<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
Registration No. 33-_________
Registration No. 811-7645
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
(Group Variable Annuity III)
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 /X/
___________
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L
(Exact Name of Registrant)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 46801
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code: 219-455-2000
JOHN L. STEINKAMP, ESQUIRE
Vice President & Associate General Counsel
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
(Name and Complete Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
<PAGE>
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
Variable Annuity Contracts -- Registration of an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940.
The amount of the filing fee is $500.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
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CROSS REFERENCE SHEET
Showing Location of Information in Prospectus
FORM N-4 PROSPECTUS CAPTION
- -------- ------------------
1. Cover Page ...................... Cover Page
2. Definitions...................... Definitions
3. Synopsis or Highlights........... Summary
4. Condensed Financial Information.. Condensed Financial Information
5. General Description of
Registrant, Depositor and
Portfolio Companies.............. Lincoln Life, The Variable Investment
Division and the Funds
6. Deductions and Expenses.......... Deductions and Charges
7. General Description of Variable
Annuity Contracts................ Contract Provisions; Other Contract
Provisions
8. Annuity Period................... Annuity Period
9. Death Benefit.................... Contract Provisions, Death Benefits
10. Purchases and Contract Values.... Contract Provisions
11. Redemptions...................... Contract Provisions, Withdrawals
12. Taxes............................ Federal Income Tax Considerations
13. Legal Proceedings................ Not Applicable
14. Table of Contents of the
Statement of Additional
Information...................... Contents of Statement of Additional
Information
CROSS REFERENCE SHEET
Showing Location of Information in Statement of Additional Information
FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------- -------------------------------------------
15. Cover Page....................... Cover Page
16. Table of Contents................ Table of Contents
17. General Information and History.. Prospectus-Lincoln Life, The Variable
Investment Division and the Funds
18. Services......................... Not Applicable
19. Purchase of Securities Being
Offered.......................... Not Applicable
20. Underwriters..................... Distribution of the Contracts
21. Calculation of Yield Quotations
of Money Market Sub-Accounts..... Not Applicable
22. Annuity Payments................. Determination of Variable Annuity Payment
23. Financial Statements............. Financial Statements
CROSS REFERENCE SHEET
Showing Location of Information in Part C-Other Information
24(a) Financial Statements and
Exhibits....................... Not Applicable
24(b) Exhibits....................... Exhibits
25. Directors and Officers of the
Depositor........................ Directors and Officers of the Depositor
26. Persons Controlled by or Under
Common Control with the Depositor
or Registrant.................... Organizational Chart
27. Number of Contract Owners........ Number of Contract Owners
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28. Indemnification.................. Indemnification
29. Principal Underwriters........... Principal Underwriters
30. Location of Accounts and Records. Location of Accounts and Records
31. Management Services.............. Management Services
32. Undertakings..................... Undertakings
<PAGE>
THE LINCOLN NATIONAL
LIFE INSURANCE
COMPANY
Group Variable Annuity Contracts
Lincoln National Variable Annuity Account L
P.O. Box ________
Portland, Maine 04122
VARIABLE ANNUITY III
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PROSPECTUS
- --------------------------------------------
_______, __ 1996
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY WHEN
ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE APPLICABLE UNDERLYING FUNDS WHICH
SHOULD BE RETAINED FOR FUTURE REFERENCE.
INVESTMENT IN THE CONTRACTS INVOLVES
INVESTMENT RISK, INCLUDING MARKET
FLUCTUATION AND POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This prospectus describes group annuity
contracts ("Contracts") offered by The
Lincoln National Life Insurance Company
("Lincoln Life"), a wholly-owned company
of Lincoln National Corp. The Contracts
are designed to enable Participants and
Employers to accumulate funds for
retirement programs meeting the
requirements of the following Sections of
the Internal Revenue Code of 1986, as
amended (the "Code"): 401(a), 403(b), 408
and 457 and other related Sections as
well as for programs offering
non-qualified annuities. A Participant
is an employee or other person affiliated
with the Contractholder on whose behalf a
Participant Account is maintained under
the terms of the Contract.
The Contracts permit Contributions to
be deposited in the Guaranteed Interest
Division, which is part of Lincoln Life's
General Account, and in certain
Sub-Accounts in Lincoln National Variable
Annuity Account L ("Variable Investment
Division"). Contributions to the
Guaranteed Interest Division earn
interest at a guaranteed rate declared by
Lincoln Life. Contributions to the
Variable Investment Division will
increase or decrease in dollar value
depending on the investment performance
of the underlying funds in which the
Sub-Accounts invest.
Currently, the Variable Investment
Division consists of the nine
Sub-Accounts listed below: Next to each
listed Sub-Account is the name of the
fund (the "Fund") in which the
Sub-Account invests. For more
information about the investment
objectives, policies and risks of the
Funds please refer to the prospectus for
each of the Funds.
Index Account........................Dreyfus Stock Index Fund
Growth I Account ....................Fidelity's Variable
Insurance Products Fund:
Growth Portfolio
Asset Manager Account................Fidelity's Variable Insurance
Products Fund II: Asset Manager
Portfolio
Growth II Account....................Twentieth Century's TCI
Portfolios, Inc.: TCI Growth
Balanced Account.....................Twentieth Century's TCI
Portfolios, Inc.: TCI Balanced
International Stock Account..........T. Rowe Price International
Series, Inc.
Socially Responsible Account.........Calvert Responsibily Invested
Balanced Portfolio
Equity-Income Account................Fidelity's Variable Insurance
Products' Fund: Equity-Income
Portfolio
Small Cap Amount.....................Dreyfus Variable Investment
Fund: Small Cap Portfolio
This prospectus is intended to provide information regarding the Contracts
offered by Lincoln Life that you should know before investing. Please read
and retain this prospectus for future reference. A Statement of Additional
Information ("SAI"), dated _________, 1996, has been filed with the
Securities and Exchange Commission and is incorporated by this reference into
this Prospectus. If you would like a free copy, write to ______. Lincoln
National Life Insurance Co., P.O. Box ____, Portland, Maine 04122 or call
1-800- _____________. A table of contents for the SAI appears on the last
page of this Prospectus.
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS......................................................... 3
SUMMARY (Including Fee Table and Performance Information)........... 6
CONDENSED FINANCIAL INFORMATION.....................................11
FINANCIAL STATEMENTS ...............................................11
LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION AND THE FUNDS........11
CONTRACT PROVISIONS.................................................15
DEDUCTIONS AND CHARGES .............................................21
ANNUITY PERIOD .....................................................23
FEDERAL INCOME TAX CONSIDERATIONS...................................25
VOTING RIGHTS.......................................................31
OTHER CONTRACT PROVISIONS...........................................32
GUARANTEED INTEREST DIVISION .......................................33
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION...........36
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DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each
Sub-Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation
Date and terminating when the Participant's Account balance is reduced to
zero, either through withdrawal(s), annuitization, imposition of charges,
payment of a Death Benefit or a combination thereof.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which Lincoln Life makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account
balance in the event of the Participant's death during the Accumulation
Period or the person(s) designated to receive any applicable remainder of an
annuity in the event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which the New York Stock Exchange is customarily open
for business.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another contract or Trustee.
CONTRACT: A Group Variable Annuity contract issued by Lincoln Life to the
Contractholder.
CONTRACTHOLDER: The party named as the Contractholder on the group annuity
contract issued by Lincoln Life. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the
law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan
to its employees.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts.
GENERAL ACCOUNT: All assets of Lincoln Life other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is
reduced when a withdrawal occurs, including any applicable Annual
Administration Charge.
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GUARANTEED ANNUITY: An annuity for which Lincoln Life guarantees the amount
of each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by Lincoln Life for
the Contracts and other contracts for which Lincoln Life guarantees the
principal amount and interest credited thereto subject to any fees and
charges as set forth in the Contract. Amounts allocated to the Guaranteed
Interest Division are part of the General Account.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including
principal and due and accrued interest) and amounts converted to a Payout
Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
PARTICIPANT: An employee or other person affiliated with the Contractholder
on whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's
Account balance in the Variable Investment Division plus the Participant's
Account balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year
intervals from the Participant's Participation Date. If an anniversary
occurs on a non-Business Day, it is treated as occurring on the next Business
Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is
received by Lincoln Life. A Participant will receive a new Participation
Date if such Participant makes a Total Withdrawal, as defined in this
prospectus, and Contributions on behalf of the Participant are resumed under
any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary
and ending the day before the next Participation Anniversary, except for the
first Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid under the terms of a Contract to a
person. A Payout Annuity may be either a Guaranteed Annuity or a Variable
Annuity or a combination Guaranteed and Variable Annuity.
PLAN: The retirement program offered by an Employer to its employees for
which a Contract is used to accumulate funds.
RECEIPT: Receipt by Lincoln Life at its service office in Portland, Maine.
SUB-ACCOUNT: An account established in the Variable Investment Division
which invests in shares of a corresponding Fund.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
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<PAGE>
VALUATION PERIOD: A period used in measuring the investment experience of
each Sub-Account. The Valuation Period begins at the close of trading on the
New York Stock Exchange on one Valuation Date and ends at the corresponding
time on the next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
VARIABLE INVESTMENT DIVISION: The Division which is maintained by Lincoln
Life for these Contracts and other Lincoln Life contracts for which Lincoln
Life does not guarantee the principal amount or investment results. The
Variable Investment Division is the Lincoln National Variable Annuity Account
L which is a group of assets segregated from the General Account whose
income, gains and losses, realized or unrealized, are credited to or charged
against the Variable Investment Division without regard to other income,
gains or losses of Lincoln Life. The Variable Investment Division currently
consists of nine Sub-Accounts. Additional Sub-Accounts may be added in the
future.
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<PAGE>
SUMMARY
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Lincoln Life was founded in 1905 and is organized under Indiana
law. Lincoln Life is one of the largest stock life insurance companies in the
United States. Lincoln Life is the issuer of the Contracts offered by this
prospectus. Lincoln Life is owned by Lincoln National Corp. ("LNC") which is
also organized under Indiana law. LNC's primary businesses are the issuing
of annuities, life insurance, property-casualty insurance and reinsurance,
and the providing of investment management services.
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are
available to Employers and other entities to provide a way to accumulate
funds for retirement and to provide Payout Annuities. Lincoln Life offers
Contracts designed to enable Participants and Employers to accumulate funds
for retirement programs meeting the requirements of the following Sections of
the Internal Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b),
408, 457 and other related Sections as well as for programs offering
non-qualified annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the
Contractholder. Depending upon the type of Plan offered, Contributions may
consist of salary reduction Contributions, Employer Contributions or
Participant post-tax Contributions. Contributions are forwarded by the
Contractholder to Lincoln Life and allocated among the two Divisions in
accordance with information provided by the Contractholder. See "Contract
Provisions, Contributions under the Contract."
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division
or to the Variable Investment Division or to both Divisions. The Variable
Investment Division currently consists of nine Sub-Accounts. A
Contractholder may choose to offer between zero and nine of the Sub-Accounts
to its Participants under a Contract. The Sub-Accounts invest their assets
in shares of a corresponding Fund. For a full description of the Funds, see
the prospectuses for the Funds.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder
under certain Plans may make transfers between and among Divisions and
Sub-Accounts. Certain Plans may limit the transfers in dollar amount, type
of Contribution, or frequency. Certain Plans may require Contractholder
approval for a transfer. See "Transfers between Divisions and Sub-Accounts."
WITHDRAWALS AND DISTRIBUTIONS
During the Accumulation Period, a Participant may withdraw any part
of their Account balance subject to the restrictions imposed by the Code and
regulations thereof and by the applicable Plan. With respect to Section
401(a) Plans and Plans subject to Title I of the Employee Retirement Income
Security Act of 1974 (ERISA), the Contractholder must authorize Lincoln Life
to process a withdrawal request by a Participant.
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<PAGE>
Withdrawal requests under Section 457 Plans must also be authorized by the
Contractholder. With respect to withdrawal requests by Participants under
Plans not subject to Title I of ERISA, certain Contracts may require that the
Participants must certify to Lincoln Life that an eligible event under the
Code has occurred. Withdrawal and Distribution requests must be in writing
and in a form acceptable to Lincoln Life.
Certain Plans are also subject to the distribution requirements
under Section 401(a)(9) of the Code including the incidental death benefit
requirements of Section 401(a)(9)(G). Certain transfers from one Qualified
Plan contract to another Qualified Plan contract are not subject to
withdrawal restrictions under the Code. Withdrawals and distributions may
have tax consequences, including possibly a 10% Federal Excise Tax for
premature distributions. See "Federal Income Tax Considerations."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who
dies during the Accumulation Period. See "Contract Provisions, Death
Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Contractholder or a
Participant who requests a withdrawal or a Beneficiary of a deceased
Participant may elect to convert all or part of the Participant's Account
balance or the Death Benefit, as appropriate, to a Payout Annuity. Lincoln
Life offers both Guaranteed and Variable Annuities or a combination
Guaranteed and Variable Annuity. The range of annuity options available
includes life annuities and annuities for a specific time period as well as
others described more fully in this prospectus. See "Annuity Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain
Non-qualified Plans has ten days, in most cases, from the date the
Participant receives an Active Life Certificate to notify Lincoln Life in
writing that the Participant does not choose to participate under the
Contract and to receive a return of funds. See "Free-Look Period."
FEE TABLE
The following table and examples, prescribed by the SEC, are
included to assist Contractholders and Participants in understanding the
transaction and operating expenses imposed directly or indirectly under the
Contracts. The standardized tables and examples assume the highest
deductions possible under the Contracts, whether or not such deductions
actually would be made from a Participant's Account.
CONTRACT RELATED TRANSACTION EXPENSES(1)
Sales Load Imposed on Purchases: 0%
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ANNUAL ADMINISTRATION CHARGE(2) $25
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.20%
Other Charges: 0.00%
Total Separate Account
Annual Expenses: 1.20%
FUND EXPENSES(3)
(as a percentage of average daily net assets)
Index(4) G-1 Amgr(5) G-II Bal Int'l Soc Res(6) Eql Smcap
-------- --- ------- ---- --- ----- ---------- --- -----
Management Fees: .27 .61 .71 1.0 1.0 1.05 .70 .51 .75
Other Expenses .12 .09 -- .13 .10 .08
(after expense
reimbursements):
Total Fund Expenses: .39 .70 -- 1.0 1.0 1.05 .83 .61 .83
Example #1: Assuming total withdrawal of the Participant's Account
balance at the end of the period shown.(7)
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
Index G-1 Amgr G-II Bal Int'l Soc Res Eql Smcap
----- --- ---- ---- --- ----- ------- --- -----
1 Year
3 Years
Example #2: Assuming annuitization of the Participant's Account at the
end of the period shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
Index G-1 Amgr G-II Bal Int'l Soc Res Eql Smcap
----- --- ---- ---- --- ----- ------- --- -----
1 Year
-8-
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3 Years
Example #3: Assuming persistency of the Participant's Account through
the periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
Index G-1 Amgr G-II Bal Int'l Soc Res Eql Smcap
----- --- ---- ---- --- ----- ------- --- -----
1 Year
3 Years
For purposes of these examples, the effect of the Annual Administration
Charge has been computed based on an estimated aggregate amount of Annual
Administration Charges collected equal to $ ___ and an estimated Participant's
Account equal to $__________.
- ----------
(1) The examples do not take into account any deduction for premium taxes
which may be applicable. Loans taken by a Participant with respect to the
Participant's Account balance in the Guaranteed Interest Division may be
subject to a charge for establishing the loan.
(2) The Employer has the option of paying the Annual Administration Charge on
behalf of the Participants under a Contract. In such a situation, the
projected expenses would be lower than those indicated in the examples.
This charge is not imposed during the Annuity Period. In certain
situations the Annual Administrative Charge may be reduced or eliminated.
See "Deductions & Charges-Annual Administrative Charge".
(3) Until complete order instructions are received, initial Contributions may
be allocated temporarily to Fidelity's Variable Insurance Products Fund:
Money Market Portfolio ("VIPF Money Market Portfolio"). Management fees
for this fund are 0.24%. Other expenses are 0.09%. Total Fund Expenses
are 0.33%. The Mortality and Expense Risk Charge is not assessed.
(4) Total Fund Operating Expenses, excluding brokerage commissions and
transaction fees, are guaranteed not to exceed .40% of the Dreyfus Stock
Index Fund, Inc.'s average daily net assets. To the extent these Fund
expenses exceed .40% of the Fund's average daily net assets, The Dreyfus
Corporation, the Fund's administrator, will bear such excess expense. In
the absence of such reimbursement, the Other Expenses and Total Fund
Expenses for fiscal year ending December 31, 1995 would have been _______
and ___ respectively.
(5) A portion of the brokerage commissions the Fund paid was used to reduce
its expenses. Without this reduction, total operating expenses would have
been: Asset Manager-0.79%.
(6) "Other Expenses" reflect an indirect fee of 0.02%. Net Fund Operating
Expenses after reduction of fees paid indirectly would be 0.81%.
(7) The Contracts are designed for retirement planning. Withdrawals prior to
retirement or the Annuity Commencement Date are not consistent with the
long-term purposes of the Contracts and the applicable tax laws.
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<PAGE>
The fee table and examples reflect expenses and charges of the
Sub-Accounts and the expenses of the applicable Fund for the year ended
December 31, 1995. However, the examples should not be considered a
representation of past or future expenses and charges of the Sub-Accounts or
the Funds. Similarly, the assumed 5% annual rate of return is not an
estimate or a guarantee of future investment performance. See "Deductions
and Charges" in this prospectus and the discussion of Fund Management in the
prospectus for each of the Funds for further information.
PERFORMANCE INFORMATION
The Variable Investment Division may advertise or use in sales
literature information concerning the investment performance of the various
Sub-Accounts. No performance presentation should be considered as
representative of future investment results. Actual performance is a
function not only of the investment management of the underlying Funds and
market forces, but of the time and frequency of Contributions, the charges
and fees imposed under the Contract, the fees and expenses of the Funds, and
transfers made by a Participant, among other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other
investment companies (such as mutual funds), and recognized indices (such as
the Dow Jones Industrial Average, Standard & Poor's 500 Composite Stock Price
Index, NASDAQ Index, Consumer Price Index), and data published by Lipper
Analytical Services, Inc., Morningstar, and Variable Annuity Research and
Data Service or comparable services. Performance of the Sub-Accounts may
also be compared with performance of other types of investments. Some
advertisements may also include published editorial comments and performance
rankings by independent organizations and publications that monitor the
performance of separate accounts and mutual funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the
value of a hypothetical $1,000 contribution allocated to a Sub-Account from
the beginning to the end of each specified period of time. The SEC
standardized formula gives effect to all applicable charges under the
Contracts. This method of calculating performance further assumes that (i) a
$1,000 contribution was allocated to a Sub-Account, (ii) no transfers or
additional payments were made and (iii) the withdrawal of the investment
occurs at the end of the period. Premium taxes are not included in this
calculation. The Sub-Accounts may also advertise this total return
performance as described above on a cumulative basis.
The Sub-Accounts may present total return information computed on a
calendar year basis. The Sub-Accounts may also present total return
information over specified periods of time (computed on an average annual or
cumulative basis) assuming that no administrative charge will be deducted.
The Sub-Accounts may present hypothetical examples that apply the total
return to a hypothetical initial investment. The Sub-Accounts may also
present total return information based on different amounts of periodic
investments. For additional performance information, please refer to the
Statement of Additional Information.
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders,
Lincoln Life may reflect endorsements. Endorsements are often in the form of
a list of organizations, individuals or other parties which recommend Lincoln
Life or the Contracts. The endorser's name will be used only with the
endorser's consent. It should be noted that the list of endorsements may
change from time to time.
-10-
<PAGE>
Also, from time to time, the rating of Lincoln Life as an Insurance
company by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial
status of thousands of Insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance Industry. Best's
ratings range from A++ to F.
In addition, the claims-paying ability of Lincoln Life as measured by
the Standard and Poor's Rating Group may be referred to in advertisements or
in reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC.
From time to time Lincoln Life may refer to Moody's Investors Service
rating of Lincoln Life. Moody's Investors Service financial strength ratings
indicate an insurance company's ability to discharge policyholder obligations
and claims and are based on an analysis of the insurance company and its
relationship to its parent, subsidiaries, and affiliates. Moody's Investors
Service ratings range from Aaa to C.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance contracts in accordance
with their terms. Claims-paying ability ratings do not refer to an insurer's
ability to meet non-contract obligations (i.e., debt/commercial paper).
Lincoln Life's ratings should not be considered as bearing on the investment
performance of assets held in the Variable Investment Division or the safety
(or lack thereof) for an investment in the Variable Investment Division.
CONDENSED FINANCIAL INFORMATION
No condensed financial information for the Variable Investment Division
is presented because, as of the date of this Prospectus, the Variable
Investment Division had not yet commenced operations.
FINANCIAL STATEMENTS
The financial statements of Lincoln Life may be found in the Statement
of Additional Information. As of the date of this Prospectus, the Variable
Investment Division had not yet commenced operations. Accordingly, it has no
financial statements.
LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Lincoln Life is a stock life insurance company incorporated under the
laws of Indiana on June 12, 1905. Lincoln Life is principally engaged in
offering life insurance policies and annuity policies, and ranks among the
ten largest United States stock life insurance companies in terms of assets
and life insurance in force. Lincoln Life is also one of the leading life
reinsurers in the United States. Lincoln Life is licensed in all states
(except New York) and the District of Columbia, Guam, and the Virgin Islands.
Lincoln Life is wholly owned by Lincoln National Corporation ("LNC"), a
publicly held insurance holding company incorporated under Indiana law on
January 5, 1968. The principal offices of both Lincoln Life and LNC are
located at 1300 South Clinton Street, Fort Wayne, Indiana 46801. Through
subsidiaries, LNC engages primarily in the issuance of life insurance and
annuities, property-casualty insurance, and other financial services.
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Administrative services necessary for the operation of the Variable
Investment Division and the Contracts are currently provided by Lincoln Life.
See "Deductions and Charges-Annual Administration Charge."
LNC EQUITY SALES CORPORATION
LNC Equity Sales Corporation ("LNC Equity"), a registered broker-dealer,
is the principal underwriter of the Contracts. As such, LNC Equity will be
offering the Contracts and performing all duties and functions that are
necessary and proper for distribution of the Contracts. LNC Equity has also
entered into sales agreements with independent broker-dealers for the sale of
the Contracts. LNC Equity may pay sales commissions to broker-dealers up to
an amount equal to _____% of Contributions under a Contract.
THE VARIABLE INVESTMENT DIVISION
The Variable Investment Division was established by Lincoln Life as a
separate account on April 29, 1996. Although the assets of the Variable
Investment Division are the property of Lincoln Life, the laws of Indiana
under which the Variable Investment Division was established provide that the
assets in the Variable Investment Division attributable to the Contracts are
not chargeable with liabilities arising out of any other business which
Lincoln Life may conduct. The assets of the Variable Investment Division
shall, however, be available to cover the liabilities of the General Account
of Lincoln Life to the extent that the Variable Investment Division's assets
exceed its liabilities arising under the Contracts supported by it. The
Variable Investment Division is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company
Act of 1940 ("1940 Act"). Registration with the SEC does not involve
supervision of the management or investment practices or policies of either
the Variable Investment Division or Lincoln Life by the SEC.
The Variable Investment Division currently consists of nine
Sub-Accounts. The Sub-Accounts invest in shares of the Funds. Therefore, the
investment experience of the Sub-Accounts depends on the performance of the
Funds.
The income, gains and losses, realized or unrealized, from assets
allocated to each Sub-Account of the Variable Investment Division are
credited to or charged against that Sub-Account, without regard to other
income, gains or losses in Lincoln Life's general account or any other
separate account or Sub-Account. Lincoln Life is the issuer of the Contracts
and the obligations set forth therein, other than those of the Contractholder
or the Participant, are obligations of Lincoln Life.
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each
of these Funds was formed as an investment vehicle for insurance company
separate accounts.
Information about each of the Funds, including their investment
objectives and investment management, is contained below. Additional
information about the Funds, their investment policies, risks, fees and
expenses and all other aspects of their operations, can be found in the
prospectuses for the Funds, which should be read carefully before investing.
There is no assurance that any Fund will achieve its stated objectives.
Additional copies of the Funds' prospectuses, as well as their Statements of
Additional Information, can be obtained directly from each of the Funds
without charge by writing to the particular Funds at the addresses noted on
the front of the prospectus. Shares of the Funds are sold not only to the
Sub-Accounts but also to variable annuity and variable life separate accounts
of other insurance companies and qualified retirement plans. For a
disclosure of possible conflicts involved in the Sub-Accounts investing in
Funds that are so offered, see the applicable Fund prospectus.
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DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation. The Fund sells its shares to the Index
Account at net asset value, without the imposition of a sales charge.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the
Fund index manager.
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO
The Calvert Responsibly Invested Balanced Portfolio is a series of
Acacia Capital Corporation (the "Fund"), an open-end management investment
company whose investment advisor is Calvert Asset Management Company, Inc.
located at 4550 Montgomery Avenue, Suite 1000N, Bethesda, Maryland 20814.
The Calvert Responsibly Invested Balanced Portfolio seeks total return
above the rate of inflation through an actively managed, non-diversified
portfolio of common and preferred stocks, bonds, and money market instruments
which offer income and growth opportunity and which satisfy the social
concern criteria established for the Portfolio. Shares of the Fund are
offered only to insurance companies for allocation to certain of their
variable accounts.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company that is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of various life insurance companies.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital
appreciation. The Small Cap Portfolio seeks out companies that The Dreyfus
Corporation believes have the potential for significant growth. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets
in companies with market capitalization of less than $750 million, at the
time of purchase, both domestic and foreign where there is a belief that new
or innovative products or services should enhance prospects for growth in
future earnings. The Portfolio may also invest in special situations such as
corporate restructurings, mergers or acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Fund's investment adviser.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
The Variable Insurance Products Fund was designed to provide investment
vehicles for variable annuity and variable life insurance contracts of various
life insurance companies.
EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by normally
investing at least 65% of its total assets in income-producing common or
preferred stock and the remainder in debt securities.
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GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of
current income as is consistent with preserving capital and providing liquidity.
For more information regarding the Portfolio, into which initial Contributions
are invested pending Lincoln Life's receipt of a complete order, please see the
"Initial Contributions" section.
Fidelity Management & Research Company ("FMR") is the manager of the
Equity-Income Portfolio, the Growth Portfolio and the Money Market Portfolio and
is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund II is designed to provide investment
vehicles for variable annuity and variable life insurance contracts.
ASSET MANAGER PORTFOLIO: The Portfolio seeks high total return with reduced
risk over the long term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed income instruments.
FMR is the manager of the Portfolio and is located at 82 Devonshire
Street, Boston, Massachusetts 02109.
TWENTIETH CENTURY'S TCI PORTFOLIOS, INC.
TCI Portfolios, Inc. is a fund which offers its shares only to life
insurance companies to fund the benefits of variable annuity or variable life
insurance contracts. The Portfolios are managed by Investors Research
Corporation which also manages the Twentieth Century family of mutual funds.
Investors Research Corporation has its principal place of business at Twentieth
Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
Lincoln Life may perform certain administrative services that would
otherwise be performed by Twentieth Century Services, Inc., and Investors
Research may pay Lincoln Life for such services.
TCI GROWTH: The Portfolio seeks capital growth by investing in common stocks
(including securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in the
opinion of the fund's management, have better than average potential for
appreciation.
TCI BALANCED: The Portfolio seeks capital growth and current income. Its
investment team intends to maintain approximately 60% of the portfolio's assets
in common stocks that are considered by its manager to have better than average
prospects for appreciation and the balance in bonds and other fixed income
securities.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series is a fund which offers its shares only
to life insurance companies to fund the benefits of variable annuity and
variable life contracts. It is managed by Rowe Price-Fleming International,
Inc., one of America's largest international no load mutual fund managers with
approximately $20.0 billion under management as of December 31, 1995, from its
offices in Baltimore, London, Tokyo and Hong Kong.
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The International Stock Portfolio seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
CONTRACT PROVISIONS
GENERAL
These Contracts were designed for Employers and other entities to enable
Participants and Employers to accumulate funds for retirement programs meeting
the requirements of the following Sections of the Internal Revenue Code of 1986,
as amended (the "Code"): 401(a), 403(b), 408, 457 and other related Sections as
well as for programs offering non-qualified annuities. An Employer, Association
or trustee in some circumstances, may enter into a Contract with Lincoln Life by
filling out an application and returning it to Lincoln Life. Upon Lincoln
Life's acceptance of the application, Contractholders or an affiliated Employer
can forward Contributions on behalf of employees who then become Participants
under the Contracts. For Plans that have allocated rights to the Participant,
Lincoln Life will issue to each Participant a separate Active Life Certificate
that describes the basic provisions of the Contract to each Participant.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to Lincoln Life for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division in
which the Contributions are deposited. Contributions to the Guaranteed Interest
Division become part of Lincoln Life's General Account and are guaranteed a
minimum rate of interest. Contributions to the Variable Investment Division
increase or decrease in value daily to reflect the investment experience of the
Sub-Accounts in which the Contributions are invested.
Contributions by Participants may be in any amount unless there is a
minimum amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other contracts and qualified rollover Contributions will be accepted.
Section 830.205 of the Texas Education Code provides that Employer or
state Contributions (other than salary reduction Contributions) on behalf of
Participants in the Texas Optional Retirement Program ("ORP") vest after one
year of participation in the program. Lincoln Life will return Employer
Contributions to the Contractholder for those employees who terminate
employment in all Texas institutions of higher education before becoming
vested. During this first participation year in the ORP, ORP Participants
may only direct Employer and state Contributions to the Guaranteed Interest
Division.
Contributions must be in United States funds. All withdrawals and
distributions under this Contract will be in U.S. funds. If a bank or other
financial institution does not honor the check or other payment method
constituting a Contribution, Lincoln Life will treat the Contribution as
invalid. All allocation and subsequent transfers resulting from the invalid
Contributions shall be reversed and the party responsible for the invalid
Contribution shall reimburse Lincoln Life for any losses or expenses resulting
from the invalid Contribution.
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INITIAL CONTRIBUTIONS
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two Business Days after it is received by
Lincoln Life at its service office if it is preceded or accompanied by a
completed enrollment form containing all the information necessary for
processing the Participant's Contribution. If Lincoln Life does not receive a
complete enrollment form, Lincoln Life will notify the Contractholder or the
Participant that Lincoln Life does not have the necessary information to process
the Contribution. If the necessary information is not provided to Lincoln Life
within five (5) Business Days after Lincoln Life first receives the initial
Contribution, Lincoln Life will return the initial Contribution less any
withdrawal(s) by the Participant or by the Contractholder, unless the
Participant or the Contractholder specifically consents to Lincoln Life
retaining the Contribution until the enrollment form is made complete.
Notwithstanding the above, when the Contract includes language regarding
the "Pending Allocation Account", the following shall apply: Where state
approval has been obtained, if Lincoln Life receives Contributions which are not
accompanied by a properly completed Enrollment Form, Lincoln Life will notify
the Contractholder of that fact and deposit the Contributions to the Pending
Allocation Account, unless such Contributions are designated to another Account
in accordance with the Plan. Within two Business Days of receipt of a properly
completed Enrollment Form, the Participant's Account balance in the Pending
Allocation Account will be transferred in accordance with the allocation
percentages elected on the Enrollment Form. All future Contributions will also
be allocated in accordance with these percentages until such time as the
Participant may notify Lincoln Life of a change. If a properly completed
Enrollment Form is not received after three monthly notices have been sent, the
Participant's Account balance in the Pending Allocation Account will be refunded
to the Contractholder within 105 days of the date of the initial Contribution.
The Pending Allocation Account invests in Fidelity's Variable Insurance Products
Fund Money Market Portfolio and is not available as an investment option under
the group annuity contract. Mortality & Expense Risk Charges and the Annual
Administration Charge do not apply to this Account. These charges will be
applicable upon receipt of a properly completed Enrollment Form and the
Participant's contract Participation Date will be the date money was deposited
in the Pending Allocation Account.
ALLOCATION OF CONTRIBUTIONS
A Participant must designate in writing, subject to the Plan, the percent
of their Contribution which will be allocated to each Division and to each Sub-
Account available under their Contract. The Contributions allocation percentage
to the Guaranteed Investment Division or any Sub-Account can be in any whole
percent. Participants, whose Employer offers two or more Lincoln Life contracts
for the same type of Qualified or Non-qualified Plans, may allocate
Contributions to a maximum of ten Sub-Accounts and the Guaranteed Interest
Division. Participants, subject to the terms of the Plan, may change the
allocation of Contributions by notifying Lincoln Life in writing or by telephone
in accordance with procedures published by Lincoln Life. Telephone requests for
allocation changes follow the same verification of identity rules as for
Transfers. (See "Telephone Transfers.") When Lincoln Life receives a notice in
writing, the form must be acceptable to Lincoln Life. Upon receipt by Lincoln
Life, the change will be effective for all Contributions received concurrently
with the allocation change form and for all future Contributions, unless a
later date is requested. Changes in the allocation of future Contributions
have no effect on amounts a Participant may have already contributed. Such
amounts, however, may be transferred between Divisions and Sub-Accounts
pursuant to the requirements described in "Transfers between Divisions and
Sub-Accounts." Allocations of Employer Contributions may be restricted by the
applicable plan.
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SUBSEQUENT CONTRIBUTIONS
The Contractholder will forward Contributions to Lincoln Life specifying
the amount being contributed on behalf of each Participant. The Contractholder
must send Contributions and provide such allocation information in accordance
with procedures established by Lincoln Life. The Contributions shall be
allocated among the Guaranteed Interest Division and the Variable Investment
Division in accordance with the Contractholder's or the Participant's written
instructions as described above in "Allocation of Contributions."
INVESTMENT OF CONTRIBUTIONS
Contributions are invested as of the date of receipt at Lincoln Life's
service office, provided that they are received prior to 4:00 p.m. (Eastern
Time) on a Business Day and allocation information is provided in a form
acceptable to Lincoln Life in accordance with procedures established by Lincoln
Life. If the Contribution is received after 4:00 p.m. (Eastern Time), Lincoln
Life will invest the Contribution on the next Business Day. Contributions on
behalf of a Participant which are allocated to the Variable Investment Division
will be credited with Accumulation Units as of that date. A Participant's
interest in the Variable Investment Division during the Accumulation Period is
represented by the value of the Accumulation Units credited to the Participant's
Account balance in the Variable Investment Division. The number of Accumulation
Units credited to a Participant's Account in a Sub-Account is calculated by
dividing the Contribution allocated to the Sub-Account by the dollar value of an
Accumulation Unit next determined after receipt of the Contribution. The number
of Accumulation Units purchased will not vary as a result of any subsequent
fluctuations in the Accumulation Unit Value. The Accumulation Unit Value, of
course, fluctuates with the investment performance of the underlying Fund and
also reflects deductions and charges made against the Variable Investment
Division.
DETERMINATION OF ACCUMULATION UNIT VALUE
Lincoln Life determines the Accumulation Unit Value of each Sub-Account on
each Valuation Date. Accumulation Unit Values are determined by multiplying the
Net Investment Factor for the current Valuation Period by the Accumulation Unit
Value as of the end of the immediately preceding Valuation Period.
Lincoln Life uses a Net Investment Factor to measure the daily
fluctuations in value of a Sub-Account. The Net Investment Factor for any
Valuation Period is determined as follows:
(a) The net asset value per share of the underlying Fund as of the end of
a Valuation Period is added to the amount per share of any dividends or capital
gain distributions paid by the Fund during that Valuation Period;
(b) The amount in (a) above is then divided by the net asset value per
share of the underlying Fund as of the end of the immediately preceding
Valuation Period;
(c) The result of (a) divided by (b) is then multiplied by one minus the
annual mortality and expense risk charge to the n/365th power where n equals the
number of calendar days since the immediately preceding Valuation Date.
The above calculation will be adjusted by the amount per share of any
taxes which are incurred by Lincoln Life because of the existence of the
Variable Investment Division.
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The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, transfers may be made of all or part of
a Participant's Account balance in any Division or Sub-Account to another
Sub-Account or Division subject to the limitations described below and in the
applicable Plan. Transfers will not change the allocation of future
Contributions to the Divisions and Sub-Accounts. Lincoln Life does not
require that any minimum amount be transferred. To effect a transfer,
Lincoln Life must receive a written transfer request in a form acceptable to
Lincoln Life. During any one calendar year, a Participant may make one
transfer or withdrawal from the Guaranteed Interest Division to the Variable
Investment Division in an amount not to exceed 20% of the Guaranteed Interest
Division Account balance.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following Lincoln Life's receipt of the
written transfer request.
TELEPHONE TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
Lincoln Life may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, Lincoln Life will require a Participant to provide certain
identifying information before Lincoln Life will act upon their instructions.
Lincoln Life may also assign the Participant a Personal Identification Number
(PIN) to serve as identification. Lincoln Life will not be liable for following
telephone instructions it reasonably believes are genuine. Telephone transfer
requests may be recorded and written confirmation of all transfer requests will
be mailed to the Participant or Contractholder on the next Business Day.
Telephone transfers will be processed on the Business Day that they are received
when they are received at the Lincoln Life service office before 4:00 P.M.
Eastern Time. If the Participant or Contractholder determines that a transfer
has been made in error, the Participant or Contractholder must notify Lincoln
Life within 30 days of the confirmation notice date. See "Contract Provisions,
Transfers between Divisions and Sub-Accounts."
WITHDRAWALS
During the Accumulation Period, withdrawals may be made from either or
both Divisions of all or part of the Participant's Account balance in a Division
or Sub-Account remaining after deductions for any applicable (1) Annual
Administration Charge (imposed on Total Withdrawals), (2) premium taxes, and
(3) outstanding loan including loan security. Annuity Conversion Amounts are
not considered withdrawals. See "Annuity Period, Annuities: General."
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to Lincoln Life. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Investment Division. Lincoln Life does not require that any
minimum amount be withdrawn. Telephone withdrawal requests are not permitted.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, Lincoln Life uses
the Accumulation Unit Value next computed after Lincoln Life's receipt of the
written withdrawal request.
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Payment of all Variable Investment Division withdrawal amounts generally
will be made within seven days after receipt by Lincoln Life of the withdrawal
request in a form acceptable to Lincoln Life. See "Market Emergencies."
During any one calendar year, a Participant may make one transfer or
withrawal from the Guaranteed Interest Division to the Variable Investment
Division in an amount not to exceed 20% of the Guaranted Interest Division
Account balance.
TOTAL WITHDRAWALS
A Total Withdrawal can only be made by a Participant who has no
outstanding loans under the Contract. A Total Withdrawal of a Participant's
Account will occur when (a) the Participant or Contractholder requests the
liquidation of the Participant's entire Account balance, or (b) the amount
requested results in a remaining Participant's Account balance of
less than or equal to the Annual Administration Charge, in which case the
request is treated as if it were a request for liquidation of the Participant's
entire account balance.
Any Active Life Certificate must be surrendered to Lincoln Life when a
Total Withdrawal occurs. If a Contractholder resumes Contributions on behalf of
a Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a
Total Withdrawal.
PARTIAL WITHDRAWALS
A Partial Withdrawal of a Participant's Account will occur when less than
a Total Withdrawal is made from a Participant's Account.
SYSTEMATIC WITHDRAWAL OPTION
Participants who are at least age 59 1/2, are separated from service from
their employer or are disabled and certain spousal beneficiaries and alternate
payees who are former spouses may be eligible for a Systematic Withdrawal Option
("SWO") under the Contract. Payments are made only from the Guaranteed Interest
Division. Under the SWO a Participant may elect to withdraw either a monthly
amount which is an approximation of the interest earned between each payment
period based upon the interest rate in effect at the beginning of each
respective payment period or a flat dollar amount withdrawn on a periodic basis.
A Participant must have a vested pre-tax account balance of at least $10,000 in
the Guaranteed Interest Division in order to select the SWO. A Participant may
transfer amounts from the Variable Investment Division to the Guaranteed
Interest Division in order to support SWO payments. These transfers, however,
are subject to the transfer restrictions described in this Prospectus and/or
imposed by any applicable Plan. A one-time fee of up to $30 may be charged to
set up the SWO. This charge is waived for total vested pre-tax account balances
of $25,000 or more. More information about SWO, including applicable fees and
charges, is available in the Contracts and Active Life Certificates as well as
from Lincoln Life.
MAXIMUM CONSERVATION OPTION
Under certain Contracts Participants who are at least age 70 1/2 may
request that Lincoln Life calculate and pay to them the minimum annual
distribution required by Sections 401(a)(9), 403(b)(10), 408 or
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457(d) of the Code. The Participant must complete forms as required by
Lincoln Life in order to elect this option. Lincoln Life will base its
calculation solely on the Participant's Account value with Lincoln Life.
Participants who select this option are responsible for determining the
minimum distributions amount applicable to their non-Lincoln Life contracts.
WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died; (2) become disabled; (3) attained age 59 1/2; (4) separated from
service; or (5) incurred a hardship. If amounts accumulated in a Section
403(b)(7) custodial account are deposited in a Contract, such amounts will be
subject to the same withdrawal restrictions as are applicable to post-1988
salary reduction Contributions under the Contracts. For more information on
these provisions see "Federal Income Tax Considerations."
Withdrawal requests for a Participant under Section 401(a) Plans, Section
457(b) Plans and Plans subject to Title I of ERISA must be authorized by the
Contractholder on behalf of a Participant. All withdrawal requests will require
the Contractholder's written authorization and written documentation specifying
the portion of the Participant's Account balance which is available for
distribution to the Participant. Withdrawal requests for Section 457(f) Plans
must be requested by the Contractholder.
As required by Section 830.105 of the Texas Education Code, withdrawal
requests by Participants in the Texas Optional Retirement Program ("ORP") are
only permitted in the event of (1) death; (2) retirement; (3) termination of
employment in all Texas institutions of higher education; or (4) attainment of
age 70 1/2. A Participant in an ORP Contract is required to obtain a
certificate of termination from the Participant's Employer before a withdrawal
request can be granted.
For withdrawal requests (other than transfers to other investment
vehicles), by Participants under Plans not subject to Title I of ERISA and non-
401(a) Plans and non-457 Plans, the Participant must certify to Lincoln Life
that one of the permitted distribution events listed in the Code has occurred
(and provide supporting information, if requested) and that Lincoln Life may
rely on such representation in granting such withdrawal request. See "Federal
Income Tax Considerations." A Participant should consult their tax adviser as
well as review the provisions of their Plan before requesting a withdrawal.
In addition to the restrictions noted above, a Plan and applicable law may
contain additional withdrawal or transfer restrictions.
Withdrawals may have Federal tax consequences. In addition, early
withdrawals, as defined under Section 72(q) and 72(t) of the Code, may be
subject to a ten percent excise tax.
DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, Lincoln Life will pay the Beneficiary, if one is
living, or the Plan the greater of the following amounts:
(1) The Net Contributions, or
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(2) The Participant's Account balance less any outstanding loan
(including principal and due and accrued interest),
PROVIDED THAT, if Lincoln Life is not notified of the Participant's
death within six months of such death, the Beneficiary will receive the Death
Benefit amount described in paragraph (2).
A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum,
(2) converted to a Payout Annuity or (3) as a combination of a lump sum payment
and a Payout Annuity.
Lincoln Life will calculate the Death Benefit as of the end of the
Valuation Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election generally will be made within seven days
following such calculation. Payment of an annuity option will be paid in
accordance with the provisions regarding annuities. See "Annuity Period." If no
election is made within sixty days following Lincoln Life's receipt of
satisfactory notice of the Participant's death, the Death Benefit will be paid
in the form of a lump sum payment and will be calculated as of the end of the
Valuation Period during which that sixtieth day occurs (and payment generally
will be made within seven days after such calculation date).
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who attended
the deceased at the time of death; or any other proof satisfactory to Lincoln
Life.
Notwithstanding the above, under qualified annuities, if the Beneficiary
is someone other than the spouse of the deceased Participant, the Code provides
that the Beneficiary may not elect an annuity which would commence later than
December 31st of the calendar year following the calendar year of the
Participant's death. If a non-spousal Beneficiary elects to receive payment in
a single lump sum, the Code provides that such payment must be received no later
than December 31st of the fourth calendar year following the calendar year of
the Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
distributions generally are not required under the Code to begin earlier than
December 31st of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before the date distributions
commence, then, for purposes of determining the date distributions to the
Beneficiary must commence, the date of death of the surviving spouse is
substituted for the date of death of the Participant.
Other rules apply to non-qualified annuities. See Federal Income Tax
Considerations.
If there is no living named Beneficiary on file with Lincoln Life at the
time of a Participant's death and unless the Plan directs otherwise, Lincoln
Life will pay the Death Benefit to the Participant's estate in the form of a
lump sum payment, upon receipt of satisfactory proof of the Participant's death,
but only if such proof of death is received by Lincoln Life no later than the
end of the fourth calendar year following the year of the Participant's death.
In such case, valuation of the Death Benefit will occur as of the end of the
Valuation Period during which due proof of death is received by Lincoln Life,
and the lump sum Death Benefit generally will be paid within seven days of that
date.
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DEDUCTIONS AND CHARGES
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate Lincoln Life for risks
assumed in connection with the Contracts.
MORTALITY AND EXPENSE RISK CHARGES
Lincoln Life deducts from the net assets of the Variable Investment
Division a daily charge of 1.20% on an annual basis.
This charge is assessed both during the Accumulation Period and the
Annuity Period although, during the Annuity Period, Lincoln Life will bear no
mortality risk with respect to the Annuity Options that do not involve life
contingencies. This amount is intended to compensate Lincoln Life for certain
Mortality and Expense Risks Lincoln Life assumes in operating the Variable
Investment Division and for providing services to the Participant. The 1.2%
total charge consists of .25% for the Expense Risk and .95% for the Mortality
Risk. The relative proportion of these charges, consistent with industry
practice, is estimated and, therefore, may change based on Lincoln Life's
experience in administering the Contracts. However, the total charge may not be
altered.
The Expense Risk is the risk that Lincoln Life's actual expenses in
issuing and administering the Contract will be more than Lincoln Life estimated.
The Mortality Risk borne by Lincoln Life arises from the chance that Lincoln
Life's actuarial estimate of mortality rates during the Annuity Period, as
guaranteed in the Contract, may prove erroneous and that an Annuitant may live
longer than expected. This contractual guarantee assures that neither an
Annuitant's own longevity nor an improvement in life expectancy generally will
have any adverse effect under the Contracts. In addition, Lincoln Life bears
the Mortality Risk because it guarantees to pay a Death Benefit that may be
higher than the Participant's Account balance upon the death of the Participant
prior to the Annuity Period.
Lincoln Life may ultimately realize a profit from these charges to the
extent they are not needed to meet the actual expenses incurred.
CHARGES AGAINST THE CONTRACTS
The charges that Lincoln Life assesses in connection with the Contracts
are described below.
ANNUAL ADMINISTRATION CHARGE
Lincoln Life provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, Lincoln Life provides Participants with Account statements and
accounting services that keep track of pre-tax monies, employee and Employer
monies, vested Account balances and rollover or transferred monies.
In consideration for these administrative services, Lincoln Life currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the
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Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn. The charge may be increased or decreased (subject to any
appropriate regulatory approvals) but Lincoln Life does not anticipate a profit
from this charge.
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another Lincoln Life contract which
imposes an Annual Administration Charge or where Lincoln Life's interest costs
or expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under contracts not offering this provision. For contracts offering this
provision, the Annual Administration Charge will be deducted as described in
this section.
PREMIUM TAXES
Certain states require that a premium tax be paid on contributions to a
variable annuity contract. Others assess a premium tax at the time of
annuitization. Lincoln Life will deduct a charge for any applicable premium tax
from the Participant's Account balance either: (1) at the time of a Total
Withdrawal of a Participant's Account balance; (2) on the Annuity Commencement
Date; (3) at such other date as the taxes are assessed. Various states levy a
premium tax, currently ranging from 0.5% to 4.0%, on variable annuity contracts.
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MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net
asset value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
GENERAL
To the extent permitted by the Plan, the Participant, or the Beneficiary
of a deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination of both.
Annuity payments from the Guaranteed Interest Division remain constant
throughout the annuity period. Annuity payments from the Variable Investment
Division fluctuate depending upon the investment experience of the applicable
Sub-Accounts. Variable Annuity payments are based upon Annuity Unit Values.
See "Annuity Payments" below and "Determination of Variable Annuity Payments" in
the Statement of Additional Information for further information.
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The Annuity Commencement Date marks the date on which Lincoln Life makes
the first annuity payment to an Annuitant. For Plans subject to Section
401(a)(9)(B) of the Code, a Beneficiary must select an Annuity Commencement Date
that is not later than one year after the date of the Participant's death. A
Participant or Contractholder may select any Annuity Commencement Date for the
Annuitant which is then reflected in the Retired Life Certificate. However,
since an annuity payment is considered a distribution under the Code, selection
of an Annuity Commencement Date may be affected by the distribution restrictions
under the Code and the minimum distribution requirements under Section 401(a)(9)
of the Code. See "Federal Income Tax Considerations." The selection of an
Annuity Commencement Date, the annuity option, the amount of the Payout
Annuity and whether the amount is to be paid as a Guaranteed or a Variable
Annuity must be made by the Participant in writing, in a form satisfactory to
Lincoln Life, and received by Lincoln Life at least 30 days in advance of the
Annuity Commencement Date. After the Annuity Commencement Date an Annuitant
may not change either their annuity option or the type (i.e., variable or
guaranteed) of Payout Annuity for any amount applied toward the purchase of
an annuity.
The Annuity Conversion Amount is either the Participant's Account balance,
or a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. The initial Annuity Payment Calculation Date will be
the first day of the calendar month next following the Annuity Commencement Date
for a Guaranteed Annuity and 10 Business Days prior to the first day of the
calendar month next following the Annuity Commencement Date for a Variable
Annuity. For Guaranteed Annuities, the Annuity Payment Calculation Date is the
first day of a calendar month. For Variable Annuities, the Annuity Payment
Calculation Date is the date 10 Business Days prior to the first day of a
calendar month; the 10 Business Days being necessary to calculate the amount of
the Payout Annuity payments and to mail the checks in advance of their first-of-
month due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000.00 or if the amount of the first scheduled payment is less than
$20.00, Lincoln Life may, at its option, cancel the annuity and pay the
Participant or Beneficiary the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount applied to an annuity option, the form of the annuity option selected and
the age of the Participant at the Annuity Commencement Date. Unless otherwise
notified, Lincoln Life will apply the Participant's Account balance in the
Guaranteed Interest Division toward a Guaranteed Annuity and the Participant's
Account balance in the Variable Investment Division toward a Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract.
The initial payment amount for a Variable Annuity is determined by
dividing the Participant's Annuity Conversion Amount(s) in the applicable Sub-
Account(s) as of the initial Annuity Payment Calculation Date by the applicable
Annuity Conversion Factor as defined in the Contract. The amounts of subsequent
payments vary depending on the investment experience of the Sub-Account(s) and
the interest rate option selected by the Contractholder or Annuitant. The
payment amounts will not be affected by Lincoln Life's mortality or expense
experience and will not be reduced by an Annual Administration Charge. For
additional information on the determination of subsequent payment amounts, refer
to the Statement of Additional Information, "Determination of Variable Annuity
Payments."
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PAYOUT ANNUITY OPTIONS
Lincoln Life offers a range of annuity options including, but not limited
to, the following:
LIFE ANNUITY
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Payments are made monthly during the lifetime of the Annuitant with a
monthly payment guaranteed to the Beneficiary for the remainder of the selected
number of years, if the Annuitant dies before the end of the period selected.
Payments under this annuity option are smaller than a Life Annuity without a
guaranteed payment period.
JOINT AND SURVIVOR ANNUITIES
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum.
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
NOTE CAREFULLY: Under the Life Annuity and Joint and Survivor Annuities
options it would be possible for only one annuity payment to be made if the
Annuitant(s) were to die before the due date of the second annuity payment; only
two annuity payments if the Annuitant(s) were to die before the due date of the
third annuity payment; and so forth.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences
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resulting from all of the situations in which a person may be entitled to or
may receive a distribution under the Contract. Any person concerned about
these tax implications should consult a competent tax adviser before
initiating any transaction. This discussion is based upon the Company's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). No representation is
made as to the likelihood of the continuation of the present federal income
tax laws or of the current interpretation by the IRS. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
Payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the Beneficiary may depend on the tax status of the individual concerned.
In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax qualified retirement plan in order
to continue receiving favorable tax treatment. Therefore, you should consult
your legal counsel and tax adviser regarding the suitability of the Contract for
your situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. This summary assumes that Qualified Contracts are
purchased with proceeds from retirement plans that qualify for the intended
special Federal income tax treatment.
All dollar amounts and percentages stated below are subject to change
according to Federal law. For additional Federal Income Tax Consideration,
please refer to the Statement of Additional Information.
NON-QUALIFIED CONTRACTS
In general, under non-qualified annuity contracts, an individual may make
Contributions to the Contracts which are not tax-deductible. A participant is
generally not taxed on increases in the value of a contract until a distribution
occurs. This can be in the form of a lump sum payment received by requesting
all or part of the cash value (I.E., 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 participant, may also result in tax
consequences. The taxed portion of a distribution (in the form of a lump sum
payment or an annuity) is taxed as ordinary income. For Contributions made
after February 28, 1986, a participant who is not a natural person (for example,
a corporation) will, subject to limited exceptions, 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 following discussion applies to
contracts owned by or on behalf of participants who are natural persons.
WITHDRAWALS. In the case of a withdrawal, generally amounts received are
first treated as taxable income to the extent that the cash value of the
contract immediately before the withdrawal exceeds the investment in the
contract at that time. Any additional amount withdrawn is not taxable. The
investment in the contract generally equals the portion, if any, of any
contributions paid by or on behalf of a participant under a contract which is
not excluded from the participant's gross income.
ANNUITY PAYOUTS. Even though the tax consequences may vary depending on
the form of Annuity Payout selected under the contract, the recipient 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
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of each payout is taxable. For individuals whose annuity starting date is
after December 31, 1986, the entire distribution will be fully taxable once
the recipient is deemed to have recovered the dollar amount of the investment
in the contract.
EXCISE TAX. There may be imposed an excise tax on distributions equal to
10% of the amount treated as taxable income. The excise tax is not imposed in
certain circumstances, which generally are distributions:
1. Received on or after the participant attains age 59 1/2;
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2. Made as a result of the participant's death or disability
3. Received in substantially equal installments 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.
MULTIPLE CONTRACTS. All non-qualified annuity contracts entered into
after October 21, 1988, and issued by the same insurance company (or its
affiliates) to the same participant during any calendar year will be treated as
a single contract for tax purposes.
DIVERSIFICATION. Section 817(h) of the Code provides that separate
account investments (or the investments of a mutual fund the shares of which are
owned by separate accounts of insurance companies) underlying a non-qualified
annuity contract must be "adequately diversified" in accordance with treasury
regulations in order for the contract to qualify as an annuity contract under
section 72 of the Code. The Variable Investment Division, through the Fund,
intends to comply with the diversification requirements prescribed in the
regulations.
REQUIRED DISTRIBUTIONS. In addition to the requirements of section
817(h), the Code (section 72(s)) provides that non-qualified annuity 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 Participant
dies on or after the annuity starting date but prior to the time the entire
interest in the contract has been distributed, the remaining portion of such
interest must be distributed at least as rapidly as under the method of
distribution in effect at the time of the Participant's death; and (B) if any
Participant dies prior to the annuity starting date, the entire interest must be
distributed within five years after the death of the Participant. These
requirements are considered satisfied if any portion of the Participant'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 Participant'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. The Company intends to
review such provisions and modify them, if necessary, to assure that they comply
with the requirements of section 72(s) when clarified by regulation or
otherwise.
QUALIFIED CONTRACTS
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IN GENERAL. The Qualified Contract is designed for use with several types
of retirement plans. The tax rules applicable to participants and beneficiaries
in retirement plans vary according to the type of plan and the terms and
conditions of the plan. Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse tax consequences may
result from contributions in excess of specified limits; distributions prior to
age 59 1/2 (subject to certain exceptions); distributions that do not conform
to specified commencement and minimum distribution rules; aggregate
distributions in excess of a specified annual amount; and in other specified
circumstances.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans. Owners
and participants under retirement plans as well as annuitants and beneficiaries
are cautioned that the rights of any person to any benefits under Qualified
Contracts may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract issued in connection with
such a plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the Contracts.
Owners are responsible for determining that contributions, distributions and
other transactions with respect to the Contracts satisfy applicable law.
Purchasers of Contracts for use with any retirement plan should consult their
legal counsel and tax adviser regarding the suitability of the Contract.
SECTION 401(a) PLANS. Section 401(a) of the Code provides special tax
treatment for pension, profit sharing and stock bonus Plans established by
Employers for their employees. Contributions to a Section 401(a) Plan and any
earnings attributable to such Contributions are currently excluded from the
Participant's income. Section 401(a) Plans are subject to, among other things,
limitations on: maximum Contributions, minimum coverage and participation,
minimum funding, minimum vesting requirements and distribution requirements.
The specific limitations are outlined in the plan document adopted by the
employer.
A Participant who makes a withdrawal from a Section 401(a) program
generally must include that amount in current income. In addition, Section
401(k)(2) of the Code requires that salary reduction Contributions made and/or
earnings credited on any salary reduction Contributions may not be withdrawn
from the Participant's Section 401(k) program prior to the Participant having
(1) attained age 59 1/2, (2) separated from service, (3) become disabled (4)
died or (5) incurred a hardship. Hardship withdrawals may not include any
income credited after December 31, 1988 that is attributable to any salary
reduction Contributions. In addition, Section 402 of the Code permits tax-free
rollovers from Section 401(a) programs to individual retirement annuities or
certain other Section 401(a) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly to
an eligible retirement plan.
SECTION 403(b) PLANS. A Participant who is an employee of a hospital or
other tax-exempt organization described in Section 501(c)(3) or 501(e) of the
Code may exclude from current earnings amounts contributed to a Section 403(b)
program. Under the terms of a Section 403(b) program, an Employer may make
Contributions directly to the program on behalf of the Participant, the
Participant may enter into a salary reduction agreement with the Participant's
Employer authorizing the Employer to contribute a percentage of the
Participant's salary to the program and/or the Participant may authorize the
Employer to make after tax Contributions to the program. Currently, the Code
permits employees to defer up to $9,500 of their income through salary reduction
agreements. All Contributions made to the Section 403(b) program are subject to
the limitations described in Code Sections 402(g) regarding elective deferral
amounts, 403(b)(2) regarding the maximum exclusion allowance, and 415(a)(2) and
415(c) regarding the limitations on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program
generally must include that amount in current income. In addition, Section
403(b)(11) of the Code requires that salary reduction Contributions made and/or
earnings credited on any salary reduction Contributions after December 31, 1988
may not be withdrawn from the Participant's Section 403(b) program prior to the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled (4) died or (5) incurred a hardship. Hardship withdrawals may
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not include any income credited after December 31, 1988 that is attributable to
any salary reduction Contributions. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that amounts may be transferred between Section 403(b)
investment vehicles as long as the transferred funds retain withdrawal
restrictions at least as restrictive as that of the transferring investment
vehicle. In addition, Section 403(b)(8) of the Code permits tax-free
rollovers from Section 403(b) programs to individual retirement annuities or
other Section 403(b) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly
to an eligible retirement plan.
SECTION 408 PLANS (IRAs). Under current law, individuals may contribute
and deduct the lesser of $2,000 or 100% of their compensation to an IRA. In the
case of a spousal IRA, the maximum deduction is the lesser of $2,250 or 100% of
compensation. The deduction for contributions is phased out for individuals who
are considered active participants under qualified Plans and whose Adjusted
Gross Income attains a certain level. For a single person the $2,000 deduction
is available when the taxpayers Adjusted Gross Income is $25,000 or less. For
each $50 that the taxpayer's Adjusted Gross Income rises above $25,000, the
taxpayer's deductible IRA is reduced by $10. When the single taxpayer's
Adjusted Gross Income is $35,000 or greater, a tax deduction for an IRA is no
longer available. For a married couple filing jointly, the threshold level is
$40,000 rather than $25,000. For a married person filing separately, the
threshold is $0.
In addition, certain amounts distributed from Section 401(a) and 403(b)
Plans may be rolled over to an IRA on a tax-free basis if done in a timely
manner (within 60 days of the Participant's receipt of the distribution). The
limitations on contributions discussed above do not apply to amounts rolled over
to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document
explains the tax rules that apply to IRAs in greater detail.
ELIGIBLE SECTION 457 PLANS. Eligible Section 457 Plans may be established
by state and local governments as well as private tax-exempt organizations
(other than churches). Participants may contribute on a before tax basis to a
deferred compensation Plan of their employer in accordance with the employer's
Plan and Section 457 of the Code. Section 457 places limitations on the amount
of Contributions to these Plans. Generally, the limitation is one-third of
includable compensation or $7,500 whichever is less. In the Participant's final
three years of employment before normal retirement age, the $7,500 limit is
increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal. In general, all amounts received under a Section 457
Plan are taxable.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the Employer retains all rights under the contract
issued with respect to the Plan. Depending on the terms of the particular Plan,
the Employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 Plan obligations. Participants under Eligible Section 457
Plans should look to the terms of their Plan for any charges in regard to
participation other than those disclosed in this Prospectus.
SECTION 457(f) PLANS. Section 457(f) Plans may be established by state
and local governments as well as private tax-exempt organizations. Employers
and Participants may contribute on a before-tax basis to a deferred compensation
Plan of their Employer in accordance with the Employer's Plan. Section 457(f)
does not place limitations on the amount of Contributions to these Plans;
however, the Internal Revenue Service may review these plans to determine if the
deferral amount is acceptable to the IRS based on the nature of the 457(f) Plan.
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Participants in 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms
of the Plan, that they are in fact a general creditor of the Employer under
the terms of the Plan, that the Employer is legal owner of any contract
issued with respect to the Plan and that the Employer retains all rights
under the contract issued with respect to the Plan. Participants under
Section 457(f) Plans should look to the terms of their Plan for any charges
in regard to participating other than those disclosed in this Prospectus.
TAXATION OF QUALIFIED ANNUITIES: GENERAL. In Qualified Plans such as
401(a), 403(b) and 408 and Eligible 457, the Participant is not taxed on the
value in their Accounts until they receive payments from the Account. In some
situations, default or forgiveness of a loan, assignment or other transactions
will result in taxable income. Distributions from all these Plans are taxed
under the rules of Sections 72 and 402 of the Code.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS. Section 72(t) imposes a 10%
excise tax on certain premature distributions for non-qualified and Section
401(a), 403(b) and 408 Plans. The penalty tax will not apply to distributions
made on account of the Participant having (i) attained age 59 1/2; (ii) become
disabled; or (iii) died. The penalty tax will also not apply under 401(a) and
403(b) retirement plans where a Participant separates from service after age 55.
In addition, the penalty does not apply if the distribution is received as a
series of substantially equal periodic payments made for the life (or life
expectancy) of the Participant or the joint lives (or life expectancies) of the
Participant and a designated Beneficiary. Certain other exceptions may also
apply. The 10% excise tax is an additional tax; it does not apply to any money
that the Participant receives as a return of their cost basis. The 10% excise
tax does not apply to Section 457 Plans.
MINIMUM DISTRIBUTIONS. Participants in Plans subject to Code Sections
401(a), 403(b), 408 and Eligible 457 Plans are subject to Minimum Distribution
Rules. For a Participant who attains age 70 1/2 after December 31, 1987,
distributions generally must begin by April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2. For a Participant
who attains age 70 1/2 before January 1, 1988, distributions must begin on the
April 1 of the calendar year following the later of (1) the calendar year in
which the Participant attains age 70 1/2 or (2) the calendar year in which the
Participant retires. Additional requirements may apply with respect to certain
Plans.
Participants in Eligible 457 Plans are taxed when Plan benefits are
distributed or made available to them. Participants in 457(f) Plans are taxed
when services related to contributions are performed or when distributions are
not subject to a substantial risk of forfeiture. Distributions under Eligible
457 or 457(f) Plans are taxed as ordinary income.
IN GENERAL. Section 72 of the Code governs taxation of annuities in
general. The Company believes that an Owner who is a natural person generally
is not taxed on increases in the Owner's Account Value until distribution occurs
by withdrawing all or part of such Account Value (E.G., withdrawals or Annuity
payments under the Annuity Option elected). For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Account Value (and
in the case of a Qualified Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is taxable as
ordinary income.
The owner of any Contract who is not a natural person generally must
include in income any increase in the excess of the Account Value over the
"investment in the contract" (discussed below) during the taxable year. There
are some exceptions to this rule and prospective Owners that are not natural
persons may wish to discuss these with a competent tax adviser.
The following discussion generally applies to a Contract owned by a
natural person.
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WITHDRAWALS. In the case of a withdrawal under a Qualified Contract,
including withdrawals under the Systematic Withdrawal Option, a ratable portion
of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the individual's total accrued benefit under the
retirement plan. The "investment in the contract" generally equals the amount
of any non-deductible Purchase Payments paid by or on behalf of any
individual. For a Contract issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax rules may be available
for certain distributions from a Qualified Contract.
With respect to Non-Qualified Contracts, partial withdrawals, including
withdrawals under the Systematic Withdrawal Option, are generally treated as
taxable income to the extent that the Account Value immediately before the
withdrawal exceeds the "investment in the contract" at that time.
Full surrenders of a Non-qualified Contract are treated as taxable income
to the extent that the amount received exceeds the "investment in the contract".
ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract". For
Fixed Annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable. If Annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect
to the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
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 contract owner has excessive control over
the investments underlying the contract. 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.
VOTING RIGHTS
Lincoln Life is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, Lincoln Life is entitled to vote those
Fund shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, Lincoln Life
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each
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<PAGE>
Contractholder will receive a number of votes in proportion to the
Contractholder's investment in the corresponding Sub-Account as of the record
date established by the Fund.
During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
Lincoln Life will furnish Contractholders with sufficient Fund proxy
material and voting instruction forms for all Participants who have voting
rights under the Contract. Lincoln Life will vote those Fund shares
attributable to the Contract for which Lincoln Life receives no voting
instructions in the same proportion as Lincoln Life will vote shares for which
Lincoln Life has received instructions. Lincoln Life will vote shares
attributable to amounts Lincoln Life may have in the Variable Investment
Division in the same proportion as votes that Lincoln Life receives from
Contractholders. If the federal securities laws or regulations or any
interpretation of them changes so that Lincoln Life is permitted to vote shares
of the Fund in Lincoln Life's own right or to restrict Participant voting,
Lincoln Life may do so.
Fund shares may be held by separate accounts of insurance companies
unaffiliated with Lincoln Life. Fund shares held by those separate accounts
will be voted, in most cases, according to the instruction of owners of
insurance policies and contracts issued by those other unaffiliated insurance
companies. This will dilute the effect of the voting instructions of the
Contractholders in the Variable Investment Division. Lincoln Life does not
foresee any disadvantage to this. Pursuant to conditions imposed in connection
with regulatory relief, the Fund's Board of Directors has an obligation to
monitor events to identify conflicts that may arise and to determine what
action, if any, should be taken. For further information, see the prospectuses
for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY LINCOLN LIFE
Lincoln Life reserves the right, subject to compliance with applicable
law, including approval by the Contractholder or the Participants if required by
law, (1) to create additional Sub-Accounts in the Variable Investment Division,
(2) to combine or eliminate Sub-Accounts in the Variable Investment Division,
(3) to transfer assets from one Sub-Account in the Variable Investment Division
to another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration of the Variable Investment Division
under the Investment Company Act of 1940, (6) to operate the Variable Investment
Division under a committee and to discharge such committee at any time, and (7)
to eliminate any voting rights which the Contractholder or the Participants may
have with respect to the Variable Investment Division, (8) to amend the Contract
to meet state law requirements or to meet the requirements of the Investment
Company Act of 1940 or other federal securities laws and regulations, (9) to
operate the Variable Investment Division in any form permitted by law, (10) to
substitute shares of another fund for the shares held by a Sub-Account, and (11)
to make any change required by the Internal Revenue Code, ERISA or the
Securities Act of 1933. Participants will be notified if any changes are made
that result in a material change in the underlying investments of the Variable
Investment Division.
ASSIGNABILITY
The Contracts are not assignable without Lincoln Life's prior written
consent. In addition, a Participant, a Beneficiary or an Annuitant may not,
unless permitted by law, assign or encumber any payment due under the Contract.
-33-
<PAGE>
MARKET EMERGENCIES
While Lincoln Life generally may not suspend the right of redemption or
delay payment from the Variable Investment Division for more than seven days,
the following events may delay payment for more than seven days: (1) any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings); (2) any period when trading in the markets normally utilized
is restricted, or an emergency exists as determined by the Securities and
Exchange Commission, so that disposal of investments or determination of the
Accumulation Unit Value or Variable Annuity payment value is not reasonably
practicable; or (3) for such other periods as the Securities and Exchange
Commission by order may permit for the protection of the Participants.
CONTRACT DEACTIVATION
Under certain Contracts, Lincoln Life may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. Lincoln Life will give the Contractholder and the Participants at
least 90 days notice of the date of deactivation.
FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-qualified Plans
will receive an Active Life Certificate upon Lincoln Life's receipt of a duly
completed participation enrollment form. If the Participant chooses not to
participate under the Contract, the Participant may exercise the free-look right
by sending a written notice to Lincoln Life that the Participant does not wish
to participate under the Contract, within 10 days after the date the Active Life
Certificate is received by the Participant. For purposes of determining the
date on which the Participant has sent written notice, the postmark date will be
used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, Lincoln Life will refund in full the Participant's
aggregate Contributions less aggregate withdrawals made on behalf of the
Participant or, if greater, with respect to Contributions to the Variable
Investment Division, the Participant's Account balance in the Variable
Investment Division on the date the Participant's written notice is received by
Lincoln Life.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of Lincoln
Life's General Account. 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 THE 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 THE GENERAL ACCOUNT AND THE GUARANTEED INTEREST DIVISION. 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
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<PAGE>
CONTRACT INVOLVING THE VARIABLE INVESTMENT DIVISION AND CONTAINS ONLY
SELECTED INFORMATION REGARDING THE GUARANTEED INTEREST DIVISION. COMPLETE
DETAILS REGARDING THE GUARANTEED INTEREST DIVISION ARE IN THE CONTRACT.
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate of at least 3.0%. A Participant who makes a Contribution
to the Guaranteed Interest Division is credited with interest from the day of
deposit in the Guaranteed Interest Division.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN LINCOLN LIFE'S SOLE
DISCRETION. THE PARTICIPANTS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0%
WILL BE DECLARED.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on
any Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, Annual Administration Charges and
loan-related charges allocated to the Guaranteed Interest Division and any
transfers to the Variable Investment Division.
TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
During any one calendar year a Participant may make one withdrawal or
transfer from the Guaranteed Interest Division in an amount not to exceed 20%
of the Guaranteed Interest Division Account balance. Any Participant starting
their intention to liqidate their Guaranteed Interest Division Account
balance, however, may make one withdrawal request for five consecutive
calendar years from their Guaranteed Interest Division Account balance in the
following percentage:
YEAR REQUEST RECEIVED PERCENTAGE OF GUARANTEED
BY LINCOLN LIFE INTEREST DIVISION AVAILABLE
---------------------- ---------------------------
1 20%
2 25%
3 33.33%
4 50%
5 100%
The five consecutive withrawals may not be submitted more frequently
than twelve months apart. Lincoln Life also reserves the right to require
that any Participant stating their intention to liquidate their Guaranteed
Interest Division Account balance stop Contributions to the Contract.
In addition, a Participant may withdraw 100% of their Guaranteed
Interest Division Account balance at any time provided that Lincoln Life
receives satifactory proof of the following events: (a) the Participant has
attainted age 59 1/2; (b) the Participant has died; (c) the Participant has
incurred a disability as defined under the Contract; (d) the Participant has
separated from service from his Employer; and (e) the Participant has
incurred a financial hardship. A Contractholder has the option of choosing
to eliminate financial hardship as an event entitling the Participant to a
100% withdrawal from the Contract and also to add a requirement that the
Participant be 55 years of age upon separation from service to be entitled to
a 100% withdrawal from the Guaranteed Interest
-35-
<PAGE>
Division. Contractholders choosing one or both of these optional provisions
will receive a higher declared interest rate on the Guaranteed Interest
Division than will Contracts without these provisions.
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan
permits loans, may apply for a loan under the Contract by completing a loan
application available from Lincoln Life. Loans are secured by the Participant's
Account balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000.00. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account balance without regard to the 50% limitation stated above.
A Participant may have only one loan outstanding at any time and may not
establish more than one loan in any six month period. [AMOUNTS SERVING AS
COLLATERAL FOR THE LOAN ARE NOT SUBJECT TO THE MINIMUM INTEREST RATE UNDER THE
CONTRACT AND WILL ACCRUE INTEREST AT A RATE WHICH IS BELOW THE LOAN INTEREST
RATE AS PROVIDED IN THE CONTRACT. UNDER CERTAIN CONTRACTS, A ONE-TIME FEE OF UP
TO $50 MAY BE CHARGED TO SET UP A LOAN.] More information about loans,
including interest rates and applicable fees and charges, is available in the
Contracts, Active Life Certificates, and Annuity Loan Agreement as well as from
Lincoln Life.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division, Lincoln
Life may defer the payment for the period permitted by the law of the
jurisdiction in which the Contract is distributed, but in no event, for more
than 6 months after a written election is received by Lincoln Life. During the
period of deferral, interest at the then current interest rate will continue to
be credited to a Participant's Account in the Guaranteed Interest Division.
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<PAGE>
TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DETERMINATION OF ACCUMULATION UNIT VALUES. . . . . . . . . . . . . . . . . 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS . . . . . . . . . . . . . . . . 3
PERFORMANCE CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 4
TAX LAW CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEPENDENT AUDITORS/ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Statements of Lincoln Life. . . . . . . . . . . . . . . . . . .
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<PAGE>
VARIABLE ANNUITY III
STATEMENT OF ADDITIONAL INFORMATION
_____ __, 1996
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE SUB-ACCOUNTS OF
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT L
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
PAGE
----
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Determination of Accumulation Unit Values . . . . . . . . . . . . . . . . 2
Determination of Variable Annuity Payments . . . . . . . . . . . . . . . . 3
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tax Law Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Distribution of Contracts . . . . . . . . . . . . . . . . . . . . . . . . 11
Independent Auditors/Accountants . . . . . . . . . . . . . . . . . . . . . 11
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Statements of Lincoln Life
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the prospectus for the Group Annuity Contracts (the
"Contracts"), dated _____ __, 1996.
A copy of the prospectus to which this SAI relates is available at no charge by
writing to Lincoln Life at Lincoln National Life Insurance Company, P.O. Box
______, Portland, Maine 04122; or by calling Lincoln Life at 1-800-____.
<PAGE>
DEFINITIONS
ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion Amount
in determining the dollar amount of an annuitant's annuity payments for
Guaranteed Annuities or the initial payment for Variable Annuities.
ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the first
day of a calendar month. For Variable Annuities, this is the Valuation Date ten
(10) business days prior to the first day of a calendar month.
ANNUITY UNIT: An accounting unit of measure that is used in calculating the
amounts of annuity payments to be made from a Sub-Account during the Annuity
Period.
ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in a Sub-Account on any
Valuation Date.
CODE: The Internal Revenue Code of 1986, as amended.
DETERMINATION OF ACCUMULATION UNIT VALUES
As described more fully in the prospectus, Contributions are allocated to the
Divisions in accordance with directions from the Employer. A Participant who
makes Contributions which are allocated to the Variable Investment Division is
credited with Accumulation Units. The following examples illustrate the method
by which Lincoln Life determines the Net Investment Factor (NIF) for the current
Valuation Period and the Accumulation Unit Value as of the end of the current
Valuation Period.
DETERMINATION OF NIF:
(a) Assumed Fund net asset value as of the close of the New York Stock
Exchange on June 1 = 10.45
(b) Assumed Fund net asset value as of the close of the New York Stock
Exchange on June 2 = 10.56 (no capital gains or dividend distributions or
deductions for taxes)
(c) The NIF for the current Valuation Period = (b) divided by (a) times (1-
annual M & E) to the 1/365th power
(d) 1.010526 x .999966 = 1.0104916
DETERMINATION OF ACCUMULATION UNIT VALUE:
The Accumulation Unit Value as of the end of the current Valuation Period is
determined by multiplying the NIF for the current Valuation Period by the
Accumulation Unit Value as of the end of the immediately preceding Valuation
Period.
(a) Assumed Accumulation Unit Value as of the end of the immediately preceding
Valuation Period = 11.125674.
(b) Accumulation Unit Value as of the end of the current Valuation Period =
11.125674 x 1.0104916 (NIF) = 11.2424.
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<PAGE>
The number of Accumulation Units which are credited to the Participant's Account
for each Sub-Account on each Valuation Date equals the amount of Contributions
allocated to the Sub-Account on each Valuation Date divided by the Accumulation
Unit Value rounded to four decimal places. For example,
(a) Participant's assumed Contribution allocated to a Sub-Account on June 2
= $150.
(b) Number of Accumulation Units credited to Participant = $150 divided by
11.2424 = 13.3423.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on the investment experience of the selected Sub-Accounts.
The initial payment amount of the Annuitant's Variable Annuity for each Sub-
Account is determined by dividing his Annuity Conversion Amount in each Sub-
Account as of the initial Annuity Payment Calculation Date ("APCD") by the
Applicable Annuity Conversion Factor as defined as follows:
The Annuity Conversion Factors which are used to determine the initial payments
are based on the 1983 Individual Annuity Mortality Table, set back four (4)
years, and an interest rate in an integral percentage ranging from zero to six
percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each Sub-
Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial APCD; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent APCDs.
The Annuity Unit Value for all Sub-Accounts for all interest rate options will
initially be set at ____ dollars ($__). Each subsequent Annuity Unit Value for
a Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of subsequent
APCD by the Accumulation Unit Value for the Sub-Account as of the
immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate option
to the n/365 power where n is the number of days from the immediately
preceding APCD to the subsequent APCD; and
Multiplying this factor times the Annuity Unit Value as of the immediately
preceding APCD.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
1. Annuity Unit Value as of immediately preceding Annuity Payment
Calculation Date. . . . . . . . . . . . . . . . . . . . . . . . $11.0000
2. Accumulation Unit Value as of Annuity Payment Calculation Date. . $20.0000
3. Accumulation Unit Value as of immediately preceding Annuity
Payment Calculation Date. . . . . . . . . . . . . . . . . . . . . $19.0000
4. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00%
5. Interest Rate Factor (30 days). . . . . . . . . . . . . . . . . . 1.0048
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<PAGE>
6. Annuity Unit Value as of Annuity Payment Calculation Date =
1 times 2 divided by 3 divided by 5. . . . . . . . . . . . $11.5236
ILLUSTRATION OF ANNUITY PAYMENTS
<TABLE>
<CAPTION>
<S> <C>
1. Annuity Conversion Amount as of Participant's initial Annuity Payment
Calculation Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000.00
2. Assumed Annuity Conversion Factor per $1 of Monthly Income for an
individual age 65 selecting a Life Annuity with Assumed Interest Rate of 6%. . . . $138.63
3. Participant's initial Annuity Payment = 1 divided by 2 . . . . . . . . . . . . . . $721.34
4. Assumed Annuity Unit Value as of Participant's initial Annuity Payment
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.5236
5. Number of Annuity Units = 3 divided by 4 . . . . . . . . . . . . . . . . . . . . . 62.5968
6. Assumed Annuity Unit Value as of Participant's second Annuity Payment
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.9000
7. Participant's second Annuity Payment = 5 times 6 . . . . . . . . . . . . . . . . . $744.90
</TABLE>
PERFORMANCE CALCULATIONS
STANDARD TOTAL RETURN CALCULATION
The Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a Sub-
Account at the beginning of each period and surrender or withdrawal of the value
of that amount at the end of each specified period, giving effect to any CDSC
and all other charges and fees applicable under the Contract. This method of
calculating performance further assumes that (i) a $1,000 Contribution was
allocated to a Sub-Account and (ii) no transfers or additional payments were
made. Premium taxes are not included in the term "charges" for purposes of this
calculation. Average annual total return is calculated by finding the average
annual compounded rates of return of a hypothetical Contribution that would
compare the Accumulation Unit value on the first day of the specified period to
the ending redeemable value at the end of the period according to the following
formula:
T = (ERV/C) 1/n - 1
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
NON-STANDARDIZED CALCULATION OF TOTAL RETURN PERFORMANCE
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. The Variable Investment Division may
present total return information computed on the same basis as the standardized
method except that charges deducted from the hypothetical Contribution will not
include any Annual Administration Charge. The total return percentage under
this method will be higher than the resulting percentage from the standardized
method.
-4-
<PAGE>
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a period
from the Accumulation Unit Value of that Sub-Account at the end of the period
and dividing that difference (in that Sub-Account's Accumulation Unit Value) by
the Accumulation Unit Value of that Sub-Account at the beginning of the
period. This computation results in a total growth rate for the specified
period which we annualize in order to obtain the average annual percentage
change in the Accumulation Unit Value for the period used. This method of
calculating performance does not take into account, the Annual
Administration Charge and premium taxes, and assumes no transfers. Such
percentages would be lower if these charges were included in the calculation.
In addition, the Variable Investment Division may present actual aggregate total
return figures for various periods, reflecting the cumulative change in value of
an investment in the Variable Investment Division for the specified period.
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1995. For the periods prior to the date
the Sub-Accounts commenced operations, performance information for the Contracts
will be calculated based on the performance of the fund portfolios and the
assumption that the Sub-Accounts were in existence for the same periods as those
indicated for the fund portfolios, with the level of Contract charges that were
in effect at the inception of the Sub-Accounts (this is referred to as
"hypothetical performance data"). This information does not indicate or
represent future performance.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Sub-Account over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline had been constant over the period. Contractholders and
participants should recognize that average annual returns represent averaged
returns rather than actual year-to-year performance.
The respective underlying funds in which the Sub-Accounts invest had performance
history prior to the Sub-Accounts' inception. Performance information covering
those periods reflects a hypothetical performance as if the funds were part of
the Variable Annuity Account L at that time, using the charges applicable to the
Contracts.
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period via the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/95. The rates thus reflect the mortality and expense
risk charge, the withdrawal charge and a pro rata portion of the Annual
Administrative Charge. Table 1B shows the cumulative total return on the same
basis.
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<PAGE>
TABLE 1A -- SUB-ACCOUNT STANDARDIZED "HYPOTHETICAL" AVERAGE ANNUAL TOTAL RETURN
<TABLE>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 15.23 8.41 11.20 9.69
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 28.21 9.35 9.82 8.83
(Socially Responsible)
TCI Balanced 05/01/91 19.57 8.10 N/A 8.42
(Balanced)
VIP Equity-Income 10/09/86 33.34 18.07 19.81 11.92
(Equity-Income)
Dreyfus Stock Index 09/29/89 35.00 13.20 14.47 10.87
(Index Account)
Fund VIP Growth 10/09/86 33.37 15.66 19.16 13.32
(Growth I)
TCI Growth 11/20/87 29.39 11.20 13.43 11.43
(Growth II)
T. Rowe Price International Stock 03/31/94 9.74 N/A N/A 5.91
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.67 31.20 57.79 53.88
(Small Cap)
</TABLE>
TABLE 1B -- SUB-ACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN
<TABLE>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 3.15 15.23 15.23 27.42 70.01 79.41
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 3.32 28.21 28.21 30.76 59.74 120.20
(Socially Responsible)
TCI Balanced 05/01/91 1.88 19.57 19.57 26.32 N/A 45.91
-6-
<PAGE>
(Balanced)
VIP Equity-Income 10/09/86 5.67 33.34 33.34 64.61 146.85 182.81
(Equity-Income)
Dreyfus Stock Index 09/29/89 5.35 35.00 35.00 45.08 96.56 90.78
(Index)
Fidelity VIP Fund Growth 10/09/86 -4.84 33.37 33.37 54.73 140.23 217.17
(Growth I)
TCI Growth 11/20/87 -4.20 29.39 29.39 37.52 87.79 140.67
(Growth II)
T. Rowe Price International Stock 03/31/94 2.21 9.74 9.74 N/A N/A 10.59
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.46 27.67 27.67 125.84 878.05 897.75
(Small Cap)
</TABLE>
Table 2A and 2B show performance information on the same assumptions as
Tables 1A and 1B except that Tables 2A and 2B do not reflect deductions of the
pro-rata portion of the Annual Administrative Charge - because certain Contracts
and Participants are not assessed such a charge.
TABLE 2A -- SUB-ACCOUNT "HYPOTHETICAL" AVERAGE TOTAL RETURN ASSUMING NO
ANNUAL ADMINISTRATIVE CHARGE.
<TABLE>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 15.57 8.71 11.42 9.92
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 28.24 9.38 9.84 8.84
(Socially Responsible)
TCI Balanced 05/01/91 19.68 8.20 N/A 8.52
(Balanced)
VIP Equity-Income 10/09/86 33.49 18.18 19.88 11.99
(Equity-Income)
Dreyfus Stock Index 09/29/89 35.16 13.33 14.57 10.98
(Index Account)
Fund VIP Growth 10/09/86 33.75 15.95 19.35 13.47
(Growth I)
TCI Growth 11/20/87 29.55 11.33 13.53 11.51
(Growth II)
T. Rowe Price International Stock 03/31/94 9.86 N/A N/A 6.04
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.85 31.30 57.87 53.91
(Small Cap)
</TABLE>
-7-
<PAGE>
TABLE 2B -- SUB-ACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN ASSUMING NO
ANNUAL ADMINISTRATIVE CHARGE
<TABLE>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89 3.50 15.57 15.57 28.46 71.74 81.82
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 3.35 28.24 28.24 30.85 59.90 120.51
(Socially Responsible)
TCI Balanced 05/01/91 1.99 19.68 19.68 26.68 N/A 46.50
(Balanced)
VIP Equity-Income 10/09/86 5.82 33.49 33.49 65.06 147.61 184.31
(Equity-Income)
Dreyfus Stock Index 09/29/89 5.51 35.16 35.16 45.56 97.36 91.90
(Index)
Fund VIP Growth 10/09/86 -4.46 33.75 33.75 55.88 142.14 221.00
(Growth I)
TCI Growth 11/20/87 -4.04 29.55 29.55 38.00 88.59 142.11
(Growth II)
T. Rowe Price International Stock 03/31/94 2.33 9.86 9.86 N/A N/A 10.83
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.64 27.85 27.85 126.38 878.94 898.82
(Small Cap)
</TABLE>
-8-
<PAGE>
Table 3 below shows total return information on a calendar year basis using
the same assumptions as Tables 2A and 2B. The rates of return shown reflect
the mortality and expense risk charge. Similar to Tables 2A and 2B, Table 3
does not reflect deductions of the pro rata portion of the Annual
Administrative Charge because certain Contracts and Participants are not
assessed such a charge.
TABLE 3 -- SUB-ACCOUNT "HYPOTHETICAL" CALENDAR YEAR ANNUAL RETURN ASSUMING NO
ANNUAL ADMINISTRATIVE CHARGE*
<TABLE>
1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager na na na 5.45 21.11 10.53 19.60 -7.20 15.57
Socially Responsible 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39 28.24
Balanced na na na na na -7.17 6.38 -0.58 19.68
Equity-Income -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80 33.49
Index na na na -4.69 28.29 5.82 8.02 -0.32 35.16
Growth I 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75
Growth II na -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55
International Stock na na na na na na na na 9.86
Small Cap na na na na 156.65 69.25 66.31 6.47 27.85
</TABLE>
*The above calendar-year returns assume a hypothetical investment of $1,000
on January 1 of the first full calendar year that the underlying fund was in
existence. The returns assume that the money will be left on account until
-9-
<PAGE>
retirement. Returns are provided for years before the fund was an available
investment option under the contract. Returns for those periods reflect a
hypothetical return as if those funds were available under the contract, and
reflect the deduction of the mortality and expense risk charge. The returns
do not reflect deductions for the pro rata portion of the Annual
Administrative Charge.
SEC regulations require that any product performance data be accompanied by
standardized performance data.
TAX LAW CONSIDERATIONS
Retirement Programs:
Participants are urged to discuss the income taxes considerations of their
retirement plan with their tax advisors. In many situations special rules
may apply to the plans and/or to the participants. See the Prospectus for a
more complete discussion of tax considerations and for limitations on the
following discussion.
Contributions to retirement programs subject to Sections 401(a), 403(b), 408
and 457(b) may be excludable from a Participant's reportable gross income if
the Contributions do not exceed the limitations imposed under the Code.
Certain plans allow employees to make Elective Salary Deferral Contributions.
Certain Plans allow Employers to make Contributions. The information below
is a brief summary of some of the important federal tax considerations that
apply to retirement plans. When there is a written Plan, often the
Contribution limits, withdrawal rights and other provisions of the Plan may
be more restrictive than those allowed by the Code.
Elective Salary Deferral Contributions
For calendar year 1996 the maximum elective salary deferral contributions to
a 401(k) Plan which is a type of 401(a) Plan is limited to $9,500; For a
403(b) plan the limit is $9,500 unless the employee is a qualified employee;
For an Eligible 457 Plan the limit is $7,500. When an employee is covered by
two or more of these Plans, the elective salary deferral contribution limits
for all the Plans must be coordinated.
Total Salary Deferral & Employer Contributions
QUALIFIED RETIREMENT PLAN - 401(a) PLAN.
The Code limits the Contributions to a defined contribution 401(a) plan to
the lesser of $30,000 or 25% of compensation.
TAX SHELTERED ANNUITY PLAN - 403(b) PLAN
Total contributions which include both salary deferral contributions and
employer contributions are also limited.
The combined limit is:
(a) the amount determined by multiplying 20 percent of the employee's
includable compensation by the number of years of service, over
(b) the aggregate of the amount contributed by the employer for annuity
contracts and excludable from the gross income of the employee for the prior
taxable year.
Therefore, if the maximum exclusion allowance is less than $9,500 a year, the
employee's elective deferrals plus any other employer Contributions cannot
exceed this lesser amount.
-10-
<PAGE>
Section 415 of the Code imposes limitations with respect to annual
contributions to all Section 403(b) programs, qualified plans and simplified
employee pensions maintained by the Employer. A Participant's annual
contributions to these programs and defined contribution plans generally
cannot exceed the lesser of $30,000 or 25 percent of the employee's
compensation. This amount is subject to the maximum exclusion allowance and
the salary deferral amount limitations.
ELIGIBLE 457 PLAN - 457(c) PLAN
For a 457(b) plan the contribution limit is generally the lesser of $7,500 or
33% of the employee's compensation.
SECTION 457(f) PLANS
These are non-qualified deferred compensation arrangements between an
Employer and its employees. There are no stated limits in the Code regarding
this type of Plan.
INDIVIDUAL RETIREMENT ACCOUNT - IRA OR 408 PLAN
For IRA's, the maximum deductible contribution is the lesser of $2,000 or
100% of taxable income. The $2,000 is increased to $2,250 when the IRA
covers the taxpayer and a non-working spouse.
Transfers and Rollovers
Participants who receive distributions from their 401(a) or 403(b) contract
may transfer the amount not representing employee contributions to an
Individual Retirement Account or Annuity (IRA) or another Section 401(a) or
403(b) program without including that amount in gross income for the taxable
year in which paid. Note 401(a) distributions may not be transferred to a
403(b) plan or vice versa. If the amount is paid directly to an acceptable
rollover account, Lincoln Life is not required to withhold any amount. In
order for the distribution to qualify for rollover, the distribution must be
made on account of the employee's death, after the employee attains age
59 1/2, on account of the employee's separation from service, or after the
employee has become disabled. The distribution cannot be part of a series of
substantially equal payments made over the life expectancy of the employee or
the joint life expectancies of the employee and his or her spouse or made for
a specified period of 10 years or more. The rollover must be made within
sixty days of the distribution to avoid taxation.
Pursuant to Revenue Ruling 90-24, a Participant, to the extent permitted by
any applicable Contract or Plan, may transfer funds between Section 403(b)
investment vehicles, including both Section 403(b)(1) annuity contracts and
Section 403(b)(7) custodial accounts. Any amount transferred must continue
to be subject to withdrawal restrictions at least as restrictive as that of
the transferring investment vehicle. Lincoln Life considers any total or
partial transfer from a Lincoln Life investment vehicle to a non-Lincoln Life
investment vehicle to be a withdrawal.
Once every twelve months a participant in an IRA may roll the money from one
IRA to another IRA.
The rollover rules are not available to Section 457 Plans; limited transfers
are permitted under Eligible 457 Plans. If the rollover amount is paid
directly to the Participant, the amount distributed may be subject to a 20%
federal tax withholding.
Excise Tax on Early Distributions
Section 72(t) of the Code provides that any distribution made to a
Participant in a 401(a), 403(b) or 408 plan other than on account of the
following events will be subject to a 10 percent excise tax on the taxable
amount distributed:
-11-
<PAGE>
a) the employee has attained age 59 1/2;
b) the employee has died;
c) the employee is disabled;
d) the employee is 55 and has separated from service (Does not apply to
IRA's).
Distributions which are received as a life annuity where payment is made at
least annually will not be subject to an excise tax. Certain amounts paid
for medical care may also not be subject to an excise tax.
Minimum Distribution Rules
The value in a contract under Sections 401(a), 403(b), 408 and Eligible 457
Plans are subject to the distribution rules provided in Section 401(a)(9) of
the Code. Generally, that section requires that an employee must begin
receiving distributions of his post-1986 balance by April 1 of the calendar
year following the calendar year in which the employee attains age 70 1/2.
Such distributions must not exceed the life expectancy of the employee or the
life expectancy of such employee and the designated beneficiary (as defined
under the plan). An employee who attained age 70 1/2 before January 1, 1988
must begin receiving distributions by April 1 of the calendar year following
the later of (a) the calendar year in which the employee attains age 70 1/2
or (b) the calendar year in which the employee retires. There are special
rules for Section 403(b) Plans. Amounts contributed to an Eligible 457
contract must be distributed not earlier than the earliest of: 1) calendar
year in which the Participant attains age 70 1/2, 2) the Participant
separates from service with the Employer, or 3) when the Participant has an
unforeseen emergency. However, in no event may the distribution begin any
later than described in Sections 401(a)(9) and 457(d) of the Code.
Additionally, distribution of an employee's entire account balance (including
pre-1987 funds) must satisfy the minimum distribution incidental benefit
requirement. In general, this requires that death and other non-retirement
benefits payable under the above plans be incidental to the primary purpose
of the program which is to provide deferred compensation to the employee. A
payee is subject to a penalty for failing to receive the required minimum
annual distribution. Section 4974(a) of the Code provides that a payee will
be subject to a penalty equal to 50 percent of the amount by which the
required minimum distribution exceeds the actual amount distributed during
the taxable year.
Additional information on federal income taxation is included in the
prospectus.
DISTRIBUTION OF CONTRACTS
LNC Equity Sales Corporation ("LNC Equity"), an indirect subsidiary of
Lincoln National Corporation, is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. LNC
Equity is the Variable Investment Division's principal underwriter and also
enters into selling agreements with other unaffiliated broker-dealers
authorizing them to offer the Contracts.
INDEPENDENT AUDITORS/ACCOUNTANTS
The financial statements of Lincoln Life included in this SAI have been
examined by Ernst & Young, independent accountants, for the period indicated
in their report thereon which appears elsewhere herein. The financial
statements examined by Ernst & Young have been included in reliance on their
report given on their authority as experts in accounting and auditing.
-12-
<PAGE>
FINANCIAL STATEMENTS
As of the date of this SAI, the Variable Investment Division had not yet
commenced operations, had no assets or liabilities and no income.
Accordingly, it has no financial statements for prior periods.
The financial statements of Lincoln Life which are included in this SAI,
should be considered only as bearing on the ability of Lincoln Life to meet
its obligations under the Contracts. The financial statements of Lincoln
Life are presented in accordance with generally accepted accounting
principles.
FINANCIAL STATEMENTS WILL BE PROVIDED BY AMENDMENT.
-13-
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - Lincoln National Variable Annuity
Account L.
Financial Statements of Depositor - The Lincoln National Life Insurance
Company.
(b) Exhibits
1. Resolution adopted by the Board of Directors of The Lincoln
National Life Insurance Company on April 29, 1996 establishing
the Lincoln National Variable Annuity Account L ("Account L").*
2. Not applicable.
3(a). Principal Underwriting Contract.*
3(b). Broker-dealer sales agreement.*
4(a). Forms of Group Annuity Contracts for The Lincoln National
Life Insurance Company.*
5(a). Form of application for Group Annuity Contract.*
5(b). Form of Participant enrollment form (including
acknowledgement of restrictions on redemption imposed by
I.R.C. Section 403(b)).*
6. Copy of certificate of incorporation and by-laws of The Lincoln
National Life Insurance Company.*
7. Not applicable.
8(a). Participation Agreement between The Lincoln National Life
Insurance Company and Dreyfus Life & Annuity Index Fund, Inc.*
8(b). Participation Agreement between The Lincoln National Life
Insurance Company and Variable Insurance Products Fund I and
Fidelity Distributors Corporation.*
8(c). Participation Agreement between The Lincoln National Life
Insurance Company and Variable Insurance Products Fund II
and Fidelity Distributors Corporation.*
8(d). Participation Agreement between The Lincoln National Life
Insurance Company and Twentieth Century Management Company.*
- ----------------------------
* To be filed by amendment.
C-1
<PAGE>
8(e). Participation Agreement between The Lincoln National Life
Insurance Company and Dreyfus Variable Investment Fund and
Dreyfus Corporation.*
8(f). Participation Agreement between The Lincoln National Life
Insurance Company and Acacia Capital Corporation.*
8(g). Participation Agreement between The Lincoln National Life
Insurance Company and T. Rowe Price.*
9. Consent and opinion of John L. Steinkamp, Vice President &
Associate General Counsel, The Lincoln National Life
Insurance Company, as to the legality of the securities being
registered.*
10(a). Consent of Ernst & Young, Independent Auditors.*
10(b). Powers of Attorney.*
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance Quotations.*
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of The Lincoln National
Life Insurance Company who are engaged directly or indirectly in activities
relating to Account L as well as the Contracts. The list also shows The Lincoln
National Life Insurance Company's executive officers.
NAME AND ADDRESS POSITIONS AND OFFICES WITH LINCOLN LIFE
TO BE PROVIDED BY AMENDMENT.
Item 26. Persons Controlled by or Under Common Control with The Lincoln
National Life Insurance Company or Account L
Account L of The Lincoln National Life Insurance Company ("Lincoln Life") is a
separate account of Lincoln Life and may be deemed to be controlled by Lincoln
Life although Lincoln Life will follow voting instructions of Contractholders
with respect to voting on certain important matters requiring a vote of
Contractholders.
The following chart indicates the persons controlled or under common control
with Lincoln Life and Account L:
TO BE PROVIDED BY AMENDMENT.
- ----------------------------
* To be filed by amendment.
C-2
<PAGE>
Item 27. Number of Contractholders
Not applicable.
Item 28. Indemnification
Under the Participation Agreements entered into between Lincoln Life and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, Acacia Capital
Corporation, and T. Rowe Price (the "Funds"), Lincoln Life and its directors,
officers, employees, agents and control persons have been indemnified by the
Funds against any losses, claims or liabilities that arise out of any untrue
statement or alleged untrue statement or omission of a material fact in the
Funds' registration statements, prospectuses or sales literature. In addition,
the Funds will indemnify Lincoln Life against any liability, loss, damages,
costs or expenses which Lincoln Life may incur as a result of the Funds'
incorrect calculations, incorrect reporting and/or untimely reporting of the
Funds' net asset values, dividend rates or capital gain distribution rates.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 Securities Act
of 1933 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 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) LNC Equity Sales Corporation acts as the principal underwriter for
_______________________________________.
TO BE PROVIDED BY AMENDMENT.
(b)(1) The following table sets forth certain information regarding the
officers and directors of LNC Equity Sales Corporation:
NAME AND PRINCIPAL BUSINESS POSITION AND OFFICES
ADDRESS WITH UNDERWRITER
c) TO BE PROVIDED BY AMENDMENT.
NAME OF NET UNDERWRITING
PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- ----------- ---------------- ------------- ----------- ------------
Not applicable.
C-3
<PAGE>
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by Lincoln Life
at ________________________.
Item 31. Management Services
None
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted,
unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
403(b) ANNUITIES
The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American Council
of Life Insurance concerning the redeemability of Section 403(b) annuity
contracts and the Registrant has complied with the provisions of paragraphs
(1)-(4) thereof.
TEXAS ORP
The Registrant intends to offer Contracts to Participants in the Texas
Optional Retirement Program. In connection with that offering, Rule 6c-7 of the
Investment Company Act of 1940 is being relied upon and paragraphs (a)-(d) of
that Section will be complied with.
C-4
<PAGE>
POWER OF ATTORNEY
LET IT BE KNOWN that each officer or director of the Lincoln National
Life Insurance Company whose signature appears under paragraph (b) of
"SIGNATURES" below hereby revokes all Powers of Attorney authorizing any
person to act as his/her attorney-in-fact relative to Lincoln National
Variable Annuity Account L (Group Variable Annuity III) which were previously
executed by him/her and appoints Jeremy Sachs, Stephen C. Daniel and Cynthia
A. Rose, jointly and severally, his/her attorneys-in-fact, with power of
substitution, for him/her in all capacities, to sign amendments and
post-effective amendments to the Registration Statement of Lincoln National
Variable Annuity Account L (Group Variable Annuity III) and to file such
amendments, with exhibits, with the Securities and Exchange Commission, hereby
ratifying all that each attorney-in-fact may do or cause to be done by virtue
of this power.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have duly caused this Registration
Statement to be signed on their behalf, in the City of Fort Wayne, and the State
of Indiana on this 7th day of June, 1996.
Lincoln National Variable Annuity Account L
(GROUP VARIABLE ANNUITY III)
(Registrant)
By: /s/Stephen H. Lewis, Senior Vice President
------------------------------------------
Stephen H. Lewis, Senior Vice President
(Name of Officer of Depositor) (Title)
The Lincoln National Life Insurance Company
(Depositor)
By: /s/ Robert A. Anker, Chief Executive Officer
------------------------------------------
Robert A. Anker, Chief Executive Officer
(Signature and Title)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert A. Anker Chairman, Chief Executive June 7, 1996
- ------------------------------ Officer and Director
Robert A. Anker (Principal Executive Officer)
/s/ Ian M. Rolland Director June 7, 1996
- ------------------------------
Ian M. Rolland
/s/ Jon A. Boscia President, Chief Operating June 7, 1996
- ------------------------------ Officer and Director
Jon A. Boscia
/s/ O. Douglas Worthington Vice President, Assistant June 7, 1996
- ------------------------------ Treasurer and Controller
O. Douglas Worthington (Principal Accounting Officer)
/s/ Kieth J. Ryan Vice President, Chief Financial June 6, 1996
- ------------------------------ Officer and Assistant Treasurer
Kieth J. Ryan (Principal Financial Officer
/s/ Gabriel Shaheen Executive Vice President June 7, 1996
- ------------------------------ and Director
Gabriel Shaheen
/s/ Richard C. Vaughan Director June 7, 1996
- ------------------------------
Richard C. Vaughan
/s/ H. Thomas McMeekin Director June 7, 1996
- ------------------------------
H. Thomas McMeekin
/s/ Jack D. Hunter Executive Vice President June 7, 1996
- ------------------------------ General Counsel and Director
Jack D. Hunter
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
7th day of June, 1996.
/s/ Janet L. Lindenberg
---------------------------------------
Janet L. Lindenberg
Notary Public
Commission Expires: 7/6/1997
JANET L. LINDENBERG
NOTARY PUBLIC STATE OF INDIANA
ALLEN COUNTY
MY COMMISSION EXP. JULY 6, 1997
