6) (17,871.6) (17,333.0) -------------------------------------------- Remaining guaranteed interest and similar contracts (1,267.0) (1,294.6) (1,799.7) (1,835.4) -------------------------------------------- Short-term debt (120.0) (120.0) (100.0) (100.0) - ----------------------------------------------- Derivatives 26.2 9.3 26.5 13.8 - ----------------------------------------------- Investment commitments -- (.5) -- (.6) - -----------------------------------------------
12. ACQUISITIONS AND SALES OF SUBSIDIARIES In October 1996, the Company and LLANY purchased a block of group tax-qualified annuity business from UNUM Corporation's affiliate. The transaction was completed in the form of a reinsurance transaction, which resulted in a ceding commission of $71,800,000. The ceding commission has been recorded as admissible goodwill of $62,300,000, which is to be amortized on a straight-line basis over 10 years. LLANY was required by the New York Department of Insurance to expense its portion of the ceding commission in 1996. Policy liabilities and related accruals of the Company and its wholly owned subsidiary increased by $3,200,000,000 as a result of this transaction. In 1997, LNC contributed 25,000,000 shares of common stock of American States Financial Corporation ("American States") to the Company. American States is a property casualty insurance holding company of which LNC owned 83.3%. The contributed common stock was accounted for as a capital contribution equal to the fair value of the common stock received by the Company. Subsequently, the American States common stock owned by the Company, along with all other American States common stock owned by LNC and its affiliates, was sold. The Company received proceeds from the sale in the amount of $1,175,000,000. The Company recognized no gain or loss on the sale of its portion of the common stock due to the receipt of such stock at fair value. On January 2, 1998, the Company issued a surplus note to LNC in return for $500,000,000 in cash. The note calls for the Company to pay, on or before March 31, 2028, the principal amount of the note and interest quarterly at a 6.56% annual rate. LNC also has a right to redeem the note for immediate repayment in total or in part once per year on the S-26 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 12. ACQUISITIONS AND SALES OF SUBSIDIARIES (CONTINUED) anniversary date of the note, but not before January 2, 2003. Any payment of interest or repayment of principal may be paid only out of excess surplus (as defined in the note) and is subject to the approval of the Commissioner of the Indiana Department of Insurance. Proceeds from the sale of the Company's American States common stock, as well as proceeds from the surplus note, were used to finance an indemnity reinsurance transaction whereby the Company reinsured 100% of a block of individual life insurance and annuity business from CIGNA Corporation. The Company paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of the reinsurance agreement, which will result in a decrease to surplus in 1998 of approximately $1,000,000,000. Operating results generated by this block of business after the closing date will be included in the Company financial statements from the closing date. At the time of closing, this block of business had statutory liabilities of $4,658,200,000 that became the Company's obligation. The company also received assets, measured on a historical statutory basis, equal to the liabilities. During 1997, this block produced premiums, fees and deposits of $1,051,000,000 and earnings of $87,200,000 on a statutory basis. The Company also expects to pay $30,000,000 to cover expenses associated with the reinsurance agreement and to record a charge of approximately $12,000,000 during 1998 to cover certain costs of integrating the existing operations with the new block of business. 13. TRANSACTIONS WITH AFFILIATES A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"), has a nearly exclusive general agents contract with the Company under which it sells the Company's products and provides the service that otherwise would be provided by a home office marketing department and regional offices. For providing these selling and marketing services, the Company paid LFGI override commissions and operating expense allowances of $61,600,000, $56,300,000 and $43,300,000 in 1997, 1996 and 1995, respectively. LFGI incurred expenses of $5,500,000, $15,700,000 and $10,400,000 in 1997, 1996 and 1995, respectively, in excess of the override commissions and operating expense allowances received from the Company, which the Company is not required to reimburse. Effective in January 1998, the Company and LFGI agreed to increase the override commission expense and eliminate the operating expense allowance. Cash and short-term investments at December 31, 1997 and 1996 include the Company's participation in a short-term investment pool with LNC of $325,600,000 and $175,100,000, respectively. Related investment income amounted to $15,500,000, $15,300,000 and $21,100,000 in 1997, 1996 and 1995, respectively. Other liabilities at December 31, 1997 and 1996 include $120,000,000 and $100,000,000, respectively, of notes payable to LNC. The Company provides services to and receives services from affiliated companies which resulted in a net payment of $48,500,000, $34,100,000 and $24,900,000 in 1997, 1996 and 1995, respectively. The Company cedes and accepts reinsurance from affiliated companies. Premiums in the accompanying statements of income include premiums on insurance business accepted under reinsurance contracts and exclude premiums ceded to other affiliated companies, as follows:
YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------- (IN MILLIONS) ------------------------------- Insurance assumed $ 11.9 $ 17.9 $ 17.6 - ---------------------- Insurance ceded 100.3 302.8 214.4 - ----------------------
S-27 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 13. TRANSACTIONS WITH AFFILIATES (CONTINUED) The balance sheets include reinsurance balances with affiliated companies as follows:
DECEMBER 31 1997 1996 -------------------- (IN MILLIONS) -------------------- Future policy benefits and claims assumed $ 245.5 $ 312.7 - ------------------------ Future policy benefits and claims ceded 997.2 891.8 - ------------------------ Amounts recoverable on paid and unpaid losses 30.4 31.2 - ------------------------ Reinsurance payable on paid losses 5.3 2.7 - ------------------------ Funds held under reinsurance treaties -- net liability 1,115.4 1,062.4 - ------------------------
Substantially all reinsurance ceded to affiliated companies is with unauthorized companies. To take a reserve credit for such reinsurance, the Company holds assets from the reinsurer, including funds held under reinsurance treaties, and is the beneficiary on letters of credit aggregating $280,900,000 and $314,200,000 at December 31, 1997 and 1996, respectively. The letters of credit are issued by banks and represent guarantees of performance under the reinsurance agreement. At December 31, 1997 and 1996, LNC had guaranteed $229,100,000 and $239,200,000, respectively, of these letters of credit. At December 31, 1997, the Company has a receivable (included in the foregoing amounts) from affiliated insurance companies in the amount of $130,700,000 for statutory surplus relief received under financial reinsurance ceded agreements. 14. SEPARATE ACCOUNTS Separate account assets and liabilities reported in the accompanying balance sheets represent funds that are separately administered, principally for annuity contracts, and for which the contractholder, rather than the Company, bears the investment risk. Separate account contractholders have no claim against the assets of the general account of the Company. Separate account assets are reported at fair value and consist primarily of long-term bonds, common stocks, short-term investments and mutual funds. The detailed operations of the separate accounts are not included in the accompanying financial statements. Fees charged on separate account policyholder deposits are included in other income. Separate account premiums, deposits and other considerations amounted to $4,821,800,000, $4,148,700,000 and $3,068,200,000 in 1997, 1996 and 1995, respectively. Reserves for separate accounts with assets at fair value were $30,560,700,000 and $23,047,800,000 at December 31, 1997 and 1996, respectively. All reserves are subject to discretionary withdrawal at market value. Substantially all of the Company's separate accounts are nonguaranteed. S-28 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 14. SEPARATE ACCOUNTS (CONTINUED) A reconciliation of transfers to (from) separate accounts are as follows:
YEAR ENDED DECEMBER 31 1997 1996 ------------------------ (IN MILLIONS) ------------------------ Transfers as reported in the Summary of Operations of various Separate Accounts: Transfers to separate accounts $ 4,824.0 $ 4,149.6 - ------------------------------------------------------------ Transfers from separate accounts (2,943.8) (2,058.5) - ------------------------------------------------------------ --------- --------- Net transfer to separate accounts as reported in the Company's NAIC Annual Statement -- Summary of Operations $ 1,880.2 $ 2,091.1 - ------------------------------------------------------------ --------- --------- --------- ---------
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS In 1997, certain errors were identified by the Illinois Insurance Department in the calculation of the AVR as of December 31, 1996 and 1995. The effects of the AVR errors also resulted in the need for revisions in the calculation of certain investment limitation thresholds, the results of which indicated that additional assets should have been nonadmitted as of December 31, 1996. As discussed by the Company with the Indiana and Illinois Insurance Departments, corrections were made to affected pages of the Company's NAIC Annual Statement which were refiled with various state insurance departments. However, due to immateriality of the corrections in relation to the financial statements taken as a whole, the audited 1996 and 1995 statutory-basis financial statements were not corrected and re-issued. The Company's 1997 NAIC Annual Statement, as filed with various state insurance departments, also includes the corrected balances for 1996 and 1995. The following is a reconciliation of total admitted assets, total liabilities and capital and surplus as of December 31, 1996 as presented in the 1997 NAIC Annual Statement (as corrected) to the accompanying audited financial statements.
TOTAL CAPITAL ADMITTED TOTAL AND ASSETS LIABILITIES SURPLUS --------------------------------- Balance as of December 31, 1996 as reported in the accompanying audited financial statements $50,016.6 $ 48,054.0 $ 1962.6 - ---------------------------------------- Effect of AVR errors -- 37.6 (37.6) - ---------------------------------------- Effect of change in investment limitations (57.0) -- (57.0) - ---------------------------------------- --------- ----------- -------- Balance as of December 31, 1996 as reported in the 1997 NAIC Annual Statement $49,959.6 $ 48,091.6 $1,868.0 - ---------------------------------------- --------- ----------- -------- --------- ----------- --------
16. IMPACT OF YEAR 2000 (UNAUDITED) The Year 2000 Issue is pervasive and complex and affects virtually every aspect of the Company's business. The Company's computer systems and interfaces with the computer systems of vendors, suppliers, customers and business partners are particularly vulnerable. The inability to properly recognize date sensitive electronic information and transfer data between systems could cause errors or even a complete systems failure which would result in a temporary inability to process transactions correctly and engage in normal business S-29 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 16. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED) activities. The Company is redirecting a large portion of its internal information technology efforts and contracting with outside consultants to update its systems to accommodate the year 2000. Also, the Company has initiated formal communications with critical parties that interface with the Company's systems to gain an understanding of their progress in addressing Year 2000 Issues. While the Company is making every effort to address its own systems and the systems with which it interfaces, it is not possible to provide assurance that operational problems will not occur. The Company presently believes that with the modification of existing computer systems, updates by vendors and conversion to new software and hardware, the Year 2000 Issue will not pose significant operational problems for its computer systems. In addition, the Company is developing contingency plans in the event that, despite its best efforts, there are unresolved year 2000 problems. If the remediation efforts noted above are not completed timely or properly, the Year 2000 Issue could have a material adverse impact on the operation of the Company's business. During 1997 and 1996, the Company incurred expenditures of approximately $5,500,000 ($3,600,000 after-tax) to address this issue. The Company's financial plans for 1998 through 2000 include expected expenditures of an additional $20,000,000 ($13,000,000 after-tax) on this issue. The cost of addressing Year 2000 Issues and the timeliness of completion will be closely monitored by management and are based on managements's current best estimates which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. Nevertheless, there can be no guarantee that these estimated costs will be achieved and actual results could differ significantly from those anticipated. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer problems and other uncertainties. S-30 REPORT OF INDEPENDENT AUDITORS Board of Directors The Lincoln National Life Insurance Company We have audited the accompanying statutory-basis balance sheets of The Lincoln National Life Insurance Company (a wholly owned subsidiary of Lincoln National Corporation) as of December 31, 1997 and 1996, and the related statutory-basis statements of income, changes in capital and surplus and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Indiana Department of Insurance, which practices differ from generally accepted accounting principles. The variances between such practices and generally accepted accounting principles and the effects on the accompanying financial statements are also described in Note 1. In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of The Lincoln National Life Insurance Company at December 31, 1997 and 1996, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 1997. However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Lincoln National Life Insurance Company at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with accounting practices prescribed or permitted by the Indiana Department of Insurance. February 5, 1998 S-31 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA DECEMBER 31, 1997 (IN MILLIONS) Investment income earned: Government bonds $ 52.8 ----------------------------------------------------------------------------------------- Other bonds (unaffiliated) 1,471.6 ----------------------------------------------------------------------------------------- Preferred stocks (unaffiliated) 23.5 ----------------------------------------------------------------------------------------- Common stocks (unaffiliated) 8.3 ----------------------------------------------------------------------------------------- Common stocks of affiliates 15.0 ----------------------------------------------------------------------------------------- Mortgage loans 257.2 ----------------------------------------------------------------------------------------- Real estate 92.2 ----------------------------------------------------------------------------------------- Premium notes, policy loans and liens 37.5 ----------------------------------------------------------------------------------------- Cash on hand and on deposit 1.0 ----------------------------------------------------------------------------------------- Short-term investments 69.3 ----------------------------------------------------------------------------------------- Other invested assets 21.9 ----------------------------------------------------------------------------------------- Derivative instruments (10.0) ----------------------------------------------------------------------------------------- Aggregate write-ins for investment income 16.3 ----------------------------------------------------------------------------------------- --------- Gross investment income $ 2,056.6 - ---------------------------------------------------------------------------------------------------- --------- --------- Real estate owned (cost, less encumbrances) $ 585.2 - ---------------------------------------------------------------------------------------------------- --------- --------- Mortgage loans (unpaid balance): Farm mortgages $ 0.1 ----------------------------------------------------------------------------------------- Residential mortgages 3.1 ----------------------------------------------------------------------------------------- Commercial mortgages 3,009.5 ----------------------------------------------------------------------------------------- --------- Total mortgage loans $ 3,012.7 - ---------------------------------------------------------------------------------------------------- --------- --------- Mortgage loans by standing (unpaid balance): Good standing $ 2,974.1 ----------------------------------------------------------------------------------------- --------- --------- Good standing with restructured terms $ 38.5 ----------------------------------------------------------------------------------------- --------- --------- Interest overdue more than three months, not in foreclosure $ -- ----------------------------------------------------------------------------------------- --------- --------- Foreclosure in process $ 0.1 ----------------------------------------------------------------------------------------- --------- --------- Other long-term assets (statement value) $ 281.5 - ---------------------------------------------------------------------------------------------------- --------- ---------
S-32 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA (CONTINUED) DECEMBER 31, 1997 (IN MILLIONS) Bonds and stocks of parent, subsidiaries and affiliates (cost): Common stocks of subsidiaries $ 466.2 - ----------------------------------------------------------------------------------------------- --------- --------- Bonds and short-term investments by class and maturity: Bonds by maturity (statement value): Due within one year or less $ 3,140.1 ------------------------------------------------------------------------------------------ Over 1 year through 5 years 5,182.8 ------------------------------------------------------------------------------------------ Over 5 years through 10 years 5,772.8 ------------------------------------------------------------------------------------------ Over 10 years through 20 years 3,275.3 ------------------------------------------------------------------------------------------ Over 20 years 3,270.6 ------------------------------------------------------------------------------------------ --------- Total by maturity $20,641.6 -------------------------------------------------------------------------------------------- --------- --------- Bonds by class (statement value): Class 1 $13,879.0 ------------------------------------------------------------------------------------------ Class 2 5,215.6 ------------------------------------------------------------------------------------------ Class 3 848.0 ------------------------------------------------------------------------------------------ Class 4 668.8 ------------------------------------------------------------------------------------------ Class 5 23.6 ------------------------------------------------------------------------------------------ Class 6 6.6 ------------------------------------------------------------------------------------------ --------- Total by class $20,641.6 -------------------------------------------------------------------------------------------- --------- --------- Total bonds publicly traded $16,457.1 - ----------------------------------------------------------------------------------------------- --------- --------- Total bonds privately placed $ 4,184.5 - ----------------------------------------------------------------------------------------------- --------- --------- Preferred stocks (statement value) $ 257.3 - ----------------------------------------------------------------------------------------------- --------- --------- Unaffiliated common stocks (market value) $ 436.0 - ----------------------------------------------------------------------------------------------- --------- --------- Short-term investments (cost or amortized cost) $ 2,080.9 - ----------------------------------------------------------------------------------------------- --------- --------- Financial options and caps owned (statement value) $ 20.8 - ----------------------------------------------------------------------------------------------- --------- --------- Financial options and caps written (statement value) $ -- - ----------------------------------------------------------------------------------------------- --------- --------- Swap and forward agreements open (statement value) $ 5.4 - ----------------------------------------------------------------------------------------------- --------- --------- Futures contracts open (current value) $ -- - ----------------------------------------------------------------------------------------------- --------- --------- Cash on deposit $ 52.1 - ----------------------------------------------------------------------------------------------- --------- --------- Life insurance in-force: Ordinary $ 108.6 ------------------------------------------------------------------------------------------ --------- --------- Group life $ 31.2 ------------------------------------------------------------------------------------------ --------- ---------
S-33 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA (CONTINUED) DECEMBER 31, 1997 (IN MILLIONS) Amount of accidental death insurance in-force under ordinary policies $ 5.3 - ----------------------------------------------------------------------------------------------- --------- --------- Life insurance policies with disability provisions in-force: Ordinary $ 5.5 ------------------------------------------------------------------------------------------ --------- --------- Group life $ -- ------------------------------------------------------------------------------------------ --------- --------- Supplementary contracts in-force: Ordinary -- not involving life contingencies: Amount on deposit $ -- ------------------------------------------------------------------------------------------ --------- --------- Income payable $ 0.8 ------------------------------------------------------------------------------------------ --------- --------- Ordinary -- involving life contingencies: Income payable $ 3.0 ------------------------------------------------------------------------------------------ --------- --------- Group -- not involving life contingencies: Income payable $ 1.1 ------------------------------------------------------------------------------------------ --------- --------- Group -- involving life contingencies: Income payable $ -- ------------------------------------------------------------------------------------------ --------- --------- Annuities: Ordinary: Immediate -- amount of income payable $ 71.8 ------------------------------------------------------------------------------------------ --------- --------- Deferred -- fully paid account balance $ 0.7 ------------------------------------------------------------------------------------------ --------- --------- Deferred -- not fully paid account balance $ 264.0 ------------------------------------------------------------------------------------------ --------- --------- Group: Amount of income payable $ 0.3 ------------------------------------------------------------------------------------------ --------- --------- Fully paid account balance $ 0.1 ------------------------------------------------------------------------------------------ --------- --------- Not fully paid account balance $ 72.3 ------------------------------------------------------------------------------------------ --------- --------- Accident and health insurance -- premiums in-force: Ordinary $ 166.0 ------------------------------------------------------------------------------------------ --------- --------- Group $ 77.7 ------------------------------------------------------------------------------------------ --------- --------- Deposit funds and dividend accumulations: Deposit funds account balance $16,507.3 ------------------------------------------------------------------------------------------ --------- --------- Dividend accumulations -- account balance $ 114.4 ------------------------------------------------------------------------------------------ --------- ---------
S-34 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA NOTE -- BASIS OF PRESENTATION The accompanying schedule presents selected statutory-basis financial data as of December 31, 1997 and for the year then ended for purposes of complying with paragraph 9 of the Annual Audited Financial Reports in the General Section of the National Association of Insurance Commissioners' Annual Statement Instructions and agrees to or is included in the amounts reported in The Lincoln National Life Insurance Company's 1997 Statutory Annual Statement as filed with the Indiana Department of Insurance. S-35 REPORT OF INDEPENDENT AUDITORS ON OTHER FINANCIAL INFORMATION Board of Directors The Lincoln National Life Insurance Company Our audits were conducted for the purpose of forming an opinion on the statutory-basis financial statements taken as a whole. The accompanying supplemental schedule of selected statutory basis financial data is presented to comply with the National Association of Insurance Commissioners' Annual Statement Instructions and is not a required part of the statutory-basis financial statements. Such information has been subjected to the auditing procedures applied in our audit of the statutory-basis financial statements and, in our opinion, is fairly stated in all material respects in relation to the statutory-basis financial statements taken as a whole. February 5, 1998 S-36 PART C--OTHER INFORMATION Item 24. - -------- (a) LIST OF FINANCIAL STATEMENTS (1) Part A The Table of Condensed Financial Information is included in Part A of this Registration Statement. (2) Part B The following financial statements of Account C are included in the SAI: Statement of Assets and Liability -- December 31, 1997 Statement of Operations -- Year ended December 31, 1997 Statements of Changes in Net Assets -- Years ended December 31, 1997 and 1996 Notes to Financial Statements -- December 31, 1997 Report of Ernst & Young LLP, Independent Auditors (3) Part B The following statutory-basis financial statements and schedules of Lincoln National Life Insurance Co. are included in the SAI: Balance Sheets -- Statutory Basis -- Years ended December 31, 1997 and 1996 Statements of Income -- Statutory Basis -- Years ended December 31, 1997, 1996 and 1995 Statements of Capital and Surplus -- Statutory Basis -- Years ended December 31, 1997, 1996 and 1995 Notes to Statutory-basis Financial Statements -- December 31, 1997 Supplemental Schedule of Selected Statutory Basis Financial Data -- December 31, 1997 Report of Ernst & Young LLP, Independent Auditors 24 (b) LIST OF EXHIBITS (1) Resolution establishing separate accounts (2) N/A (3) N/A (4) Variable Annuity Contract (a) Multi Fund - Single premium contract (b) Multi Fund 1 - Periodic (c) Multi Fund 2 - Flexible (d) Multi Fund 3 - Flexible (e) Multi Fund 4 - Flexible (filed with Post-Effective Amendment No. 14 to this Registration Statement.) (f) Contract Rider - Multi Fund 2 & Multi Fund 3 (filed with Post-Effective Amendment No. 13 to this Registration Statement.) (g) Contract Rider - Multi Fund 4 (filed with Post-Effective Amendment No. 13 to this Registration Statement.) (5) (a) Deferred Annuity Application (filed with Post-Effective Amendment No. 14 to this Registration Statement.) (b) 403(b) Annuity Application (filed with Post-Effective Amendment No. 14 to this Registration Statement.) (6) (a) Articles of Incorporation of The Lincoln National Life Insurance Company are incorporated herein by reference to the Registration Statement of Lincoln National Life Insurance Company on Form N-4 (33-27783) filed on December 5, 1996. (b) By-Laws of The Lincoln National Life Insurance Company are incorporated herein by reference to the Registration Statement of Lincoln National Life Insurance Company on Form N-4 (33-27783) filed on December 5, 1996. (7) N/A (8) (a) Services Agreement between Delaware Management Holdings, Inc., Delaware Service Company, Inc. and Lincoln National Life Insurance Company (incorporated by reference to the Registration Statement of Lincoln National Life Insurance Company on Form S-6 (333-40745) filed on November 21, 1997. (b) Participation Agreement among Delaware Group Premimum Fund, Inc and Lincoln National Life and Delaware Distributors, LP (9) Opinion and Consent of Jeremy Sachs, Senior Counsel (Filed with post-effective amendment No. 14 to this registration statement.) (10) Consent of Ernst & Young LLP, Independent Auditors (11) N/A (12) N/A (13) Schedule of Computation. (Filed with post-effective amendment No. 13 to this registration statement.) (14) N/A (15) (a) Organizational Chart of Lincoln National Life Insurance Holding Company System (b) Memorandum Concerning Books and Records Item 25. - -------- DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name Positions and Offices with LNL - ---- ------------------------------ Gabriel L. Shaheen* President, Chief Executive Officer and Director Jon A. Boscia** Director Carolyn P. Brody* Vice President Thomas L. Clagg* Vice President and Associate General Counsel Kelly D. Clevenger* Vice President Jeffrey K. Dellinger* Vice President John H. Gotta**** Senior Vice President Jack D. Hunter* Executive Vice President and General Counsel Donald E. Keller* Vice President Stephen H. Lewis* Senior Vice President H. Thomas McMeekin** Director Reed P. Miller* Vice President Ian M. Rolland** Director Lawrence T. Rowland*** Executive Vice President and Director Keith J. Ryan* Senior Vice President, Chief Financial Officer and Assistant Treasurer Richard C. Vaughan** Director Roy V. Washington* Vice President and Chief Compliance Officer Janet C. Whitney** Vice President and Treasurer C. Suzanne Womack** Secretary and Assistant Vice President
*Principal business address is 1300 South Clinton Street, Fort Wayne, Indiana 46802. **Principal business address is 200 East Berry Street, Fort Wayne, Indiana 46802-2706. ***Principal business address is 1700 Magnavox Way, One Reinsurance Place, Fort Wayne, Indiana 46804. ****Principal business address is 900 Cottage Grove Road, Bloomfield, CT 06152-2321. Item 26. - -------- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT See Exhibit 15(a): The Organizational Chart of The Lincoln National Insurance Holding Company System is hereby incorporated herein by this reference. Item 27. - -------- NUMBER OF CONTRACT OWNERS As of February 28, 1998, there were 495,273 Contract Owners under Account C. Item 28. - -------- INDEMNIFICATION--UNDERTAKING (a) Brief description of indemnification provisions. In general, Article VII of the By-Laws of The Lincoln National Life Insurance Company (LNL) provides that LNL will indemnify certain persons against expenses, judgments and certain other specified costs incurred by any such person if he/she is made a party or is threatened to be made a party to a suit or proceeding because he/she was a director, officer, or employee of LNL, as long as he/she acted in good faith and in a manner he/she reasonably believed to be in the best interests of, or not opposed to the best interests of, LNL. Certain additional conditions apply to indemnification in criminal proceedings. In particular, separate conditions govern indemnification of directors, officers, and employees of LNL in connection with suits by, or in the rights of, LNL. Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b) hereto) for the full text of the indemnification provisions. Indemnification is permitted by, and is subject to the requirements of, Indiana law. (b) Undertaking pursuant to Rule 484 of Regulation C under the Securities Act of 1933: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 28(a) above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. - -------- PRINCIPAL UNDERWRITER (a) Lincoln National Variable Annuity Fund A (Group); Lincoln National Variable Annuity Fund A (Individual); Lincoln National Flexible Premium Variable Life Account D; Lincoln National Flexible Premium Variable Life Account F; Lincoln National Flexible Premium Variable Life Account G; Lincoln National Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life Account K; Lincoln Life Flexible Premium Variable Life Account M; Lincoln Life Variable Annuity Account N; Lincoln Life Variable Annuity Account Q; Lincoln National Variable Annuity Accounts 50 and 51 (b) See Item 25. (c) Commissions and Other Compensation Received by Lincoln National Life Insurance Company from Account C during the fiscal year which ended December 31, 1997:
(1) (2) (3) (4) (5) Net Underwriting Name of Principal Discounts and Compensation Brokerage Underwriter Commissions on Redemption Commissions Compensation - ----------------- ---------------- ------------- ----------- ------------ The Lincoln National Life Insurance a b Company None $9,930,703 None $80,449,450
Notes: (a) These figures represent compensation received by Lincoln National Life Insurance Company for surrender, withdrawal and contract charges. See Charges and other deductions, in the Prospectus. (b) These figures represent compensation received by Lincoln National Life Insurance Company for mortality and expense guarantees. See Charges and other deductions, in the Prospectus. Item 30. - -------- LOCATION OF ACCOUNTS AND RECORDS Exhibit 15(b) is hereby expressly incorporated herein by this reference. Item 31. - -------- Item 32. Undertakings - -------- (a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (1) as part of any application to purchase a Certificate or an Individual Contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post cared or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information. (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this Form promptly upon written or oral request to Lincoln Life at the address or phone number listed in the Prospectus. (d) The Lincoln National Life Insurance company hereby represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by The Lincoln National Life Insurance Company. Item 33. - -------- (Additional Item) - Undertaking Concerning the Texas Optional Retirement Program Refer to the initial Registration Statement. Item 34. - -------- (Additional Item) - Undertaking Concerning Withdrawal Restrictions on IRC Section 403(b) Plan Participants Refer to the initial Registration Statement. SIGNATURES (a) As required by the Securities Act of 1933 and the Investment Company Act of 1940, as amended the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has duly caused this Registration Statement to be signed on its behalf, by the undersigned thereunto duly authorized in the City of Fort Wayne, and State of Indiana on this 22nd day of April, 1998. LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C, (Registrant) By /s/ Stephen H. Lewis ------------------------------------ Stephen H. Lewis, (Signature-Officer of Depositor) Senior Vice President, LNL ------------------------------------ (Title) By THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (LNL) (Depositor) By /s/ Gabriel L. Shaheen ------------------------------------ Gabriel L. Shaheen Chief Executive Officer and President ------------------------------------ (Title) (b) As required by the Securities Act of 1993, this Registration Statement has been signed for the Depositor by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Gabriel L. Shaheen Chief Executive April 22, 1998 - ----------------------- Officer, President & -------------- Gabriel L. Shaheen Director (Principal Executive Officer) Executive Vice President, - ----------------------- General Counsel & Director -------------- Jack D. Hunter Executive Vice President - ----------------------- & Director -------------- Lawrence T. Rowland /s/ Keith J. Ryan Senior Vice President, April 22, 1998 - ----------------------- Assistant Treasurer and Chief -------------- Keith J. Ryan /s/ Ian M. Rolland Director April 22, 1998 - ----------------------- -------------- Ian M. Rolland Director - ----------------------- -------------- H. Thomas McMeekin /s/ Richard C. Vaughan Director April 22, 1998 - ----------------------- -------------- Richard C. Vaughan /s/ Jon A. Boscia Director April 22, 1998 - ----------------------- -------------- Jon A. Boscia Exhibit Index (1) Resolution establishing separate accounts (4) Variable Annuity Contract (a) Multi Fund - Single Premium Contract (b) Multi Fund 1 - Periodic (c) Multi Fund 2 - Flexible (d) Multi Fund 3 - Flexible (8) (b) Participation Agreement (10) Consent of Ernst & Young LLP, Independent Auditors (15) (a) Organizational Chart of Lincoln National Life Insurance Holding Company System (b) Memorandum Concerning Books and Records. EX-99.1 2 EXHIBIT 99.1 Exhibit 1 CHANGE OF NAME OF SEGREGATED ACCOUNT OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY Pursuant to the authority given me by Resolution No. 118, dated December 14, 1981 of the Board of Directors of Lincoln National Pension Insurance Company (LNP) and by virtue of the merger of LNP into The Lincoln National Life Insurance Company effective January 1, 1989, I hereby amend the original "DESIGNATION OF SEGREGATED ACCOUNT OF LINCOLN NATIONAL PENSION INSURANCE COMPANY", dated June 3, 1981, so that effective immediately the name of the Segregated Account shall be: "Lincoln National Variable Annuity Account C". 5/8/89 /s/ Ian M. Rolland - ------------------ ------------------------------------------- DATE Ian M. Rolland, President The Lincoln National Life Insurance Company BOARD RESOLUTION OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY ADOPTED NOVEMBER 4, 1982 82-28 RESOLVED, That the resolution relating to the establishment of segregated investment accounts, adopted by the Board of Directors on September 12, 1968, is hereby rescinded effective this date; and RESOLVED FURTHER, That the chief executive officers of the Company is hereby authorized in his discretion from time to time to establish one or more segregated investment accounts in accordance with the provisions of the Indiana Insurance Law, for such purpose or purposes as he may determine and as may be appropriate under the Indiana Insurance Law; and RESOLVED FURTHER, That if in the opinion of legal counsel of the Company it is necessary or desirable to register any of such accounts under the Investment Company Act of 1940 or to register a security issued by any such account under the Securities Act of 1933, or to make application for exemption from registration, the chief executive officer or such other officers as he may designate are hereby authorized to accomplish any such registration or to make any such application for exemption, and to perform all other acts as may be desirable or necessary in connection with the conduct of business of the Company with respect to any such account. EX-99.4(A) 3 EXHBIT 99.4(A) Abraham Lincoln XX-0123456 LINCOLN NATIONAL LIFE INSURANCE CO. A part of LINCOLN NATIONAL CORPORATION ANNUITY CONTRACT SINGLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits and other rights described in this Contract in accordance with the terms of this Contract. NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON BY DELIVERING OR MAILING IT TO THE REPRESENTATIVE THROUGH WHOM IT WAS PURCHASED OR THE HOME OFFICE OF LNL. UPON CANCELLATION, THIS CONTRACT SHALL BE VOID FROM THE BEGINNING AND LNL WILL RETURN THE VALUE OF ANY PAYMENT MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE CONTRACT. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6. Signed for The Lincoln National Life Insurance Company at its Home Office in Fort Wayne, Indiana. /s/ JON A. BOSCIA /s/ PATRICK WILTSHIRE JON A. BOSCIA, PRESIDENT PATRICK WILTSHIRE, SECOND VICE PRESIDENT TABLE OF CONTENTS ARTICLE PAGE 1 PURCHASE PAYMENTS 4 2 BENEFITS 5 3 BENEFICIARY 7 4 GENERAL PROVISIONS 8 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 9 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 10 7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 11 CONTRACT DATA CONTRACT NUMBER XX-0123456 ANNUITANT ABRAHAM LINCOLN AGE AT ISSUE 35 CONTRACT DATE APRIL 1, 1989 PURCHASE PAYMENT $1,500.00 PURCHASE PAYMENT FREQUENCY MONTHLY MATURITY DATE APRIL 1, 2039 OWNER ABRAHAM LINCOLN MARY LINCOLN TODD LINCOLN BENEFICIARY DESIGNATION AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION THE PORTION OF YOUR INITIAL PURCHASE PAYMENT ALLOCATED TO THE FIXED ACCOUNT OF YOUR ANNUITY CONTRACT IS GUARANTEED TO BE CREDITED AN INITIAL EFFECTIVE ANNUAL INTEREST RATE OF 4.500% THROUGH 04/09/1992. Page 3 ARTICLE 1 PURCHASE PAYMENTS 1.01 WHERE PAYABLE The Purchase Payments must be made to The Lincoln National Life Insurance Company (LNL) at its Home Office. The Gross Purchase Payment is shown on Page 3. The Net Purchase Payment is equal to the Gross Purchase Payment less $50. The Gross Purchase Payment for the Contract must be at least $5,000. 1.02 VARIABLE ACCOUNT The Net Purchase Payment under the Contract may be allocated to the Lincoln National Life Variable Annuity Account C (Variable Account) and/or to the fixed portion of the Contract. The Variable Account is for the exclusive benefit of persons entitled to receive benefits under variable annuity contracts. The Variable Account will not be charged with the liabilities from any other part of LNL's business. There are currently seven sub-accounts in the Variable Account. The Owner may direct the Net Purchase Payment under the Contract to any of the available sub-accounts subject to the following limitations. A minimum payment to any one sub-account must be at least $1,000. If the Owner elects to direct the Net Purchase Payment to a new sub-account not previously selected, the election must be in writing to LNL. All the amounts allocated to each sub-account will be invested at net asset value in the shares of one of the regulated investment companies (the Eligible Funds). The Eligible Funds are: 1. Lincoln National Growth Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Putnam Master Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Other Funds made available by LNL. LNL reserves the right to eliminate the shares of any of the Eligible Funds and substitute the securities of a different investment company if the shares of an Eligible Fund are no longer available for investment, or if in the judgment of LNL, further investment in any Eligible Fund should become inappropriate in view of the purposes of the Contract. LNL may add an Eligible Fund in order to invest the assets of a new sub-account in the Variable Account. LNL shall give the Owner written notice of the elimination and substitution of Eligible Funds within five days after such substitution occurs. LNL shall use the Net Purchase Payment allocated to the Variable Account by the Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The number of Accumulation Units bought shall be determined by dividing the amount directed to the sub-account by the dollar value of an Accumulation Unit in such sub-account as of the day the Purchase Payment is received at the Home Office of LNL. The number of Accumulation Units held for the account of an Owner shall not be changed by any change in the dollar value of Accumulation Units in any sub-account. 1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR The Variable Account value of an Owner's Contract at any time prior to the Annuity Commencement Date equals the Value of the Accumulation Units held in the name of the Owner in the Variable Account under the Contract. A "Valuation Date" is each day that the New York Stock Exchange is open for business. A "Valuation Period" is the period commencing at the close of business on the New York Stock Exchange on each Valuation Date and ending at the close of business on the next succeeding Valuation Date. Accumulation Units for each sub-account are valued separately. Initially, the value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter, the value of an Accumulation Unit in any sub-account on any Valuation Date equals the value of an Accumulation Unit in that sub-account as of the immediately preceding Valuation Date multiplied by the "net investment factor" of that sub-account for the current Valuation Period. In order to arrive at this factor, a "Gross Investment Rate" is first determined for each Eligible Fund for the Valuation Period. Such rate for the Valuation Period is equal to: a) the investment income of the Fund: plus b) capital gains (realized and unrealized); minus c) capital losses (realized and unrealized); minus d) certain operational expenses of the Fund; minus e) the reserve for federal taxes on realized capital gains (if applicable); minus f) the investment advisory fee accrued by the Funds for each day of the Valuation Period--0.480% of the first $200,000,000 of net assets on an annual basis, 0.400% of the next $200,000,000 of net assets, and 0.300% of net assets above $400,000,000; divided by g) the net asset value of the Fund as of the beginning of the Valuation Period. The Gross Investment Rate may be positive or negative. The Net Investment Rate for each sub-account is equal to the Gross Investment Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for each day of the Valuation Period, plus or minus an adjustment for any taxes attributable to the operation of the Variable Account. LNL makes the Page 4 1.002% deduction for administrative expenses and mortality and expense risk guarantees. The method used to determine unit values may increase or decrease the dollar value of benefits under the Contract. The dollar value of benefits will not be adversely affected by expenses incurred by LNL. The Net Investment Factor for each sub-account is equal to 1.000000000 plus the Net Investment Rate for the period. 1.04 FIXED ALLOCATIONS The Net Purchase Payment under the Contract may be allocated to the Variable Account and/or to the fixed portion of the Contract. A minimum payment to the fixed portion must be at least $1,000. Purchase Payments allocated to the fixed portion will be invested in the general account of LNL. 1.05 CREDITING OF INTEREST Interest shall be credited daily on the Net Purchase Payment that is allocated to the fixed portion of this Contract. Prior to the time the Annuitant elects to receive Benefit Payments or the death of the Annuitant, whichever occurs first, LNL guarantees that it will credit interest on fixed allocations at an effective annual rate not less than 4.5% during the first five contract years, 4.0% for the next five contract years, and 3.5% after that. A table of guaranteed values for the fixed allocations may be found in Article 7. LNL may credit interest at rates in excess of the guaranteed rates at any time. 1.06 AUTOMATIC NONFORFEITURE OPTION This Contract will continue until the earlier of the Maturity Date, surrender of the Contract, or death of the Annuitant. Additional Purchase Payments may not be made at any lime. The total Account Value must be at least $600. If not, LNL may surrender the Contract. 1.07 TRANSFERS The Owner may direct a transfer of assets from one sub-account to another sub-account or to the fixed portion of the Contract. The Owner may also direct a transfer of assets from the fixed portion of the Contract to one or more sub-accounts of the Variable Account. Such a transfer request must be in writing. Amounts transferred to the sub-account(s) will purchase Accumulation Units as described in the last paragraph of Section 1.02. The minimum transfer amount is $500 or the entire amount in the sub-account/fixed portion, whichever is less. If after the transfer the amount remaining under this Contract in the sub-account/fixed portion from which the transfer is taken is less than $100 the entire amount held in that sub-account/fixed portion will be transferred with the transfer amount. The transfer is subject to any applicable transfer charge. There may not be more than one transfer in any thirty day period. LNL reserves the right to limit the number of transfers. For transfers between sub-accounts and from the sub-account(s) to the fixed portion of the Contract there are no restrictions on the maximum amount which may be transferred. For transfers from the fixed portion of the Contract to the Variable Account, the sum of the percentages of fixed value transferred will be limited to 25% in any 12 month period. ARTICLE 2 BENEFITS 2.01 ANNUITY PAYMENTS An election to receive proceeds under an Annuity Payment Option must be made by the Maturity Date. If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity payments will commence on the Maturity Date under the Annuity Payment Option providing a Life Annuity with Annuity Payments guaranteed for 10 years. However, upon written request by the Owner and any Beneficiary who cannot be changed, the Maturity Date may be deferred. The Maturity Date cannot be deferred past the Contract Anniversary on which the attained age of the Annuitant is 75. 2.02 CHOICE OF ANNUITY PAYMENT OPTION BY OWNER While the Annuitant is alive, the Owner may choose any Annuity Payment Option or change any choice, if that right has been reserved, but only before the Maturity Date. The election must be made not later than thirty days prior to the Maturity Date. BY BENEFICIARY At the time proceeds are payable, a Beneficiary may choose or change any Annuity Payment Option if proceeds are available to the Beneficiary in one sum. A choice or change must be in writing to LNL. 2.03 ANNUITY PAYMENT OPTIONS a) Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. Page 5 b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime of the Annuitant, terminating with the last payment due prior to the death of the Annuitant, provided that, at such death, the Beneficiary will receive an additional payment of the then dollar value of the number of Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the Annuity Unit Value at the Annuity Commencement Date and (b) is the product of the number of Annuity Units represented by each payment and the number of payments made. c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. Payments will be made during the joint life of the Annuitant and a Joint Annuitant of the Annuitant's choice. Payments continue for the life of the survivor at the death of the Annuitant or Joint Annuitant. d) Other options may be available as agreed upon by LNL. At the time Annuity Payments start under the provisions of this Contract, the Owner may elect to have the total value applied to provide a variable annuity, a fixed annuity, or a combination fixed and variable annuity. If no election is made the value of the Annuitant's Variable Account shall be used to provide a variable annuity, and the value of the Annuitant's fixed allocations shall be used to provide a fixed annuity. The amount of Annuity Payment will depend on the age and sex of the Annuitant at the time the first payment is due. A choice may be made to receive payments once each month, four times each year, twice each year, or once each year. The value used to effect benefit payments for an Annuitant will be calculated as of the fourteenth day prior to the date benefit payments start. The payment amounts shown in the option tables in Article 5 will be used to determine the first monthly payment under a variable payment option. The tables show the dollar amount of the first monthly payment which can be purchased with each $1,000 of Account Value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 5% per year. The payment amounts shown in the option tables in Article 6 will be used to determine the monthly payments under a fixed payment option. The tables show the dollar amount of the monthly payments which can be purchased with each $1,000 of account value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 3 1/2% per year. 2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST Each Variable Annuity Payment after the first will be determined by multiplying the Annuity Unit Value of the date each payment is due by a constant number of Annuity Units. This constant is determined by dividing the amount of the first payment by the Annuity Unit Value for the date the first payment is due. The Annuity Unit Value for any Valuation Period for any sub-account is determined by multiplying the Annuity Unit Value for the immediately preceding Valuation Period by the product of (a) 0.999866337 raised to a power equal to the number of days in the current Valuation Period and (b) the Net Investment Factor of the sub-account for the Valuation Period containing the fourteenth day prior to the last day of the current Valuation Period. The valuation of all assets in the sub-account shall be determined in accordance with the provisions of applicable laws, rules, and regulations The method of determination by LNL of the value of an Accumulation Unit and of an Annuity Unit will be conclusive upon the Annuitant and any Beneficiary. LNL guarantees that the dollar amount of each installment after the first shall not be affected by variations in mortality experience from mortality assumptions on which the first installment is based. 2.05 PROOF OF AGE Annuity Payment will be subject to proof of age that LNL will accept. 2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS If the Annuity Payment Option chosen results in payments of less than $50 per sub-account, the frequency will be changed so that payments will be at least $50. For the purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.07 EVIDENCE OF SURVIVAL LNL has the right to ask for proof that the person on whom the payment is based is alive when each payment is due. 2.08 CHANGE IN ANNUITY PAYMENT Changes in Annuity Payments may not be made after Annuity Payments commence. 2.09 ASSIGNMENT This Contract may not be assigned. Page 6 2.10 SURRENDER OPTION The Owner may surrender this Contract for its surrender value. On surrender, this Contract terminates. Surrender will be effective on date on which LNL has receives a written request at its Home Office. The surrender value will be the total Account Value on the Valuation Date less a Surrender Charge. The Surrender Charge will be determined as follows: SCHEDULE A
% Charge of Total Amount or Lump Surrender/Withdrawal Sum Deposits During Contract Year Surrendered/Withdrawn 1 7 2 6 3 5 4 4 5 3 6 2 7 1 8+ 0
For any portion of the Net Purchase Payment that is the result of proceeds transferred from another Lincoln National Life Insurance Company Annuity Contract, either of which did not contain surrender/withdrawal charges, the applicable charge will be 2% of the proceeds if surrender occurs in years 1-5 and no charge if surrender occurs after the Contract has been in force for 5 years. Investment gains and/or interest earnings on such portion of the Net Purchase Payment will be subject to the graded charges shown in Schedule A. For any portion of the Net Purchase Payment that is the result of proceeds transferred from another Lincoln National Life Insurance Company Annuity Contract, either of which contained surrender/withdrawal charges, the applicable charge will be as shown in Schedule A. A Contract Year is the period from the contract effective date (month and day) to the anniversary of the contract effective date in the following year. After the Contract has been in force for 7 Contract Years, there will be no Surrender Charge applied. Any cash payment will be mailed from LNL's Home Office within seven days after the date of surrender; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time a request for surrender is received. The Surrender Option is not available after Annuity Payments have begun. 2.11 WITHDRAWAL OPTION The Owner may withdraw a part of the surrender value of this Contract, subject to the charges outlined under Surrender Option. The first partial withdrawal in any Contract Year will be free of withdrawal charges up to 15% of the surrender value. Withdrawals will be made first from any amount subject to the lowest charge until those amounts are gone. Withdrawal will be effective on the valuation date on which or next following the date LNL receives a written request at its Home Office. The minimum withdrawal is $100. If any withdrawal reduces the total Account Value to less than $600, LNL may surrender the Contract for its value. The remaining value will be subject to the charges as provided under Surrender Option. The request should specify from which sub-account the withdrawal will be made. If no sub-account is specified, LNL will withdraw, on a prorata basis from each sub-account, the amount requested. Any cash payment will be mailed from LNL's Home Office within seven days after the dateof withdrawal; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request for withdrawal is received. The Withdrawal Option is not available after Annuity Payments have begun. For purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.12 DEATH OF ANNUITANT On receipt of due proof of the death of the Annuitant before a choice is made to receive proceeds under an Annuity Payment Option, LNL will pay to the Beneficiary the value of the Contract as of the day on which written notice of death is received by LNL. Due proof of death shall be either a certified copy of the certificate of death, a certified copy of the statement of death from the attending physician, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to LNL. On receipt of due proof of death of the Annuitant after Annuity Payments have begun under an Annuity Payment Option, if any Annuity Payments remain under the Option they will be paid to the Beneficiary as provided by the Option. Unless otherwise provided in the Beneficiary designation, if no Beneficiary survives the Annuitant, the proceeds will be paid in one sum to the Owner, if living; otherwise, to the Owner's estate. ARTICLE 3 BENEFICIARY 3.01 DESIGNATION The Beneficiary named in the application for this Contract will receive the proceeds on the death of the Annuitant unless the Beneficiary has been changed by the Owner. 3.02 CHANGE The Owner may change any Beneficiary during the life of the Annuitant unless otherwise provided in the previous designation. A change of Beneficiary will revoke any previous designation. Page 7 A change may be made by filing a written request to LNL at its Home Office. The change will become effective upon receipt of the written request by LNL at its Home Office. 3.03 DEATH OF BENEFICIARY Unless otherwise provided in the Beneficiary designation, if any Beneficiary dies before the Annuitant, that Beneficiary's interest will pass to any other Beneficiaries according to their respective interests. If the Beneficiary dies while receiving any remaining Annuity Payments due after the death of the Annuitant, the value of the remainder of such Annuity Payments will be paid in one sum to the Beneficiary's estate. ARTICLE 4 GENERAL PROVISIONS 4.01 THE CONTRACT This Contract, the application, and any riders attached to this Contract make up the whole Contract. Only the President, a Vice-President, the Secretary or an Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify, or waive any provisions of this Contract. Any changes, modifications, or waivers must be in writing. LNL will not be bound by any promises or representations made by any representative or other person except as specified above. 4.02 CONTROL Consistent with the terms of any Beneficiary designation, the Owner may, during the life of the Annuitant, do any of the things described below. - - Prior to the time when Annuity Payments have begun the Owner may surrender this Contract or withdraw a portion of the surrender value. - - The Owner may change this Contract with the consent of LNL. - - The Owner may exercise any right, receive any benefit, or enjoy any privilege contained in this Contract. 4.03 INCONTESTABILITY This Contract will not be contested. 4.04 MISSTATEMENT OF AGE If the age of the Annuitant has been misstated, the benefits available under this Contract will be those which the Purchase Payments would have purchased for the correct age. Any underpayments already made by LNL shall be made up immediately and any overpayments already made by LNL shall be charged against the Annuity Payments falling due after adjustment. 4.05 NONPARTICIPATING The Contract is nonparticipating and will not share in the surplus earnings of LNL. 4.06 VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Eligible Fund(s) invested in by the Owner due to their interest in the sub-accounts of the Variable Account. Ownership of this Contract shall not entitle any person to vote at any meeting of shareholders of LNL. Votes attributable to the Contract shall be cast in conformity with applicable law. 4.07 OWNERSHIP OF THE ASSETS LNL shall have exclusive and absolute ownership and control of its assets, including all assets in the Variable Account. 4.08 REPORTS At least once each Contract Year LNL shall mail a report to the Owner. The report shall be mailed to the last address known to LNL. The report shall include a statement of the number of units credited to the Variable Account under this Contract and the dollar value of such units as well as a statement of the value of the fixed portion of this Contract. The information in the report shall be as of a date not more than two months prior to the date of mailing the report. LNL shall also mail to the Owner at least once in each Contract Year a report of the investments held in the sub-accounts under this Contract. Page 8 ARTICLE 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Unit Age Certain Certain Certain Refund 60 $5.69 $5.61 $5.38 $5.47 61 5.79 5.70 5.44 5.55 62 5.90 5.79 5.50 5.63 63 6.01 5.89 5.57 5.72 64 6.13 6.00 5.63 5.82 65 6.26 6.12 5.69 5.92 66 6.40 6.24 5.75 6.03 67 6.56 6.37 5.82 6.15 68 6.72 6.50 5.88 6.27 69 6.90 6.65 5.93 6.40 70 7.10 6.80 5.99 6.54 71 7.32 6.96 6.04 6.68 72 7.55 7.13 6.08 6.84 73 7.80 7.30 6.12 7.00 74 8.07 7.48 6.16 7.17 75 8.37 7.66 6.19 7.36
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period 120 240 Joint 120 240 None Months Months Age None Months Months $5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26 5.14 5.14 5.11 61 5.56 5.50 5.33 5.22 5.21 5.17 62 5.65 5.59 5.39 5.29 5.29 5.24 63 5.75 5.68 5.45 5.37 5.37 5.30 64 5.86 5.77 5.52 5.46 5.46 5.38 65 5.97 5.88 5.58 5.56 5.55 5.45 66 6.09 5.99 5.65 5.66 5.65 5.52 67 6.23 6.11 5.71 5.77 5.76 5.60 68 6.37 6.24 5.78 5.90 5.88 5.67 69 6.53 6.37 5.84 6.03 6.00 5.75 70 6.70 6.51 5.90 6.17 6.14 5.82 71 6.89 6.66 5.96 6.32 6.28 5.89 72 7.09 6.82 6.01 6.49 6.43 5.95 73 7.31 6.99 6.06 6.66 6.60 6.01 74 7.54 7.16 6.11 6.86 6.77 6.06 75 7.80 7.34 6.15
Page 9 ARTICLE 6 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION GUARANTEED DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Unit Age Certain Certain Certain Refund 60 $5.31 $5.17 $4.77 $4.83 61 5.43 5.27 4.83 4.92 62 5.56 5.38 4.89 5.01 63 5.70 5.50 4.95 5.10 64 5.85 5.62 5.01 5.20 65 6.00 5.74 5.07 5.31 66 6.17 5.88 5.13 5.42 67 6.35 6.01 5.18 5.53 68 6.55 6.16 5.24 5.65 69 6.75 6.30 5.29 5.79 70 6.98 6.46 5.34 5.92 71 7.21 6.63 5.38 6.06 72 7.47 6.79 5.42 6.22 73 7.75 6.96 5.46 6.37 74 8.04 7.13 5.49 6.54 75 8.36 7.31 5.52 6.73
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period 120 240 Joint 120 240 None Months Months Age None Months Months $4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64 4.58 4.57 4.48 61 5.11 5.01 4.71 4.67 4.65 4.55 62 5.23 5.11 4.77 4.76 4.75 4.62 63 5.35 5.22 4.84 4.86 4.85 4.69 64 5.48 5.33 4.90 4.97 4.95 4.77 65 5.62 5.45 4.97 5.09 5.06 4.84 66 5.76 5.58 5.03 5.21 5.18 4.92 67 5.92 5.71 5.09 5.34 5.31 4.99 68 6.09 5.85 5.15 5.49 5.44 5.07 69 6.27 5.99 5.21 5.64 5.58 5.14 70 6.46 6.14 5.27 5.80 5.73 5.21 71 6.67 6.30 5.32 5.98 5.89 5.27 72 6.90 6.46 5.37 6.17 6.06 5.33 73 7.14 6.63 5.41 6.37 6.23 5.38 74 7.40 6.81 5.45 6.59 6.41 5.43 75 7.67 6.99 5.49
Page 10 ARTICLE 7 GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES FOR FIXED ALLOCATIONS* $10,000 Net Contribution
End Guaranteed Guaranteed of Accumulated Surrender Year Value Value 1 $10,450.00 $ 9,718.50 2 10,920.25 10,265.04 3 11,411.66 10,841.08 4 11,925.18 11,448.17 5 12,461.81 12,087.96 6 12,960.28 12,701.07 7 13,478.69 13,343.90 8 14,017.84 14,017.84 9 14,578.55 14,578.55 10 15,161.69 15,161.69 11 15,692.35 15,692.35 12 16,241.58 16,241.58 13 16,810.04 16,810.04 14 17,398.39 17,398.39 15 18,007.33 18,007.33 16 18,637.59 18,637.59 17 19,289.91 19,289.91 18 19,965.06 19,965.06 19 20,663.84 20,663.84 20 21,387.07 21,387.07 21 22,135.62 22,135.62 22 22,910.37 22,910.37 23 23,712.23 23,712.23 24 24,542.16 24,542.16 25 25,401.14 25,401.14 26 26,290.18 26,290.18 27 27,210.34 27,210.34 28 28,162.70 28,162.70 29 29,148.39 29,148.39 30 30,168.58 30,168.58 31 31,224.48 31,224.48 32 32,317.34 32,317.34 33 33,448.45 33,448.45 34 34,619.15 34,619.15 35 35,830.82 35,830.82 36 37,084.90 37,084.90 37 38,382.87 38,382.87 38 39,726.27 39,726.27 39 41,116.69 41,116.69 40 42,555.77 42,555.77 41 44,045.22 44,045.22 42 45,586.80 45,586.80 43 47,182.34 47,182.34 44 48,833.72 48,833.72 45 50,542.90 50,542.90
* These values do not provide for premium tax, if any. Page 11 VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") The second and third paragraphs under the section "SURRENDER OPTION", found in Article 2 of this Contract, shall be deleted. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ PATRICK WILTSHIRE PATRICK WILTSHIRE, SECOND VICE PRESIDENT VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") Any reference to Fund or Funds shall be followed by "and Series". VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as follows: "The Eligible Funds and Series are: 1. Lincoln National Growth & Income Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Global Asset Allocation Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National International Fund, Inc. 9. Lincoln National Aggressive Growth Fund, Inc. 10. Lincoln National Capital Appreciation Fund, Inc. 11. Lincoln National Equity-income Fund, Inc. 12. Delaware Group Premium Fund, Inc. Equity/Income Series. 13. Delaware Group Premium Fund, Inc. Emerging Growth Series. 14. Delaware Group Premium Fund, Inc. Global Bond Series. 15. Other Funds and Series made available by LNL." Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4 and 5 of this Contract shall be amended in its entirety as follows: "the investment advisory fee accrued by the Fund or Series for each day of the Valuation Period from the Advisory Fee Table below; divided by" Advisory Fee Table ------------------
Fund or Series First Next In excess of $200 million... $200 million... $400 million... ... Of average daily net asset value - -------------------------------------------------------------------------------- Aggressive Growth .75 of 1% .70 of 1% .65 of 1% Capital Appreciation .80 of 1 .80 of 1 .80 of 1 Equity-income .95 of 1 .95 of 1 .95 of 1 Global Asset Allocation .75 of 1 .70 of 1 .68 of 1 International .90 of 1 .75 of 1 .60 of 1 Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1 Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1 Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1 All other Funds .48 of 1 .40 of 1 .30 of 1 - --------------------------------------------------------------------------------
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ PATRICK WILTSHIRE PATRICK WILTSHIRE, SECOND VICE PRESIDENT CONTRACT MODIFICATION Section 1.01 of the attached contract shall be modified as follows: "1.01 WHERE PAYABLE The Purchase Payment must be made to LNL at its Home Office. The Gross Purchase Payment is shown on Page 3. The Net Purchase Payment is equal to the Gross Purchase Payment. The Gross Purchase Payment for the contract must be at least $5,000." THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ PATRICK WILTSHIRE PATRICK WILTSHIRE, SECOND VICE PRESIDENT BENEFICIARY RIDER MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") The following paragraphs shall be inserted after the second paragraph under the Section "DEATH OF ANNUITANT" of this Contract: "If the Beneficiary designated at the time of the Annuitant's death is a surviving spouse, the Contract may be continued in the name of the spouse as the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies before Annuity Payments have begun under the Contract, the amounts must be distributed to the designated Beneficiary within five years of the death of the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies after Annuity Payments have begun under the Contract, the remaining portion of the Annuitant's interest must either be distributed at least as rapidly as under the method of distribution being used as of the date of the Annuitant's death or distributed over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. The distribution of these amounts must begin not later than one year after the Annuitant's death." THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ JON C. GEIST JON C. GEIST, SECOND VICE PRESIDENT ANNUITY CONTRACT SINGLE PAYMENT DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING If you have any questions concerning this Contract, or if anyone suggests that you change or replace this Contract, please contact your Lincoln National Life representative or the Home Office of LNL. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 SOUTH CLINTON STREET P.O. BOX 2340 FORT WAYNE, INDIANA 46801-2340 800-348-1212 EX-99.4(B) 4 EXHIBIT 99.4(B) ABRAHAM LINCOLN XX-0123456 LINCOLN NATIONAL LIFE INSURANCE CO. A part of LINCOLN NATIONAL CORPORATION ANNUITY CONTRACT DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits and other rights described in this Contract in accordance with the terms of this Contract. NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON BY DELIVERING OR MAILING IT TO THE HOME OFFICE OF LNL. UPON CANCELLATION, THIS CONTRACT WILL BE VOID FROM THE BEGINNING AND LNL WILL RETURN THE VALUE OF ANY PAYMENTS MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE CONTRACT. ALL PAYMENTS AND VALUES PRO VIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT SEE PAGES 4 AND 6. Signed for The Lincoln National Life Insurance Company at its Home Office in Fort Wayne, Indiana. /s/ Jon A. Boscia /s/ Patrick Wiltshire JON A. BOSCIA, PRESIDENT PATRICK WILTSHIRE, SECOND VICE PRESIDENT TABLE OF CONTENTS ARTICLE PAGE 1 PURCHASE PAYMENTS 4 2 BENEFITS 5 3 BENEFICIARY 8 4 GENERAL PROVISIONS 8 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 10 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 11 7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 12 CONTRACT DATA CONTRACT NUMBER XX-0123456 ANNUITANT ABRAHAM LINCOLN AGE AT ISSUE 35 CONTRACT DATE APRIL 1,1989 PURCHASE PAYMENT $1,500.00 PURCHASE PAYMENT FREQUENCY MONTHLY MATURITY DATE APRIL 1, 2039 OWNER ABRAHAM LINCOLN MARY LINCOLN TODD LINCOLN BENEFICIARY DESIGNATION AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION Page 3 ARTICLE I PURCHASE PAYMENTS 1.01 WHERE PAYABLE All Purchase Payments must be made to LNL at its Home Office. 1.02 AMOUNT AND FREQUENCY Purchase Payments are made in an amount and at the frequency shown on page 3. Purchase Payments may be paid once each year, twice each year, four times each year, once each month, twice each month, or once each two weeks. The owner may change the frequency or amount of Purchase Payments subject to LNL's rules in effect at the time of the change. The change is made by filing a written request to LNL at its Home Office. The amount of Purchase Payments made in the first year may be increased in years after the first up to twice that amount. The amount may be decreased but not below LNL's Purchase Payment minimum in effect at the time of the decrease. An increase in Purchase Payments in excess of those described in the first sentence will be accepted only with the consent of LNL. The total annual Purchase Payment for the Contract must be at least $600. The minimum payment to the Contract at any one time must be at least $25. 1.03 VARIABLE ACCOUNT Purchase Payments under the Contract may be allocated to the Lincoln National Life Variable Annuity Account C (Variable Account) and/or to the fixed portion of the Contract. The Variable Account is for the exclusive benefit of persons entitled to receive benefits under variable annuity contracts. The Variable Account will not be charged with the liabilities from any other part of LNL's business. There are currently seven sub-accounts in the Variable Account. The Owner may direct Purchase Payments under the Contract to any of the available sub- accounts subject to the following limitations. A minimum payment to any one sub-account must be at least $20. If the Owner elects to direct Purchase Payments to a new sub-account not previously selected, the election must be in writing to LNL. All the amounts allocated to each sub-account will be invested at net asset value in the shares of one of the regulated investment companies (the Eligible Funds). The Eligible Funds are: 1. Lincoln National Growth Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Putnam Master Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Other Funds made available by LNL. LNL reserves the right to eliminate the shares of any of the Eligible Funds and substitute the securities of a different investment company if the shares of an Eligible Fund are no longer available for investment, or if in the judgment of LNL further investment in any Eligible Fund should become inappropriate in view of the purposes of the Contract. LNL may add an Eligible Fund in order to invest the assets of a new sub-account in the Variable Account. LNL shall give the Owner written notice of the elimination and substitution of Eligible Funds within five days after such substitution occurs. LNL shall use each Purchase Payment allocated to the Variable Account by the Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The number of Accumulation Units bought shall be determined by dividing the amount directed to the sub-account by the dollar value of an Accumulation Unit in such sub-account as of the day the Purchase Payment is received at the Home Office of LNL. The number of Accumulation Units held for the account of an Annuitant shall not be changed by any change in the dollar value of Accumulation Units in any sub-account. 1.04 NET INVESTMENT RATE AND NET INVESTMENT FACTOR The Variable Account value of an Owner's Contract at any time prior to the Annuity Commencement Date equals the sum of the values of the Accumulation Units credited in the Variable Account under the Contract. A "Valuation Date" is each day that the New York Stock Exchange is open for business. A "Valuation Period" is the period commencing at the close of business on the New York Stock Exchange on each Valuation Date and ending at the close of business on the next succeeding Valuation Date. Accumulation Units for each sub-account are valued separately. Initially, the value of an Accumulation Unit was set at $1.00. Thereafter, the value of an Accumulation Unit in any sub-account on any Valuation Date equals the value of an Accumulation Unit in that sub-account for the current Valuation Period. In order to arrive at this factor, a "Gross Investment Rate" is first determined for each Eligible Fund for the Valuation Period. Such rate for the Valuation Period is equal to: a) the investment income of the Fund: plus b) capital gains (realized and unrealized); minus c) capital losses (realized and unrealized); minus d) certain operational expenses of the Fund; minus e) the reserve for federal taxes on realized capital gains (if applicable); minus Page 4 f) the investment advisory fee accrued by the Funds for each day of the Valuation Period--0.480% of the first $200,000,000 of net assets on an annual basis,(0.750% for the Lincoln National Putnam Master Fund, Inc.) 0.400% of the next $200,000,000 of net assets, (0.700% for the Lincoln National Putnam Master Fund, Inc.) and 0.300% of net assets above $400,000,000, (0.680% for the Lincoln National Putnam Master Fund, Inc.); divided by g) the net asset value of the Fund as of the beginning of the Valuation Period. The Gross Investment Rate may be positive or negative. The Net Investment Rate for each sub-account is equal to the Gross Investment Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for each day of the Valuation Period, plus or minus an adjustment for any taxes attributable to the operation of the Variable Account. LNL makes the 1.002% deduction for administrative expenses and mortality and expense risk guarantees. The method used to determine unit values may increase or decrease the dollar value of benefits under the Contract. The dollar value of benefits will not be adversely affected by expenses incurred by LNL. The Net Investment Factor for each sub-account is equal to 1.000000000 plus the Net Investment Rate for the period. 1.05 FIXED ALLOCATIONS Purchase Payments under the Contract may be allocated to the Variable Account and/or to the fixed portion of the Contract. A minimum payment to the fixed portion must be at least $20. Purchase Payments allocated to the fixed portion will be invested in the general account of LNL. 1.06 CREDITING OF INTEREST Interest shall be credited daily on all Purchase Payments that are allocated to the fixed portion of this Contract. Prior to the time the Annuitant elects to receive Benefit Payments or the death of the Annuitant, whichever occurs first, LNL guarantees that it will credit interest on fixed allocations at an effective annual rate not less than 4.5% during the first five contract years, 4.0% during the next five contract years, and 3.5% after that. A table of guaranteed values for the fixed allocations may be found in Article 7. LNL may credit interest at rates in excess of the guaranteed rates at any time. 1.07 AUTOMATIC NONFORFEITURE OPTION In the event that Purchase Payments are stopped, this Contract will continue as a paid-up Contract until the earlier of the Maturity Date, surrender of the Contract, or death of the Annuitant. Purchase Payments may be resumed at any time prior to maturity, surrender, or death of the Annuitant. If the Contract continues as a paid-up Contract, the total account value must be at least $600.00. If not, and if Purchase Payments have not been paid for at least two years, LNL may surrender the Contract. 1.08 TRANSFERS The Owner may direct a transfer of assets from one sub-account to another sub-account or to the fixed portion of the Contract. The Owner may also direct a transfer of assets from the fixed portion of the Contract to one or more sub-accounts of the Variable Account. Such a transfer request must be in writing. Amounts transferred to the sub-account(s) will purchase Accumulation Units as described in the last paragraph of Section 1.03. The minimum transfer amount is $500 or the entire amount in the sub-account/fixed portion, whichever is less. If after the transfer the amount remaining under this Contract in the sub-account/fixed portion from which the transfer is taken is less than $100, the entire amount held in that sub-account/fixed portion will be transferred with the transfer amount. The transfer is subject to any applicable transfer charge. There may not be more than one transfer in any thirty day period. LNL reserves the right to limit the number of transfers. For transfers between sub-accounts and from the sub-account(s) to the fixed portion of the Contract, there are no restrictions on the maximum amount which may be transferred. For transfers from the fixed portion of the Contract to the Variable Account, the sum of the percentages of fixed value transferred will be limited to 25% in any 12 month period. ARTICLE 2 BENEFITS 2.01 ANNUITY PAYMENTS An election to receive proceeds under an Annuity Payment Option must be made by the Maturity Date. If an Annuity Payment Option is not chosen prior to the Maturity Date, payments will commence on the Maturity Date under the Annuity Payment Option providing a Life Annuity with Annuity Payments guaranteed for 10 years. However, upon written request by the Owner and any Beneficiary who cannot be changed, the Maturity Date may be deferred. The Maturity Date cannot be deferred past the Contract Anniversary on which the attained age of the Annuitant is 75. Purchase Payments may be made until the new Maturity Date. Page 5 2.02 CHOICE OF ANNUITY PAYMENT OPTION BY OWNER While the Annuitant is alive, the Owner may choose any Annuity Payment Option or change any choice, it that right has been reserved, but only before the Maturity Date. The election must be made not later than thirty days prior to the Maturity Date. BY BENEFICIARY At the time proceeds are payable, a Beneficiary may choose or change any Annuity Payment Option if proceeds are available to the Beneficiary in one sum. A choice or change must be in writing to LNL. 2.03 ANNUITY PAYMENT OPTIONS a) Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime of the Annuitant, terminating with the last payment due prior to the death of the Annuitant, provided that, at such death, the Beneficiary will receive an additional payment of the then dollar value of the number of Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the Annuity Unit Value at the Annuity Commencement Date and (b) is the product of the number of Annuity Units represented by each payment and the number of payments made. c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. Payments will be made during the joint life of the Annuitant and a Joint Annuitant of the Annuitant's choice. Payments continue for the life of the survivor at the death of the Annuitant or Joint Annuitant. d) Other options may be available as agreed upon by LNL. At the time Annuity Payments start under the provisions of this Contract, the Owner may elect to have the total value applied to provide a variable annuity, a fixed annuity, or a combination fixed and variable annuity. If no election is made the value of the Annuitant's Variable Account shall be used to provide a variable annuity, and the value of the Annuitant's fixed allocations shall be used to provide a fixed annuity. The amount of Annuity Payment will depend on the age and sex of the Annuitant at the time the first payment is due. A choice may be made to receive payments once each month, four times each year, twice each year, or once each year. The value used to effect benefit payments for an Annuitant will be calculated as of the fourteenth day prior to the date benefit payments start. The payment amounts shown in the option tables in Article 5 will be used to determine the first monthly payment under a variable payment option. The tables show the dollar amount of the first monthly payment which can be purchased with each $1,000 of account value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with an assumed rate of return of 5% per year. The payment amounts shown in the option tables in Article 6 will be used to determine the monthly payments under a fixed payment option. The tables show the dollar amount of the monthly payments which can be purchased with each $1,000 of account value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with an assumed rate of return of 3 1/2% per year. 2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST Each Variable Annuity Payment after the first will be determined by multiplying the Annuity Unit Value for the date each payment is due by a constant number of Annuity Units. This constant is determined by dividing the amount of the first payment by the Annuity Unit Value for the date the first payment is due. The Annuity Unit Value for any Valuation Period for any sub-account is determined by multiplying the Annuity Unit Value for the immediately preceding Valuation Period by the product of (a) 0.999866337 raised to a power equal to the number of days in the current Valuation Period and (b) the Net Investment Factor of the sub-account for the Valuation Period containing the fourteenth day prior to the last day of the current Valuation Period. The valuation of all assets in the sub-account shall be determined in accordance with the provisions of applicable laws, rules, and regulations. The method of determination by LNL of the value of an Accumulation Unit and of an Annuity Unit will be conclusive upon the Annuitant and any Beneficiary. LNL guarantees that the dollar amount of each installment after the first shall not be affected by variations in mortality experience from mortality assumptions on which the first installment is based. 2.05 PROOF OF AGE Payment will be subject to proof of age that LNL will accept. Page 6 2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS If the Annuity Payment Option chosen results in payments of less than $50 per sub-account the frequency will be changed so that payments will be at least $50. For the purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.07 EVIDENCE OF SURVIVAL LNL has the right to ask for proof that the person on whom the payment is based is alive when each payment is due. 2.08 CHANGE IN ANNUITY PAYMENT Changes in Annuity Payments may not be made after Annuity Payments commence. 2.09 ASSIGNMENT This Contract may not be assigned. 2.10 ACCOUNT CHARGE On the last business day of each Contract Year, LNL will deduct $25.00 from the account value. At surrender the account charge will be deducted from the account value. The account value is the value of all the Accumulation Units in the name of the Owner plus the value of the fixed portion of the Contract. If the Annuitant has elected more than one sub- account, the deduction of the Account Charge shall be taken from each sub-account on a pro-rata basis. Each sub-account will be adjusted by an amount equal to a fraction of the charge. The fraction is equal to "a" divided by "b", where "a" is the account value of the sub-account and "b" is the value of all sub-accounts under the Contract. The fraction for each sub-account is applied to the deduction to determine each sub-account's deduction. For the purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.11 SURRENDER OPTION The Owner may surrender this Contract for its surrender value. On surrender, this Contract terminates. Surrender will be effective on the Valuation Date on which or next following the date LNL has received a written request at its Home Office. The surrender value will be the total account value on the Valuation Date, less a Surrender Charge and the Account Charge. The Surrender Charge will be determined as follows. SCHEDULE A FOR PERIODIC DEPOSITS AND NON-RECURRING LUMP SUM DEPOSITS OF LESS THAN $5,000
% CHARGE OF TOTAL SURRENDER/WITHDRAWAL ACCOUNT VALUE DURING CONTRACT YEAR SURRENDERED/WITHDRAWN 1-5 8 6-10 4 11+ 0
SCHEDULE B FOR NON-RECURRING LUMP SUM DEPOSITS OF $5000 OR MORE
% CHARGE OF TOTAL SURRENDER/WITHDRAWAL ACCOUNT VALUE DURING CONTRACT YEAR SURRENDERED/WITHDRAWN 1 7 2 6 3 5 4 4 5 3 6 2 7 1 8+ 0
Where the non-recurring lump sum deposit of $5,000 or more is the result of proceeds transferred from another LNL Contract or a Lincoln National Life Insurance Company Annuity Contract, either of which did not contain surrender/withdrawal charges, the applicable charge will be 2% of the proceeds if surrender occurs in years 1-5 and no charge if surrender occurs after the Contract has been in force for 5 years. Where the non-recurring lump sum deposit of $5,000 or more is the result of proceeds transferred from another Lincoln National Life Insurance Company Annuity Contract, either of which contained surrender/withdrawal charges, the applicable charge will be as shown in Schedules A and B. Investment gains and/or interest earnings on nonrecurring lump sum deposits will be subject to an 8% charge for contract years 1-5, 4% for years 5-10, and no charge for years 11 on. A Contract Year is the period from the contract effective date (month and day) to the anniversary of the contract effective date in the following year. After the Contract has been in force for 10 Contract Years, there will be no Surrender Charge applied. Any cash payment will be mailed from LNL's Home Office within seven days after the date of surrender; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time a request for surrender is re- Page 7 ceived. The Surrender Option is not available after Annuity Payments have begun. 2.12 WITHDRAWAL OPTION The Owner may withdraw a part of the surrender value of this Contract, subject to the charges outlined under Surrender Option. The first partial withdrawal in any Contract Year will be free of withdrawal charges up to 15% of the surrender value. Withdrawals will be made first from any amounts subject to the lowest charge until those amounts are gone. Withdrawal will be effective on the Valuation Date on which or next following the date LNL receives a written request at its Home Office. The minimum withdrawal is $100.00. If any withdrawal reduces the total account value to less than $300, LNL may surrender the Contract for its value. The remaining value will be subject to the charges as provided under Surrender Option. The request should specify from which sub-account the withdrawal will be made. If no sub- account is specified, LNL will withdraw, on a pro-rata basis from each sub-account, the amount requested. Any cash payment will be mailed from LNL's Home Office within seven days after the dale of withdrawal; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request for withdrawal is received. The Withdrawal Option is not available after Annuity Payments have begun. For purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.13 DEATH OF ANNUITANT On receipt of due proof of the death of the Annuitant before a choice is made to receive proceeds under an Annuity Payment Option, LNL will pay to the Beneficiary the value of the Contract as of the day on which written notice of death is received by LNL. Due proof of death shall be either the certificate of death, a copy of the certified statement of death from the attending physician, a copy of a certified decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to LNL. On receipt of due proof of death of the Annuitant after Annuity Payments have begun under an Annuity Payment Option, if any Annuity Payments remain under the Option they will be paid to the Beneficiary as provided by the Option. Unless otherwise provided in the Beneficiary designation, if no Beneficiary survives the Annuilant, the proceeds will be paid in one sum to the Owner, if living; otherwise, to the Owner's estate. ARTICLE 3 BENEFICIARY 3.01 DESIGNATION The Beneficiary named in the application for this Contract will receive the proceeds on the death of the Annuitant unless the Beneficiary has been changed by the Owner. 3.02 CHANGE The Owner may change any Beneficiary during the life of the Annuitant unless otherwise provided in the previous designation. A change of Beneficiary will revoke any previous designation. A change may be made by filing a written request to LNL at its Home Office. The change will become effective upon receipt of the written request by LNL at its Home Office. 3.03 DEATH OF BENEFICIARY Unless otherwise provided in the Beneficiary designation, if any Beneficiary dies before the Annuitant, that Beneficiary's interest will pass to any other Beneficiaries according to their respective interests. If the Beneficiary dies while receiving any remaining Annuity Payments due after the death of the Annuitant, the value of the remainder of such Annuity Payments will be paid in one sum to the Beneficiary's estate. ARTICLE 4 GENERAL PROVISIONS 4.01 THE CONTRACT This Contract, the application, and any riders attached to this Contract make up the whole Contract. Only the President, a Vice-President, the Secretary or an Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify, or waive any provisions of this Contract. Any changes, modifications, or waivers must be in writing. LNL will not be bound by any promises or representations made by any representative or other person except as specified above. 4.02 CONTROL Consistent with the terms of any Beneficiary designation, the Owner may, during the life of the Annuitant, do any of the things described below. 1. Prior to the time when Annuity Payments have begun the Owner may surrender this Contract or withdraw a portion of the surrender value. Page 8 2. The Owner may change this Contract with the consent of LNL. 3. The Owner may exercise any right, receive any benefit, or enjoy any privilege contained in this Contract. 4.03 INCONTESTABILITY This Contract will not be contested. 4.04 MISSTATEMENT OF AGE If the age of the Annuitant has been misstated, the benefits available under this Contract will be those which the Purchase Payments would have purchased for the correct age. Any underpayments already made by LNL shall be made up immediately and any overpayments already made by LNL shall be charged against the Annuity Payments falling due after adjustment. 4.05 NONPARTICIPATING The Contract is nonparticipating and will not share in the surplus earnings of LNL. 4.06 VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Eligible Fund(s) invested in by the Owner due to their interest in the sub-accounts of the Variable Account. Ownership of this Contract shall not entitle any person to vote at any meeting of shareholders of LNL. Votes attributable to the Contract shall be cast in conformity with applicable law. 4.07 OWNERSHIP OF THE ASSETS LNL shall have exclusive and absolute ownership and control of its assets, including all assets in the Variable Account. 4.08 REPORTS At least once each Contract Year LNL shall mail a report to the Owner. The report shall be mailed to the last address known to LNL. The report shall include a statement of the number of units credited to the Variable Account under this Contract and the dollar value of such units as well as a statement of the value of the fixed portion of this Contract. The information in the report shall be as of a date not more than two months prior to the date of mailing the report. LNL shall also mail to the Owner at least once in each Contract Year a report of the investments held in the sub-accounts under this Contract. Page 9 ARTICLE 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Unit Age Certain Certain Certain Refund 60 $5.69 $5.61 $5.38 $5.47 61 5.79 5.70 5.44 5.55 62 5.90 5.79 5.50 5.63 63 6.01 5.89 5.57 5.72 64 6.13 6.00 5.63 5.82 65 6.26 6.12 5.69 5.92 66 6.40 6.24 5.75 6.03 67 6.56 6.37 5.82 6.15 68 6.72 6.50 5.88 6.27 69 6.90 6.65 5.93 6.40 70 7.10 6.80 5.99 6.54 71 7.32 6.96 6.04 6.68 72 7.55 7.13 6.08 6.84 73 7.80 7.30 6.12 7.00 74 8.07 7.48 6.16 7.17 75 8.37 7.66 6.19 7.36
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period Joint None 120 Months 240 Months Age None 120 Months 240 Months $5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26 5.14 5.14 5.11 61 5.56 5.50 5.33 5.22 5.21 5.17 62 5.65 5.59 5.39 5.29 5.29 5.24 63 5.75 5.68 5.45 5.37 5.37 5.30 64 5.86 5.77 5.52 5.46 5.46 5.38 65 5.97 5.88 5.58 5.56 5.55 5.45 66 6.09 5.99 5.65 5.66 5.65 5.52 67 6.23 6.11 5.71 5.77 5.76 5.60 68 6.37 6.24 5.78 5.90 5.88 5.67 69 6.53 6.37 5.84 6.03 6.00 5.75 70 6.70 6.51 5.90 6,17 6.14 5.82 71 6.89 6.66 5.96 6.32 6.28 5.89 72 7.09 6.82 6.01 6.49 6.43 5.95 73 7.31 6.99 6.06 6.66 6.60 6.01 74 7.54 7.16 6.11 6.86 6.77 6.06 75 7.80 7.34 6.15
Page 10 ARTICLE 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Cash Age Certain Certain Certain Refund 60 $5.31 $5.17 $4.77 $4.83 61 5.43 5.27 4.83 4.92 62 5.56 5.38 4.89 5.01 63 5.70 5.50 4.95 5.10 64 5.85 5.62 5.01 5.20 65 6.00 5.74 5.07 5.31 66 6.17 5.88 5.13 5.42 67 6.35 6.01 5.18 5.53 68 6.55 6.16 5.24 5.65 69 6.75 6.30 5.29 5.79 70 6.98 6.46 5.34 5.92 71 7.21 6.63 5.38 6.06 72 7.47 6.79 5.42 6.22 73 7.75 6.96 5.46 6.37 74 8.04 7.13 5.49 6.54 75 8.36 7.31 5.52 6.73
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period Joint None 120 Months 240 Months Age None 120 Months 240 Months $4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64 4.58 4.57 4.48 61 5.11 5.01 4.71 4.67 4.65 4.55 62 5.23 5.11 4.77 4.76 4.75 4.62 63 5.35 5.22 4.84 4.86 4.85 4.69 64 5.48 5.33 4.90 4.97 4.95 4.77 65 5.62 5.45 4.97 5.09 5.06 4.84 66 5.76 5.58 5.03 5.21 5.18 4.92 67 5.92 5.71 5.09 5.34 5.31 4.99 68 6.09 5.85 5.15 5.49 5.44 5.07 69 6.27 5.99 5.21 5.64 5.58 5.14 70 6.46 6.14 5.27 5.80 5.73 5.21 71 6.67 6.30 5.32 5.98 5.89 5.27 72 6.90 6.46 5.37 6.17 6.06 5.33 73 7.14 6.63 5.41 6.37 6.23 5.38 74 7.40 6.81 5.45 6.59 6.41 5.43 75 7.67 6.99 5.49
Page 11 ARTICLE 7 GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES FOR FIXED ALLOCATIONS*
$1,000 Annual Contribution $100 Monthly Contribution End Guaranteed Guaranteed End Guaranteed Guaranteed of Accumulated Surrender of Accumulated Surrender Year Value Value Year Value Value 1 $1,020.00 $938.40 1 $1,204.05 $1,107.73 2 2,085.90 1,919.03 2 2,462.29 2,265.31 3 3,199.77 2,943.78 3 3,777.15 3,474.97 4 4,363.75 4,014.65 4 5,151.17 4,739.08 5 5,580.12 5,133.71 5 6,587.03 6,060.07 6 6,818.33 6,545.60 6 8,051.35 7,729.30 7 8,106.06 7,781.82 7 9,574.25 9,191.28 8 9,445.30 9,067.49 8 11,158.06 10,711.74 9 10,838.12 10,404.59 9 12,805.23 12,293.02 10 12,286.64 11,795.17 10 14,518.28 13,937.55 11 13,726.67 13,726.67 11 16,224.05 16,224.05 12 15,217.11 15,217.11 12 17,989.53 17,989.53 13 16,759.71 16,759.71 13 19,816.79 19,816.79 14 18,356.30 18,356.30 14 21,708.01 21,708.01 15 20,008.77 20,008.77 15 23,665.42 23,665.42 16 21,719.07 21,719.07 16 25,691.34 25,691.34 17 23,489.24 23,489.24 17 27,788.17 27,788.17 18 25,321.36 25,321.36 18 29,958.38 29,958.38 19 27,217.61 27,217.61 19 32,204.56 32,204.56 20 29,180.23 29,180.23 20 34,529.35 34,529.35 21 31,211.54 31,211.54 21 36,935.50 36,935.50 22 33,313.94 33,313.94 22 39,425.88 39,425.88 23 35,489.93 35,489.93 23 42,003.41 42,003.41 24 37,742.08 37,742.08 24 44,671.16 44,671.16 25 40,073.05 40,073.05 25 47,432.28 47,432.28 26 42,485.60 42,485.60 26 50,290.05 50,290.05 27 44,982.60 44,982.60 27 53,247.83 53,247.83 28 47,566.99 47,566.99 28 56,309.13 56,309.13 29 50,241.84 50,241.84 29 59,477.58 59,477.58 30 53,010.30 53,010.30 30 62,756.93 62,756.93 31 55,875.66 55,875.66 31 66,151.05 66,151.05 32 58,841.31 58,841.31 32 69,663.97 69,663.97 33 61,910.76 61,910.76 33 73,299.84 73,299.84 34 65,087.63 65,087.63 34 77,062.96 77,062.96 35 68,375.70 68,375.70 35 80,957.80 80,957.80 36 71,778.85 71,778.85 36 84,988.95 84,988.95 37 75,301.11 75,301.11 37 89,161.19 89,161.19 38 78,946.65 78,946.65 38 93,479.46 93,479.46 39 82,719.78 82,719.78 39 97,948.83 97,948.83 40 86,624.97 86,624.97 40 102,574.72 102,574.72 41 90,666.85 90,666.85 41 107,362.46 107,362.46 42 94,850.19 94,850.19 42 112,317.78 112,317.78 43 99,179.94 99,179.94 43 117,446.53 117,446.53 44 103,661.24 103,651.24 44 122,754.79 122,754.79 45 108,299.38 108,299.38 45 128,248.84 128,248.84
Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or less than shown in the table because of the variable of the day of receipt of the Purchase Payment at the Home Office from period to period and the crediting of interest to the Annuitant's account on a daily basis. Values shown are based upon contributions equally spaced with interest occurring at the beginning of the year. These values do not provide for premium tax, if any. Page 12 VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") The second and third paragraphs under the section "SURRENDER OPTION", found in Article 2 of this Contract, shall be deleted. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Patrick Wiltshire PATRICK WILTSHIRE, SECOND VICE PRESIDENT VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") Any reference to Fund or Funds shall be followed by "and Series". VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as follows: "The Eligible Funds and Series are: 1. Lincoln National Growth & Income Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Global Asset Allocation Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National International Fund, Inc. 9. Lincoln National Aggressive Growth Fund, Inc. 10. Lincoln National Capital Appreciation Fund, Inc. 11. Lincoln National Equity-Income Fund, Inc. 12. Delaware Group Premium Fund, Inc. Equity/Income Series. 13. Delaware Group Premium Fund, Inc. Emerging Growth Series. 14. Delaware Group Premium Fund, Inc. Global Bond Series. 15. Other Funds and Series made available by LNL." Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4 and 5 of this Contract shall be amended in its entirety as follows: "the investment advisory fee accrued by the Fund or Series for each day of the Valuation Period from the Advisory Fee Table below; divided by" Advisory Fee Table
In excess Fund or Series First Next of $400 $200 million... $200 million... million... Of average daily net asset value Aggressive Growth .75 of 1% .70 of 1% .65 of 1% Capital Appreciation .80 of 1 .80 of 1 .80 of 1 Equity-Income .95 of 1 .95 of 1 .95 of 1 Global Asset Allocation .75 of 1 .70 of 1 .68 of 1 International .90 of 1 .75 of 1 .60 of 1 Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1 Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1 Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1 All other Funds .48 of 1 .40 of 1 .30 of I
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Patrick Wiltshire PATRICK WILTSHIRE, SECOND VICE PRESIDENT VARIABLE ANNUITY RIDER MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT"). The following two paragraphs shall be inserted on Page 6 immediately after option (d). under Section 2.03, "ANNUITY PAYMENT OPTIONS". "If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then under the Annuity Payment Option elected the present value of the payments projected to be made to the Annuitant must equal more than 50% of the present value of the total payments projected to be made to the Annuitant and the Beneficiary or Joint Annuitant. The present value of such projected payments shall be determined on the basis of the actuarial assumptions utilized by LNL in determining the amount of the annuity payments. If the Beneficiary or Joint Annuitant is the Annuitant's spouse, under the Annuity Payment Option elected the periodic payment made to the spouse on the death of the Annuitant may be no greater than the payment made to the Annuitant during his lifetime." THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Jon C. Geist JON C. GEIST, SECOND VICE PRESIDENT BENEFICIARY RIDER MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ('THIS CONTRACT") The following paragraphs shall be inserted after the second paragraph under the Section "DEATH OF ANNUITANT" of this Contract: "If the Beneficiary designated at the time of the Annuitant's death is a surviving spouse, the Contract may be continued in the name of the spouse as the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies before Annuity Payments have begun under the Contract, the amounts must be distributed to the designated Beneficiary within five years of the death of the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies after Annuity Payments have begun under the Contract, the remaining portion of the Annuitant's interest must either be distributed at least as rapidly as under the method of distribution being used as of the date of the Annuitant's death or distributed over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. The distribution of these amounts must begin not later than one year after the Annuitant's death." THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Jon C. Geist JON C. GEIST, SECOND VICE PRESIDENT SECTION 403(b) ANNUITY ENDORSEMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") This Endorsement is attached to an annuity contract ("Contract") described in Section 403(b) of the Internal Revenue Code of 1986 and applicable regulations ("IRC"). The Contract will be governed by this Endorsement and Section 403(b) annuity rules and any contrary provisions in the Contract are amended as follows. If the Section 403(b) arrangement ("Arrangement") in which you participate is subject to the requirements of the Employee Retirement Income Security Act of 1974 and applicable regulations ("ERISA"), the provisions of Section 10 below shall also apply. OWNER AND ANNUITANT 1. The Owner must be either an organization described in IRC Section 403(b)(1)(A) ("Employer") or an employee of such an Employer. If the Owner is the Employer, the term ("Employee") will mean the individual for whose benefit the Employer established an annuity program under IRC Section 403(b). This Employee will be the Annuitant under the Contract. If the Owner is an Employee of the Employer, the Annuitant under the Contract will be that Employee. If this Contract is used to accept a rollover under IRC Sections 403(b)(8) or 408(d)(3) ("Rollover") or a non- taxable direct transfer from another Arrangement ("Direct Transfer"), the Owner will be the Employer or the individual for whose benefit the Section 403(b) program was established, who will also be the Annuitant. A Contingent Owner or a Joint Owner cannot be named. NONTRANSFERABLE 2. The Employee's interest in this Contract is nontransferable within the meaning of IRC Section 401(g). This Contract may not be sold, assigned, discounted, or pledged as collateral for a loan and may not be alienated except under the terms of a qualified domestic relations order within the meaning of IRC Section 414(p) ("QDRO"). However, an Employee may be permitted to borrow amounts from this contract -- see Section 8 below. PURCHASE PAYMENTS 3. Purchase payments must be made by an Employer or an Employee, except in the case of a Rollover or a Direct Transfer. Purchase payments must not exceed the limits in IRC Sections 415 or 403(b), and if made under the terms of a salary reduction agreement ("Agreement") also will be limited as provided in IRC Section 402(g). Purchase payments in excess of such amounts may be distributed by The Lincoln National Life Insurance Company ("LL") as permitted by law. Minimum purchase payments will not exceed $200 annually under this Contract, except in the case of a Rollover or a Direct Transfer. LL may not surrender the Contract. REQUIRED DISTRIBUTIONS 4. The Contract account value will be distributed as required under IRC Section 403(b)(10) including the requirement that payments to persons other than the Employee are incidental. Required Beginning Date: The term "Required Beginning Date" will mean the following: a) For years beginning before 1997, "Required Beginning Date" means April 1 of the calendar year following the calendar year the Employee attains age 70 1/2. For an Employee who attains age 70 1/2 before January 1, 1988, or for an Employee in a governmental plan or a church plan (as defined in IRC Section 401(a)(9)(C)), Required Beginning Date means April 1 of the calendar year following the later of (I) the calendar year the Employee attains age 70 1/2, or (ii) the calendar year the Employee retires. b) For years beginning in 1997 and after, "Required Beginning Date" means April i of the calendar year following the later of (i) the calendar year the Employee attains age 70 1/2, or (ii) the calendar year the Employee retires. Except in the case of a governmental plan or a church plan (as defined in IRC Section 401(a)(9)(C)), for an Employee who is a "five-percent owner" (as defined in IRC Section 416), "Required Beginning Date" means April 1 of the calendar year following the calendar year the Employee attains age 70 1/2. Distributions During Employee's Life: If required by Section 403(b)(10), the Employee's entire interest will be distributed by the Required Beginning Date, or will be distributed, beginning by the Required Beginning Date, over (a) the life of the Employee, or the lives of the Employee and the Employee's designated beneficiary as defined in IRC Section 401(a)(9) ("Designated Beneficiary"), or (b) a period certain not longer than the life expectancy of the Employee or the joint and last survivor expectancy of the Employee and the Designated Beneficiary. If the Employee's interest is to be distributed over a period greater than one year, the amount to be distributed by December 31 of each year (including the year in which the Required Beginning Date occurs) wilt be governed by IRC Section 401(a)(9) including the incidental death benefit requirement and Regulation 1.401(a)(9)-2 as required by IRC Section 403(b)(10). Distributions after Employee's Death: If the Employee dies on or after the Required Beginning Date (or after irrevocable annuity distributions have begun before the required beginning date), any remaining interest will be distributed at least as rapidly as under the distribution method in effect at the Employee's death. If required by Section 403(b)(10) and if the Employee dies before the Required Beginning Date and an irrevocable annuity distribution has not begun, the entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Employee's death ("End of the Fifth Year"), except: a) if the interest is payable to an individual who is the Designated Beneficiary, the Designated Beneficiary may elect to receive the entire interest over life or a period that is no longer than the life expectancy of the Designated Beneficiary, starting by December 31 of the calendar year immediately following the calendar year of the Employee's death; or, b) if the Designated Beneficiary is the Employee's surviving spouse ("Spousal Designated Beneficiary"), the surviving spouse may elect to receive the entire interest over life or any period no longer than life expectancy starting at any date on or before the later of: i) December 31 of the calendar year immediately following the calendar year in which the Employee died; and ii) December 31 of the calendar year in which the Employee would have attained age 70 1/2. If the surviving spouse dies before distributions begin, the limitations of this Section (other than this paragraph (b)) will be applied as if the surviving spouse were the Employee. An irrevocable election of the method of distribution by a Spousal Designated Beneficiary must be made by the earlier of End of the Fifth Year or the date distributions are required to begin under this paragraph (b). If no election is made, the entire interest will be distributed by the End of the Fifth Year. An irrevocable election of the method of distribution by a non-spouse Designated Beneficiary must be made by December 31 of the calendar year immediately following the calendar year in which the employee died. If no election is made, the entire interest will be distributed by the End of the Fifth Year. Life Expectancy Calculations: Life expectancies will be calculated using the Employee's (and the Designated Beneficiary's) attained age as of the Employee's birthday (and the Designated Beneficiary's birthday) in the calendar year the Employee attains age 70 1/2. Life expectancies will be calculated in accordance with Federal tax requirements and will not be recalculated unless the Employee, or for distributions beginning after the Employee's death, the Spousal Designated Beneficiary, makes an Election, prior to the date distributions are required to begin, to have life expectancies recalculated annually. ANNUITY OPTIONS AND WITHDRAWALS 5. All Annuity Payment Options ("Options") and Withdrawals under the Contract must meet the required distributions of Section 4, including the requirement that payments to persons other than the employee are incidental. The amount of Annuity Payments will be based on unisex rates. DISTRIBUTION OF SALARY REDUCTION CONTRIBUTIONS 6. Any contributions made after 1988, under an Agreement and the earnings on such contributions and on amounts held on December 31, 1988, may not be distributed unless the Employee has reached age 59 1/2, separated from service, died, become disabled (within the meaning of IRC Section 72(m)(7)) or incurred a hardship. Hardship distributions will be limited to contributions (not the earnings) made under an Agreement. Also, amounts may be distributed under the terms of a QDRO. Direct Transfers to another Arrangement may be made only as permitted by applicable law. Amounts subject to withdrawal restrictions under the IRC may only be transferred to an Arrangement with the same or stricter restrictions. DISTRIBUTION OF CUSTODIAL ACCOUNT CONTRIBUTIONS 7. Purchase payments made by Direct Transfer which are subject to the withdrawal restrictions of IRC Section 403(b)(7)(A)(ii) and earnings on such payments will continue to be subject to the same legal restrictions. LOANS 8. You may borrow from the account value using the Contract as sole security for the loan by signing the required loan agreement. Any loan must comply with IRC Section 72(p), including the amount and terms of any loan. Loans are permitted under this Contract only to the extent permitted under your Employer's Section 403(b) plan, if any, according to law and LL's loan terms. DIRECT ROLLOVERS 9. The Employee, the Employee's spouse, or the Employee's spouse or former spouse, who is the alternate payee under a ODRO ("Distributee"), may elect to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan. This is called a direct rollover. An eligible rollover distribution ("Distribution") is any distribution unless it is: a) one of a series of substantially equal periodic payments (made at feast annually) for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Designated Beneficiary, or for a specified period often years or more; b) any required distribution under IRC Section 403(b)(10); or c) any part of a distribution that is not includible in income. An eligible retirement plan is an IRC Section 403(b) annuity or an individual retirement plan as defined in IRC Section 7701(a)(37) ("IRA") that accepts Distributions. However, in the case of a Distribution to the surviving spouse, an eligible retirement plan is an IRA. This Section 9 applies to all Distributions made afler December 31, 1992. ERISA REQUIREMENTS 10. If this Contract is subject to the requirements of ERISA, the following applies, but only to the extent consistent with your Employer's 403(b) plan. a) In the event of the Employee's death prior to the Maturity Date, the death benefit shall be paid to (i) the surviving spouse of the Employee in the form required by Section 205 of ERISA ("Section 205"), unless the spouse elects otherwise within the requirements of Section 205 ("Consent"), or (ii) if there is no surviving spouse, or if the surviving spouse has Consented or if ERISA permits, to the Designated Beneficiary under the Contract. b) Unless ERISA permits, only Option (c) with no certain period is available to a married Employee, and the Joint Annuitant must be the Employee's spouse. A married Employee may elect another Option or designate another Joint Annuitant provided his or her spouse Consents, or if such election is permitted under ERISA. An unmarried Employee will be deemed to have elected Option (a) with no period certain unless he or she makes a different Election. c) Elections and Consents may be revoked as permitted by ERISA and must be in the form required by ERISA. d) No partial or total withdrawal, and no loan may be made without Consent of the Employee and the Employee's spouse, except to the extent not required by ERISA. Any withdrawal must be made as required by ERISA unless the Employee (and spouse, if any) makes an Election to receive the benefit in another form. Any loan must conform to ERISA. Employer consent for partial or total withdrawals and loans may also be required. e) If the Employee's contract value is $3,500 or less as determined on the first day of the month preceding the Annuity Date, LL will pay the Contract value to the Employee on the Maturity Date in one lump sum as required by Section 205. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Kathleen Peterson KATHLEEN PETERSON, SECOND VICE PRESIDENT ANNUITY CONTRACT DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING If you have any questions concerning this Contract, or if anyone suggests that you change or replace this Contract please contact your Lincoln National Life representative or the Home Office of LNL. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 SOUTH CLINTON STREET P.O. BOX 2340 FORT WAYNE, INDIANA 46801-2340 800-348-1212 EX-99.4(C) 5 EXHIBIT 99.4(C) ABRAHAM LINCOLN XX-0123456 LINCOLN NATIONAL LIFE INSURANCE CO. A part of LINCOLN NATIONAL CORPORATION ANNUITY CONTRACT FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits and other rights described in this Contract in accordance with the terms of this Contract. NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON WITHOUT PENALTY (E.G., NO CONTINGENT DEFERRED SALES CHARGE WILL BE DEDUCTED) BY DELIVERING OR MAILING IT TO THE HOME OFFLCE OF LNL. UPON CANCELLATION, LNL WILL RETURN THE VALUE OF ANY PAYMENTS MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE CONTRACT. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6. Signed for The Lincoln National Life Insurance Company at its Home Office in Fort Wayne, Indiana. /s/ Jon A. Boscia /s/ Jon C. Gelst Jon A. Boscia, President Jon C. Gelst, Second Vice President TABLE OF CONTENTS ARTICLE PAGE 1 PURCHASE PAYMENTS 4 2 BENEFITS 5 3 BENEFICIARY 9 4 GENERAL PROVISIONS 9 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 11 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 12 7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 13 Page 2 CONTRACT DATA CONTRACT NUMBER XX-01 23456 ANNUITANT ABRAHAM LINCOLN AGE AT ISSUE 35 CONTRACT DATE APRIL 1,1989 PURCHASE PAYMENT $1,500.00 PURCHASE PAYMENT FREQUENCY MONTHLY MATURITY DATE APRIL 1, 2039 OWNER ABRAHAM LINCOLN MARY LINCOLN TODD LINCOLN BENEFICIARY DESIGNATION AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION The portion of your Initial purchase payment allocated to the Fixed Account of your Annuity Contract is guaranteed to be credited an initial effective annual Interest rate of 4.500% through 04/09/1992. The $25.00 account charge referenced in Section 2.11 will not apply to your Contract. Page 3 ARTICLE I PURCHASE PAYMENTS 1.01 WHERE PAYABLE The Purchase Payments must be made to The Lincoln National Life Insurance Company (LNL) at its Home Office. The initial Purchase Payment for this Contract must be at least $5,000. Additional Purchase Payments must be at least $1,000. 1.02 VARIABLE ACCOUNT Purchase Payments under the Contract may be allocated to the Lincoln National Life Variable Annuity Account C (Variable Account) and/or to the fixed portion of the Contract. The Variable Account is for the exclusive benefit of persons entitled to receive benefits under variable annuity contracts. The Variable Account will not be charged with the liabilities from any other part of LNL's business. There are currently eight sub-accounts in the Variable Account. The Owner may direct Purchase Payments under the Contract to any of the available sub-accounts subject to the following limitations. A minimum payment to any one sub-account must be at least $1,000. If the Owner elects to direct Purchase Payments to a new sub-account not previously selected, the election must be in writing to LNL. All the amounts allocated to each sub-account will be invested at net asset value in the shares of one of the regulated investment companies (the Eligible Funds). The Eligible Funds are: 1. Lincoln National Growth Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Putnam Master Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National international Fund, Inc. 9. Other Funds made available by LNL. LNL reserves the right to eliminate the shares of any of the Eligible Funds and substitute the securities of a different investment company if the shares of an Eligible Fund are no longer available for investment, or if in the judgment of LNL, further investment in any Eligible Fund should become inappropriate in view of the purposes of the Contract. LNL may add an Eligible Fund in order to invest the assets of a new sub-account in the Variable Account. LNL shall give the Owner written notice of the elimination and substitution of Eligible Funds within five days after such substitution occurs. LNL shall use the Purchase Payment allocated to the Variable Account by the Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The number of Accumulation Units bought shall be determined by dividing the amount directed to the sub-account by the dollar value of an Accumulation Unit in such sub-account as of the day the Purchase Payments are received at the Home Office of LNL. The number of Accumulation Units held for the account of an Owner shall not be changed by any change in the dollar value of Accumulation Units in any sub-account. 1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR The Variable Account value of an Owner's Contract at any time prior to the Annuity Commencement Date equals the Value of the Accumulation Units held in the name of the Owner in the Variable Account under the Contract. A "Valuation Date" is each day that the New York Stock Exchange is open for business. A "Valuation Period" is the period commencing at the close of business on the New York Stock Exchange on each Valuation Date and ending at the close of business on the next succeeding Valuation Date. Accumulation Units for each sub-account are valued separately. Initially, the value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter, the value of an Accumulation Unit in any sub- account on any Valuation Date equals the value of an Accumulation Unit in that sub-account as of the immediately preceding Valuation Date multiplied by the "net investment factor" of that sub-account for the current Valuation Period. In order to arrive at this factor, a "Gross Investment Rate" is first determined for each Eligible Fund for the Valuation Period. Such rate for the Valuation Period is equal to: a) the investment income of the Fund: plus b) capital gains (realized and unrealized); minus c) capital losses (realized and unrealized); minus d) certain operational expenses of the Fund; minus e) the reserve for federal taxes on realized capital gains (if applicable); minus f) the investment advisory fee accrued by the Funds for each day of the Valuation Period--0.480% of the first $200,000,000 of net assets on an annual basis,(0.750% for the Lincoln National Putnam Master Fund, Inc./0.900% for the Lincoln National International Fund, Inc.), 0.400% of the next $200,000,000 of net assets, (0.700% for the Lincoln National Putnam Master Fund, lnc./0.750% for the Lincoln National International Fund, Inc.), and 0.300% of net assets above $400,000,000, (0.680% for the Lincoln National Putnam Master Fund, lnc./0.600% for the Lincoln National International Fund, Inc.); divided by g) the net asset value of the Fund as ofthe beginning of the Valuation Period. The Gross Investment Rate may be positive or negative. Page 4 The Net Investment Rate for each sub-account is equal to the Gross Investment Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for each day of the Valuation Period, plus or minus an adjustment for any taxes attributable to the operation of the Variable Account. LNL makes the 1.002% deduction for administrative expenses and mortality and expense risk guarantees. The method used to determine unit values may increase or decrease the dollar value of benefits under the Contract. The dollar value of benefits will not be adversely affected by expenses incurred by LNL. The Net Investment Factor for each sub-account is equal to 1.000000000 plus the Net Investment Rate for the period. 1.04 FIXED ALLOCATIONS The Purchase Payments under the Contract may be allocated to the Variable Account and/or to the fixed portion of the Contract. A minimum payment to the fixed portion must be at least $1,000. Purchase Payments allocated to the fixed portion will be invested in the general account of LNL. 1.05 CREDITING OF INTEREST Interest shall be credited daily on all Purchase Payments that are allocated to the fixed portion of this Contract. Prior to the time the Annuitant elects to receive Benefit Payments or the death of the Annuitant, whichever occurs first, LNL guarantees that it will credit interest on fixed allocations at an effective annual rate not less than 4.5% during the first five contract years, 4.0% for the next five contract years, and 3.5% after that. A table of guaranteed values for the fixed allocations may be found in Article 7. LNL may credit interest at rates in excess of the guaranteed rates at any time and guarantee higher rates for shorter periods of time. 1.06 AUTOMATIC NONFORFEITURE OPTION This Contract will continue until the earlier of the Maturity Date, surrender of the Contract, or death of the Annuitant. Additional Purchase Payments may be made at any time. The total Account Value must be at least $600. If not, LNL may surrender the Contract. Purchase Payments may be resumed at any time prior to maturity, surrender, or death of the Annuitant. 1.07 TRANSFERS The Owner may direct a transfer of assets from one sub-account to another sub-account or to the fixed portion of the Contract. The Owner may also direct a transfer of assets from the fixed portion of the Contract to one or more sub-accounts of the Variable Account. Such a transfer request must be in writing. Amounts transferred to the sub-account(s) will purchase Accumulation Units as described in the last paragraph of Section 1.02. The minimum transfer amount is $500 or the entire amount in the sub-account/fixed portion, whichever is less. If after the transfer the amount remaining under this Contract in the sub-account/fixed portion from which the transfer is taken is less than $100, the entire amount held in that sub-account/fixed portion will be transferred with the transfer amount. The transfer is subject to any applicable transfer charge. There may not be more than one transfer in any thirty day period. LNL reserves the right to limit the number of transfers. For transfers between sub-accounts and from the sub-account(s) to the fixed portion of the Contract, there are no restrictions on the maximum amount which may be transferred. For transfers from the fixed portion of the Contract to the Variable Account, the sum of the percentages of fixed value transferred will be limited to 25% in any 12 month period. ARTICLE 2 BENEFITS 2.01 ANNUITY PAYMENTS An election to receive proceeds under an Annuity Payment Option must be made by the Maturity Date. If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity payments will commence on the Maturity Date under the Annuity Payment Option providing a Life Annuity with Annuity Payments guaranteed for 10 years. However, upon written request by the Owner and any Beneficiary who cannot be changed, the Maturity Date may be deferred. If the new Maturity Date extends beyond age 85, LNL reserves the right to restrict the availability of certain Annuity Payment Options. 2.02 CHOICE OF ANNUITY PAYMENT OPTION BY OWNER While the Annuitant is alive, the Owner may choose any Annuity Payment Option or change any choice, if that right has been reserved, but only before the Maturity Date. The election must be made not later than thirty days prior to the Maturity Date. BY BENEFICIARY At the time proceeds are payable, a Beneficiary may choose or change any Annuity Payment Option if proceeds are available to the Beneficiary in one sum. Page 5 A choice or change must be in writing to LNL. 2.03 ANNUITY PAYMENT OPTIONS a) Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime of the Annuitant, terminating with the last payment due prior to the death of the Annuitant, provided that, at such death, the Beneficiary will receive an additional payment of the then dollar value of the number of Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the Annuity Unit Value at the Annuity Commencement Date and (b) is the product of the number of Annuity Units represented by each payment and the number of payments made. c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. Payments will be made during the joint life of the Annuitant and a Joint Annuitant of the Annuitant's choice. Payments continue for the life of the survivor at the death of the Annuitant or Joint Annuitant. d) Other options may be available as agreed upon by LNL. At the time Annuity Payments start under the provisions of this Contract, the Owner may elect to have the total value applied to provide a variable annuity, a fixed annuity, or a combination fixed and variable annuity. If no election is made the value of the Annuitant's Variable Account shall be used to provide a variable annuity, and the value of the Annuitant's fixed allocations shall be used to provide a fixed annuity. The amount of Annuity Payment will depend on the age and sex of the Annuitant at the time the first payment is due. A choice may be made to receive payments once each month, four times each year, twice each year, or once each year. The value used to effect benefit payments for an Annuitant will be calculated as of the fourteenth day prior to the date benefit payments start. The payment amounts shown in the option tables in Article S will be used to determine the first monthly payment under a variable payment option. The tables show the dollar amount of the first monthly payment which can be purchased with each $1,000 of Account Value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 5% per year. The payment amounts shown in the option tables in Article 6 will be used to determine the monthly payments under a fixed payment option. The tables show the dollar amount of the monthly payments which can be purchased with each $1,000 of account value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 3 1/2% per year. The following shall apply only in situations where the provisions of the Retirement Equity Act of 1984 are required: If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then under the Annuity Payment Option elected, the present value of the payments projected to be made to the Annuitant must equal more than 50% of the present value of the total payments projected to be made to the Annuitant and the Beneficiary or Joint Annuitant. The present value of such projected payments shall be determined on the basis of the actuarial assumptions used by LNL in determining the amount of annuity payments. 2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST Each Variable Annuity Payment after the first will be determined by multiplying the Annuity Unit Value of the date each payment is due by a constant number of Annuity Units. This constant is determined by dividing the amount of the first payment by the Annuity Unit Value for the date the first payment is due. The Annuity Unit Value for any Valuation Period for any sub-account is determined by multiplying the Annuity Unit Value for the immediately preceding Valuation Period by the product of (a) 0.999866337 raised to a power equal to the number of days in the current Valuation Period and (b) the Net Investment Factor of the sub-account for the Valuation Period containing the fourteenth day prior to the last day of the current Valuation Period. The valuation of all assets in the sub-account shall be determined in accordance with the provisions of applicable laws, rules, and regulations. The method of determination by LNL of the value of an Accumulation Unit and of an Annuity Unit will be conclusive upon the Annuitant and any Beneficiary. LNL guarantees that the dollar amount of each installment after the first shall not be affected by variations in mortality experience from mortality assumptions on which the first installment is based. 2.05 PROOF OF AGE Annuity Payment will be subject to proof of age that LNL will accept. Page 6 2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS If the Annuity Payment Option chosen results in payments of less than $50 per sub-account, the frequency will be changed so that payments will be at least $50. 2.07 EVIDENCE OF SURVIVAL LNL has the right to ask for proof that the person on whom the payment is based is alive when each payment is due. 2.08 CHANGE IN ANNUITY PAYMENT Changes in Annuity Payments may not be made after Annuity Payments commence. 2.09 ASSIGNMENT This Contract or any portion of this contract may not be assigned except pursuant to a Domestic Relations Order issued by court of proper jurisdiction for any non-qualified Contract or pursuant to a Qualified Domestic Relations Order, as defined under the Internal Revenue Code. 2.10 ACCOUNT VALUE The Account Value is the Value of all Accumulation Units held in the name of the Owner in the Variable Account plus the value of the fixed portion of the Contract. 2.11 ACCOUNT CHARGE On the last business day of each Contract Year, LNL will deduct $25.00 from the Account Value. At surrender the Account Charge will be deducted from the Account Value. If the Owner has elected more than one sub-account, the deduction of the Account Charge shall be taken from each sub-account on a pro-rata basis. Each sub-account will be adjusted by an amount equal to a fraction of the charge. The fraction is equal to "a" divided by "b", where a is the Account Value of the sub-account and "b" is the value of all sub-accounts under the Contract. The fraction for each sub-account is applied to the deduction to determine each sub-account's deduction. For the purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.12 SURRENDER OPTION The Owner may surrender this Contract for its surrender value. On surrender, this Contract terminates. Surrender will be effective on date on which LNL has receives a written request at its Home Office. The surrender value will be the total Account Value less a Surrender Charge and less the Account Charge. The Surrender Charge is calculated as a percentage of the Purchase Payments surrendered. This percentage is based on the number of completed Contract Years between the Contract Year of Purchase Payment and the Contract Year of surrender/withdrawal as shown in the following schedule. The Surrender Charge is calculated separately for each Contract Year's Purchase Payments.
CONTRACT YEAR OF SURRENDER/WITHDRAWAL CHARGE AS A % OF TOTAL MINUS CONTRACT YEAR OF PURCHASE PAYMENTS SURRENDERED/ PURCHASE PAYMENTS WITHDRAWN IN A CONTRAT YEAR 0 7 1 6 2 5 3 4 4 3 5 2 6 1 7+ 0
A Contract Year is the period from the Contract effective date (month and Day) to the anniversary of the Contract effective date in the following year. Any payment will be by check and mailed from LNL's Home Office within seven days after receipt of the surrender request: however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time a request for surrender is received. Interest will be credited to money in the fixed portion of this contract during the deferral period. The Surrender Option is not available after Annuity Payments have begun. Any Account Value payable as a result of annuitization, total and permanent disability of the Annuitant subsequent to the effective date of this Contract and prior to the 65th birthday of the Annuitant, or death of the Annuitant will not be subject to the Surrender Charges. Total and permanent disability is defined as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. LNL must be furnished with proof of the existence thereof by way of a physician's statement. 2.13 WITHDRAWAL OPTION The Owner may withdraw a part of the surrender value of this Contract, subject to the charges outlined under Surrender Option 2.12. The first partial withdrawal in any Contract Year up to 15% of Purchase Payments will be free of charges. The Surrender Charge is calculated separately for each Contract Year's Purchase Payments. For Surrender Charge purposes, LNL assumes that Purchase Payments are withdrawn on a "first in-first out (FIFO)" basis, and that all Purchase Payments are withdrawn before any earnings are withdrawn. Page 7 Withdrawal will be effective on the valuation date on which or next following the date LNL receives a written request at its Home Office. The minimum withdrawal is $100. If any withdrawal reduces the total Account Value to less than $600, LNL may surrender the Contract for its value. The remaining value will be subject to the charges as provided under Surrender Option. The request should specify from which sub-account the withdrawal will be made. If no sub- account is specified, LNL will withdraw, on a prorata basis from each sub-account, the amount requested. Any payment will be by check and mailed from LNL's Home Office within seven days after the date of withdrawal; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request for withdrawal is received. The Withdrawal Option is not available after Annuity Payments have begun. For purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.14 DISTRIBUTIONS FROM IRC SECTION 403(b) Pursuant to requirements of The Tax Reform Act of 1986, section 1123(c)(1) amending IRC Section 403(b), effective January 1,1989: Distributions of post 12/31/88 403(b) Tax Deferred Annuity elective deferrals and earnings under this contract may be made only when: - You attain the age of 59 1/2, separate from service, die, or become disabled. The term disabled shall be as defined in the plan, or in the absence of such definition, as defined in IRC Section 72(m)(7), or - you experience a case of hardship. Hardship shall be determined by the employer, plan administrator, trustee, or person performing similar functions. In the case of hardship distributions, only your contributions, and not the income attributable to your contributions, may be distributed. 2.15 DEATH OF ANNUITANT On receipt of due proof of the death of the Annuitant before a choice is made to receive proceeds under an Annuity Payment Option, LNL will pay to the Beneficiary the value of the Contract as of the day on which written notice of death is received by LNL. Due proof of death shall be either a certified copy of the certificate of death, a certified copy of the statement of death from the attending physician, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to LNL. On receipt of due proof of death of the Annuitant after Annuity Payments have begun under an Annuity Payment Option, if any Annuity Payments remain under the Option they will be paid to the Beneficiary as provided by the Option. Unless otherwise provided in the Beneficiary designation, if no Beneficiary survives the Annuitant, the proceeds will be paid in one sum to the Owner, if living; otherwise, to the Owner's estate. If the Beneficiary designated at the Annuitant's death is a surviving spouse, the Contract may be continued in the name of the spouse as the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies before Annuity Payments have begun under this Contract, the proceeds must be distributed to the designated Beneficiary within five years of the death of the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies after Annuity Payments have begun under this Contract the remaining portion of the Annuitant's interest must either be distributed at least as rapidly as under the method of distribution being used as of the date of the Annuitant's death or distributed over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. The distribution of these amounts must begin not later than one year after the Annuitant's death. 2.16 DEATH OF CONTRACT OWNER If the owner of a non-qualified contract dies before annuity payments have begun, then in accordance with the provisions of Section 72(s) of the Internal Revenue Code (IRC), the Cash Surrender Value (proceeds) of the Contract will be paid as follows: - Upon the death of a non-annuitant owner, the proceeds shall be paid to any surviving joint or contingent owner. - If no joint or contingent owner has been named, then the proceeds shall be paid to the annuitant named in the Contract. If the decedent owner or joint owner is also the annuitant, then the death will be treated as death of the annuitant subject to the provisions of this Contract regarding death of annuitant. If the recipient of the proceeds is the surviving spouse, such surviving spouse shall be deemed as having held the Contract with rights of survivorship and the Contract may be continued in the name of such spouse as owner. In accordance with IRC Section 72(5), any distribution must be paid within 5 years of the death of the owner unless the beneficiary begins receiving, within one year of the Contract Owner's death, the distribution in the form of a life annuity or an annuity for a period certain not exceeding the beneficiary's life expectancy. 2.17 JOINT/CONTINGENT OWNERSHIP If joint owners are named in the application such joint owners shall be treated as having equal undivided Page 8 interest in the Contract. Either owner, independent of the other, may exercise any ownership rights in this Contract. A contingent owner cannot exercise any ownership rights in this Contract while the Contract Owner is alive. ARTICLE 3 BENEFICIARY 3.01 DESIGNATION The Beneficiary named in the application for this Contract will receive the proceeds on the death of the Annuitant unless the Beneficiary has been changed by the Owner. 3.02 CHANGE The Owner may change any Beneficiary during the life of the Annuitant unless otherwise provided in the previous designation. A change of Beneficiary will revoke any previous designation. A change may be made by filing a written request to LNL at its Home Office. The change will become effective upon receipt of the written request by LNL at its Home Office. 3.03 DEATH OF BENEFICIARY Unless otherwise provided in the Beneficiary designation, if any Beneficiary dies before the Annuitant, that Beneficiary's interest will pass to any other Beneficiaries according to their respective interests. If the Beneficiary dies while receiving any remaining Annuity Payments due after the death of the Annuitant, the value of the remainder of such Annuity Payments will be paid in one sum to the Beneficiary's estate. ARTICLE 4 GENERAL PROVISIONS 4.01 THE CONTRACT This Contract the application, and any riders attached to this Contract make up the whole Contract. Only the President, a Vice-President, the Secretary or an Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify, or waive any provisions of this Contract. Any changes, modifications, or waivers must be in writing. No representative or person other than the above named officer has authority to change or modify this Contract or waive any of its provisions. All terms used in this Contract will have usual and customary meaning except when specifically defined. LNL reserves the right to unilaterally change the terms of this Contract for the purpose of keeping this Contract in compliance with federal or state law. 4.02 CONTROL Consistent with the terms of any Beneficiary designation, the Owner may, during the life of the Annuitant, do any of the things described below. - Prior to the time when Annuity Payments have begun the Owner may surrender this Contract or withdraw a portion of the surrender value. The Owner may change this Contract with the consent of LNL. - The Owner may exercise any right, receive any benefit, or enjoy any privilege contained in this Contract. 4.03 INCONTESTABILITY This Contract will not be contested. 4.04 MISSTATEMENT OF AGE If the age of the Annuitant has been misstated, the benefits available under this Contract will be those which the Purchase Payments would have purchased for the correct age. Any underpayments already made by LNL shall be made up immediately and any overpayments already made by LNL shall be charged against the Annuity Payments falling due after adjustment. 4.05 NONPARTICIPATING The Contract is nonparticipating and will not share in the surplus earnings of LNL. 4.06 VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Eligible Fund(s) invested in by the Owner due to their interest in the sub-accounts of the Variable Account. Ownership of this Contract shall not entitle any person to vote at any meeting of shareholders of LNL. Votes attributable to the Contract shall be cast in conformity with applicable law. 4.07 OWNERSHIP OF THE ASSETS LNL shall have exclusive and absolute ownership and control of its assets, including all assets in the Variable Account. 4.06 REPORTS At least once each Contract Year LNL shall mail a report to the Owner. The report shall be mailed to the last address known to LNL. The report shall include a statement of the number of units credited to the Variable Account under this Contract and the dollar value of such units as well as a statement of the value of the fixed portion of this Contract. The information in the report shall be as of a date not more than two months prior to the date of mailing the report. LNL shall also mail to the Owner at least once in each Contract Year a report of the investments held in the sub-accounts under this Contract. Page 9 4.09 PREMIUM TAX State and local government premium tax, if applicable, will be deducted from the Account Value when incurred by LNL. Page 10 ARTICLE 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Unit Age Certain Certain Certain Refund 60 $5.69 $5.61 $5.38 $5.47 61 5.79 5.70 5.44 5.55 62 5.90 5.79 5.50 5.63 63 6.01 5.89 5.57 5.72 64 6.13 6.00 5.63 5.82 65 6.26 6.12 5.69 5.92 66 6.40 6.24 5.75 6.03 67 6.56 6.37 5.82 6.15 68 5.72 6.50 5.88 6.27 69 6.90 6.65 5.93 6.40 70 7.10 6.80 5.99 6.54 71 7.32 6.96 6.04 6.68 72 7.55 7.13 6.08 6.84 73 7.80 7.30 6.12 7.00 74 8.07 7.48 6.16 7.17 75 8.37 7.66 6.19 7.36
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period Joint None 120 Months 240 Months Age None 120 Months 240 Months $5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26 5.14 5.14 5.11 61 5.56 5.50 5.33 5.22 5.21 5.17 62 5.65 5.59 5.39 5.29 5.29 5.24 63 5.75 5.68 5.45 5.37 5.37 5.30 64 5.86 5.77 5.52 5.46 5.46 5.38 65 5.97 5.88 5.58 5.56 5.55 5.45 66 6.09 5.99 5.65 5.66 5.65 5.52 67 6.23 6.11 5.71 5.77 5.76 5.60 68 6.37 6.24 5.78 5.90 5.88 5.67 69 6.53 6.37 5.84 6.03 6.00 5.75 70 6.70 6.51 5.90 6.17 6.14 5.82 71 6.89 6.66 5.96 6.32 6.28 5.89 72 7.09 6.82 6.01 6.49 6.43 5.95 73 7.31 6.99 6.06 6.66 6.60 6.01 74 7.54 7.16 6.11 6.86 6.77 6.06 75 7.80 7.34 6.15
Page 11 ARTICLE 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Cash Age Certain Certain Certain Refund 60 $5.31 $5.17 $4.77 $4.83 61 5.43 5.27 4.83 4.92 62 5.56 5.38 4.89 5.01 63 5.70 5.50 4.95 5.10 64 5.85 5.62 5.01 5.20 65 6.00 5.74 5.07 5.31 66 6.17 5.88 5.13 5.42 67 6.35 6.01 5.18 5.53 68 6.55 6.16 5.24 5.65 69 6.75 6.30 5.29 5.79 70 6.98 5.46 5.34 5.92 71 7.21 6.63 5.38 6.06 72 7.47 6.79 5.42 6.22 73 7.75 6.96 5.46 6.37 74 8.04 7.13 5.49 6.54 75 8.36 7.31 5.52 6.73
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Certain Period Joint None 120 Months 240 Months Age None 120 Months 240 Months $4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64 4.58 4.57 4.48 61 5.11 5.01 4.71 4.67 4.65 4.55 62 5.23 5.11 4.77 4.76 4.75 4.62 63 5.35 5.22 4.84 4.86 4.85 4.69 64 5.48 5.33 4.90 4.97 4.95 4.77 65 5.62 5.45 4.97 5.09 5.06 4.84 66 5.76 5.58 5.03 5.21 5.18 4.92 67 5.92 5.71 5.09 5.34 5.31 4.99 68 6.09 5.85 5.15 5.49 5.44 5.07 69 6.27 5.99 5.21 5.64 5.58 5.14 70 6.46 6.14 5.27 5.80 5.73 5.21 71 6.67 6.30 5.32 5.98 5.89 5.27 72 6.90 6.46 5.37 6.17 6.06 5.33 73 7.14 6.63 5.41 6.37 6.23 5.38 74 7.40 6.81 5.45 6.59 6.41 5.43 75 7.67 6.99 5.49
Page 12 ARTICLE 7 GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES FOR FIXED ALLOCATIONS* $5,000 Initial Purchase Payment Thereafter $1,000 Annual Purchase Payment
End Guaranteed Guaranteed of Accumulated Surrender Year Value Value 1 $5,200.00 $ 4,850.00 2 6,454.00 6,084.00 3 7,784.43 7,384.43 4 9,133.83 8,753.83 5 10,564.85 10,194.85 6 12,002.45 11,652.45 7 13,497.54 13,177.54 8 15,052.45 14,772.45 9 16,669.54 16,389.54 10 18,351.32 18,071.32 11 20,003.62 19,723.62 12 21,713.75 21,433.75 13 23,483.73 23,203.73 14 25,315.66 25,035.66 15 27,211.71 26,931.71 16 29,174.12 28,894.12 17 31,205.21 30,925.21 18 33,307.39 33,027.39 19 35,483.15 35,203.15 20 37,735.06 37,455.06 21 40,065.79 39,785.79 22 42,478.09 42,198.09 23 44,974.83 44,694.83 24 47,558.95 47,278.95 25 50,233.51 49,953.51 20 53,001.68 52,721.68 27 55,866.74 55,586.74 28 58,832.08 58,552.08 29 61,901.20 61,621.20 30 65,077.74 64,797.74 31 68,365.46 68,085.46 32 71,768.25 71,488.25 33 75,290.14 75,010.14 34 78,935.30 78,655.30 35 82,708.03 82,428.03 36 86,612.81 86,332.81 37 90,654.26 90,374.26 38 94,837.16 94,557.16 39 99,166.46 98,886.46 40 103,647.29 103,367.29 41 108,284.94 108,004.94 42 113,084.92 112,804.92 43 118,052.89 117,772.89 44 123,194.74 122,914.74 45 128,516.55 128,236.55
*Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or less than shown in the table because of the variable of the day of receipt of the Purchase Payment at the Home Office from period to period and the crediting of interest to the Annuitant's account on a daily basis. Values shown are based upon contributions equally spaced with interest occurring at the beginning of the year. These values do not provide for premium tax, if any. Page 13 VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") Any reference to Fund or Funds shall be followed by "and Series". VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as follows: "The Eligible Funds and Series are: 1. Lincoln National Growth & Income Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Global Asset Allocation Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National International Fund, Inc. 9. Lincoln National Aggressive Growth Fund, Inc. 10. Lincoln National Capital Appreciation Fund, Inc. 11. Lincoln National Equity-Income Fund, Inc. 12. Delaware Group Premium Fund, Inc. Equity/Income Series. 13. Delaware Group Premium Fund, Inc. Emerging Growth Series. 14. Delaware Group Premium Fund, Inc. Global Bond Series. 15. Other Funds and Series made available by LNL." Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4 and 5 of this Contract shall be amended in its entirety as follows: "the investment advisory fee accrued by the Fund or Series for each day of the Valuation Period from the Advisory Fee Table below; divided by" Advisory Fee Table
In excess Fund or Series First Next of $400 $200 million... $200 million... million... Of average daily net asset value Aggressive Growth .75 of 1% .70 of 1% .65 of 1% Capital Appreciation .80 of 1 .80 of 1 .80 of 1 Equity-Income .95 of 1 .95 of 1 .95 of 1 Global Asset Allocation .75 of 1 .70 of 1 .68 of 1 International .90 of 1 .75 of 1 .60 of 1 Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1 Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1 Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1 All other Funds .48 of 1 .40 of 1 .30 of 1
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ PATRICK WILTSHIRE PATRICK WILTSHIRE, SECOND VICE PRESIDENT ANNUITY CONTRACT DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING If you have any questions concerning this Contract, or if anyone suggests that you change or replace this Contract, please contact your Lincoln National Life representative or the Home Office of LNL. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 SOUTH CLINTON STREET P.O. BOX 2340 FORT WAYNE, INDIANA 46801 800-348-1212 EX-99.4(D) 6 EXHIBIT 99.4(D) ABRAHAM LINCOLN XX-0123456 LINCOLN NATIONAL LIFE INSURANCE CO. A PART OF LINCOLN NATIONAL CORPORATION ANNUITY CONTRACT FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits and other rights described in this Contract in accordance with the terms of this Contract. NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. WITHIN 10 DAYS AFTER THIS CONTRACT IS FIRST RECEIVED, IT MAY BE CANCELLED FOR ANY REASON WITHOUT PENALTY (E.G., NO CONTINGENT DEFERRED SALES CHARGE WILL BE DEDUCTED) BY DELIVERING OR MAILING IT TO THE HOME OFFICE OF LNL. UPON CANCELLATION, LNL WILL RETURN THE VALUE OF ANY PAYMENTS MADE TO THE VARIABLE ACCOUNT AND/OR ANY PURCHASE PAYMENT PAID UNDER THE FIXED PORTION OF THE CONTRACT. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGES 4 AND 6. Signed for The Lincoln National Life Insurance Company at its Home Office in Fort Wayne, Indiana. /s/ Jon A. Boscia /s/ Jon C. Geist JON A. BOSCIA, PRESIDENT JON C. GEIST, SECOND VICE PRESIDENT TABLE OF CONTENTS ARTICLE PAGE 1 PURCHASE PAYMENTS 4 2 BENEFITS 5 3 BENEFICIARY 9 4 GENERAL PROVISIONS 9 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION 11 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION 12 7 GUARANTEED VALUES FOR FIXED ALLOCATIONS 13 CONTRACT DATA CONTRACT NUMBER XX-0123456 ANNUITANT ABRAHAM LINCOLN AGE AT ISSUE 35 CONTRACT DATE APRIL 1,1969 PURCHASE PAYMENT $1,500.00 PURCHASE PAYMENT FREQUENCY MONTHLY MATURITY DATE APRIL 1, 2039 OWNER ABRAHAM LINCOLN MARY LINCOLN TODD LINCOLN BENEFICIARY DESIGNATION AS NAMED IN APPLICATION OR SUBSEQUENT WRITTEN DESIGNATION THE PORTION OF YOUR INITIAL PURCHASE PAYMENT ALLOCATED TO THE FIXED ACCOUNT OF YOUR ANNUITY CONTRACT IS GUARANTEED TO BE CREDITED AN INITIAL EFFECTIVE ANNUAL INTEREST RATE OF 4.500% THROUGH 04/09/1992. Page 3 ARTICLE I PURCHASE PAYMENTS 1.01 WHERE PAYABLE The Purchase Payments must be made to The Lincoln National Life Insurance Company (LNL) at its Home Office. The initial Purchase Payment for this Contract must be at least $5,000. Additional Purchase Payments must be at least $1,000. 1.02 VARIABLE ACCOUNT Purchase Payments under the Contract may be allocated to the Lincoln National Life Variable Annuity Account C (Variable Account) and/or to the fixed portion of the Contract. The Variable Account is for the exclusive benefit of persons entitled to receive benefits under variable annuity contracts. The Variable Account will not be charged with the liabilities from any other part of LNL's business. There are currently eight sub-accounts in the Variable Account. The Owner may direct Purchase Payments under the Contract to any of the available sub-accounts subject to the following limitations. A minimum payment to any one sub-account must be at least $1,000. If the Owner elects to direct Purchase Payments to a new sub-account not previously selected, the election must be in writing to LNL. All the amounts allocated to each sub-account will be invested at net asset value in the shares of one of the regulated investment companies (the Eligible Funds). The Eligible Funds are: 1. Lincoln National Growth Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Putnam Master Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National International Fund, Inc. 9. Other Funds made available by LNL. LNL reserves the right to eliminate the shares of any of the Eligible Funds and substitute the securities of a different investment company if the shares of an Eligible Fund are no longer available for investment, or if in the judgment of LNL, further investment in any Eligible Fund should become inappropriate in view of the purposes of the Contract. LNL may add an Eligible Fund in order to invest the assets of a new sub-account in the Variable Account. LNL shall give the Owner written notice of the elimination and substitution of Eligible Funds within five days after such substitution occurs. LNL shall use the Purchase Payment allocated to the Variable Account by the Owner to buy Accumulation Units in the sub-account(s) selected by the Owner. The number of Accumulation Units bought shall be determined by dividing the amount directed to the sub-account by the dollar value of an Accumulation Unit in such sub-account as of the day the Purchase Payments are received at the Home Office of LNL. The number of Accumulation Units held for the account of an Owner shall not be changed by any change in the dollar value of Accumulation Units in any sub-account. 1.03 NET INVESTMENT RATE AND NET INVESTMENT FACTOR The Variable Account value of an Owner's Contract at any time prior to the Annuity Commencement Date equals the Value of the Accumulation Units held in the name of the Owner in the Variable Account under the Contract. A "Valuation Date" is each day that the New York Stock Exchange is open for business. A "Valuation Period" is the period commencing at the close of business on the New York Stock Exchange on each Valuation Date and ending at the close of business on the next succeeding Valuation Date. Accumulation Units for each sub-account are valued separately. Initially, the value of an Accumulation Unit in each sub-accounts was set at $1.00. Thereafter, the value of an Accumulation Unit in any sub-account on any Valuation Date equals the value of an Accumulation Unit in that sub-account as of the immediately preceding Valuation Date multiplied by the "net investment factor" of that sub-account for the current Valuation Period. In order to arrive at this factor, a "Gross Investment Rate" is first determined for each Eligible Fund for the Valuation Period. Such rate for the Valuation Period is equal to: a) the investment income of the Fund: plus b) capital gains (realized and unrealized); minus c) capital losses (realized and unrealized); minus d) certain operational expenses of the Fund; minus e) the reserve for federal taxes on realized capital gains (if applicable); minus f) the investment advisory fee accrued by the Funds for each day of the Valuation Period--0.480% of the first $200,000,000 of net assets on an annual basis, (0.750% for the Lincoln National Putnam Master Fund, Inc /0.900% for the Lincoln National International Fund, Inc.), 0.400% of the next $200,000,000 of net assets, (0.700% for the Lincoln National Putnam Master Fund, Inc./0.750% for the Lincoln National International Fund, Inc.), and 0.300% of net assets above $400,000,000, (0.680% for the Lincoln National Putnam Master Fund, Inc./0.600% for the Lincoln National International Fund, Inc.); divided by g) the net asset value of the Fund as of the beginning of the Valuation Period. The Gross Investment Rate may be positive or negative. Page 4 The Net Investment Rate for each sub-account is equal to the Gross Investment Rate of the Eligible Fund minus a daily charge at an annual rate of 1.002% for each day of the Valuation Period, plus or minus an adjustment for any taxes attributable to the operation of the Variable Account. LNL makes the 1.002% deduction for administrative expenses and mortality and expense risk guarantees. The method used to determine unit values may increase or decrease the dollar value of benefits under the Contract. The dollar value of benefits will not be adversely affected by expenses incurred by LNL. The Net Investment Factor for each sub-account is equal to 1.000000000 plus the Net Investment Rate for the period. 1.04 FIXED ALLOCATIONS The Purchase Payments under the Contract may be allocated to the Variable Account and/or to the fixed portion of the Contract. A minimum payment to the fixed portion must be at least $1,000. Purchase Payments allocated to the fixed portion will be invested in the general account of LNL. 1.05 CREDITING OF INTEREST Interest shall be credited daily on all Purchase Payments that are allocated to the fixed portion of this Contract. Prior to the time the Annuitant elects to receive Benefit Payments or the death of the Annuitant, whichever occurs first, LNL guarantees that it will credit interest on fixed allocations at an effective annual rate not less than 4.5% during the first five contract years, 4.0% for the next five contract years, and 3.5% after that. A table of guaranteed values for the fixed allocations may be found in Article 7. LNL may credit interest at rates in excess of the guaranteed rates at any time and guarantee higher rates for shorter periods of time. 1.06 AUTOMATIC NONFORFEITURE OPTION This Contract will continue until the earlier of the Maturity Date, surrender of the Contract, or death of the Annuitant. Additional Purchase Payments may be made at any time. The total Account Value must be at least $000. If not, LNL may surrender the Contract. Purchase Payments may be resumed at any time prior to maturity, surrender, or death of the Annuitant. 1.07 TRANSFERS The Owner may direct a transfer of assets from one sub-account to another sub-account or to the fixed portion of the Contract. The Owner may also direct a transfer of assets from the fixed portion of the Contract to one or more sub-accounts of the Variable Account. Such a transfer request must be in writing. Amounts transferred to the sub-account(s) will purchase Accumulation Units as described in the last paragraph of Section 1.02. The minimum transfer amount is $500 or the entire amount in the sub-account/fixed portion, whichever is less. If after the transfer the amount remaining under this Contract in the sub-account/fixed portion from which the transfer is taken is less than $100, the entire amount held in that sub-account/fixed portion will be transferred with the transfer amount. The transfer is subject to any applicable transfer charge. There may not be more than one transfer in any thirty day period. LNL reserves the right to limit the number of transfers. For transfers between sub-accounts and from the sub-account(s) to the fixed portion of the Contract, there are no restrictions on the maximum amount which may be transferred. For transfers from the fixed portion of the Contract to the Variable Account, the sum of the percentages of fixed value transferred will be limited to 25% in any 12 month period. ARTICLE 2 BENEFITS 2.01 ANNUITY PAYMENTS An election to receive proceeds under an Annuity Payment Option must be made by the Maturity Date. If an Annuity Payment Option is not chosen prior to the Maturity Date, annuity payments will commence on the Maturity Date under the Annuity Payment Option providing a Life Annuity with Annuity Payments guaranteed for 10 years. However, upon written request by the Owner and any Beneficiary who cannot be changed, the Maturity Date may be deferred. If the new Maturity Date extends beyond age 85, LNL reserves the right to restrict the availability of certain Annuity Payment Options. 2.02 CHOICE OF ANNUITY PAYMENT OPTION BY OWNER While the Annuitant is alive, the Owner may choose any Annuity Payment Option or change any choice, if that right has been reserved, but only before the Maturity Date. The election must be made not later than thirty days prior to the Maturity Date. BY BENEFICIARY At the time proceeds are payable, a Beneficiary may choose or change any Annuity Payment Option if proceeds are available to the Beneficiary in one sum. Page 5 A choice or change must be in writing to LNL. 2.03 ANNUITY PAYMENT OPTIONS a) Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. b) Unit Refund Life Annuity - An annuity payable monthly during the lifetime of the Annuitant, terminating with the last payment due prior to the death of the Annuitant, provided that, at such death, the Beneficiary will receive an additional payment of the then dollar value of the number of Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the Annuity Unit Value at the Annuity Commencement Dale and (b) is the product of the number of Annuity Units represented by each payment and the number of payments made. c) Joint Life Annuity, Guaranteed Period - Payments will be made for life with no certain period or life and a 10 year certain period or life and a 20 year certain period. Payments will be made during the joint life of the Annuitant and a Joint Annuitant of the Annuitant's choice. Payments continue for the life of the survivor at the death of the Annuitant or Joint Annuitant. d) Other options may be available as agreed upon by LNL. At the time Annuity Payments start under the provisions of this Contract, the Owner may elect to have the total value applied to provide a variable annuity, a fixed annuity, or a combination fixed and variable annuity. If no election is made the value of the Annuitant's Variable Account shall be used to provide a variable annuity, and the value of the Annuitant's fixed allocations shall be used to provide a fixed annuity. The amount of Annuity Payment will depend on the age and sex of the Annuitant at the time the first payment is due. A choice may be made to receive payments once each month, four times each year, twice each year, or once each year. The value used to effect benefit payments for an Annuitant will be calculated as of the fourteenth day prior to the date benefit payments start. The payment amounts shown in the option tables in Article 5 will be used to determine the first monthly payment under a variable payment option. The tables show the dollar amount of the first monthly payment which can be purchased with each $1,000 of Account Value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 5% per year. The payment amounts shown in the option tables in Article 6 will be used to determine the monthly payments under a fixed payment option. The tables show the dollar amount of the monthly payments which can be purchased with each $1,000 of account value, after deduction of any applicable premium taxes. Amounts shown use the 1971 Individual Annuity Mortality Table, modified, with a guaranteed rate of return of 3 1/2% per year. The following shall apply only in situations where the provisions of the Retirement Equity Act of 1984 are required: If the Beneficiary or Joint Annuitant is the Annuitant's spouse, then under the Annuity Payment Option elected, the present value of the payments projected to be made to the Annuitant must equal more than 50% of the present value of the total payments projected to be made to the Annuitant and the Beneficiary or Joint Annuitant. The present value of such projected payments shall be determined on the basis of the actuarial assumptions used by LNL in determining the amount of annuity payments. 2.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST Each Variable Annuity Payment after the first will be determined by multiplying the Annuity Unit Value of the date each payment is due by a constant number of Annuity Units. This constant is determined by dividing the amount of the first payment by the Annuity Unit Value for the date the first payment is due. The Annuity Unit Value for any Valuation Period for any sub-account is determined by multiplying the Annuity Unit Value for the immediately preceding Valuation Period by the product of (a) 0.999856337 raised to a power equal to the number of days in the current Valuation Period and (b) the Net Investment Factor of the sub-account for the Valuation Period containing the fourteenth day prior to the last day of the current Valuation Period. The valuation of all assets in the sub-account shall be determined in accordance with the provisions of applicable laws, rules, and regulations. The method of determination by LNL of the value of an Accumulation Unit and of an Annuity Unit will be conclusive upon the Annuitant and any Beneficiary. LNL guarantees that the dollar amount of each installment after the first shall not be affected by variations in mortality experience from mortality assumptions on which the first installment is based. 2.05 PROOF OF AGE Annuity Payment will be subject to proof of age that LNL will accept. Page 6 2.06 AMOUNT REQUIREMENTS FOR ANNUITY PAYMENT OPTIONS AND PAYMENTS If the Annuity Payment Option chosen results in payments of less than $50 per sub-account, the frequency will be changed so that payments will be at least $50. 2.07 EVIDENCE OF SURVIVAL LNL has the right to ask for proof that the person on whom the payment is based is alive when each payment is due. 2.08 CHANGE IN ANNUITY PAYMENT Changes in Annuity Payments may not be made after Annuity Payments commence. 2.09 ASSIGNMENT This Contract or any portion of this contract may not be assigned except pursuant to a Domestic Relations Order issued by court of proper jurisdiction for any non-qualified Contract or pursuant to a Qualified Domestic Relations Order, as defined under the Internal Revenue Code. 2.10 ACCOUNT VALUE The Account Value is the Value of all Accumulation Units held in the name of the Owner in the Variable Account plus the value of the fixed portion of the Contract. 2.11 ACCOUNT CHARGE On the last business day of each Contract Year, LNL will deduct $25.00 from the Account Value. At surrender the Account Charge will be deducted from the Account Value. If the Owner has elected more than one sub-account, the deduction of the Account Charge shall be taken from each sub-account on a pro-rata basis. Each sub-account will be adjusted by an amount equal to a fraction of the charge. The fraction is equal to "a" divided by "b", where a is the Account Value of the sub-account and "b" is the value of all sub-accounts under the Contract. The fraction for each sub-account is applied to the deduction to determine each sub-account's deduction. For the purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.12 SURRENDER OPTION The Owner may surrender this Contract for its surrender value. On surrender, this Contract terminates. Surrender will be effective on date on which LNL has receives a written request at its Home Office. The surrender value will be the total Account Value less a Surrender Charge and less the Account Charge. The Surrender Charge is calculated as a percentage of the Purchase Payments surrendered. This percentage is based on the number of completed Contract Years between the Contract Year of Purchase Payment and the Contract Year of surrender/withdrawal as shown in the following schedule. The Surrender Charge is calculated separately for each Contract Year's Purchase Payments.
Contract Year of Surrender/Withdrawal Charge as a % of Total Minus Contract Year of Purchase Payments Surrendered/ Purchase Payments Withdrawn in a Contract year 0 7 1 6 2 5 3 4 4 3 5 2 6 1 7+ 0
A Contract Year is the period from the Contract effective date (month and Day) to the anniversary of the Contract effective date in the following year. Any payment will be by check and mailed from LNL's Home Office within seven days after receipt of the surrender request: however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time a request for surrender is received. Interest will be credited to money in the fixed portion of this contract during the deferral period. The Surrender Option is not available atter Annuity Payments have begun. Any Account Value payable as a result of annuitization, total and permanent disability of the Annuitant subsequent to the effective date of this Contract and prior to the 65th birthday of the Annuitant, or death of the Annuitant will not be subject to the Surrender Charges. Total and permanent disability is defined as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. LNL must be furnished with proof of the existence thereof by way of a physician's statement. 2.13 WITHDRAWAL OPTION The Owner may withdraw a part of the surrender value of this Contract, subject to the charges outlined under Surrender Option 2.12. The first partial withdrawal in any Contract Year up to 15% of Purchase Payments will be free of charges. The Surrender Charge is calculated separately for each Contract Year's Purchase Payments. For Surrender Charge purposes, LNL assumes that Purchase Payments are withdrawn on a "first in-first out (FIFO)" basis, and that all Purchase Payments are withdrawn before any earnings are withdrawn. Page 7 Withdrawal will be effective on the valuation date on which or next following the date LNL receives a written request at its Home Office. The minimum withdrawal is $100. If any withdrawal reduces the total Account Value to less than $000, LNL may surrender the Contract for its value. The remaining value will be subject to the charges as provided under Surrender Option. The request should specify from which sub-account the withdrawal will be made. If no sub- account is specified, LNL will withdraw, on a prorata basis from each sub-account, the amount requested. Any payment will be by check and mailed from LNL's Home Office within seven days after the date of withdrawal; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request for withdrawal is received. The Withdrawal Option is not available after Annuity Payments have begun. For purposes of this Section, the fixed portion of the Contract is considered a sub-account. 2.14 DISTRIBUTIONS FROM IRC SECTION 403(b) Pursuant to requirements of The Tax Reform Act of 1986, section 1123(c)(1) amending IRC Section 403(b), effective January 1,1989: Distributions of post 12/31/88 403(b) Tax Deferred Annuity elective deferrals and earnings under this contract may be made only when: - You attain the age of 59 1/2, separate from service, die, or become disabled. The term disabled shall be as defined in the plan, or in the absence of such definition, as defined in IRC Section 72(m)(7), or - you experience a case of hardship. Hardship shall be determined by the employer, plan administrator, trustee, or person performing similar functions. In the case of hardship distributions, only your contributions, and not the income attributable to your contributions, may be distributed. 2.15 DEATH OF ANNUITANT On receipt of due proof of the death of the Annuitant before a choice is made to receive proceeds under an Annuity Payment Option, LNL will pay to the Beneficiary the value of the Contract as of the day on which written notice of death is received by LNL. Due proof of death shall be either a certified copy of the certificate of death, a certified copy of the statement of death from the attending physician, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to LNL. On receipt of due proof of death of the Annuitant after Annuity Payments have begun under an Annuity Payment Option, if any Annuity Payments remain under the Option they will be paid to the Beneficiary as provided by the Option. Unless otherwise provided in the Beneficiary designation, if no Beneficiary survives the Annuitant, the proceeds will be paid in one sum to the Owner, if living; otherwise, to to the Owner's estate. If the Beneficiary designated at the Annuitant's death is a surviving spouse, the Contract may be continued in the name of the spouse as the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies before Annuity Payments have begun under this Contract, the proceeds must be distributed to the designated Beneficiary within five years of the death of the Annuitant. For a Beneficiary other than a spouse, if the Annuitant dies after Annuity Payments have begun under this Contract the remaining portion of the Annuitant's interest must either be distributed at least as rapidly as under the method of distribution being used as of the date of the Annuitant's death or distributed over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. The distribution of these amounts must begin not later than one year after the Annuitant's death. 2.16 DEATH OF CONTRACT OWNER If the owner of a non-qualified contract dies before annuity payments have begun, then in accordance with the provisions or Section 72(s) of the Internal Revenue Code (IRC), the Cash Surrender Value (proceeds) of the Contract will be paid as follows: - Upon the death of a non-annuitant owner, the proceeds shall be paid to any surviving joint or contingent owner. - If no joint or contingent owner has been named, then the proceeds shall be paid to the annuitant named in the Contract. If the decedent owner or joint owner is also the annuitant, then the death will be treated as death of the annuitant subject to the provisions of this Contract regarding death of annuitant. If the recipient of the proceeds is the surviving spouse, such surviving spouse shall be deemed as having held the Contract with rights of survivorship and the Contract may be continued in the name of such spouse as owner. In accordance with IRC Section 72(s), any distribution must be paid within 5 years of the death of the owner unless the beneficiary begins receiving, within one year of the Contract Owner's death, the distribution in the form of a life annuity or an annuity for a period certain not exceeding the beneficiary's life expectancy. 2.17 JOINT/CONTINGENT OWNERSHIP If joint owners are named in the application such joint owners shall be treated as having equal undivided Page 8 interest in the Contract. Either owner, independent of the other, may exercise any ownership rights in this Contract. A contingent owner cannot exercise any ownership rights in this Contract while the Contract Owner is alive. ARTICLE 3 BENEFICIARY 3.01 DESIGNATION The Beneficiary named in the application for this Contract will receive the proceeds on the death of the Annuitant unless the Beneficiary has been changed by the Owner. 3.02 CHANGE The Owner may change any Beneficiary during the life of the Annuitant unless otherwise provided in the previous designation. A change of Beneficiary will revoke any previous designation. A change may be made by filing a written request to LNL at its Home Office. The change will become effective upon receipt of the written request by LNL at its Home Office. 3.03 DEATH OF BENEFICIARY Unless otherwise provided in the Beneficiary designation, if any Beneficiary dies before the Annuitant, that Beneficiary's interest will pass to any other Beneficiaries according to their respective interests. If the Beneficiary dies while receiving any remaining Annuity Payments due after the death of the Annuitant, the value of the remainder of such Annuity Payments will be paid in one sum to the Beneficiary's estate. ARTICLE 4 GENERAL PROVISIONS 4.01 THE CONTRACT This Contract the application, and any riders attached to this Contract make up the whole Contract. Only the President, a Vice-President, the Secretary or an Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify, or waive any provisions of this Contract. Any changes, modifications, or waivers must be in writing. No representative or person other than the above named officer has authority to change or modify this Contract or waive any of its provisions. All terms used in this Contract will have usual and customary meaning except when specifically defined. LNL reserves the right to unilaterally change the terms of this Contract for the purpose of keeping this Contract in compliance with federal or state law. 4.02 CONTROL Consistent with the terms of any Beneficiary designation the Owner may, during the life of the Annuitant, do any of the things described below. - Prior to the time when Annuity Payments have begun the Owner may surrender this Contract or withdraw a portion of the surrender value. - The Owner may change this Contract with the consent of LNL. - The Owner may exercise any right, receive any benefit, or enjoy any privilege contained in this Contract. 4.03 INCONTESTABILITY This Contract will not be contested. 4.04 MISSTATEMENT OF AGE If the age of the Annuitant has been misstated, the benefits available under this Contract will be those which the Purchase Payments would have purchased for the correct age. Any underpayments already made by LNL shall be made up immediately and any overpayments already made by LNL shall be charged against the Annuity Payments falling due after adjustment. 4.05 NONPARTICIPATING The Contract is nonparticipating and will not share in the surplus earnings of LNL. 4.06 VOTING RIGHTS The Owner shall have the right to vote only at the meetings of the Eligible Fund(s) invested in by the Owner due to their interest in the sub-accounts of the Variable Account. Ownership of this Contract shall not entitle any person to vote at any meeting of shareholders of LNL. Votes attributable to the Contract shall be cast in conformity with applicable law. 4.07 OWNERSHIP OF THE ASSETS LNL shall have exclusive and absolute ownership and control of its assets, including all assets in the Variable Account. 4.08 REPORTS At least once each Contract Year LNL shall mail a report to the Owner. The report shall be mailed to the last address known to LNL. The report shall include a statement of the number of units credited to the Variable Account under this Contract and the dollar value of such units as well as a statement of the value of the fixed portion of this Contract. The information in the report shall be as of a date not more than two months prior to the date of mailing the report. LNL shall also mail to the Owner at least once in each Contract Year a report of the investments held in the sub-accounts under this Contract. Page 9 4.09 PREMIUM TAX State and local government premium tax, if applicable, will be deducted from the Account Value when incurred by LNL. Page 10 ARTICLE 5 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Unit Age Certain Certain Certain Refund 60 $5.69 $5.61 $5.38 $5.47 61 5.79 5.70 5.44 5.55 62 5.90 5.79 5.50 5.63 63 6.01 5.89 5.57 5.72 64 6.13 6.00 5.63 5.82 65 6.26 6.12 5.69 5.92 66 6.40 6.24 5.75 6.03 67 5.56 6.37 5.82 6.15 68 6.72 6.50 5.88 6.27 69 6.90 6.65 5.93 6.40 70 7.10 6.80 5.99 6.54 71 7.32 6.96 6.04 5.68 72 7.55 7.13 6.08 6.84 73 7.80 7.30 6.12 7.00 74 8.07 7.48 6.16 7.17 75 8.37 7.66 6.19 7.36
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Joint Certain Period None 120 Months 240 Months Age None 120 Months 240 Months $5.08 $5.07 $5.05 60 $5.47 $5.42 $5.26 5.14 5.14 5.11 61 5.56 5.50 5.33 5.22 5.21 5.17 62 5.65 5.59 5.39 5.29 5.29 5.24 63 5.75 5.68 5.45 5.37 5.37 5.30 64 5.86 5.77 5.52 5.46 5.46 5.38 65 5.97 5.88 5.58 5.56 5.55 5.45 66 6.09 5.99 5.65 5.66 5.65 5.52 67 6.23 6.11 5.71 5.77 5.76 5.60 68 6.37 6.24 5.78 5.90 5.88 5.67 69 6.53 6.37 5.84 6.03 6.00 5.75 70 6.70 6.51 5.90 6.17 6.14 5.82 71 6.89 6.66 5.96 6.32 6.28 5.89 72 7.09 6.82 6.01 6.49 6.43 5.95 73 7.31 6.99 6.06 6.66 6.60 6.01 74 7.54 7.16 6.11 6.86 6.77 6.06 75 7.80 7.34 6.15
Page 11 ARTICLE 6 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION GUARANTEED DOLLAR AMOUNT OF MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED SINGLE LIFE ANNUITIES
No 120 240 Period Months Months Cash Age Certain Certain Certain Refund 60 $5.31 $5.17 $4.77 $4.83 61 5.43 5.27 4.83 4.92 62 5.56 5.38 4.89 5.01 63 5.70 5.50 4.95 5.10 64 5.85 5.62 5.01 5.20 65 6.00 5.74 5.07 5.31 66 6.17 5.88 5.13 5.42 67 6.35 6.01 5.18 5.53 68 6.55 6.16 5.24 5.65 69 6.75 6.30 5.29 5.79 70 6.98 6.46 5.34 5.92 71 7.21 6.63 5.38 6.06 72 7.47 6.79 5.42 6.22 73 7.75 6.96 5.46 6.37 74 8.04 7.13 5.49 6.54 75 8.36 7.31 5.52 6.73
JOINT AND SURVIVOR ANNUITIES
JOINT AND FULL TO SURVIVOR JOINT AND TWO-THIRDS TO SURVIVOR Certain Period Joint Certain Period None 120 Months 240 Months Age None 120 Months 240 Months $4.49 $4.48 $4.41 60 $5.01 $4.92 $4.64 4.58 4.57 4.48 61 5.11 5.01 4.71 4.67 4.65 4.55 62 5.23 5.11 4.77 4.76 4.75 4.62 63 5.35 5.22 4.84 4.86 4.85 4.69 64 5.48 5.33 4.90 4.97 4.95 4.77 65 5.62 5.45 4.97 5.09 5.06 4.84 66 5.76 5.58 5.03 5.21 5.18 4.92 67 5.92 5.71 5.09 5.34 5.31 4.99 68 6.09 5.85 5.15 5.49 5.44 5.07 69 6.27 5.99 5.21 5.64 5.58 5.14 70 6.46 6.14 5.27 5.80 5.73 5.21 71 6.67 6.30 5.32 5.98 5.89 5.27 72 6.90 6.46 5.37 6.17 6.06 5.33 73 7.14 6.63 5.41 6.37 6.23 5.38 74 7.40 6.81 5.45 6.59 6.41 5.43 75 7.67 6.99 5.49
Page 12 ARTICLE 7 GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES FOR FIXED ALLOCATIONS*
$5,000 Initial Purchase Payment Thereafter $1,000 Annual Purchase Payment End Guaranteed Guaranteed of Accumulated Surrender Year Value Value 1 $ 5,200.00 $ 4,850.00 2 5,454.00 5,084.00 3 7,764.43 7,384.43 4 9,133.83 8,753.83 5 10,564.85 10,194.85 6 12,002.45 11,652.45 7 13,497.54 13,177.54 8 15,052.45 14,772.45 9 16,569.54 16,389.54 10 18,351.32 18,071.32 11 20,003.62 19,723.62 12 21,713.75 21,433.75 13 23,483.73 23,203.73 14 25,315.66 25,035.66 15 27,211.71 26,931.71 16 29,174.12 28,894.12 17 31,205.21 30,925.21 18 33,307.39 33,027.39 19 35,483.15 35,203.15 20 37,735.06 37,455.06 21 40,065.79 39,785.79 22 42,478.09 42,198.09 23 44,974.83 44,694.83 24 47,558.95 47,278.95 25 50,233.51 49,953.51 26 53,001.68 52,721.68 27 55,866.74 55,586.74 28 58,832.08 58,552.08 29 61,901.20 61,621.20 30 65,077.74 64,797.74 31 68,365.46 68,085.46 32 71,768.25 71,488.25 33 75,290.14 75,010.14 34 78,935.30 78,655.30 35 82,708.03 82,428.03 36 86,612.81 86,332.81 37 90,654.26 90,374.26 38 94,837.16 94,557.16 39 99,156.46 98,886.46 40 103,647.29 103,367.29 41 108,284.94 108,004.94 42 113,084.92 112,804.92 43 118,052.89 117,772.89 44 123,194.74 122,914.74 45 128,516.55 128,236.55
*Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or tess than shown in the table because of the variable of the day of receipt of the Purchase Payment at the Home Office from period to period and the crediting of interest to the Annuitant's account on a daily basis. Values shown are based upon contributions equally spaced with interest occurring at the beginning of the year. These values do not provide for premium tax, if any. Page 13 VARIABLE ANNUITY AMENDMENT MADE A PART OF THE CONTRACT TO WHICH IT IS ATTACHED ("THIS CONTRACT") Any reference to Fund or Funds shall be followed by "and Series". VARIABLE ACCOUNT, on page 4 of this Contract, shall be amended in part as follows: "The Eligible Funds and Series are: 1. Lincoln National Growth & Income Fund, Inc. 2. Lincoln National Bond Fund, Inc. 3. Lincoln National Money Market Fund, Inc. 4. Lincoln National Special Opportunities Fund, Inc. 5. Lincoln National Managed Fund, Inc. 6. Lincoln National Global Asset Allocation Fund, Inc. 7. Lincoln National Social Awareness Fund, Inc. 8. Lincoln National International Fund, Inc. 9. Lincoln National Aggressive Growth Fund, Inc. 10. Lincoln National Capital Appreciation Fund, Inc. 11. Lincoln National Equity-Income Fund, Inc. 12. Delaware Group Premium Fund, Inc. Equity/Income Series. 13. Delaware Group Premium Fund, Inc. Emerging Growth Series. 14. Delaware Group Premium Fund, Inc. Global Bond Series. 15. Other Funds and Series made available by LNL." Subsection (f) under NET INVESTMENT RATE AND NET INVESTMENT FACTOR, on page 4 and 5 of this Contract shall be amended in its entirety as follows: "the investment advisory fee accrued by the Fund or Series for each day of the Valuation Period from the Advisory Fee Table below; divided by" Advisory Fee Table
Fund or Series First Next In excess of $200 million $200 million $400 million Of average daily net asset value Aggressive Growth 75 of 1% .70 of 1% .65 of 1% Capital Appreciation .80 of 1 .80 of 1 .80 of 1 Equity-Income .05 of 1 .95 of 1 .95 of 1 Global Asset Allocation .75 of 1 .70 of 1 .68 of 1 International .90 of 1 .75 of 1 .60 of 1 Delaware Equity/Income Series .60 of 1 .60 of 1 .60 of 1 Delaware Emerging Growth Series .75 of 1 .75 of 1 .75 of 1 Delaware Global Bond Series .75 of 1 .75 of 1 .75 of 1 All other Funds .48 of 1 .40 of 1 .30 of 1
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY /S/ PATRICK WILTSHIRE PATRICK WILTSHIRE, SECOND VICE PRESIDENT ANNUITY CONTRACT DEFERRED VARIABLE ANNUITY OR VARIABLE AND FIXED ANNUITY BENEFIT PAYMENT OPTIONS NONPARTICIPATING If you have any questions concerning this Contract, or if anyone suggests that you change or replace this Contract, please contact your Lincoln National Life representative or the Home Office of LNL. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 SOUTH CLINTON STREET P.O. BOX 2340 FORT WAYNE, INDIANA 46801 800-348-1212 EX-99.8(B) 7 EXHIBIT 99.8(B) PARTICIPATION AGREEMENT AMONG DELAWARE GROUP PREMIUM FUND, INC. AND LINCOLN NATIONAL LIFE INSURANCE CO. AND DELAWARE DISTRIBUTORS, LP THIS AGREEMENT, made and entered into this 1st day of May, 1996, by and between DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under the laws of Maryland (the "Fund"), and LINCOLN NATIONAL LIFE INSURANCE CO., an Indiana insurance corporation (the "Company"), on its own behalf and on behalf of each separate account of the Company named in Schedule 1 to this Agreement as in effect at the time this Agreement is executed and such other separate accounts that may be added to Schedule 1 from time to time in accordance with the provisions of Article XI of this Agreement (each such account referred to as the "Account"), and DELAWARE DISTRIBUTORS, LP, a Delaware limited partnership (the "Distributor"). WHEREAS, the Fund is engaged in business as an open-end management investment company and was established for the purpose of serving as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively referred to as "Variable Insurance Products," the owners of such products being referred to as "Product owners") to be offered by insurance companies which have entered into participation agreements with the Fund ("Participating Insurance Companies"); and WHEREAS, the common stock of the Fund (the "Fund shares") consists of separate series ("Series") issuing separate classes of shares ("Series shares"), each such class representing an interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund filed with the Securities and Exchange Commission (the "SEC") and the SEC has declared effective a registration statement (referred to herein as the "Fund Registration Statement" and the prospectus contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein as the "Fund Prospectus") on Form N-lA to register itself as an open-end management investment company (File No. 811-5162) under the Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No. 33-14363) under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Company has filed a registration statement with the SEC to register under the 1933 Act certain variable annuity contracts described in Schedule 2 to this Agreement as in effect at the time this Agreement is executed and such other variable annuity contracts and variable life insurance policies which may be added to Schedule 2 from time to time in accordance with Article XI of this Agreement (such policies and contracts shall be referred to herein collectively as the "Contracts," each such registration statement for a class or classes of contracts 1 listed on Schedule 2 being referred to as the "Contracts Registration Statement" and the prospectus for each such class or classes being referred to herein as the "Contracts Prospectus," and the owners of the such contracts, as distinguished from all Product Owners, being referred to as "Contract Owners"); and WHEREAS, each Account, a validly existing separate account, duly authorized by resolution of the Board of Directors of the Company on the date set forth on Schedule 1, sets aside and invests assets attributable to the Contracts; and WHEREAS, the Company has registered or will have registered each Account with the SEC as a unit investment trust under the 1940 Act before any Contracts are issued by that Account; and WHEREAS, the Distributor is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Distributor and the Fund have entered into an agreement (the "Fund Distribution Agreement") pursuant to which the Distributor will distribute Fund shares; and WHEREAS, Delaware Management Company, Inc. (the "Investment Manager") is registered as an investment adviser under the 1940 Act and any applicable state securities laws and serves as an investment manager to the Fund pursuant to an agreement; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase Series shares on behalf of each Account to fund its Contracts and the Distributor is authorized to sell such Series shares to unit investment trusts such as the Accounts at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Distributor agree as follows: ARTICLE I. SALE OF FUND SHARES 1.1. The Distributor agrees to sell to the Company those Series shares which the Company orders on behalf of the Account, executing such orders on a daily basis in accordance with Section 1.4 of this Agreement. 1.2. The Fund agrees to make the shares of its Series available for purchase by the Company on behalf of the Account at the then applicable net asset value per share on Business Days as defined in Section 1.4 of this Agreement, and the Fund shall use its best efforts to calculate such net asset value by 6:00 p.m., E.S.T., on each such Business Day. Notwithstanding 2 any other provision in this Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board") may suspend or terminate the offering of Fund shares of any Series, if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Fund Board acting in good faith and in light of its fiduciary duties under Federal and any applicable state laws, suspension or termination is necessary and in the best interests of the shareholders of any Series (it being understood that "shareholders" for this purpose shall mean Product owners). 1.3. The Fund agrees to redeem, at the Company's request, any full or fractional shares of the Fund held by the Account or the Company, executing such requests at the net asset value on a daily basis in accordance with Section 1.4 of this Agreement, the applicable provisions of the 1940 Act and the then currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund may delay redemption of Fund shares of any Series to the extent permitted by the 1940 Act, any rules, regulations or orders thereunder, or the then currently effective Fund Prospectus. 1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be the agent of the Fund for the limited purpose of receiving redemption and purchase requests from the Account (but not from the general account of the Company), and receipt on any Business Day by the Company as such limited agent of the Fund prior to the time prescribed in the current Fund Prospectus (which as of the date of execution of this Agreement is 4 p.m., E.S.T.) shall constitute receipt by the Fund on that same Business Day, provided that the Fund receives notice of such redemption or purchase request by 11:00 a.m., E.S.T. on the next following Business Day. For purposes of this Agreement, "Business Day" shall mean any day on which the New York Stock exchange is open for trading. (b) The Company shall pay for shares of each Series on the same day that it places an order with the Fund to purchase those Series shares for an Account. Payment for Series shares will be made by the Account or the Company in Federal Funds transmitted to the Fund by wire to be received by 11:00 a.m., E.S.T. on the day the Fund is properly notified of the purchase order for Series shares. If Federal Funds are not received on time, such funds will be invested, and Series shares purchased thereby will be issued, as soon as practicable. (c) Payment for Series shares redeemed by the Account or the Company will be made in Federal Funds transmitted to the Company by wire on the day the Fund is notified of the redemption order of Series shares, except that the Fund reserves the right to delay payment of redemption proceeds, but in no event may such payment be delayed longer than the period permitted under Section 22(e) of the 1940 Act. Neither the Fund nor the Distributor shall bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds; the Company alone shall be responsible for such action. 3 1.5. Issuance and transfer of Fund shares will be by book entry only. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares will be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account. 1.6. The Fund shall furnish notice as soon as reasonably practicable to the Company of any income dividends or capital gain distributions payable on any Series shares. The Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Series shares in the form of additional shares of that Series. The Company reserves the right, on its behalf and on behalf of the Account, to revoke this election and to receive all such dividends in cash. The Fund shall notify the Company of the number of Series shares so issued as payment of such dividends and distributions. 1.7. The Fund shall use its best efforts to make the net asset value per share for each Series available to the Company by 6 p.m., E.S.T. each Business Day, and in any event, as soon as reasonably practicable after the net asset value per share for such Series is calculated, and shall calculate such net asset value in accordance with the then currently effective Fund Prospectus. Neither the Fund, any Series, the Distributor, nor the Investment Manager nor any of their affiliates shall be liable for any information provided to the Company pursuant to this Agreement which information is based on incorrect information supplied by the Company to the Fund, the Distributor or the Investment Manager. 1.8. (a) The Company may withdraw the Account's investment in the Fund or a Series only: (I) as necessary to facilitate Contract owner requests; (ii) upon a determination by a majority of the Fund Board, or a majority of disinterested Fund Board members, that an irreconcilable material conflict exists among the interests of (x) any Product Owners or (y) the interests of the Participating Insurance Companies investing in the Fund; (iii) upon requisite vote of the Contractowners having an interest in the affected Series to substitute the shares of another investment company for Series shares in accordance with the terms of the Contracts; (iv) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application; or (v) at the Company's sole discretion, pursuant to an order of the SEC under Section 26(b) of the 1940 Act. (b) The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive and that the Fund shares may be sold to other insurance companies (subject to Section 1.9 hereof) and the cash value of the Contracts may be invested in other investment companies. 4 (c) The Company shall not, without prior notice to the Distributor (unless otherwise required by applicable law), take any action to operate the Account as a management investment company under the 1940 Act. 1.9. The Fund and the Distributor agree that Fund shares will be sold only to Participating Insurance Companies and their separate accounts. The Fund and the Distributor will not sell Fund shares to any insurance company or separate account unless an agreement complying with Article VII of this Agreement is in effect to govern such sales. No Fund shares of any Series will be sold to the general public. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1. The Company represents and warrants (a) that the Contracts are registered under the 1933 Act or will be so registered before the issuance thereof, (b) that the Contracts will be issued in compliance in all material respects with all applicable Federal and state laws and (c) that the Company will require of every person distributing the Contracts that the Contracts be offered and sold in compliance in all material respects with all applicable Federal and state laws. The Company further represents and warrants that it is an insurance company duly organized and validly existing under applicable law and that it has legally and validly authorized each Account as a separate account under Section 27-1-5-1 of the Indiana Insurance Code, and has registered or, prior to the issuance of any Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a separate account for its Contracts, and that it will maintain such registrations for so long as any Contracts issued under them are outstanding. 2.2. The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act and duly authorized for issuance in accordance with applicable law and that the Fund is and shall remain registered under the 1940 Act for so long as the Fund shares are sold. The Fund further represents and warrants that it is a corporation duly organized and in good standing under the laws of Maryland. 2.3. The Fund represents and warrants that it currently qualifies as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund further represents and warrants that it will make every effort to continue to qualify and to maintain such qualification (under Subchapter M or any successor or similar provision), and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4. The Fund represents and warrants that it will comply with Section 817(h) of the Code, and all regulations issued thereunder. 2.5. The Company represents that the Contracts are currently and at the time of issuance will be treated as annuity contracts or life insurance policies, whichever is appropriate, under applicable provisions of the Code. The Company shall make every effort to maintain such 5 treatment and shall notify the Fund and the Distributor immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.6. The Fund represents that the Fund's investment policies, fees and expenses, and operations are and shall at all times remain in material compliance with the laws of the state of Maryland, to the extent required to perform this Agreement; and with any state- mandated investment restrictions set forth on Schedule 3, as amended from time to time by the Company in accordance with Section 6.6. The Fund, however, makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) otherwise complies with the insurance laws or regulations of any state. The Company alone shall be responsible for informing the Fund of any investment restrictions imposed by state insurance law and applicable to the Fund. 2.7. The Distributor represents and warrants that it is duly registered as a broker-dealer under the 1934 Act, a member in good standing of the NASD, and duly registered as a broker-dealer under applicable state securities laws; its operations are in compliance with applicable law, and it will distribute the Fund shares according to applicable law. 2.8. The Distributor, on behalf of the Investment Manager, represents and warrants that the Investment Manager is registered as an investment adviser under the Investment Advisers Act of 1940 and is in compliance with applicable federal and state securities laws. 2.9. The Fund represents and warrants that it has and maintains a fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will immediately notify the Company in the event the fidelity bond coverage should lapse at any time. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER INFORMATION 3.1. The Distributor shall provide the Company with as many copies of the current Fund Prospectus as the Company may reasonably request. If requested by the Company in lieu thereof, the Fund at its expense shall provide to the Company a camera-ready copy of the current Fund Prospectus suitable for printing and other assistance as is reasonably necessary in order for the Company to have a new Contracts Prospectus printed together with the Fund Prospectus in one document. See Article V for a detailed explanation of the responsibility for the cost of printing and distributing Fund prospectuses. 3.2. The Fund Prospectus shall state that the Statement of Additional Information for the Fund is available from the Distributor (or, in the Fund's discretion, the Fund Prospectus shall state that such Statement is available from the Fund), and the Distributor (or the Fund) shall provide such Statement free of charge to the Company and to any outstanding or prospective Contract owner who requests such Statement. 3.3. (a) The Fund at its expense shall provide to the Company a camera-ready copy of the Fund's shareholder reports and other communications to shareholders (except proxy material), in each case in a form suitable for printing. The Fund shall be responsible for the costs of printing and distributing these materials to Contract owners. 6 (b) The Fund at its expense shall be responsible for preparing, printing and distributing its proxy material. The Company will provide the appropriate Contractowner names and addresses to the Fund for this purpose. 3.4. The Company shall furnish each piece of sales literature or other promotional material in which the Fund or the Investment Manager is named to the Fund or the Distributor prior to its use. No such material shall be used, except with the prior written permission of the Fund or the Distributor. The Fund and the Distributor agree to respond to any request for approval on a prompt and timely basis. Failure of the Fund to respond within 10 days of the request by the Company shall relieve the Company of the obligation to obtain the prior written permission of the Fund or the Distributor. 3.5. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund other than the information or representations contained in the Fund Registration Statement or Fund Prospectus, as such Registration Statement and Prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or by the Distributor, except with the prior written permission of the Fund or the Distributor. The Fund agrees to respond to any request for permission on a prompt and timely basis. If neither the Fund nor the Distributor responds within 10 days of a request by the Company, then the Company shall be relieved of the obligation to obtain the prior written permission of the Fund. 3.6. The Fund and the Distributor shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account or the Contracts other than the information or representations contained in the Contracts Registration Statement or Contracts Prospectus, as such Registration Statement and Prospectus may be amended or supplemented from time to time, or in published reports of the Account which are in the public domain or approved in writing by the Company for distribution to Contract owners, or in sales literature or other promotional material approved in writing by the Company, except with the prior written permission of the Company. The Company agrees to respond to any request for permission on a prompt and timely basis. If the Company fails to respond within 10 days of a request by the Fund or the Distributor, then the Fund and the Distributor are relieved of the obligation to obtain the prior written permission of the Company. 3.7. The Fund will provide to the Company at least one complete copy of all Fund Registration Statements, Fund Prospectuses, Statements of Additional Information, annual and semi-annual reports and other reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Fund or Fund shares, promptly after the filing of such document with the SEC or other regulatory authorities. 7 3.8. The Company will provide to the Fund at least one complete copy of all Contracts Registration Statements, Contracts Prospectuses, Statements of Additional Information, Annual and Semi-annual Reports, sales literature and other promotional materials, and all amendments or supplements to any of the above, that relate to the Contracts, promptly after the filing of such document with the SEC or other regulatory authorities. 3.9. Each party will provide to the other party copies of draft versions of any registration statements, prospectuses, statements of additional information, reports, proxy statements, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, to the extent that the other party reasonably needs such information for purposes of preparing a report or other filing to be filed with or submitted to a regulatory agency. If a party requests any such information before it has been filed, the other party will provide the requested information if then available and in the version then available at the time of such request. 3.10. For purposes of this Article III, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use, in a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, computer net site, signs or billboards, motion pictures or other public media), sales literature (I.E., any written communication distributed or made generally available to customers or the public, in print or electronically, including brochures, circulars, research reports, market letters, form letters, seminar texts, or reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, Statements of Additional Information, shareholder reports and proxy materials, and any other material constituting sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act. ARTICLE IV. Voting 4.1 Subject to applicable law and the order referred to in Article VII, the Fund shall: solicit voting instructions from Contract owners; 4.2 Subject to applicable law and the order referred to in Article VII, the Company shall: (a) vote Fund shares of each Series attributable to Contract owners in accordance with instructions or proxies received in timely fashion from such Contract owners; (b) vote Fund shares of each Series attributable to Contract owners for which no instructions have been received in the same proportion as Fund shares of such Series for which instructions have been received in timely fashion; and (c) vote Fund shares of each Series held by the Company on its own behalf or on behalf of the Account that are not attributable to Contract owners in the same proportion as Fund shares of such Series for which instructions have been received in timely fashion. The Company shall be responsible for assuring that voting privileges for the Accounts are calculated in a manner consistent with the provisions set forth above. ARTICLE V. FEES AND EXPENSES All expenses incident to performance by the Fund under this Agreement (including 8 expenses expressly assumed by the Fund pursuant to this Agreement) shall be paid by the Fund to the extent permitted by law. Except as may otherwise be provided in Section 1.4 and Article VII of this Agreement, the Company shall not bear any of the expenses for the cost of registration and qualification of the Fund shares under Federal and any state securities law, preparation and filing of the Fund Prospectus and Fund Registration Statement, the preparation of all statements and notices required by any Federal or state securities law, all taxes on the issuance or transfer of Fund shares, and any expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The Fund is responsible for the cost of printing and distributing Fund Prospectuses and SAIs to existing Contract owners. (If for this purpose the Company prints the Fund Prospectuses and SAIs in a booklet containing disclosure for the Contracts and for underlying funds other than those of the Fund, then the Fund shall pay only its proportionate share of the total cost to distribute the booklet to existing Contract owners.) The Company is responsible for the cost of printing and distributing Fund prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for existing Contract owners. The Company shall have the final decision on choice of printer for all Prospectuses and SAIs. ARTICLE VI. COMPLIANCE UNDERTAKINGS 6.1. The Fund undertakes to comply with Subchapter M and Section 817(h) of the Code, and all regulations issued thereunder. 6.2. The Company shall amend the Contracts Registration Statements under the 1933 Act and the Account's Registration Statement under the 1940 Act from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law. The Company shall register and qualify the Contracts for sale to the extent required by applicable securities laws of the various states. 6.3. The Fund shall amend the Fund Registration Statement under the 1933 Act and the 1940 Act from time to time as required in order to effect for so long as Fund shares are sold the continuous offering of Fund shares as described in the then currently effective Fund Prospectus. The Fund shall register and qualify Fund shares for sale to the extent required by applicable securities laws of the various states. 6.4. The Company shall be responsible for assuring that any prospectus offering a Contract that is a life insurance contract where it is reasonably possible that such Contract would be deemed a "modified endowment contract," as that term is defined in Section 7702A of the Code, will describe the circumstances under which a Contract could be treated as a modified endowment contract (or policy). 6.5. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 9 6.6. (a) The Company shall amend Schedule 3 when appropriate in order to inform the Fund of any applicable state-mandated investment restrictions with which the Fund must comply. (b) Should the Fund or the Distributor become aware of any restrictions which may be appropriate for inclusion in Schedule 3, the Company shall be informed immediately of the substance of those restrictions. ARTICLE VlI. POTENTIAL CONFLICTS 7.1. The Company has reviewed a copy of the order (the "Mixed and Shared Funding Order") dated November 2, 1987 of the Securities and Exchange Commission under Section 6' of the Act and, in particular, has reviewed the conditions to the relief set forth in the related Notice. As set forth therein, the Company agrees to report to the Board of Directors of the Fund (the "Board") any potential or existing conflicts between the interests of Product Owners of all separate accounts investing in the Fund, and to assist the Board in carrying out its responsibilities under the conditions of the Mixed and Shared Funding Order by providing all information reasonably necessary for the Board to consider any issues raised, including information as to a decision to disregard voting instructions of variable contract owners. 7.2. If a majority of the Board, or a majority of disinterested Board Members, determines that a material irreconcilable conflict exists, the Board shall give prompt notice to all Participating Insurance Companies. (a) If a majority of the whole Board, after notice to the Company and a reasonable opportunity for the Company to appear before it and present its case, determines that the Company is responsible for said conflict, and if the Company agrees with that determination, the Company shall, at its sole cost and expense, take whatever steps are necessary to remedy the irreconcilable material conflict. These steps could include: (a) withdrawing the assets allocable to some or all of the affected Accounts from the Fund or any Series and reinvesting such assets in a different investment vehicle, including another Series of the Fund, or submitting the question of whether such segregation should be implemented to a vote of all affected Contractowners and, as appropriate, segregating the assets of any particular group (i.e., variable annuity Contractowners, variable life insurance policyowners, or variable Contractowners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Contractowners the option of making such a change; and (b) establishing a new registered mutual fund or management separate account, or taking such other action as is necessary to remedy or eliminate the irreconcilable material conflict. (b) If the Company disagrees with the Board's determination, the Company shall file a written protest with the Board, reserving its right to dispute the determination as between just the Company and the Fund. After reserving that right the Company, although disagreeing with the Board that it (the Company) was responsible for the conflict, shall take the necessary steps, under protest, to remedy the conflict, substantially in accordance with paragraph (a) just above, for the protection of Contractowners. (c) As between the Company and the Fund, if within 45 days after the Board's determination the Company elects to press the dispute, it shall so notify the Board in writing. The 10 parties shall then attempt to resolve the matter amicably through negotiation by individuals from each party who are authorized to settle the controversy. If the matter has not been amicably resolved within 60 days from the date of the Company's notice of its intent to press the dispute, then before either party shall undertake to litigate the dispute it shall be submitted to non-binding arbitration conducted expeditiously in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes, by a sole arbitrator; PROVIDED, HOWEVER, that if one party has requested the other party to seek an amicable resolution and the other party has failed to participate, the requesting party may initiate arbitration before expiration of the 60-day period set out just above. If within 45 days of the commencement of the process to select an arbitrator the parties cannot agree upon the arbitrator, then he or she will be selected from the CPR Panels of Neutrals. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sec. 1-16. The place of arbitration shall be Fort Wayne, Indiana. The Arbitrator is not empowered to award damages in excess of compensatory damages. (d) If the Board shall determine that the Fund or another insurer was responsible for the conflict, then the Board shall notify the Company immediately of that determination. The Fund shall assure the Company that it (the Fund) or that other insurer, as applicable, shall, at its sole cost and expense, take whatever steps are necessary to eliminate the conflict. 7.3. If a material irreconcilable conflict arises because of the Company's decision to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company shall withdraw (without charge or penalty) the Account's investment in the Fund, if the Fund so elects. 7.4 Subject to the terms of Section 7.2 above, the Company shall carry out the responsibility to take remedial action in the event of a Board determination of an irreconcilable material conflict with a view only to the interests of Contract Owners. 7.5. For purposes of this Article, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable conflict, but in no event will the Fund be required to establish a new funding medium for any variable contract, nor will the Company be required to establish a new funding medium for any Contract if an offer to do so has been declined by a vote of a majority of affected Contractowners. ARTICLE VIII. INDEMNIFICATION 8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless the Fund, the Distributor and each person who controls or is associated with the Fund (other than another Participating Insurance Company) or the Distributor within the meaning of such terms under the federal securities laws and any officer, trustee, director, employee or agent of the foregoing, against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which they or any of them may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities: 11 (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Contracts Registration Statement, Contracts Prospectus, sales literature or other promotional material for the Contracts or the Contracts themselves (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made; provided that this obligation to indemnify shall not apply if such statement or omission or such alleged statement or alleged omission was made in reliance upon and in conformity with information furnished in writing to the Company by the Fund or the Distributor (or a person authorized in writing to do so on behalf of the Fund or the Distributor) for use in the Contracts Registration Statement, Contracts Prospectus or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (b) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact by or on behalf of the Company (other than statements or representations contained in the Fund Registration Statement, Fund Prospectus or sales literature or other promotional material of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or persons under its control with respect to the sale or distribution of the Contracts or Fund shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the Fund Registration Statement, Fund Prospectus or sales literature or other promotional material of the Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, if such statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company; or (d) arise as a result of any failure by the Company to provide the services and furnish the materials or to make any payments under the terms of this Agreement; or (e) arise out of any material breach by the Company of this Agreement,including but not limited to any failure to transmit a request for redemption or purchase ofFund shares on a timely basis in accordance with the procedures set forth in Article 1; or (f) arise as a result of the Company's providing the Fund with inaccurate information, which causes the Fund to calculate its Net Asset Values incorrectly. This indemnification will be in addition to any liability which the Company may otherwise have; provided, however, that no party shall be entitled to indemnification if such loss, claim, damage or liability is due to the wilful misfeasance, bad faith, gross negligence or reckless disregard of duty by the party seeking indemnification. 8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to indemnify and hold harmless the Company and each person who controls or is associated with the Company within the meaning of such terms under the federal securities laws and any officer, director, employee or 12 agent of the foregoing, against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which they or any of them may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities: (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Fund Registration Statement, Fund Prospectus (or any amendment or supplement thereto) or sales literature or other promotional material of the Fund, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made; provided that this obligation to indemnify shall not apply if such statement or omission or alleged statement or alleged omission was made in reliance upon and in conformity with information furnished in writing by the Company to the Fund or the Distributor for use in the Fund Registration Statement, Fund Prospectus (or any amendment or supplement thereto) or sales literature for the Fund or otherwise for use in connection with the sale of the Contracts or Fund shares; or (b) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by the Distributor or the Fund (other than statements or representations contained in the Fund Registration Statement, Fund Prospectus or sales literature or other promotional material of the Fund not supplied by the Distributor or the Fund or persons under their control) or wrongful conduct of the Distributor or persons under its control with respect to the sale or distribution of the Contracts or Fund shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the Contract's Registration Statement, Contracts Prospectus or sales literature or other promotional material for the Contracts (or any amendment or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, if such statement or omission was made in reliance upon information furnished in writing by the Distributor or the Fund to the Company (or a person authorized in writing to do so on behalf of the Fund or the Distributor); or (d) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including, but not by way of limitation, a failure, whether unintentional or in good faith or otherwise: (i) to comply with the diversification requirements specified in Article VI of this Agreement; and (ii) to provide the Company with accurate information sufficient for it to calculate its accumulation and/or annuity unit values in timely fashion as required by law and by the Contracts Prospectuses); or (e) arise out of any material breach by the Distributor or the Fund of this Agreement. This indemnification will be in addition to any liability which the Distributor may otherwise have; provided, however, that no party shall be entitled to indemnification if such loss, claim, damage or 13 liability is due to the wilful misfeasance, bad faith, gross negligence or reckless disregard of duty by the party seeking indemnification. 8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to indemnification ("indemnified party") under this Article VIII of notice of the commencement of any action, if a claim in respect thereof is to be made by the indemnified party against any person obligated to provide indemnification under this Article VIII ("indemnifying party"), such indemnified party will notify the indemnifying party in writing of the commencement thereof as soon as practicable thereafter, provided that the omission to so notify the indemnifying party will not relieve it from any liability under this Article VIII, except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give such notice. The indemnifying party, upon the request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. A successor by law of the parties to this Agreement shall be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII shall survive any termination of this Agreement. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the state of Indiana, without giving effect to the principles of conflicts of laws. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant, and the terms hereof shall be limited, interpreted and construed in accordance therewith. ARTICLE X. TERMINATION 10.1. This Agreement shall terminate: (a) at the option of any party upon six months advance written notice to the other parties; or (b) at the option of the Company if shares of any Series are not available 14 to meet the requirements of the Contracts as determined by the Company. Prompt notice of the election to terminate for such cause shall be furnished by the Company. Termination shall be effective ten days after the giving of notice by the Company; or (c) at the option of the Fund upon institution of formal proceedings against the Company by the NASD, the SEC, the insurance commission of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of the Account, the administration of the Contracts or the purchase of Fund shares, or an expected or anticipated ruling, judgment or outcome which would, in the Fund's reasonablejudgment, materially impair the Company's ability to perform the Company's obligations and duties hereunder; or (d) at the option of the Company upon institution of formal proceedings against the Fund, the Distributor, the Investment Manager or any Sub-Investment Manager, by the NASD, the SEC, or any state securities or insurance commission or any other regulatory body regarding the duties of the Fund or the Distributor under this Agreement, or an expected or anticipated ruling, judgment or outcome which would, in the Company's reasonable judgment, materially impair the Fund's or the Distributor's ability to perform Fund's or Distributor's obligations and duties hereunder; or (e) at the option of the Company upon institution of formal proceedings against the Investment Manager or Sub-investment Manager by the NASD, the SEC, or any state securities or insurance commission or any other regulatory body which would, in the good faith opinion of the Company, result in material harm to the Accounts, the Company, or Contractowners. (f) upon requisite vote of the Contract owners having an interest in the affected Series (unless otherwise required by applicable law) and written approval of the Company, to substitute the shares of another investment company for the corresponding Series shares of the Fund in accordance with the terms of the Contracts; or (g) at the option of the Fund in the event any of the Contracts are not registered, issued or sold in accordance with applicable Federal and/or state law; or (h) at the option of the Company or the Fund upon a determination by a majority of the Fund Board, or a majority of disinterested Fund Board members, that an irreconcilable material conflict exists among the interests of (i) any Product owners or (ii) the interests of the Participating Insurance Companies investing in the Fund; or (i) at the option of the Company if the Fund ceases to qualify as a Regulated Investment Company under Subchapter M of the Code, or under any successor or similar provision, or if the Company reasonably believes, based on an opinion of its counsel, that the Fund may fail to so qualify; or 15 (j) at the option of the Company if the Fund fails to meet the diversification requirements specified in Section 817(h) of the Code and any regulations thereunder; or (k) at the option of the Fund if the Contracts cease to qualify as annuity contracts or life insurance policies, as applicable, under the Code, or if the Fund reasonably believes that the Contracts may fail to so qualify; or (l) at the option of either the Fund or the Distributor if the Fund or the Distributor, respectively, shall determine, in their sole judgment exercised in good faith, that either (1) the Company shall have suffered a material adverse change in its business or financial condition; or (2) the Company shall have been the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of either the Fund or the Distributor; or (m) at the option of the Company, if the Company shall determine, in its sole judgment exercised in good faith, that either: (1) the Fund and the Distributor, or either of them, shall have suffered a material adverse change in their respective businesses or financial condition; or (2) the Fund or the Distributor, or both of them, shall have been the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Company; or (n) upon the assignment of this Agreement (including, without limitation, any transfer of the Contracts or the Accounts to another insurance company pursuant to an assumption reinsurance agreement) unless the non-assigning party consents thereto or unless this Agreement is assigned to an affiliate of the Distributor. 10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties to this Agreement of its intent to terminate which notice shall set forth the basis for such termination. Furthermore: (a) In the event that any termination is based upon the provisions of Article VII or the provisions of Section 10.1(a) of this Agreement, such prior written notice shall be given in advance of the effective date of termination as required by such provisions; and (b) in the event that any termination is based upon the provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice shall be given at least ninety (90) days before the effective date of termination, or sooner if required by law or regulation. (c) in the event that any termination is based upon the provisions of Section 10.1(e) of this Agreement, such prior written notice shall be given at least sixty (60) days before the date of any proposed vote to replace the Fund's shares. 10.3. EFFECT OF TERMINATION (a) Notwithstanding any termination of this Agreement pursuant to Section 16 10.1 of this Agreement, the Fund and the Distributor will, at the option of the Company, continue to make available additional Fund shares for so long after the termination of this Agreement as the Company desires, pursuant to the terms and conditions of this Agreement as provided in paragraph (b) below, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, if the Company so elects to make additional Fund shares available, the owners of the Existing Contracts or the Company, whichever shall have legal authority to do so, shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. (b) In the event of a termination of this Agreement pursuant to Section 10.1 of this Agreement, the Fund and the Distributor shall promptly notify the Company whether the Distributor and the Fund will continue to make Fund shares available after such termination. If Fund shares continue to be made available after such termination, the provisions of this Agreement shall remain in effect except for Section 10.1(a) and thereafter either the Fund or the Company may terminate the Agreement, as so continued pursuant to this Section 10.3, upon prior written notice to the other party, such notice to be for a period that is reasonable under the circumstances but, if given by the Fund, need not be for more than six months. (c) The parties agree that this Section 10.3 shall not apply to any termination made pursuant to Article VII or any conditions or undertakings incorporated by reference in Article VII, and the effect of such Article VII termination shall be governed by the provisions set forth or incorporated by reference therein. ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS The parties to this Agreement may amend the schedules to this Agreement from time to time to reflect changes in or relating to the Contracts and to add new classes of variable annuity contracts and variable life insurance policies to be issued by the Company through a Separate Account investing in the Fund. The provisions of this Agreement shall be equally applicable to each such class of contracts or policies, unless the context otherwise requires. ARTICLE XII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party(ies) at the address of such party(ies) set forth below or at such other address as such party(ies) may from time to time specify in writing to the other party. If to the Fund: Delaware Group Premium Fund, Inc. Ten Penn Center Plaza Philadelphia, PA 19103 Attn: Christopher Price 17 If to the Company: Lincoln National Life Insurance Co. 1300 South Clinton Street Fort Wayne, Indiana 46802 Attn: Kelly D. Clevenger If to the Distributor: Delaware Distributors, Inc. Ten Penn Center Plaza Philadelphia, PA 19103 Attn: Keith E. Mitchell ARTICLE XIII. MISCELLANEOUS 13.1. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 13.2. This Agreement may be executed simultaneously in two or more counterparts, each of which together shall constitute one and the same instrument. 13.3. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 13.4. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 13.5. Each party represents that the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate or trust action, as applicable, by such party, and when so executed and delivered this Agreement will be the valid and binding obligation of such party enforceable in accordance with its terms. 18 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and behalf by its duly authorized officer on the date specified below. DELAWARE GROUP PREMIUM FUND, INC. (Fund) Date: By: 5/1/96 Name:/s/ David K. Downes -------------------- Title: Senior Vice President, CAO and CFO LINCOLN NATIONAL LIFE INSURANCE CO. (Company) Date: By: 4/30/96 Name:/s/ Kelly D. Clevenger ----------------------- Title:Vice President DELAWARE DISTRIBUTORS, LP (Distributor) Date: By: 5/1/96 Name:/s/ Keith E. Mitchell ---------------------- Title: President and CEO 19 SCHEDULE 1 Separate Accounts of Lincoln National Life Insurance Company Investing in the Fund As of May 1, 1996 Lincoln National Variable Annuity Account C Lincoln Life Flexible Premium Variable Life Account K 20 SCHEDULE 2 Variable Annuity Contracts and Variable Life Insurance Policies Supported by Separate Accounts Listed on Schedule 1 As of May 1, 1996 Multi Fund Variable Annuity Contracts Multi Fund Variable Life Insurance Contracts 21 SCHEDULE 3 State-mandated Investment Restrictions Applicable to the Fund As of May 1, 1996 The California Department of Insurance has established the following Guidelines for an underlying portfolio of a Separate Account: BORROWING. Borrowing limits for any variable contract separate account portfolio are (1) 10% of net asset value when borrowing for any general purpose; and (2) 25% of net asset value when borrowing as a temporary measure to facilitate redemptions. Net asset value of a portfolio is the market value of all investments or assets owned less outstanding liabilities of the portfolio at the time that any new or additional borrowing is undertaken. FOREIGN INVESTMENTS - DIVERSIFICATION. 1. A portfolio will be invested in a minimum of five different foreign countries at all times. However, this minimum is reduced to four when foreign investments comprise less than 80% of the portfolio's net asset value; to three when less than 60% of that value; to two when less than 40%; and to one when less than 20%. 2. Except as set forth in items 3 and 4 below, a Portfolio will have no more than 20% of its net asset value invested in securities of issuers located in any one country. 3. A Portfolio may have an additional 15% of its net asset value invested in securities of issuers located in any one of the following countries: Australia, Canada, France, Japan, the United Kingdom or Germany. 4. A Portfolio's investments in United States issuers are not subject to the foreign country diversification guidelines. 22 EX-99.10 8 EXHIBIT 99.10 Exhibit 10 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" in the Post Effective Amendment No. 15 to the Registration Statement (Form N-4 No. 33-25990) and the related Statement of Additional Information pertaining to Lincoln National Variable Annuity Account C, and to the use therein of our reports dated (a) February 5, 1998, with respect to the statutory-basis financial statements of The Lincoln National Life Insurance Company, and (b) April 6, 1998, with respect to the financial statements of Lincoln National Variable Annuity Account C. Fort Wayne, Indiana April 20, 1998 EX-99 9 EX-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 | -------------------------------- | -------------------------------------------- |--| City Financial Planners, Ltd. | | | 100% - Englad/Wales - Distribution of life| | | assurance & pension products | | -------------------------------------------- | ------------------------------- |--| The Insurers' Fund, Inc. # | | | 100% - Maryland - Inactive | | ------------------------------- | ------------------------------------------------ |--| LNC Administrative Services Corporation | | | 100% - Indiana - Third Party Administrator | | ------------------------------------------------ | ------------------------------------------------ |--| Lincoln Funds Corporation | | | 100% - Delaware - Intermediate Holding Company | | ------------------------------------------------ | --------------------------------------------------- |--|Lincoln National Financial Institutions Group, Inc.| | |(fka The Richard Leahy Corporation) | | | 100% - Indiana - Insurance Agency | | --------------------------------------------------- | | --------------------------------- | |--| The Financial Alternative, Inc. | | | | 100% - Utah- Insurance Agency | | | --------------------------------- | | --------------------------------------- | |--| Financial Alternative Resources, Inc. | | | | 100% - Kansas - Insurance Agency | | | --------------------------------------- | | ----------------------------------------- | |--| Financial Choices, Inc. | | | | 100% - Pennsylvania - Insurance Agency | | | ----------------------------------------- | | ----------------------------------------------- | | | Financial Investment Services, Inc. | | |--| (formerly Financial Services Department, Inc.)| | | | 100% - Indiana - Insurance Agency | | | ----------------------------------------------- | | ----------------------------------------- | | | Financial Investments, Inc. | | |--| (formerly Insurance Alternatives, Inc.) | | | | 100% - Indiana - Insurance Agency | | | ----------------------------------------- | | ------------------------------------------- | |--| The Financial Resources Department, Inc. | | | | 100% - Michigan - Insurance Agency | | | ------------------------------------------- | | ----------------------------------------- | |--| Investment Alternatives, Inc. | | | | 100% - Pennsylvania - Insurance Agency | | | ----------------------------------------- | | -------------------------------------- | |--| The Investment Center, Inc. | | | | 100% - Tennessee - Insurance Agency | | | -------------------------------------- | | -------------------------------------- | |--| The Investment Group, Inc. | | | | 100% - New Jersey - Insurance Agency | | | -------------------------------------- ------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | ------------------------------- | --------------------------------------------------- |--|Lincoln National Financial Institutions Group, Inc.| | |(fka The Richard Leahy Corporation) | | | 100% - Indiana - Insurance Agency | | --------------------------------------------------- | | ------------------------------------ | |--| Personal Financial Resources, Inc. | | | | 100% - Arizona - Insurance Agency | | | ------------------------------------ | | ---------------------------------------- | |--| Personal Investment Services, Inc. | | | 100% - Pennsylvania - Insurance Agency | | ---------------------------------------- | ------------------------------------------- |--| LincAm Properties, Inc. | | | 50% - Delaware - Real Estate Investment | | ------------------------------------------- | | ---------------------------------------------- | | Lincoln Financial Group, Inc. | |--| (formerly Lincoln National Sales Corporation)| | | 100% - Indiana - Insurance Agency | | ---------------------------------------------- | | ---------------------------------------- | |--| Lincoln Financial Advisors Corporation | | | | (formerly LNC Equity Sales Corporation)| | | | 100% - Indiana - Broker-Dealer | | | ---------------------------------------- | | ------------------------------------------------------------- | | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") | | |--|has subsidiaries of which LFG owns from 80%-100% of the | | | |common stock (see Attachment #1). These subsidiaries serve | | | |as the corporate agency offices for the marketing and | | | |servicing of products of The Lincoln National Life Insurance | | | |Company. Each subsidiary's assets are less than 1% of the | | | |total assets of the ultimate controlling person. | | | ------------------------------------------------------------- | | | | ------------------------------------------------ | |--| Professional Financial Planning, Inc. | | | 100% - Indiana - Financial Planning Services | | ------------------------------------------------ | --------------------------------------- |--| Lincoln Life Improved Housing, Inc. | | | 100% - Indiana | | --------------------------------------- | | ----------------------------------------------- |--| Lincoln National (China) Inc. | | | 100% - Indiana - China Representative Office | | ----------------------------------------------- | | ----------------------------------------------- |--| Lincoln National (India) Inc. | | | 100% - Indiana - India Representative Office | | ----------------------------------------------- | --------------------------------------------- |--| Lincoln National Intermediaries, Inc. | | | 100% - Indiana - Reinsurance Intermediary | | --------------------------------------------- | -------------------------------------------------- |__| Lincoln National Investments, Inc. | | | (fka Lincoln National Investment Companies, Inc.)| | | 100% - Indiana - Holding Company | | -------------------------------------------------- | | -------------------------------------------- | |--| Lincoln National Investment Companies, Inc.| | | |(fka Lincoln National Investments, Inc.) | | | | 100% - Indiana - Holding Company | | | --------------------------------------------
------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | ------------------------------- | -------------------------------------------------- |__| Lincoln National Investments, Inc. | | | (fka Lincoln National Investment Companies, Inc.)| | | 100% - Indiana - Holding Company | | -------------------------------------------------- | | -------------------------------------------- | |--| Lincoln National Investment Companies, Inc.| | | |(fka Lincoln National Investments, Inc.) | | | | 100% - Indiana - Holding Company | | | -------------------------------------------- | | | ---------------------------------- | | |--|Delaware Management Holdings, Inc.| | | | | 100% - Delaware - Holding Company| | | | ---------------------------------- | | | | ----------------------------------- | | | |--| DMH Corp. | | | | | 100% - Delaware - Holding Company | | | | ----------------------------------- | | | | ---------------------------------------- | | | |--| Delaware International Advisers Ltd. | | | | | | 81.1% - England - Investment Advisor | | | | | ---------------------------------------- | | | | -------------------------------------- | | | |--| Delaware Management Trust Company | | | | | | 100% - Pennsylvania - Trust Service | | | | | -------------------------------------- | | | | ------------------------------------------------ | | | |--| Delaware International Holdings, Ltd. | | | | | | 100% - Bermuda - Investment Advisor | | | | | ------------------------------------------------ | | | | | | -------------------------------------- | | | | | --| Delaware International Advisers, Ltd.| | | | | | | 18.9% - England - Investment Advisor | | | | | | -------------------------------------- | | | | ------------------------------------------------- | | | |--| Delvoy, Inc. | | | | | | 100% - Minnesota - Holding Company | | | | | ------------------------------------------------- | | | | --------------------------------------- | | | | |--| Delaware Management Company, Inc. | | | | | | | 100% - Delaware - Investment Advisor | | | | | | --------------------------------------- | | | | | | ------------------------------------------------------- | | | | | |--| Delaware Distributors, L.P. | | | | | | | | 98%-Delaware-MutualFund Distributor & Broker/Dealer | | | | | | | | 1% Equity-Delaware Capital Management, Inc. | | | | | | | | 1% Equity-Delaware Distributors, Inc. | | | | | | | | | | | | | | | ------------------------------------------------------- | | | | | | ------------------------------------ | | | | | |--| Founders Holdings, Inc. | | | | | | | | 100% - Delaware - General Partner | | | | | | | ------------------------------------ | | | | | | | ----------------------------------------- | | | | | | | | Founders CBO, L.P. | | | | | | | --| 1% - Delaware - Investment Partnership | | | | | | | | 99% held by outside investors | | | | | | | ----------------------------------------- | | | | | | | ------------------------------------------ | | | | | | --|Founders CBO Corporation | | | | | | | |100%-Delaware-Co-Issuer with Founders CBO | ------------------------------------------
-------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | -------------------------------------------------- |--| Lincoln National Investments, Inc. | | | (fka Lincoln National Investment Companies, Inc.)| | | 100% - Indiana - Holding Company | | -------------------------------------------------- | | -------------------------------------------- | |--| Lincoln National Investment Companies, Inc.| | | |(fka Lincoln National Investments, Inc.) | | | | 100% - Indiana - Holding Company | | | -------------------------------------------- | | | ---------------------------------- | | |--|Delaware Management Holdings, Inc.| | | | | 100% - Delaware - Holding Company| | | | ---------------------------------- | | | | ----------------------------------- | | | |--| DMH Corp. | | | | | 100% - Delaware - Holding Company | | | | ----------------------------------- | | | | ------------------------------------- | | | |--| Delvoy, Inc. | | | | | | 100% - Minnesota - Holding Company | | | | | ------------------------------------- | | | | | ------------------------------------ | | | | |---| Delaware Distributors, Inc. | | | | | | | 100% - Delaware - General Partner | | | | | | ------------------------------------ | | | | | | ------------------------------------------------------ | | | | | |--| Delaware Distributors, L.P. | | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer | | | | | | | 1% Equity-Delaware Capital Management, Inc. | | | | | | | 1% Equity-Delaware Distributors, Inc. | | | | | | ------------------------------------------------------ | | | | | ----------------------------------------------- | | | | |---| Delaware Capital Management, Inc. | | | | | | |(formerly Delaware Investment Counselors, Inc.)| | | | | | | 100% - Delaware - Investment Advisor | | | | | | ----------------------------------------------- | | | | | | ------------------------------------------------------- | | | | | |-- | Delaware Distributors, L.P. | | | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer | | | | | | | |1% Equity-Delaware Capital Management, Inc. | | | | | | | | 1% Equity-Delaware Distributors, Inc. | | | | | | | ------------------------------------------------------- | | | | | ----------------------------------------------------- | | | | |---| Delaware Service Company, Inc. | | | | | | | 100%-Delaware-Shareholder Services & Transfer Agent | | | | | | ----------------------------------------------------- | | | | | ----------------------------------------------------- | | | | |---| Delaware Investment & Retirement Services, Inc. | | | | | | 100% - Delaware - Registered Transfer Agent | | | | | ----------------------------------------------------- | | | ----------------------------------------- | | |--| Lynch & Mayer, Inc. | | | | | 100% - Indiana - Investment Adviser | | | | ----------------------------------------- | | | | ----------------------------------------- | | | |--| Lynch & Mayer Asia, Inc. | | | | | | 100% - Delaware - Investment Management | | | | | ----------------------------------------- | | | | ---------------------------------------- | | | |--| Lynch & Mayer Securities Corp. | | | | | 100% - Delaware - Securities Broker | | | | ---------------------------------------- | | | ---------------------------------------------------- | | | | Vantage Global Advisors, Inc. | | | |--| (formerly Modern Portfolio Theory Associates, Inc.)| | | | | 100% - Delaware - Investment Adviser | | | | ----------------------------------------------------
-------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | -------------------------------------------------- |--| Lincoln National Investments, Inc. | | | (fka Lincoln National Investment Companies, Inc.)| | | 100% - Indiana - Holding Company | | -------------------------------------------------- | | ----------------------------------------------------------- | | | Lincoln Investment Management, Inc. | | |--| (formerly Lincoln National Investment Management Company) | | | | 100% - Illinois - Mutual Fund Manager and | | | | Registered Investment Adviser | | ----------------------------------------------------------- | ----------------------------------------------- |--| The Lincoln National Life Insurance Company | | | 100% - Indiana | | ----------------------------------------------- | | -------------------------------------------------- | |--| AnnuityNet, Inc. | | | | 100% - Indiana - Distribution of annuity products| | | -------------------------------------------------- | | ------------------------------------------- | |--| Cigna Associates, Inc. | | | | 100% - Connecticut - Insurance Agency | | | ------------------------------------------- | | | ---------------------------------------------------------- | | |--| Cigna Associates of Massachusetts, Inc. | | | | | 100% - Massachusetts - Insurance Agency | | | ---------------------------------------------------------- | | ------------------------------------------- | |--|Cigna Financial Advisors, Inc. | | | | 100% - Connecticut - Broker Dealer | | | ------------------------------------------- | | ------------------------------------------- | |--| First Penn-Pacific Life Insurance Company | | | | 100% - Indiana | | | ------------------------------------------- | | ----------------------------------------------- | |--| Lincoln Life & Annuity Company of New York | | | | 100% - New York | | | ----------------------------------------------- | | | | ------------------------------------------------ | |--| Lincoln National Aggressive Growth Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | ------------------------------------------------ | | ----------------------------------- | |--| Lincoln National Bond Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | ----------------------------------- | | -------------------------------------------------- | |--| Lincoln National Capital Appreciation Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | -------------------------------------------------- | | -------------------------------------------- | |--| Lincoln National Equity-Income Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | -------------------------------------------- | | ------------------------------------------------------ | | | Lincoln National Global Asset Allocation Fund, Inc. | | |--| (formerly Lincoln National Putnam Master Fund, Inc.) | | | | 100% - Maryland - Mutual Fund | | | ------------------------------------------------------ | | ------------------------------------------------ | | | Lincoln National Growth and Income Fund, Inc. | | |--| (formerly Lincoln National Growth Fund, Inc.) | | | | 100% - Maryland - Mutual Fund | | | ------------------------------------------------ -------------------------------- | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | ----------------------------------------------- |--| The Lincoln National Life Insurance Company | | | 100% - Indiana | | ----------------------------------------------- | | -------------------------------------------------------- | |--| Lincoln National Health & Casualty Insurance Company | | | | 100% - Indiana | | -------------------------------------------------------- | | ----------------------------------------------- | |--| Lincoln Re, S.A. | | | | 1% Argentina - General Business Corp | | | | (Remaining 99% owned by Lincoln National | | | | Reassurance Company) | | ----------------------------------------------- | ------------------------------------------- | |--| Lincoln National International Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | | ------------------------------------------- | | --------------------------------------- | |--| Lincoln National Managed Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | --------------------------------------- | | -------------------------------------------- | |--| Lincoln National Money Market Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | -------------------------------------------- | | ----------------------------------------------- | |--| Lincoln National Social Awareness Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | ----------------------------------------------- | | ----------------------------------------------------- | |--| Lincoln National Special Opportunities Fund, Inc. | | | | 100% - Maryland - Mutual Fund | | | ----------------------------------------------------- | | ------------------------------------------------------ | |--| Lincoln National Reassurance Company | | | 100% - Indiana - Life Insurance | | ------------------------------------------------------ | | ----------------------------------------------- | |--| Lincoln Re, S.A. | | | | 99% Argentina - General Business Corp | | | | (Remaining 1% owned by Lincoln National Health| | | | & Casualty Insurance Company) | | | ----------------------------------------------- | | ----------------------------------------------- | |--| Special Pooled Risk Administrators, Inc. | | | 100% - New Jersey - Catastrophe Reinsurance | | | Pool Administrator | | ----------------------------------------------- | --------------------------------------------------------- |--| Lincoln National Management Services, Inc. | | | 100% - Indiana - Underwriting and Management Services | | --------------------------------------------------------- | --------------------------------------- |--| Lincoln National Realty Corporation | | | 100% - Indiana - Real Estate | | --------------------------------------- | ----------------------------------------------------------- |--| Lincoln National Reinsurance Company (Barbados) Limited | | | 100% - Barbados | | ----------------------------------------------------------- | | ---------------------------------------------- |--| Lincoln National Reinsurance Company Limited | | | (formerly Heritage Reinsurance, Ltd.) | | | 100% ** - Bermuda | | ---------------------------------------------- | | ------------------------------------------------------- | |--| Lincoln European Reinsurance S.A. | | | | 79% - Belgium | | | | (Remaining 21% owned by Lincoln National Underwriting | | | | Services, Ltd. | | | ------------------------------------------------------- -------------------------------- | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | ---------------------------------------------- |--| Lincoln National Reinsurance Company Limited | | | (formerly Heritage Reinsurance, Ltd.) | | | 100% ** - Bermuda | | ---------------------------------------------- | | --------------------------------------------------------- | | | Lincoln National Underwriting Services, Ltd. | | |--| 90% - England/Wales - Life/Accident/Health Underwriter | | | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) | | | --------------------------------------------------------- | | | ------------------------------------------------------ | | |--| Lincoln European Reinsurance S.A. | | | | | 21% - Belgium | | | | |(Remaining 79% owned by Lincoln National Reinsurance | | | | | Company Limited | | | | ------------------------------------------------------ | | -------------------------------------------------------- | | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. | | |--| 51% - Mexico - Reinsurance Underwriter | | | | (Remaining 49% owned by Lincoln National Corp.) | | | -------------------------------------------------------- | --------------------------------------------- |--| Lincoln National Risk Management, Inc. | | | 100% - Indiana - Risk Management Services | | --------------------------------------------- | ------------------------------------------------ |--| Lincoln National Structured Settlement, Inc. | | | 100% - New Jersey | | ------------------------------------------------ | ----------------------------------------- |--| Lincoln National (UK) PLC | | | 100% - England/Wales - Holding Company | | ----------------------------------------- | | ------------------------------------------------------- | |--| Allied Westminster & Company Limited | | | | (formerly One Olympic Way Financial Services Limited) | | | | 100% - England/Wales - Sales Services | | | ------------------------------------------------------- | | ----------------------------------- | |--|Cannon Fund Managers Limited | | | | 100% - England/Wales - Inactive | | | ----------------------------------- | | -------------------------------------------------------- | |--| Culverin Property Services Limited | | | | 100% - England/Wales - Property Development Services | | | -------------------------------------------------------- | | --------------------------------------------------------- | |--| HUTM Limited | | | | 100% - England/Wales - Unit Trust Management (Inactive) | | | --------------------------------------------------------- | | | | -------------------------------------------- | |--| ILI Supplies Limited | | | | 100% - England/Wales - Computer Leasing | | | -------------------------------------------- | | ------------------------------------------------ | |--| Lincoln Financial Advisers Limited | | | | (formerly: Laurentian Financial Advisers Ltd.) | | | | 100% - England/Wales - Sales Company | | | ------------------------------------------------ | | | | -------------------------------------------------- | |--| Lincoln Financial Group PLC | | | | (formerly: Laurentian Financial Group PLC) | | | | 100% - England/Wales - Holding Company | | | -------------------------------------------------- | | | ---------------------------------------------------- | | |--| Lincoln Unit Trust Management Limited | | | | |(formerly: Laurentian Unit Trust Management Limited)| | | | | 100% - England/Wales - Unit Trust Management | | | | ---------------------------------------------------- | | | | -------------------------------------------------- | | | |--| LUTM Nominees Limited | | | | | | 100% - England/Wales - Nominee Services (Dormat) | | | | | --------------------------------------------------
-------------------------------- | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | ----------------------------------------- |--| Lincoln National (UK) PLC | | | 100% - England/Wales - Holding Company | | ----------------------------------------- | | -------------------------------------------------- | |--| Lincoln Financial Group PLC | | | | (formerly: Laurentian Financial Group PLC) | | | | 100% - England/Wales - Holding Company | | | -------------------------------------------------- | | | --------------------------------------- | | |--| Lincoln Milldon Limited | | | | |(formerly: Laurentian Milldon Limited) | | | | | 100% - England/Wales - Sales Company | | | | --------------------------------------- | | | ----------------------------------------------------------- | | |--| Laurtrust Limited | | | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) | | | | ----------------------------------------------------------- | | | -------------------------------------------------- | | |--| Lincoln Management Services Limited | | | | |(formerly: Laurentian Management Services Limited)| | | | | 100% - England/Wales - Management Services | | | | -------------------------------------------------- | | | | ------------------------------------------------ | | | |--|Laurit Limited | | | | | |100% - England/Wales - Data Processing Systems | | | | | ------------------------------------------------ | | -------------------------------------------------------- | |--| Liberty Life Pension Trustee Company Limited | | | | 100% - England/Wales - Corporate Pension Fund (Dormat) | | | -------------------------------------------------------- | | ---------------------------------------------------------- | |--| LN Management Limited | | | | 100% - England/Wales - Administrative Services (Dormat) | | | ---------------------------------------------------------- | | | ----------------------------------- | | |--| UK Mortgage Securities Limited | | | | 100% - England/Wales - Inactive | | | ----------------------------------- | | ------------------------------------------ | |--| Liberty Press Limited | | | | 100% - England/Wales - Printing Services | | ------------------------------------------
-------------------------------- | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | ----------------------------------------- |--| Lincoln National (UK) PLC | | | 100% - England/Wales - Holding Company | | ----------------------------------------- | | ---------------------------------------------- | |--| Lincoln General Insurance Co. Ltd. | | | | 100% - Accident & Health Insurance | | | ---------------------------------------------- | | -------------------------------------------- | |--|Lincoln Assurance Limited | | | | 100% ** - England/Wales - Life Assurance | | | -------------------------------------------- | | | | | | | | --------------------------------------------- | | | |--|Barnwood Property Group Limited | | | | | |100% - England/Wales - Property Management Co| | | | | --------------------------------------------- | | | | | ------------------------------------------ | | | | |--| Barnwood Developments Limited | | | | | | | 100% England/Wales - Property Development| | | | | | ------------------------------------------ | | | | | | | | | | -------------------------------------------- | | | | |--| Barnwood Properties Limited | | | | | | | 100% - England/Wales - Property Investment | | | | | -------------------------------------------- | | | | ----------------------------------------------------- | | | |--|IMPCO Properties G.B. Ltd. | | | | | |100% - England/Wales - Property Investment (Inactive)| | | | | ----------------------------------------------------- | | | | ---------------------------------------------------- | | | |--| Lincoln Insurance Services Limited | | | | | 100% - Holding Company | | | | ---------------------------------------------------- | | | | --------------------------------- | | | |--| British National Life Sales Ltd.| | | | | | 100% - Inactive | | | | | --------------------------------- | | | | | | | | ---------------------------------------------------------- | | | |--| BNL Trustees Limited | | | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) | | | | | ---------------------------------------------------------- | | | | ------------------------------------- | | | |--| Chapel Ash Financial Services Ltd. | | | | | | 100% - Direct Insurance Sales | | | | | ------------------------------------- | | | | -------------------------- | | | |--| P.N. Kemp-Gee & Co. Ltd. | | | | | | 100% - Inactive | --------------------------
-------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | | ----------------------------------------- |--| Lincoln National (UK) PLC | | | 100% - England/Wales - Holding Company | | ----------------------------------------- | | ---------------------------------------------- | |--| Lincoln Unit Trust Managers Limited | | | | 100% - England/Wales - Investment Management | | | ---------------------------------------------- | | ---------------------------------------------------------- | |--| LIV Limited (formerly Lincoln Investment Management Ltd.)| | | | 100% - England/Wales - Investment Management Services | | | ---------------------------------------------------------- | | | ----------------------------------------------- | | |--| CL CR Management Ltd. | | | | 50% - England/Wales - Administrative Services | | | ----------------------------------------------- | | ----------------------------------------------------------- | |--| Lincoln Independent Limited | | | |(formerly: Laurentian Independent Financial Planning Ltd.) | | | | 100% - England/Wales - Independent Financial Adviser | | | ----------------------------------------------------------- | | ---------------------------------------------- | |--| Lincoln Investment Management Limited | | | |(formerly: Laurentian Fund Management Ltd.) | | | | 100% - England/Wales - Investment Management | | | ---------------------------------------------- | | ------------------------------------------ | |--| LN Securities Limited | | | | 100% - England/Wales - Nominee Company | | | ------------------------------------------ | | | | --------------------------------------------- | |--| Niloda Limited | | | | 100% - England/Wales - Investment Company | | | --------------------------------------------- | | | | -------------------------------------------------- | |--| Lincoln National Training Services Limited | | | | 100% - England/Wales - Training Company | | | -------------------------------------------------- | | ------------------------------------------------- | |--| Lincoln Pension Trustees Limited | | | | 100% - England/Wales - Corporate Pension Fund | | | ------------------------------------------------- | | | | -------------------------------------------------- | |--| Lincoln National (Jersey) Limited | | | | 100% - England/Wales - Dormat | | | -------------------------------------------------- | | | | ------------------------------------------------- | |--| Lincoln National (Guernsey) Limited | | | | 100% - England/Wales - Dormat | | | ------------------------------------------------- | | | | ------------------------------------------------- | |--| Lincoln SBP Trustee Limited | | | 100% - England/Wales | -------------------------------------------------- -------------------------------- | | | Lincoln National Corporation | | Indiana - Holding Company | -------------------------------- | ------------------------------------------------- | | Linsco Reinsurance Company | |--| (formerly Lincoln National Reinsurance Company) | | | 100% - Indiana - Property/Casualty | | ------------------------------------------------- | | ------------------------------------ |--| Old Fort Insurance Company, Ltd. | | | 100% ** - Bermuda | | ------------------------------------ | | -------------------------------------------------------- | | | Lincoln National Underwriting Services, Ltd. | | |--| 10% - England/Wales - Life/Accident/Health Underwriter | | | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) | | | -------------------------------------------------------- | | --------------------------------------------------- | | | Solutions Holdings, Inc. | | |--| 100% - Delaware - General Business Corporation | | | --------------------------------------------------- | | | ---------------------------------------- | | |--|Solutions Reinsurance Limited | | | | 100% - Bermuda - Class III Insurance Co| | ---------------------------------------- | ---------------------------------------------------------- | | Seguros Serfin Lincoln, S.A. | |--| 49% - Mexico - Insurance | | ---------------------------------------------------------- | ---------------------------------------------------------- | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. | |--| 49% - Mexico - Reinsurance Underwriter | | | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) | | ---------------------------------------------------------- | -------------------------------------------- |--| Underwriters & Management Services, Inc. | | 100% - Indiana - Underwriting Services | -------------------------------------------- FOOTNOTES: * The funds contributed by the Underwriters were, and continue to be subject to trust agreements between American States Insurance Company, the grantor, and each Underwriter, as trustee. ** Except for director-qualifying shares # Lincoln National Corporation has subscribed for and paid for 100 shares of Common Stock (with a par value of $1.00 per share) at a price of $10 per share, as part of the organizing of the fund. As such stock is further sold, the ownership of voting securities by Lincoln National Corporation will decline and fluctuate. ATTACHMENT #1 LINCOLN FINANCIAL GROUP, INC. CORPORATE AGENCY SUBSIDIARIES 1) Lincoln Financial Group, Inc. (AL) 2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ) 3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA) 3a) California Fringe Benefit and Insurance Marketing Corporation DBA/California Fringe Benefit Company (Walnut Creek, CA) 4) Colorado-Lincoln Financial Group, Inc. (Denver, CO) 5) Lincoln National Financial Services, Inc. (Lake Worth, FL) 6) CMP Financial Services, Inc. (Chicago, IL) 7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN) 8) Financial Planning Partners, Ltd. (Mission, KS) 9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport, LA) 10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD) 11) Lincoln Financial Services and Insurance Brokerage of New England, Inc (formerly: Lincoln National of New England Insurance Agency, Inc.) (Worcester, MA) 12) Lincoln Financial Group of Michigan, Inc. (Troy, MI) 12a) Financial Consultants of Michigan, Inc. (Troy, MI) 13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore & Associates, Inc.) (St. Louis, MO) 14) Beardslee & Associates, Inc. (Clifton, NJ) 15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc. (Albuquerque, NM) 16) Lincoln Cascades, Inc. (Portland, OR) 17) Lincoln Financial Group, Inc. (Salt Lake City, (UT) 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 d. The following Lincoln National (UK) subsidiaries changed their name effective January 1, 1997: Lincoln Financial Group PLC (formerly Laurentian Financial Group PLC); Lincoln Milldon Limited (formerly Laurentian Milldon Limited); Lincoln Management Services Limited (formerly Laurentian Management Services Limited). FEBRUARY 1997 a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was dissolved effective February 25, 1997. MARCH 1997 a. Removal of Lincoln Financial Services, Inc. which was dissolved effective March 4, 1997. APRIL 1997 a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company then changed its name to Delvoy, Inc. The acquisition included the mutual fund group of companies as part of the Voyager acquisition. The following companies all then were moved under the newly formed holding company, Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc., Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware Service Company, Inc. and Delaware Investment & Retirement Services, Inc. b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors, Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund Distributors, Inc. is to merge into Delaware Distributors, L.P. c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros, Grupo Financiero InverMexico. Stock was sold to Grupo Financiero InverMexico effective April 18, 1997. MAY 1997 a. Name change of The Richard Leahy Corporation to Lincoln National Financial Institutions Group, Inc. effective May 6, 1997. b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc. effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc. surviving. c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a newly formed company Voyager Fund Distributors (Delaware), Inc., incorporated as a Delaware corporation on May 23, 1997. Voyager Fund Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P. effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived. JUNE 1997 a. Removal of Lincoln National Sales Corporation of Maryland -- company dissolved June 13, 1997. b. Addition of Lincoln Funds Corporation, incorporated as a Delaware corporation on June 10, 1997 at 2:00 p.m. c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June 30, 1997. JULY 1997 a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors Corporation effective July 1, 1997. b. Addition of Solutions Holdings, Inc., incorporated as a Delaware corporation on July 27, 1997. SEPTEMBER 1997 a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda corporation on September 29, 1997. OCTOBER 1997 a. Removal of the following companies: American States Financial Corporation, American States Insurance Company, American Economy Insurance Company, American States Insurance Company of Texas, American States Life Insurance Company, American States Lloyds Insurance Company, American States Preferred Insurance Company, City Insurance Agency, Inc. And Insurance Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation. b. Liberty Life Assurance Limited was sold to Liberty International Holdings PLC effective 10-6-97. c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97. DECEMBER 1997 a. Addition of City Financial Planners, Ltd. as a result of its acquisition by Lincoln National Corporation on December 22, 1997. This company will distribute life assurance and pension products of Lincoln Assurance Limited. JANUARY 1998 a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National Life Insurance Company on January 1, 1998. Cigna Associates of Massachusetts is 100% owned by Cigna Associates, Inc. b. Removal of Lincoln National Mezzanine Corporation and Lincoln National Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled January 12, 1998. c. Corporate organizational changes took place in the UK group of companies on January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited; Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance Services Limited to Lincoln National (UK) PLC. d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life Insurance Company. EX-99.15(B) 10 EXHIBIT 99.15(B) BOOKS AND RECORDS LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940 Records to Be Maintained by Registered Investment Companies, Certain Majority-Owned Subsidiaries Thereof, and Other Persons Having Transactions with Registered Investment Companies. Reg. 270.31a-1. (a) Every registered investment company, and every underwriter, broker, dealer, or investment advisor which is a majority-owned subsidiary of such a company, shall maintain and keep current the accounts, books, and other documents relating to its business which constitute the record forming the basis for financial statements required to be filed pursuant to Section 30 of the Investment Company Act of 1940 and of the auditor's reports relating thereto. LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- Annual Reports F&RM Eric Jones Permanently, the first two To Shareholders years in an easily accessible place Semi-Annual F&RM Eric Jones Permanently, the first two Reports years in an easily accessible place Form N-SAR F&RM Eric Jones Permanently, the first two years in an easily accessible place (b) Every registered investment company shall maintain and keep current the following books, accounts, and other documents: TYPE OF RECORD (1) Journals (or other records of original entry) containing an itemized daily record in detail of all purchases and sales of securities (including sales and redemptions of its own securities), all receipts and deliveries of securities (including certificate numbers if such detail is not recorded by custodian or transfer agent), all receipts and disbursements of cash and all other debits and credits. Such records shall show for each such transaction the name and quantity of securities, the unit and aggregate purchase or sale price, commission paid, the market on which effected, the trade date, the settlement date, and the name of the person through or from whom purchased or received or to whom sold or delivered. PURCHASES AND SALES JOURNALS Daily reports CSRM Nancy Alford Permanently, the first two of securities years in an easily accessible transactions F&RM Eric Jones place PORTFOLIO SECURITIES C-Port Purchase/ F&RM Eric Jones Permanently, the first two Sales Report years in an easily accessible place LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- RECEIPTS AND DELIVERIES OF SECURITIES (UNITS) Not Applicable. PORTFOLIO SECURITIES Not Applicable. RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS Daily Journals CSRM Nancy Alford Permanently, the first two F&RM Eric Jones years in an easily accessible place (2) General and auxiliary ledgers (or other record) reflecting all asset, liability, reserve, capital, income and expense accounts, including: (i) Separate ledger accounts (or other records) reflecting the following: (a) Securities in transfer; (b) Securities in physical possession; (c) Securities borrowed and securities loaned; (d) Monies borrowed and monies loaned (together with a record of the collateral therefore and substitutions in such collateral); (e) Dividends and interest received; (f) Dividends receivable and interest accrued. Instructions. (a) and (b) shall be stated in terms of securities quantities only; (c) and (d) shall be stated in dollar amounts and securities quantities as appropriate; (e) and (f) shall be stated in dollar amounts only. GENERAL LEDGER LNL trial F&RM Eric Jones Permanently, the first two Balance (5000 years in an easily accessible series) place SECURITIES IN TRANSFER Not Applicable. SECURITIES IN PHYSICAL POSSESSION Not Applicable. SECURITIES BORROWED AND LOANED Not Applicable. MONIES BORROWED AND LOANED Not Applicable. DIVIDENDS AND INTEREST RECEIVED LNL Trial Controllers Eric Jones Permanently, the first two Balance (5000 years in an easily accessible series) place LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- DIVIDENDS RECEIVABLE AND INTEREST ACCRUED LNL Trial F&RM Eric Jones Permanently, the first two Balance (5000 years in an easily accessible series) place (ii) Separate ledger accounts (or other records) for each portfolio security, showing (as of trade dates), (a) the quantity and unit and aggregate price for each purchase, sale, receipt, and delivery of securities and commodities for such accounts, and (b) all other debits and credits for such accounts. Securities positions and money balances in such ledger accounts (or other records) shall be brought forward periodically but not less frequently than at the end of fiscal quarters. Any portfolio security, the salability of which is conditioned, shall be so noted. A memorandum record shall be available setting forth, with respect to each portfolio security accounts, the amount and declaration, ex-dividend, and payment dates of each dividend declared thereon. LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY Not Applicable (iii) Separate ledger accounts (or other records) for each broker-dealer, bank or other person with or through which transactions in portfolio securities are affected, showing each purchase or sale of securities with or through such persons, including details as to the date of the purchase or sale, the quantity and unit and aggregate prices of such securities, and the commissions or other compensation paid to such persons. Purchases or sales effected during the same day at the same price may be aggregated. Not Applicable. (iv) Separate ledger accounts (or other records), which may be maintained by a transfer agent or registrar, showing for each shareholder of record of the investment company the number of shares of capital stock of the company held. in respect of share accumulation accounts (arising from periodic investment plans, dividend reinvestment plans, deposit of issued shares by the owner thereof, etc.), details shall be available as to the dates and number of shares of each accumulation, and except with respect to already issued shares deposited by the owner thereof, prices of each such accumulation. SHAREHOLDER ACCOUNTS Master file F&RM Eric Jones Permanently, the first two Record CSRM Nancy Alford years in an easily accessible place (3) A securities record or ledger reflecting separately for each portfolio security as of trade date all "long" and "short" positions carried by the investment company for its own account and showing the location of all securities long and the off-setting position to all securities short. The record called for by this paragraph shall not be required in circumstances under which all portfolio securities are maintained by a bank or banks or a member or members of a national securities exchange as custodian under a custody agreement or as agent for such custodian. LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- Not Applicable (4) Corporate charters, certificates of incorporation or trust agreements, and bylaws, and minute books of stockholders' and directors' or trustees' meetings; and minute books of directors' or trustees' committee and advisory board or advisory committee meetings. CORPORATE DOCUMENTS Not Applicable. (5) A record of each brokerage order given by or in behalf of the investment company for, or in connection with, the purchase or sale of securities, whether executed or unexecuted. Such record shall include the name of the broker, the terms and conditions of the order and of any modification or cancellation thereof, the time of entry or cancellation, the price at which executed, and the time of receipt of report of execution. The record shall indicate the name of the person who placed the order in behalf of the investment company. ORDER TICKETS UIT applica- CSRM Nancy Alford Six years, the first two tions and years in an easily accessible daily reports place of securities transactions (6) A record of all other portfolio purchase or sales showing details comparable to those prescribed in paragraph 5 above. COMMERCIAL PAPER Not Applicable. (7) A record of all puts, calls, spreads, straddles, and other options in which the investment company has any direct or indirect interest or which the investment company has granted or guaranteed; and a record of any contractual commitments to purchase, sell, receive or deliver securities or other property (but not including open orders placed with broker-dealers for the purchase or sale of securities, which may be cancelled by the company on notices without penalty or cost of any kind); containing at least an identification of the security, the number of units involved, the option price, the date of maturity, the date of issuance, and the person to whom issued. RECORD OF PUTS, CALLS, SPREADS, ETC. Not Applicable. (8) A record of the proof of money balances in all ledger accounts (except shareholder accounts), in the form of trial balances. Such trial balances shall be prepared currently at least once a month. LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- TRIAL BALANCE LNL Trial F&RM Eric Jones Permanently, the first two Balance (5000 years in an easily accessible series) place (9) A record for each fiscal quarter, which shall be completed within 10 days after the end of such quarter, showing specifically the basis or bases upon which the allocation of orders for the purchase and sale of portfolio securities to named brokers or dealers and the division of brokerage commissions or other compensation on such purchase and sale orders among named persons were made during such quarter. The record shall indicate the consideration given to (a) sales of shares of the investment company by brokers or dealers, (b) the supplying of services or benefits by brokers or dealers to the investment company, its investment advisor or principal underwriter or any persons affiliated therewith, and (c) any other considerations other than the technical qualifications of the brokers and the dealers as such. The record shall show the nature of their services or benefits made available, and shall describe in detail the application of any general or specific formula or other determinant used in arriving at such allocation of purchase and sales orders and such division of brokerage commissions or other compensation. The record shall also include the identifies of the person responsible for the determination of such allocation and such division of brokerage commissions or other compensation. Not Applicable. (10) A record in the form of an appropriate memorandum identifying the person or persons, committees, or groups authorizing the purchase or sale of portfolio securities. Where an authorization is made by a committee or group, a record shall be kept in the names of its members who participated in the authorization. There shall be retained a part of the record required by this paragraph any memorandum, recommendation, or instruction supporting or authorizing the purchase or sale of portfolio securities. The requirements of this paragraph are applicable to the extent they are not met by compliance with the requirements of paragraph 4 of this Rule 31a1(b). Advisory Law Division Sandy Lamp Six years, the first two Agreements years in an easily accessible place (11) Files of all advisory material received from the investment advisor, any advisory board or advisory committee, or any other persons from whom the investment company accepts investment advice publications distributed generally. Not Applicable. (12) The term "other records" as used in the expressions "journals (or other records of original entry)" and "ledger accounts (or other records)" shall be construed to include, where appropriate, copies of voucher checks, confirmations, or similar documents which reflect the information required by the applicable rule or rules in appropriate sequence and in permanent form, including similar records developed by the use of automatic data processing systems. Correspondence CSRM Nancy Alford Six years, the first two years in an easily accessible place LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- Proxy State- CSRM Nancy Alford Six years, the first two ments and years in an easily accessible Proxy Cards place Pricing Sheets F&RM Eric Jones Permanently, the first two years in an easily accessible place Bank State- Treasurers Rusty Summers ments March 12, 1998 -----END PRIVACY-ENHANCED MESSAGE-----