<PAGE>
DELAWARE-LINCOLN CHOICEPLUS
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N
HOME OFFICE:
1300 S. CLINTON STREET
FORT WAYNE, IN 46802
(888) 868-2583
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FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
The Flexible Payment Deferred Variable Annuity Contracts (the "Contracts")
described in this prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments on a fixed or variable basis. The
Contracts are designed to aid individuals in long term planning for retirement
or other long term purposes. The Contracts are available for retirement plans
which do not qualify for the special federal tax advantages available under the
Internal Revenue Code ("Non-Qualified Plans") and for retirement plans which do
qualify for the federal tax advantages available under the Internal Revenue Code
("Qualified Plans"). (See "Tax Matters -- Qualified Plans.") Premium payments
for the Contracts will be allocated to a segregated investment account of The
Lincoln National Life Insurance Company ("Lincoln Life"), designated Lincoln
Life Variable Annuity Account N (the "Variable Account"), or to the Fixed
Account, or some combination of them, as selected by the owner of the Contract.
The following funding options are available under a Contract: Through the
Variable Account, Lincoln Life offers thirty diversified open-end management
investment companies (commonly called mutual funds), each with a different
investment objective: AIM Variable Insurance Funds -- AIM V.I. Growth Fund, AIM
V.I. Value Fund and AIM V.I. International Equity Fund; BT Insurance Funds Trust
- -- Equity 500 Index Fund; Delaware Group Premium Fund -- Decatur Total Return
Series, Devon Series, Delchester Series, Emerging Markets Series, International
Equity Series, REIT Series, Small Cap Value Series, Social Awareness Series, and
Trend Series; Dreyfus Variable Investment Fund -- Small Cap Portfolio; Fidelity
Variable Insurance Products Fund -- Equity-Income Portfolio, Growth Portfolio
and Overseas Portfolio; Fidelity Variable Insurance Products Fund III -- Growth
Opportunities Portfolio; Investors Fund Series -- Kemper Government Securities
Portfolio and Kemper Small Cap Growth Portfolio; Liberty Variable Investment
Trust -- Colonial U.S. Stock Fund and Newport Tiger Fund; Lincoln National Bond
Fund; Lincoln National Money Market Fund; MFS-Registered Trademark- Variable
Insurance Trust -- MFS Total Return Series, MFS Utilities Series, MFS Emerging
Growth Series, MFS Research Series; OCC Accumulation Trust -- Global Equity
Portfolio, Managed Portfolio. The fixed interest option offered under a Contract
is the Fixed Account. Premium payments or transfers allocated to the Fixed
Account, and 3% interest per year thereon, are guaranteed, and additional
interest may be credited, with certain withdrawals subject to a Market Value
Adjustment and withdrawal charges. Unless specifically mentioned, this
prospectus only describes the variable investment options.
This entire prospectus, and those of the Funds, should be read carefully before
investing to understand the Contracts being offered. The "Statement of
Additional Information" dated November 9, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference to this
Prospectus. It is available at no charge by calling or writing Lincoln Life's
Home Office as shown above, provides further information. Its Table of Contents
is at the end of this prospectus.
THE CONTRACTS MAY NOT BE AVAILABLE IN ALL STATES. PLEASE CONTACT YOUR
REPRESENTATIVE AS TO THE AVAILABILITY IN YOUR STATE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE CONTRACTS OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
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.
PROSPECTUS DATED: NOVEMBER 9, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
DEFINITIONS.................................... 3
HIGHLIGHTS..................................... 5
FEES AND EXPENSES.............................. 7
CONDENSED FINANCIAL INFORMATION................ 13
LINCOLN LIFE AND THE VARIABLE ACCOUNT.......... 13
THE FUNDS...................................... 14
General...................................... 19
Substitution of Securities................... 19
Voting Rights................................ 20
PREMIUM PAYMENTS AND CONTRACT VALUE............ 20
Premium Payments............................. 20
Allocation of Premium Payments............... 20
Optional Variable Account Sub-Account
Allocation Programs......................... 21
Dollar Cost Averaging...................... 21
Automatic Rebalancing...................... 22
Contract Value............................... 22
Accumulation Unit............................ 22
CHARGES AND DEDUCTIONS......................... 23
Contingent Deferred Sales Charge (Sales
Load)....................................... 23
Mortality and Expense Risk Charge............ 24
Administrative Expense Charge................ 24
Account Fee.................................. 25
Premium Tax Equivalents...................... 25
Income Taxes................................. 25
Fund Expenses................................ 25
Transfer Fee................................. 25
Rider Charges................................ 26
DEATH BENEFITS................................. 26
Death Benefits Provided by the Contract...... 26
Amount of Death Benefit...................... 26
Election and Effective Date of Election...... 27
Death of the Annuitant before the Annuity
Date........................................ 27
Death of the Annuitant after the Annuity
Date........................................ 27
OTHER CONTRACT FEATURES........................ 28
Ownership.................................... 28
Assignment................................... 28
Beneficiary.................................. 28
Change of Beneficiary........................ 28
Annuitant.................................... 28
Transfer of Contract Values between Sub-
Accounts.................................... 29
Procedures for Telephone Transfers........... 30
Surrenders and Partial Withdrawals........... 30
Restrictions under the Texas Optional
Retirement Program.......................... 31
<CAPTION>
CONTENTS PAGE
<S> <C>
Delay of Payments and Transfers.............. 31
Change in Operation of Variable Account...... 31
Modification................................. 32
Discontinuance............................... 32
ANNUITY PROVISIONS............................. 32
Annuity Date; Change in Annuity Date and
Annuity Option.............................. 32
Penalty-Free Annuitization................... 32
Annuity Options.............................. 33
Guaranteed Minimum Income Payment Rider...... 33
Fixed Options................................ 33
Variable Options............................. 34
Evidence of Survival......................... 36
Endorsement of Annuity Payments.............. 36
THE FIXED ACCOUNT.............................. 36
Market Value Adjustment...................... 38
DISTRIBUTION OF THE CONTRACTS.................. 39
PERFORMANCE DATA............................... 40
Money Market Sub-Account..................... 40
Other Variable Account Sub-Accounts.......... 40
Performance Ranking or Rating................ 40
TAX MATTERS.................................... 41
General...................................... 41
Diversification.............................. 42
Distribution Requirements.................... 42
Multiple Contracts........................... 43
Tax Treatment of Assignments................. 43
Withholding.................................. 43
Section 1035 Exchanges....................... 43
Tax Treatment of Withdrawals -- Non-Qualified
Contracts................................... 43
Qualified Plans.............................. 44
Section 403(b) Plans......................... 44
Individual Retirement Annuities.............. 45
Roth IRA..................................... 45
Corporate Pension and Profit-Sharing Plans
and H.R. 10 Plans........................... 45
Deferred Compensation Plans.................. 45
Tax Treatment of Withdrawals -- Qualified
Contracts................................... 45
OTHER CONTRACTS................................ 46
FINANCIAL STATEMENTS........................... 46
PREPARING FOR THE YEAR 2000.................... 46
LEGAL PROCEEDINGS.............................. 47
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION........................ 48
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD: The period from the Effective Date to
the Annuity Date, the date on which the Death Benefit
becomes payable or the date on which the Contract is
surrendered or annuitized, whichever is earliest.
ACCUMULATION UNIT: A measuring unit used to calculate the
value of the Owner's interest in each funding option used in
the variable portion of the Contract prior to the Annuity
Date.
ANNUITANT: A person designated by the Owner in writing upon
whose continuation of life any series of payments for a
definite period or involving life contingencies depends. If
the Annuitant dies before the Annuity Date, the Owner
becomes the Annuitant until naming a new Annuitant.
ANNUITY ACCOUNT VALUE: The value of the Contract at any
point in time.
ANNUITY DATE: The date on which the Contract is annuitized.
ANNUITY OPTION: The arrangement under which annuity payments
are made.
ANNUITY PERIOD: The period starting on the Annuity Date.
ANNUITY UNIT: A measuring unit used to calculate the portion
of annuity payments attributable to each funding option used
in the fixed and variable portion of the Contract on and
after the Annuity Date.
BENEFICIARY: The person entitled to the Death Benefit, who
must also be the "Designated Beneficiary", for purposes of
Section 72(s) of the Code, upon the Owner's death.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT: The Variable Annuity Contract described in this
prospectus (or the certificate evidencing the Owner's
participation in a group contract).
CONTRACT ANNIVERSARY, CONTRACT YEAR, EFFECTIVE DATE: The
Contract's Effective Date is the date it is issued. It is
also the date on which the first Contract Year, a 12-month
period, begins. Subsequent Contract Years begin on each
Contract Anniversary, which is the anniversary of the
Effective Date.
CONTRACT MONTH: The period from one Monthly Anniversary Date
to the next.
CONTRACT OWNER (OR OWNER): The person(s) initially
designated in the application or order to purchase or
otherwise, unless later changed, as having all ownership
rights under the Contract; is the Certificate Owner under a
group contract.
FIXED ACCOUNT: Those Sub-Accounts associated with Guaranteed
Periods and Guaranteed Rates. Fixed Account Assets are
maintained in Lincoln Life's General Account and not
allocated to the Variable Account.
FIXED ANNUITY: An annuity with payments which do not vary as
to dollar amount.
FUND(S): One or more of AIM Variable Insurance Funds, Inc.
-- AIM V.I. Growth Fund, AIM V.I. Value Fund, and AIM V.I.
International Equity Fund; BT Insurance Funds Trust -- BT
Equity Index Fund; Delaware Group Premium Fund -- Decatur
Total Return Series, Devon Series, Social Awareness Series,
REIT Series, Small Cap Value Series, Trend Series,
International Equity Series, Emerging Markets Series, and
Delchester Series; Dreyfus Variable Investment Fund -- Small
Cap Portfolio; Fidelity Variable Insurance Products Fund --
Growth Portfolio, Equity-Income Portfolio, and Overseas
Portfolio: Fidelity Variable Insurance Products Fund III --
Growth Opportunities Portfolio; Investors
3
<PAGE>
Fund Series -- Kemper Government Securities Portfolio, and
Kemper Small Cap Growth Portfolio; Liberty Variable
Investment Trust -- Colonial U.S. Stock Fund and Newport
Tiger Fund; Lincoln National Bond Fund; Lincoln National
Money Market Fund; MFS-Registered Trademark- Variable
Insurance Trust -- MFS Total Return Series, MFS Utilities
Series, MFS Emerging Growth Series, and MFS Research Series;
OCC Accumulation Trust -- Global Equity Portfolio, and
Managed Portfolio. Each is an open-end management investment
company (mutual fund) whose shares are available to fund the
benefits provided by the Contract.
GUARANTEED INTEREST RATE: The rate of interest credited by
Lincoln Life on a compound annual basis during a Guaranteed
Period.
GUARANTEED PERIOD: The period for which interest, at either
an initial or subsequent Guaranteed Interest Rate, will be
credited to any amounts which an Owner allocates to a Fixed
Account Sub-Account. In most states in which these Contracts
are issued, this period may generally be 1, 3, 5, 7, or 10
years as elected by the Owner.
GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's
Annuity Account Value allocated to a specific Guaranteed
Period with a specified Expiration Date (including credited
interest thereon).
HOME OFFICE: The headquarters of Lincoln National Life
Insurance Co., located at 1300 South Clinton Street, Fort
Wayne, Indiana 46802.
INCOME PAYMENT DATE: Shall be the date on which the Owner is
entitled to the Income Payment.
INDEX RATE: An index rate based on the Treasury Constant
Maturity Series published by the Federal Reserve Board.
IN WRITING: In a written form satisfactory to Lincoln Life
and received by Lincoln Life at its Administrative Office.
LINCOLN LIFE: Lincoln National Life Insurance Company.
MONTHLY ANNIVERSARY DATE: The monthly anniversary of the
Effective Date, as shown on the specifications page of the
Contract.
NON-QUALIFIED CONTRACTS: A Contract used in connection with
a retirement plan which does not receive favorable federal
income tax treatment under Code Section 401, 403, 408, or
457. The owner of a Non-Qualified Contract must be a natural
person or an agent for a natural person in order for the
Contract to receive favorable income tax treatment as an
annuity.
PAYEE: A recipient of payments under the Contract.
PREMIUM PAYMENT: Any amount paid to Lincoln Life cleared in
good funds as consideration for the benefits provided by the
Contract. Includes the initial Premium Payment and
subsequent Premium Payments.
QUALIFIED CONTRACT: A Contract used in connection with a
retirement plan which receives favorable federal income tax
treatment under Code Section 401, 403, 408 or 457.
SHARES: Shares of a Fund.
SUB-ACCOUNT: That portion of the Fixed Account associated
with specific Guaranteed Period(s) and Guaranteed Interest
Rate(s) and that portion of the Variable Account which
invests in shares of a specific Fund.
4
<PAGE>
SURRENDER (OR WITHDRAWAL): When a lump sum amount
representing all or part of the Annuity Account Value (minus
any applicable withdrawal charges, contract fees and premium
tax equivalents and adjusted by any Market Value Adjustment)
is paid to the Owner. After a full surrender, all of the
Owner's rights under the Contract are terminated. In this
prospectus, the terms "surrender" and "withdrawal" are used
interchangeably.
SURRENDER DATE: The date Lincoln Life processes the Owner's
election to surrender the Contract or to receive a partial
withdrawal.
VALUATION DATE: Every day on which Accumulation Units are
valued, which is each day on which the New York Stock
Exchange ("NYSE") is open for business, except any day on
which trading on the NYSE is restricted, or on which an
emergency exists, as determined by the Securities and
Exchange Commission ("Commission"), so that valuation or
disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day
following the Valuation Date and ending at the close of
business on the next Valuation Date. A Valuation Period may
be more than one day in length.
VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account N, a
separate account of Lincoln Life under Indiana law, in which
the assets of the Sub-Account(s) funded through shares of
one or more of the Funds are maintained. Assets of the
Variable Account attributable to the Contracts are not
chargeable with the general liabilities of Lincoln Life.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account Value during the Accumulation
Period.
VARIABLE ANNUITY UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account Value during the Annuity Period, to
determine the amount of each variable annuity payment.
HIGHLIGHTS
Premium Payments attributable to the variable portion of the
Contracts will be allocated to a segregated asset account of
Lincoln Life which has been designated Lincoln Life Variable
Annuity Account N (the "Variable Account"). The Variable
Account invests in shares of one or more of the Funds
available to fund the Contract as selected by the Owner.
Contract Owners bear the investment risk for all amounts
allocated to the Variable Account. The Contract's provisions
may vary in some states. Inquiries about the Contracts may
be made to Lincoln Life's Home Office.
Procedures for purchasing a Contract are described at
"Premium Payments and Contract Value -- Premium Payments."
The Contract may be returned within 10 days after it is
received, longer in some states. It can be mailed or
delivered to either Lincoln Life or the agent who sold it.
Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. Lincoln
Life will promptly refund the Contract Value in states where
permitted. This may be more or less than the Premium
Payment. In states where required, Lincoln Life will
promptly refund the Premium Payment, less any partial
surrenders. Lincoln Life has the right to allocate initial
Premium Payments to the Money Market Sub-Account until the
expiration of the right-to-examine period. If Lincoln Life
does so allocate an initial Premium Payment, it will refund
the greater of the Premium Payment, less any partial
surrenders, or the Contract Value. It is Lincoln Life's
current practice to directly allocate the initial Premium
Payment to the Fund(s) designated in the application or
order to purchase, unless state law requires a refund of
Premium Payments rather than of Annuity Account Value.
5
<PAGE>
Procedures for making surrenders and partial withdrawals are
described at "Other Contract Features -- Surrenders and
Partial Withdrawals." A Contingent Deferred Sales Charge
(sales load) may be deducted in the event of a full
surrender or partial withdrawal. The Contingent Deferred
Sales Charge is imposed on Premium Payments within seven (7)
years after their being made. Contract Owners may, during
each Contract Year, withdraw up to fifteen percent (15%) of
Premium Payments made, or any remaining portion thereof,
("the Fifteen Percent Free") without incurring a Contingent
Deferred Sales Charge. The Contingent Deferred Sales Charge
will vary in amount, depending upon the Contract Year in
which the Premium Payment being surrendered or withdrawn was
made. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders and withdrawals
are deemed to be on a first-in, first-out basis.
The Contingent Deferred Sales Charge is found in the fee
table (See "Charges and Deductions -- Contingent Deferred
Sales Charge (Sales Load)"). The maximum Contingent Deferred
Sales Charge is 7% of Premium Payments. There may also be a
Market Value Adjustment on surrenders, withdrawals or
transfers from the Fixed Account portion of the Contract.
There is a Mortality and Expense Risk Charge which is equal,
on an annual basis, to 1.25% of the average daily net assets
of the Variable Account. This Charge compensates Lincoln
Life for assuming the mortality and expense risks under the
Contract (See "Charges and Deductions -- Mortality and
Expense Risk Charge").
There is an Administrative Expense Charge which is equal, on
an annual basis, to 0.15% of the average daily net assets of
the Variable Account (See "Charges and Deductions --
Administrative Expense Charge").
There is an annual Account Fee of $35 which is waived if the
Annuity Account Value equals or exceeds $100,000 at the end
of the Contract Year or at annuitization (See "Charges and
Deductions -- Account Fee").
Premium tax equivalents or other taxes payable to a state or
other governmental entity will be charged against Annuity
Account Value (See "Charges and Deductions -- Premium Tax
Equivalents").
Under certain circumstances there may be assessed a $10
transfer fee when a Contract Owner transfers Annuity Account
Values from one Sub-Account to another (See "Charges and
Deductions -- Transfer Fee").
There is a ten percent (10%) federal income tax penalty
applied to the income portion of any premature distribution
from Non-Qualified Contracts. However, the penalty is not
imposed on amounts distributed:
(a) after the Payee reaches age 59 1/2; (b) after the death
of the Contract Owner (or, if the Contract Owner is not a
natural person, the Annuitant); (c) if the Payee is totally
disabled (for this purpose, disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his or her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982. For federal
income tax purposes, distributions are deemed to be on a
last-in, first-out basis. Different tax withdrawal penalties
and restrictions apply to Qualified Contracts issued
pursuant to plans qualified under Code Section 401, 403(b),
408 or 457. (See "Tax Matters -- Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further
discussion of the taxation of the Contracts, see "Tax
Matters."
6
<PAGE>
MARKET VALUE ADJUSTMENT. In certain situations, a surrender
or transfer of amounts from the Fixed Account will be
subject to a Market Value Adjustment. The Market Value
Adjustment will reflect the relationship between a rate
based on an index published by the Federal Reserve Board as
to current yields on U.S. government securities of various
maturities at the time a surrender or transfer is made
("Index Rate"), and the Index Rate at the time that the
Premium Payments being surrendered or transferred were made.
Generally, if the Index Rate at the time of surrender or
transfer is lower than the Index Rate at the time the
Premium Payment was allocated, then the application of the
Market Value Adjustment will result in a higher payment upon
surrender or transfer. Similarly, if the Index Rate at the
time of surrender or transfer is higher than the Index Rate
at the time the Premium Payment was allocated, the
application of the Market Value Adjustment will generally
result in a lower payment upon surrender or transfer. It is
not applied against a surrender or transfer taking place at
the end of the Guaranteed Period.
FEES AND EXPENSES
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge (as a percentage of Premium
Payments):
<TABLE>
<CAPTION>
YEARS
SINCE
PAYMENT CHARGE
---------- ------
<S> <C> <C> <C>
0-1 7%
1-2 6%
A Contract Owner may, during each Contract Year, withdraw up to
2-3 5% 15% of Premium Payments made, or any remaining portion
3-4 4% thereof, without incurring a Contingent Deferred Sales Charge.
4-5 3%
5-6 2%
6-7 1%
7+ 0
</TABLE>
<TABLE>
<S> <C> <C>
Transfer Fee........ $10
- Not imposed on the first twelve transfers during a Contract
Year. Pre-scheduled automatic dollar cost averaging or
automatic rebalancing transfers are not counted.
Account Fee......... $35 per Contract Year
- Waived if Annuity Account Value at the end of the Contract
Year is $100,000 or more.
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge......... 1.25%
Administrative Expense Charge............. 0.15%
---
Total Variable Account Annual Expenses.... 1.40%
</TABLE>
7
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Premium Payments are allocated to
the Variable Account. The table reflects expenses of the Variable Account as
well as of the individual Funds underlying the Variable Sub-Accounts. The table
does not reflect the deductions for the annual $35 Account Fee or premium tax
equivalents. The information set forth should be considered together with the
information provided in this Prospectus under the heading "Fees and Expenses",
and in each Fund's Prospectus. All expenses are expressed as a percentage of
average account value.
FEE TABLE
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS (1) BT INSURANCE
----------------------------------------------- FUNDS TRUST
AIM AIM AIM ---------------
V.I. GROWTH V.I. VALUE V.I. INTERNATIONAL EQUITY 500
FUND FUND EQUITY FUND INDEX FUND
------------- ------------ ------------------ ---------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge...................... 1.25% 1.25% 1.25% 1.25%
Administrative Expense Charge.......................... 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual Expenses................. 1.40% 1.40% 1.40% 1.40%
FUND PORTFOLIO ANNUAL EXPENSES
(AFTER ANY APPLICABLE REIMBURSEMENT/WAIVER)
Management Fees........................................ 0.65% 0.62% 0.75% 0.20%
Other Expenses......................................... 0.08% 0.08% 0.18% 0.10%
Total Fund Portfolio Annual Expenses................... 0.73% 0.70% 0.93% 0.30%(2)
</TABLE>
- ------------------------------
(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998, and AIM will not
seek reimbursement of the cost of any service in excess of the amount
charged by a participating insurance company for providing the services
above. The amount of reimbursements that will be paid by each Fund under
this arrangement for the year ending December 31, 1998 cannot be predicted.
(2) Under the Advisory Agreement with the Advisor, the Funds will pay advisory
fees at the annual percentage rate of .20% of the average daily net assets
of the Equity 500 Index Fund. These fees are accrued daily and paid monthly.
The Advisor has voluntarily undertaken to waive the fees and to reimburse
the Fund for certain expenses so that the Equity 500 Index Fund total
operating expenses will not exceed .30%. Such expense reimbursements may be
terminated at the discretion of the Advisor. If this reimbursement were not
in place, the total operating expenses for the year ended December 31, 1997,
would have been 2.78%.
8
<PAGE>
<TABLE>
<CAPTION>
DELAWARE GROUP PREMIUM FUND
- ----------------------------------------------------------------------------------------------- DREYFUS VARIABLE
DECATUR SMALL INVESTMENT FUND
TOTAL SOCIAL CAP EMERGING ----------------
RETURN DEVON AWARENESS REIT VALUE TREND INTERNATIONAL MARKETS DELCHESTER SMALL CAP
SERIES SERIES SERIES SERIES SERIES SERIES EQUITY SERIES SERIES SERIES PORTFOLIO
- ------- ------ --------- ------ ------ ------ ------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
0.60% 0.54% 0.20% 0.75% 0.60% 0.62% 0.75% 0.30% 0.60% 0.75%
0.11% 0.26% 0.65% 0.10% 0.25% 0.23% 0.20% 1.20% 0.10% 0.03%
0.71%(4) 0.80%( )(4) 0.85%(3)(4) 0.85%(4) 0.85%( )(4) 0.85%( )(4) 0.95%(4)(5) 1.50%(3)(4) 0.70%(4) 0.78%
</TABLE>
- ------------------------------
(3) For the fiscal year ended December 31, 1997, before waiver and/or
reimbursement by the investment adviser, total Series expenses as a
percentage of average daily net assets were 0.91% for Devon Series, 1.40%
for Social Awareness Series, 0.90% for Small Cap Value Series, 0.88% for
Trend Series, 2.45% for Emerging Markets Series.
(4) The investment adviser for the Decatur Total Return Series, Devon Series,
Social Awareness Series, REIT Series, Small Cap Value Series, Trend Series,
and Delchester Series, is Delaware Management Company, Inc. ("Delaware
Management"). The Investment Adviser for the International Equity Series and
Emerging Markets Series is Delaware International Advisers Ltd. ("Delaware
International"). Effective May 1, 1998 through April 30, 1999, the
investment advisers for the Series of DGPF have agreed voluntarily to waive
their management fees and reimburse each Series for expenses to the extent
that total expenses will not exceed 1.50% for the Emerging Markets Series;
0.95% for the International Equity Series; 0.85% for Social Awareness
Series, REIT Series, Small Cap Value Series, and Trend Series, and 0.80% for
Devon, Decatur Total Return and Delchester Series. The declaration of a
voluntary expense limitation does not bind the investment advisers to
declare future expense limitations with respect to these Funds.
(5) Effective July 1, 1997, the Total Fund expenses of the International Equity
Series were voluntarily limited to a rate of 0.95% of the average daily net
assets. In 1997 the total annual expenses of the International Equity Series
was 0.90%.
9
<PAGE>
<TABLE>
<CAPTION>
FIDELITY VARIABLE INSURANCE
PRODUCTS FUNDS
(INITIAL CLASS) INVESTORS FUND SERIES
-------------------------------------------------------- ----------------------
VIP III KEMPER KEMPER
VIP VIP GROWTH GOVERNMENT SMALL CAP
VIP EQUITY INCOME GROWTH OVERSEAS OPPORTUNITIES SECURITIES GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------- --------- -------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge............ 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Expense Charge................ 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual Expenses....... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
FUND PORTFOLIO ANNUAL EXPENSES (AFTER ANY
APPLICABLE REIMBURSEMENT/WAIVER)
Management Fees.............................. 0.50% 0.60% 0.75% 0.60% 0.55% 0.65%
Other Expenses............................... 0.08% 0.09% 0.15% 0.14% 0.09% 0.06%
Total Fund Portfolio Annual Expenses......... 0.58%(6) 0.69%(6) 0.92%(6) 0.74%(6) 0.64% 0.71%
</TABLE>
- ------------------------------
(6) A portion of the brokerage commissions the certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian expenses. With
these reductions reflected, Total Fund Portfolio Annual Expenses would have
been 0.57% for the VIP Equity-Income Portfolio, 0.67% for the VIP Growth
Portfolio, 0.90% for the VIP Overseas Portfolio and, 0.73% for the VIP III
Growth Opportunities Portfolio.
10
<PAGE>
<TABLE>
<CAPTION>
LIBERTY VARIABLE LINCOLN NATIONAL MFS VARIABLE INSURANCE TRUST OCC ACCUMULATION
INVESTMENT TRUST FUNDS ---------------------------------------------- TRUST
- -------------------------- -------------------- MFS -------------------
COLONIAL LN LN MFS MFS EMERGING MFS GLOBAL
U.S. STOCK NEWPORT TIGER MONEY MARKET BOND TOTAL RETURN UTILITIES GROWTH RESEARCH EQUITY MANAGED
FUND FUND FUND FUND SERIES SERIES SERIES SERIES PORTFOLIO PORTFOLIO
- ---------- ------------- ------------ ----- ------------ --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.25 % 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
0.15 % 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
1.40 % 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
0.80 % 0.90% 0.48% 0.46% 0.75% 0.75% 0.75% 0.75% 0.79% 0.80%
0.14 % 0.35% 0.11% 0.07% 0.25%(7) 0.25%(7) 0.12%(7) 0.13%(7) 0.40% 0.07%
0.94 % 1.25% 0.59% 0.53% 1.00%(8) 1.00%(8) 0.87% 0.88% 1.19%(9) 0.87%(9)
</TABLE>
- ------------------------------
(7) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(8) Massachusetts Financial Services Company has agreed to bear expenses for
each Series, subject to reimbursement by each Series, such that the MFS
Total Return Series and the MFS Utilities Series "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the MFS Total Return
Series and Utilities Series would be 0.27% and 0.45% respectively and "Total
Fund Portfolio Annual Expenses" would have been 1.02% and 1.20% respectively
for these Series. See "Information Concerning Shares of Each
Series--Expenses."
(9) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses. Total fund portfolio
annual expenses for the Managed Portfolio are limited by OpCap advisors so
that its annualized expenses (net of any expense offsets) do not exceed
1.00% of average daily net assets. Total fund portfolio annual expenses for
the Global Equity Portfolio are limited to 1.25% of average daily net
assets. With respect to the Global Equity Portfolio, the advisor waived a
portion of its management fee. If such waiver had not been in effect, total
fund portfolio annual expenses would have been 1.20% for the year ended
December 31, 1997.
11
<PAGE>
EXAMPLES
The Contract Owner would pay the following expenses on a
$1,000 investment, assuming a 5% annual return on assets,
and assuming all Premium Payments are allocated to the
Variable Account:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------- -----------
<S> <C> <C>
1. IF THE CONTRACT IS SURRENDERED AT THE END OF THE APPLICABLE TIME PERIOD:
AIM V.I. Growth Fund........................................................ $ 93 $ 121
AIM V.I. Value Fund......................................................... $ 93 $ 120
AIM V.I. International Equity Fund.......................................... $ 95 $ 127
BT Insurance Trust Equity 500 Index Fund.................................... $ 89 $ 107
Delaware Group Decatur Total Return Series.................................. $ 93 $ 120
Delaware Group Devon Series................................................. $ 94 $ 123
Delaware Group Social Awareness Series...................................... $ 94 $ 125
Delaware Group REIT Series.................................................. $ 94 $ 125
Delaware Group Small Cap Value Series....................................... $ 94 $ 125
Delaware Group Trend Series................................................. $ 94 $ 125
Delaware Group International Equity Series.................................. $ 95 $ 128
Delaware Group Emerging Markets Series...................................... $ 110 $ 144
Delaware Group Delchester Series............................................ $ 93 $ 120
Dreyfus Variable Fund Small Cap Portfolio................................... $ 93 $ 122
Fidelity VIP Equity-Income Portfolio........................................ $ 91 $ 116
Fidelity VIP Growth Portfolio............................................... $ 93 $ 119
Fidelity VIP Overseas Portfolio............................................. $ 95 $ 127
Fidelity VIP III Growth Opportunities Portfolio............................. $ 93 $ 121
Investors Fund Kemper Government Securities Portfolio....................... $ 92 $ 118
Investors Fund Kemper Small Cap Growth Portfolio............................ $ 93 $ 120
Liberty Variable Trust Colonial U.S. Stock Fund............................. $ 95 $ 127
Liberty Variable Trust Newport Tiger Fund................................... $ 98 $ 137
Lincoln National Bond Fund.................................................. $ 91 $ 115
Lincoln National Money Market Fund.......................................... $ 92 $ 116
MFS Variable Trust Total Return Series...................................... $ 96 $ 129
MFS Variable Trust Utilities Series......................................... $ 96 $ 129
MFS Variable Trust Emerging Growth Series................................... $ 94 $ 125
MFS Variable Trust Research Series.......................................... $ 95 $ 129
OCC Trust Global Equity Portfolio........................................... $ 98 $ 135
OCC Trust Managed Portfolio................................................. $ 94 $ 125
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS ANNUITIZED:
AIM V.I. Growth Fund........................................................ $ 23 $ 71
AIM V.I. Value Fund......................................................... $ 23 $ 70
AIM V.I. International Equity Fund.......................................... $ 25 $ 77
BT Insurance Trust Equity 500 Index Fund.................................... $ 19 $ 57
Delaware Group Decatur Total Return Series.................................. $ 23 $ 70
Delaware Group Devon Series................................................. $ 24 $ 73
Delaware Group Social Awareness Series...................................... $ 24 $ 75
Delaware Group REIT Series.................................................. $ 24 $ 75
Delaware Group Small Cap Value Series....................................... $ 24 $ 75
Delaware Group Trend Series................................................. $ 24 $ 75
Delaware Group International Equity Series.................................. $ 25 $ 78
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
Delaware Group Emerging Markets Series...................................... $ 31 $ 94
Delaware Group Delchester Series............................................ $ 23 $ 70
Dreyfus Variable Fund Small Cap Portfolio................................... $ 23 $ 72
Fidelity VIP Equity-Income Portfolio........................................ $ 21 $ 66
Fidelity VIP Growth Portfolio............................................... $ 23 $ 69
Fidelity VIP Overseas Portfolio............................................. $ 25 $ 77
Fidelity VIP III Growth Opportunities Portfolio............................. $ 23 $ 71
Investors Fund Kemper Government Securities Portfolio....................... $ 22 $ 68
Investors Fund Kemper Small Cap Growth Portfolio............................ $ 23 $ 70
Liberty Variable Trust Colonial U.S. Stock Fund............................. $ 25 $ 77
Liberty Variable Trust Newport Tiger Fund................................... $ 28 $ 87
Lincoln National Bond Fund.................................................. $ 21 $ 65
Lincoln National Money Market Fund.......................................... $ 22 $ 66
MFS Variable Trust Total Return Series...................................... $ 26 $ 79
MFS Variable Trust Utilities Series......................................... $ 26 $ 79
MFS Variable Trust Emerging Growth Series................................... $ 24 $ 75
MFS Variable Trust Research Series.......................................... $ 25 $ 75
OCC Trust Global Equity Portfolio........................................... $ 28 $ 85
OCC Trust Managed Portfolio................................................. $ 24 $ 75
</TABLE>
The preceding tables are intended to assist the Owner in
understanding the costs and expenses borne, directly or
indirectly, by Premium Payments allocated to the Variable
Account. These include the expenses of the Funds, certain of
which are subject to expense reimbursement arrangements
which may be subject to change. See the Funds' Prospectuses.
In addition to the expenses listed above, charges for
premium tax equivalents may be applicable.
These examples reflect the annual $35 Account Fee as an
annual charge of .07% of assets, based upon an anticipated
average Annuity Account Value of $50,000.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
Because the Sub-Accounts which are available under the
Contracts did not begin operation before the date of this
Prospectus, financial information for the Sub-Accounts is
not included in this prospectus or the Statement of
Additional Information.
LINCOLN LIFE AND THE VARIABLE ACCOUNT
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 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.
We are one of the largest stock life insurance companies in
the United States. We are owned by Lincoln National Corp.
(LNC) which is also organized under Indiana law. LNC's
primary businesses are insurance and financial services.
Lincoln Life is the issuer of the variable annuity
Contracts. The obligations set forth in the Contracts, other
than those of the Contractowner, are our obligations. We
also serve as principal underwriter for the Contracts.
13
<PAGE>
On October 1, 1998, The Lincoln National Life Insurance
Company acquired the domestic individual life insurance
business from Aetna, Inc. via a 100% indemnity reinsurance
transaction.
THE VARIABLE ACCOUNT. The Variable Account was established
by Lincoln Life as a separate account on November 3, 1997
pursuant to a resolution of its Board of Directors. Under
Indiana insurance law, the income, gains or losses of the
Variable Account are credited to or charged against the
assets of the Variable Account without regard to the other
income, gains, or losses of Lincoln Life. These assets are
held in relation to the Contracts described in this
Prospectus, to the extent necessary to meet Lincoln Life's
obligations thereunder. Although that portion of the assets
maintained in the Variable Account equal to the reserves and
other contract liabilities with respect to the Variable
Account will not be charged with any liabilities arising out
of any other business conducted by Lincoln Life, all
obligations arising under the Contracts, including the
promise to make annuity payments, are general corporate
obligations of Lincoln Life.
The Variable Account is registered with the Commission as a
unit investment trust under the 1940 Act and meets the
definition of a separate account under the federal
securities laws. Registration with the Commission does not
involve supervision of the management or investment
practices or policies of the Variable Account or of Lincoln
Life by the Commission.
The assets of the Variable Account are divided into
Sub-Accounts. Each Sub-Account invests exclusively in shares
of a specific Fund. All amounts allocated to the Variable
Account will be used to purchase Fund shares as designated
by the Owner at their net asset value. Any and all
distributions made by the Fund with respect to the shares
held by the Variable Account will be reinvested to purchase
additional shares at their net asset value. Deductions from
the Variable Account for cash withdrawals, annuity payments,
death benefits, account fees, mortality and expense risk
charges, administrative expense charges and any applicable
taxes will, in effect, be made by redeeming the number of
Fund shares at their net asset value equal in total value to
the amount to be deducted. The Variable Account will
purchase and redeem Fund shares on an aggregate basis and
will be fully invested in Fund shares at all times.
THE FUNDS
Each of the thirty Sub-Accounts of the Variable Account is
invested solely in shares of one of the thirty Funds
available as funding vehicles under the Contracts. Each of
the Funds is a series of one of twelve Massachusetts or
Delaware business trusts or a Maryland corporation,
collectively referred to herein as the "Trusts", each of
which is registered as an open-end management investment
company under the 1940 Act. All of the Funds except for the
Delaware Group REIT Series and Delaware Group Emerging
Market Series are diversified under the 1940 Act.
The investment objectives and policies of certain Funds are
similar to the investment objectives and policies of
portfolios, other than those Funds, that are advised by the
same adviser. The investment results of the Funds, however,
may be higher or lower than the other portfolios that are
advised by the same adviser. There can be no assurance, and
no representation is made, that the investment results of
any of the Funds will be comparable to the investment
results of any other portfolio advised by the same adviser.
The Trusts and their investment advisers and distributors
are:
AIM Variable Insurance Funds, Inc., ("AIM V.I. Funds")
managed by A I M Advisors, Inc., and distributed by AIM
Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173.
14
<PAGE>
BT Insurance Funds Trust (the "BT Insurance Trust")
managed by Bankers Trust Company, 130 Liberty Street,
(One Bankers Trust Plaza), New York, NY 10006 and
distributed by First Data Distributors, Inc., 4400
Computer Drive, Westborough, MA 01581.
Delaware Group Premium Fund, Inc. ("Delaware Group")
managed by Delaware Management Company One Commerce
Square Philadelphia, PA 19103 and for International and
Emerging Markets, Delaware International Advisors, Ltd.
80 Cheapside London, England ECV2 6EE and distributed by
Delaware Distributors, L.P., 1818 Market Street,
Philadelphia, PA 19103.
Dreyfus Variable Investment Fund ("Dreyfus Variable
Fund") managed by The Dreyfus Corporation, 200 Park
Avenue, New York, NY 10166 and distributed by Premier
Mutual Fund Services, Inc., 60 State Street, Boston, MA
02109.
Variable Insurance Products Fund ("Fidelity VIP"), and
Variable Insurance Products Fund III ("Fidelity VIP
III"), managed by Fidelity Management & Research Company
and distributed by Fidelity Distribution Corporation, 82
Devonshire Street, Boston, MA 02103;
Investors Fund Series ("Investor Fund") managed by
Scudder Kemper Investments, Inc., 345 Park Avenue, New
York, NY 10166 and distributed by Kemper Distributors,
Inc., 222 South Riverside Plaza, Chicago, IL 60606.
Liberty Variable Investment Trust ("Liberty Variable
Trust") managed by Liberty Advisory Services Corp., 125
High Street, Boston, MA 02110 and sub-advised by
Colonial, and distributed by Liberty Financial
Investments, Inc., One Financial Center, Boston, MA
02110
Lincoln National Bond Fund, Inc. and Lincoln National
Money Market Fund, Inc., managed by Lincoln Investment
Management, Inc. 200 East Berry St., Fort Wayne, IN
46802;
MFS-Registered Trademark- Variable Insurance Trust ("MFS
Variable Trust"), managed by Massachusetts Financial
Services Company and distributed by MFS Fund
Distributors, Inc., 500 Boylston Street, Boston, MA
02116;
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
Three AIM V.I. Funds are available under the Contracts:
AIM V.I. Growth Fund;
AIM V.I. Value Fund;
AIM V.I. International Equity Fund.
One Fund of BT INSURANCE TRUST is available under the
Contracts:
Equity 500 Index Fund.
Nine Funds of DELAWARE GROUP are available under the
Contracts:
Decatur Total Return Series;
Devon Series;
Social Awareness Series;
REIT Series;
Small Cap Value Series;
Trend Series;
15
<PAGE>
International Equity Series;
Emerging Markets Series;
Delchester Series.
One Fund of DREYFUS VARIABLE FUND is available under the
Contracts:
Dreyfus Small Cap Portfolio.
Three Funds of FIDELITY VIP are available under the
Contracts:
Fidelity VIP Growth Portfolio;
Fidelity VIP Equity-Income Portfolio;
Fidelity VIP Overseas Portfolio.
One Fund of FIDELITY VIP III is available under the
Contracts:
Fidelity VIP III Growth Opportunities Portfolio.
Two Funds of INVESTORS FUND are available under the
Contracts:
Kemper Government Securities Portfolio;
Kemper Small Cap Growth Portfolio.
Two Funds of LIBERTY VARIABLE TRUST are available under the
Contracts:
Colonial U.S. Stock Fund;
Newport Tiger Fund.
The Lincoln National Bond Fund is available under the
Contracts.
The Lincoln National Money Market Fund is available under
the Contracts.
Four Funds of MFS VARIABLE Trust are available under the
Contracts:
MFS Total Return Series;
MFS Utilities Series;
MFS Emerging Growth Series;
MFS Research Series.
Two Funds of OCC Trust are available under the Contracts:
Global Equity Portfolio;
Managed Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown in the Fee Table under Fees and Expenses
in this Prospectus.
There follows a brief description of the investment
objective of each Fund which are described more fully in the
attached Fund prospectuses. There can be no assurance that
any Fund will achieve its stated investment objectives.
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks growth of
capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM
to have strong earnings momentum. Current income will not be
an important criterion of investment selection, and any such
income should be considered incidental.
AIM V.I. VALUE FUND (Large Cap Stocks): Seeks to achieve
long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the
current or projected earnings of the companies issuing the
securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to
the equity market generally. Income is a secondary objective
and would be satisfied principally from the income (interest
and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the
Fund's portfolio.
AIM V.I. INTERNATIONAL EQUITY FUND (Large Cap Stocks): Seeks
to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities
16
<PAGE>
the issuers of which are considered by AIM to have strong
earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the
selection of portfolio securities.
BT INSURANCE TRUST EQUITY 500 INDEX FUND (Large Cap Stocks):
Seeks to replicate as closely as possible the performance of
the Standard & Poor's 500 Composite Stock Price Index before
the deduction of Fund expenses.
DELAWARE GROUP DECATUR TOTAL RETURN SERIES (Large Cap
Stocks): Seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital
appreciation while providing higher than average dividend
income. It invests generally, but not exclusively, in common
stocks and income-producing securities convertible into
common stocks, consistent with the Series' objective.
DELAWARE GROUP DEVON SERIES (Large Cap Stocks): Seeks
current income and capital appreciation. The Series will
seek to achieve its objective by investing primarily in
income-producing common stocks, with a focus on common
stocks that the investment manager believes have the
potential for above-average dividend increases over time.
Under normal circumstances, the Series will invest at least
65% of its total assets in dividend paying common stocks.
DELAWARE GROUP SOCIAL AWARENESS SERIES (Specialty): Seeks to
achieve long-term capital appreciation. The Series seeks to
achieve its objective by investing primarily in equity
securities of medium to large-sized companies expected to
grow over time that meet the Series' "Social Criteria"
strategy.
DELAWARE GROUP REIT SERIES (Specialty): Seeks to achieve
maximum long-term total return. Capital appreciation is a
secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in
the real estate industry.
DELAWARE GROUP SMALL CAP VALUE SERIES (Small Cap Stocks):
Seeks capital appreciation by investing primarily in small
cap common stocks whose market value appears low relative to
their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of
companies that may be temporarily out of favor or whose
value is not yet recognized by the market.
DELAWARE GROUP TREND SERIES (Small Cap Stocks): Seeks
long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These
securities will have been judged to be responsive to changes
in the market place and to have fundamental characteristics
to support growth. Income is not an objective.
DELAWARE GROUP INTERNATIONAL EQUITY SERIES (International
Equity): Seeks long-term growth without undue risk to
principal by investing primarily in equity securities of
foreign issuers providing the potential for capital
appreciation and income. It invests in a broad range of
equity securities of foreign issuers, including common
stocks, preferred stocks, convertible securities and
warrants, consistent with the Series' objective.
DELAWARE GROUP EMERGING MARKETS SERIES (Specialty): Seeks to
achieve long-term capital appreciation. The Series seeks to
achieve its objective by investing primarily in equity
securities of issuers located or operating in emerging
countries. The Series is an international fund. As such,
under normal market conditions, at least 65% of the Series'
assets will be invested in equity securities of issuers
organized or having a majority of their assets or deriving a
majority of their operating income in at least three
countries that are considered to be emerging or developing.
DELAWARE GROUP DELCHESTER SERIES (High Yield Bonds): Seeks
as high a current income as possible by investing in rated
and unrated corporate bonds (including high-yield bonds
commonly known as junk bonds), U.S. government securities
and commercial paper. An investment in this Series may
involve greater risks than an investment in a portfolio
comprised primarily of investment grade bonds.
17
<PAGE>
DREYFUS VARIABLE FUND SMALL CAP PORTFOLIO (Small Cap
Stocks): Seeks to maximize capital appreciation.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (Large Cap Stocks):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP GROWTH PORTFOLIO(Large Cap Stocks): 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.
FIDELITY VIP OVERSEAS PORTFOLIO (International Equity):
Seeks long term growth of capital by investing mainly in
foreign securities.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO (Large Cap
Stocks): Seeks capital growth by investing primarily in
common stocks and securities convertible into common stocks.
INVESTORS FUND KEMPER GOVERNMENT SECURITIES PORTFOLIO
(Intermediate Term Bonds): Seeks high current return
consistent with preservation of capital from a portfolio
composed primarily of U.S. Government securities.
INVESTORS FUND KEMPER SMALL CAP GROWTH PORTFOLIO (Small Cap
Stocks): Seeks maximum appreciation of investors' capital
from a portfolio primarily of growth stocks of smaller
companies.
LIBERTY VARIABLE TRUST COLONIAL U.S. STOCK FUND (Large Cap
Stocks): Seeks long-term capital growth by investing
primarily in large-cap equity securities.
LIBERTY VARIABLE TRUST NEWPORT TIGER FUND (Specialty): Seeks
long-term capital growth by investing primarily in equity
securities of companies located in the nine Tigers of Asia
(Hong Kong, Singapore, South Korea, Taiwan, Malaysia,
Thailand, Indonesia, China and the Philippines).
LINCOLN NATIONAL BOND FUND (Long-Term Bonds): Seeks maximum
current income consistent with prudent investment strategy.
The fund invests primarily in medium- and long-term
corporate and government bonds.
LINCOLN NATIONAL MONEY MARKET FUND (Money Market): Seeks
maximum current income consistent with the preservation of
capital. The Fund invests in short-term obligations issued
by U.S. corporations; the U.S. Government; and
federally-charted banks and U.S. branches of foreign banks.
MFS VARIABLE TRUST EMERGING GROWTH SERIES (Large Cap
Stocks): Seeks long-term growth of capital by investing
primarily in common stocks of companies management believes
to be early in their life cycle but which have the potential
to become major enterprises.
MFS VARIABLE TRUST RESEARCH SERIES (Large Cap Stocks): Seeks
to provide long-term growth of capital and future income.
MFS VARIABLE TRUST TOTAL RETURN SERIES (Balanced or Total
Return): Seeks primarily to obtain above-average income,
(compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of
capital, and secondarily to provide a reasonable opportunity
for growth of capital and income.
MFS VARIABLE TRUST UTILITIES SERIES (Specialty): Seeks
capital growth and current income (income above that
available from a portfolio invested entirely in equity
securities) by investing, under normal circumstances, at
least 65% of its assets in equity and debt securities of
utility companies.
18
<PAGE>
OCC TRUST GLOBAL EQUITY PORTFOLIO (International Stocks):
Seeks long-term capital appreciation through a global
investment strategy primarily involving equity securities.
OCC TRUST MANAGED PORTFOLIO (Balanced or Total Return):
Seeks growth of capital over time through investment in a
portfolio of common stocks, bonds and cash equivalents, the
percentage of which will vary based on management's
assessments of relative investment values.
The Delaware Group Delchester Series, Delaware Group
Emerging Market Series, Dreyfus Variable Fund Small Cap
Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity
VIP Overseas Portfolio, MFS Variable Trust Emerging Growth
Series, MFS Variable Trust Research Series, MFS Variable
Trust Total Return Series, MFS Variable Trust Utilities
Series, OCC Trust Global Equity Portfolio, and the OCC Trust
Managed Portfolio funds may invest in non-investment grade,
high yield, high-risk debt securities (commonly referred to
as "junk bonds"), as detailed in the individual Fund
prospectuses.
With respect to a Trust, the adviser and/or the distributor,
or an affiliate thereof, may compensate Lincoln Life (or an
affiliate) for administrative, distribution, or other
services. It is anticipated that such compensation would be
based on assets of the particular Trust attributable to the
Contracts along with certain other variable contracts issued
or administered by Lincoln Life (or an affiliate).
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. Contract Owners bear the complete
investment risk for Annuity Account Values allocated to a
Variable Account Sub-Account. Each such Sub-Account involves
inherent investment risk, and such risk varies significantly
among the Sub-Accounts. Contract Owners should read each
Fund's prospectus carefully and understand the Funds'
relative degrees of risk before making or changing
investment choices. Additional Funds may, from time to time,
be made available as investments to underlie the Contracts.
However, the right to make such selections will be limited
by the terms and conditions imposed on such transactions by
Lincoln Life (See "Premium Payments and Contract Value-
Allocation of Premium Payments").
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of Lincoln Life
and other life insurance companies. The Trusts do not
foresee any disadvantage to Contract Owners arising out of
the fact that shares may be made available to separate
accounts which are used in connection with both variable
annuity and variable life insurance products. Nevertheless,
the Trusts' Boards intend to monitor events in order to
identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to
occur, one of the separate accounts might withdraw its
investment in a Fund. This might force a Fund to sell
portfolio securities at disadvantageous prices.
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
Lincoln Life, further investment in such shares should
become inappropriate in view of the purpose of the Contracts
or in view of legal regulatory or federal income tax
restrictions, Lincoln Life may substitute shares of another
Fund. No substitution of securities in any Sub-Account may
take place without prior approval of the Commission and
under such requirements as it may impose.
19
<PAGE>
VOTING RIGHTS
In accordance with its view of present applicable law,
Lincoln Life will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Trust in accordance with written instructions
received from persons having the voting interest in the
Variable Account. Lincoln Life will vote shares for which it
has not received instructions, as well as shares
attributable to it, in the same proportion as it votes
shares for which it has received instructions. The Trusts do
not hold regular meetings of shareholders. Shareholder votes
take place whenever state law or the 1940 Act so require,
for example on certain elections of Board of Trustees, the
initial approval of investment advisory contracts and
changes in investment objectives and fundamental investment
policies.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by Lincoln Life not
more than sixty (60) days prior to the meeting of the
particular Trust. Voting instructions will be solicited by
written communication at least fourteen (14) days prior to
the meeting.
PREMIUM PAYMENTS AND CONTRACT VALUE
PREMIUM PAYMENTS
The Contracts may be purchased under a flexible premium
payment plan. Premium Payments are payable in the frequency
and in the amount selected by the Contract Owner. The
initial Premium Payment is due on the Effective Date. It
must be at least $10,000 (for Qualified Contracts $2,000).
Subsequent Premium Payments must be at least $100. Lincoln
Life reserves the right to decline any application or order
to purchase or Premium Payment. A Premium Payment in excess
of $1 million requires preapproval by the Lincoln Life.
Lincoln Life may, at its sole discretion, offer special
premium payment programs and/or waive the minimum payment
requirements.
The Contract Owner may elect to increase, decrease or change
the frequency of Premium Payments.
If no Premium Payments have been made for three consecutive
years and the Annuity Account Value decreases to less than
$1,000 during that period, or if any partial withdrawal
decreases the Annuity Account Value to less than $1,000,
Lincoln Life reserves the right to cancel the Contract and
pay the Owner an adjusted Annuity Account Value. Lincoln
Life will provide the Owner at least 30 days advance notice
of its intended action. During the notification period, the
Owner may make an additional Premium Payment to meet the
minimum value requirements and avoid cancellation of the
Contract.
ALLOCATION OF PREMIUM PAYMENTS
Premium Payments are allocated to one or more of the
appropriate Sub-Accounts within the Variable Account and
Fixed Account as selected by the Contract Owner. For each
Variable Account Sub-Account, the Premium Payments are
converted into Accumulation Units. The number of
Accumulation Units credited to the Contract is determined by
dividing the Premium Payment allocated to the Sub-Account by
the value of the Accumulation Unit for the Sub-Account.
Lincoln Life will allocate the initial Premium Payment
directly to the Sub-Account(s) selected by the Owner unless
state law requires, during the right-to-examine period, a
refund of Premium Payments rather than Annuity Account
Value.
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In such cases, the initial Premium Payment will be allocated
to the money market account until the right-to-examine
period has expired.
Transfers do not necessarily affect the allocation
instructions for payments. Subsequent payments will be
allocated as directed by the Owner; if no direction is
given, the allocation will be that which has been most
recently directed for payments by the Owner. The Owner may
change the allocation of future payments without fee,
penalty or other charge upon written notice to Lincoln
Life's Home Office. A change will be effective for payments
received on or after receipt of the notice of change.
Any Premium Payment at the time of any allocation may be
allocated to a single or multiple sub-accounts in whole
percentages (e.g., 12%). No allocation can be made which
would result in a Variable Account Sub-Account of less than
$50 or a Fixed Account Sub-Account value of less than
$2,000.
Lincoln Life may, at its sole discretion, waive minimum
premium allocation requirements or minimum Variable Account
Sub-Account requirements.
For initial Premium Payments, if the application for or
order to purchase a Contract is in good order, Lincoln Life
will apply the Premium Payment to the Variable Account and
credit the Contract with Accumulation Units within two
business days of receipt at the Accumulation Unit Value for
the Valuation Period during which the Premium Payment is
accepted unless state law requires, during the
right-to-examine period, a refund of Premium Payments rather
than Annuity Account Value.
If the application or order to purchase for a Contract is
not in good order, Lincoln Life will attempt to get it in
good order or Lincoln Life will return the application or
order to purchase and the Premium Payment within five
business days. Lincoln Life will not retain a Premium
Payment for more than five business days while processing an
incomplete application or order to purchase unless it has
been so authorized by the purchaser.
For each subsequent Premium Payment, Lincoln Life will apply
such payment to the Variable Account and credit the Contract
with Accumulation Units at the Accumulation Unit Value for
the Valuation Period during which each such payment was
received in good order.
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Contract Owner may elect to enroll in either of the
following programs. However, both programs cannot be in
effect at the same time.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected by the
Contract Owner, systematically allocates specified dollar
amounts from the Money Market Sub-Account or the One-Year
Fixed Account Sub-Account to one or more of the Contract's
Variable Account Sub-Accounts at regular intervals as
selected by the Contract Owner. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at
one particular time, an Owner may be less susceptible to the
impact of market fluctuations.
Dollar Cost Averaging may be selected by establishing a
Money Market Sub-Account of at least $1,000 or a One-Year
Fixed Account Sub-Account with a value of at least $2,000.
The minimum amount per month to allocate is $50. Enrollment
in this program may occur at any time by calling or writing
Lincoln Life's Home Office or by providing the information
requested on the Dollar Cost Averaging election form to
Lincoln Life and ensuring that sufficient value is in the
Money Market Sub-Account or the One-year Fixed
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Account Sub-Account. Transfers to any Fixed Account
Sub-Account or from a Fixed Account Sub-Account other than
the One-Year Fixed Account Sub-Account are not permitted
under Dollar Cost Averaging. Lincoln Life may, upon
occasion, offer a Fixed Account Sub-Account for periods of
less than one year solely for the purpose of Dollar Cost
Averaging. Lincoln Life may, at its sole discretion, waive
Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging will terminate when any of the
following occurs: (1) the number of designated transfers has
been completed; (2) the value of the Money Market Sub-
Account or the One-Year Fixed Sub-Account is insufficient to
complete the next transfer; (3) the Owner requests
termination by telephone or in writing and such request is
received at least one week prior to the next scheduled
transfer date to take effect that month; or (4) the Contract
is surrendered.
The Dollar Cost Averaging program is not available following
the Annuity Date. There is no current charge for Dollar Cost
Averaging but Lincoln Life reserves the right to charge for
this program.
Dollar Cost Averaging will not assure a profit or protect
against a declining market.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Contract Owner, periodically restores to a pre-determined
level the percentage of Contract Value allocated to each
Variable Account Sub-Account (e.g. 20% Money Market, 50%
Growth, 30% Utilities). This pre-determined level will be
the allocation initially selected when the Contract was
purchased, unless subsequently changed. The Automatic
Rebalancing allocation may be changed at any time by
submitting a request to Lincoln Life.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Variable Account Sub-Accounts must
be subject to Automatic Rebalancing. The Fixed Account
Sub-Account is not available for Automatic Rebalancing.
Automatic Rebalancing may take place on either a quarterly,
semi-annual or annual basis, as selected by the Owner. Once
the rebalancing option is activated, any Variable Account
Sub-Account transfers executed outside of the rebalancing
option will terminate the Automatic Rebalancing option. Any
subsequent premium payment or withdrawal that modifies the
net account balance within each Variable Account Sub-Account
may also cause termination of the Automatic Rebalancing
option. Any such termination will be confirmed to the Owner.
The Owner may terminate the Automatic Rebalancing option or
re-enroll at any time by calling or writing Lincoln Life's
Home Office.
The Automatic Rebalancing program is not available following
the Annuity Date. There is no current charge for Automatic
Rebalancing but Lincoln Life reserves the right to charge
for this program.
CONTRACT VALUE
The value of the Contract is the sum of the values
attributable to the Contract for each Fixed and Variable
Sub-Account. The value of each Variable Sub-Account is
determined by multiplying the number of Accumulation Units
attributable to the Contract in the Sub-Account by the value
of an Accumulation Unit for the Sub-Account.
ACCUMULATION UNIT
Premium Payments allocated to the Variable Account are
converted into Accumulation Units. This is done by dividing
each Premium Payment by the value of an Accumulation Unit
calculated at the end of the Valuation Period during which
the Premium Payment is
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allocated to the Variable Account. The Accumulation Unit
value for each Sub-Account was or will be established by
Lincoln Life at the inception of the Sub-Account. It may
increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Sub-Account for
any later Valuation Period is determined as follows:
(1)The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account at the beginning of the
Valuation Period by the net asset value per share of
the Fund at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation
Period; minus
(2)The liabilities of the Sub-Account at the end of the
Valuation Period; such liabilities include daily
charges imposed on the Sub-Account, and may include a
charge or credit with respect to any taxes paid or
reserved for by Lincoln Life that Lincoln Life
determines result from the operations of the Variable
Account; and
(3)The result of (2) is divided by the number of
Sub-Account units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation
Period are equal to the daily mortality and expense risk
charge and the daily administrative charge multiplied by the
number of calendar days in the Valuation Period.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Annuity Account
Values and the Variable Account. Lincoln Life may use any of
its corporate assets, including potential profit which may
arise from the Mortality and Expense Risk Charge, to cover
actual cost of distribution of the Contracts. These charges
and deductions are:
CONTINGENT DEFERRED SALES CHARGE (SALES LOAD)
Upon a partial withdrawal or full surrender, a Contingent
Deferred Sales Charge (sales load) will be calculated and
will be deducted from the Annuity Account Value. This Charge
reimburses Lincoln Life for expenses incurred in connection
with the promotion, sale and distribution of the Contracts.
The Contingent Deferred Sales Charge applies only to those
Premium Payments received within seven (7) years of the date
of partial withdrawal or full surrender. In calculating the
Contingent Deferred Sales Charge, Premium Payments are
allocated to the amount surrendered or withdrawn on a
first-in, first-out basis. After all Premium Payments have
been deemed withdrawn, Lincoln Life will deem further
withdrawals to be from net investment results. The amount of
the Contingent Deferred Sales Charge is calculated by: (a)
allocating Premium Payments to the amount withdrawn or
surrendered; (b) multiplying each allocated Premium Payment
that has been held under the Contract for the period shown
below by the charge shown below:
<TABLE>
<CAPTION>
YEARS SINCE PAYMENT CHARGE
-------------------- --------
<S> <C>
0-1 7%
1-2 6%
2-3 5%
3-4 4%
4-5 3%
5-6 2%
6-7 1%
7+ 0
</TABLE>
and (c) adding the products of each multiplication in (b)
above. The charge will not exceed 7% of the Premium
Payments. Any applicable negative Market Value Adjustment
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<PAGE>
and Account Fee will be deducted before application of the
Contingent Deferred Sales Charge. The charge is not imposed
on any death benefit paid or upon amounts applied to an
annuity option.
A Contract Owner may, during each Contract Year, withdraw up
to fifteen percent (15%) of Premium Payments, or any
remaining portion thereof, without incurring a Contingent
Deferred Sales Charge. The earliest Premium Payments
remaining in the Contract will be deemed withdrawn first
under this Fifteen Percent Free provision. No Contingent
Deferred Sales Charge will be deducted on withdrawals from
Premium Payments which have been held under the Contract for
more than seven (7) Contract Years or from annuity payments.
Lincoln Life may also eliminate or reduce the Contingent
Deferred Sales Charge under Lincoln Life procedures then in
effect.
For a partial withdrawal, unless the Owner designates
otherwise, the Contingent Deferred Sales Charge will be
deducted proportionately from the Sub-Account(s) from which
the withdrawal is to be made by cancelling Accumulation
Units from each applicable Sub-Account in the ratio that the
value of each Sub-Account bears to the total of the values
of the Sub-Accounts from which the partial withdrawal is
made. If the value(s) of such Sub-Account(s) are
insufficient, remaining Contingent Deferred Sales Charges
will be deducted on a pro rata basis from all Sub-Accounts
in proportion to the then current account value(s) of such
Sub-Accounts unless the Owner and Lincoln Life agree
otherwise.
To the extent that the Contingent Deferred Sales Charge is
insufficient to cover the actual cost of distribution of the
contracts, Lincoln Life may use any of its corporate assets,
including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any
difference.
MORTALITY AND EXPENSE RISK CHARGE
Lincoln Life deducts on each Valuation Date a Mortality and
Expense Risk Charge which is equal, on an annual basis, to
1.25% of the average daily net assets of the Variable
Account. The mortality risks assumed by Lincoln Life arise
from its contractual obligation to make annuity payments
after the Annuity Date for the life of the Annuitant in
accordance with annuity rates guaranteed in the Contract and
to pay death benefits that may exceed the Annuity Account
Value. The expense risk assumed by Lincoln Life is that all
actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs,
mailing costs, data processing costs, legal fees, accounting
fees, filing fees, and the costs of other services may
exceed the amount recovered from the Account Fee and the
Administrative Expense Charge, each of which is described
below.
If the Mortality and Expense Risk Charge is insufficient to
cover the actual costs, the loss will be borne by Lincoln
Life. Conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to Lincoln Life.
Lincoln Life expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by
Lincoln Life and cannot be increased.
ADMINISTRATIVE EXPENSE CHARGE
Lincoln Life deducts on each Valuation Date an
Administrative Expense Charge which is equal, on an annual
basis, to 0.15% of the average daily net assets of the
Variable Account. This charge is to reimburse Lincoln Life
for a portion of its expenses in administering the
Contracts. This charge is guaranteed by Lincoln Life and
cannot be increased.
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<PAGE>
ACCOUNT FEE
Lincoln Life deducts an annual Account Fee of $35 from the
Annuity Account Value on the last Valuation Date of each
Contract Year. This charge, like the Administrative Expense
Charge, is to reimburse Lincoln Life for its expenses in
administering the Contracts. Prior to the Annuity Date, this
charge is deducted by cancelling Accumulation Units from
each applicable Sub-Account in the ratio that the value of
each Sub-Account bears to the total Annuity Account Value.
When the Contract is annuitized or surrendered for its full
Surrender Value on other than a Contract Anniversary, the
Account Fee will be prorated at the time of surrender or
annuitization. The Account Fee will be waived for any
Contract Year in which the Annuity Account Value equals or
exceeds $100,000 as of the last Valuation Date of the
Contract Year or at annuitization.
PREMIUM TAX EQUIVALENTS
Premium tax equivalents or other taxes payable to a state,
municipality or other governmental entity will be charged
against Annuity Account Value. Premium taxes currently
imposed by certain states on the Contracts offered hereby
range from 0% to 4.0% of Premiums paid. Some states assess
premium taxes at the time Premium Payments are made; others
assess premium taxes at the time annuity payments begin.
Lincoln Life will, in its sole discretion, determine when
taxes have resulted from: the investment experience of the
Variable Account; receipt by Lincoln Life of the Premium
Payment(s); or commencement of annuity payments. Lincoln
Life may, at its sole discretion, pay taxes when due and
deduct an equivalent amount reflecting investment experience
from the Annuity Account Value at a later date. Payment at
an earlier date does not waive any right Lincoln Life may
have to deduct amounts at a later date.
INCOME TAXES
While Lincoln Life is not currently maintaining a provision
for federal income taxes, Lincoln Life has reserved the
right to establish a provision for income taxes if it
determines, in its sole discretion, that it will incur a tax
as a result of the operation of the Variable Account.
Lincoln Life will deduct for any income taxes incurred by it
as a result of the operation of the Variable Account whether
or not there was a provision for taxes and whether or not it
was sufficient.
FUND EXPENSES
There are other deductions from, and expenses paid out of,
the assets of the Funds which are described in the
accompanying Funds' prospectuses.
TRANSFER FEE
Prior to the Annuity Date, a Contract Owner may transfer all
or a part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any transfer
fee or charge if there have been no more than twelve
transfers made in the Contract Year. For additional
transfers, Lincoln Life reserves the right to deduct a
transfer fee of up to $10 per transfer. Prescheduled
automatic Dollar Cost Averaging or Automatic Rebalancing
transfers are not counted toward the twelve transfer limit.
Lincoln Life reserves the right to charge a fee of up to $10
for each transfer after the Annuity Date. The transfer fee
at any given time will not be set at a level greater than
its cost and will contain no element of profit.
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<PAGE>
RIDER CHARGES
A fee or expense may also be deducted in connection with any
benefits added to the Contract by rider or endorsement. See
the rider for any applicable fee or expense.
DEATH BENEFITS
DEATH BENEFITS PROVIDED BY THE CONTRACTS
In the event of death of the Contract Owner (or the
Annuitant, if the Owner is a non-natural person) prior to
the Annuity Date, a death benefit is payable to the
Beneficiary designated by the Owner upon due proof of death
(a certified copy of the Death Certificate) of the Owner. If
there is no designated Beneficiary, or contingent
Beneficiary,
Lincoln Life will, within seven (7) days of receipt of due
proof of death of Owner, Beneficiary and contingent
Beneficiary, pay the death benefit in one lump sum to the
deceased Owner's estate.
If the death of any annuitant occurs on or after the Annuity
Date, no death benefit will be payable under the Contract
except as may be provided under the Annuity Option elected.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the
effective date or deemed effective date of the death benefit
election (see "Election and Effective Date of Election"),
and is equal to the greatest of --
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of all the Premium Payments made under the
Contract, less the sum of all partial withdrawals; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date occurring on or before the
Owner's 80th birthday, with adjustments for any
subsequent Premium Payments, partial withdrawals and
charges made since such Contract Anniversary Date.
On or after Owner's 90th birthday, the amount of the death
benefit is the greater of (a) and (b) above.
No Market Value Adjustment (see "Market Value Adjustment")
or withdrawal charges are assessed against amounts which are
applied toward payment of a death benefit.
Upon a transfer of ownership, the death benefit becomes the
greatest of --
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of Premium Payments made less the sum of
withdrawals made on or before the date of transfer,
adjusted for any subsequent Premium Payments and partial
withdrawals made under the Contract; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date subsequent to the date of
transfer occurring on or before the new Owner's 80th
birthday, with adjustments for any subsequent Premium
Payments, partial withdrawals and charges made since
such Contract Anniversary Date.
On or after the then current Owner's 90th birthday, the
amount of the death benefit is the greater of (a) and (b)
above.
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<PAGE>
ELECTION AND EFFECTIVE DATE OF ELECTION
Unless specified in writing by the Owner the Beneficiary
may, at any time before the end of the sixty (60) day period
immediately following receipt of due proof of death by
Lincoln Life, elect the death benefit to be paid as follows:
1. the payment of the entire death benefit on a specified
date, which must be within five years of the date of the
death of the Owner or Annuitant, whichever is
applicable; or
2. payment over the lifetime of the designated Beneficiary
or over a period not extending beyond the life
expectancy of the Beneficiary, with distribution
beginning within one year of the date of death of the
Owner or Annuitant, whichever is applicable (see
"Annuity Provisions -- Annuity Options"); or
3. payment in accordance with one of the settlement options
under the Contract (see "Annuity Provisions -- Annuity
Options"); or
4. if the designated Beneficiary is the Owner's spouse,
he/she can continue the Contract in his/her own name.
Payment amounts may vary with their frequency and duration
(see "Annuity Provisions -- Annuity Options"). To the extent
that the Beneficiary elects a variable payment option, the
Beneficiary will bear the investment risk associated with
the performance of the underlying Fund(s) in which the
relevant Variable Sub-Account invest(s).
Such election may be made by filing with Lincoln Life a
statement in writing specifying the method by which the
death benefit shall be paid and such election shall become
effective on the later of (a) the date the election is
received by Lincoln Life, and (b) the date due proof of
death of the Owner is received by Lincoln Life. Payments
will begin thirty (30) days after the effective date of the
election.
If no payment option is elected, a single sum settlement
will be made by Lincoln Life within seven (7) days of the
end of the sixty (60) day period following receipt of due
proof of death of the Owner or Annuitant as applicable.
If the Owner is a non-natural person, then for purposes of
the death benefit, the Annuitant shall be treated as the
Owner, except that in such case a change of annuitant would
be treated as a death of the annuitant.
DEATH OF THE ANNUITANT BEFORE THE ANNUITY DATE
If the Annuitant dies prior to the Annuity Date and the
Annuitant is different from the Contract Owner, the Contract
Owner, if a natural person, may designate a new Annuitant.
Unless and until one is designated, the Contract Owner will
be the Annuitant. If the Contract Owner is not a natural
person, then the death benefit, valued as described in
"Amount of Death Benefit" but based on the Annuitant, is
paid on due proof of the Annuitant's death.
DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE
If the Annuitant dies after the Annuity Date, the death
benefit, if any, will be as specified in the Annuity Option
elected.
Lincoln Life will require due proof of the Annuitant's
death. Death benefits will be paid at least as rapidly as
under the method of distribution in effect at the
Annuitant's death.
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<PAGE>
OTHER CONTRACT FEATURES
OWNERSHIP
The Contract Owner has all rights and may receive all
benefits under the Contract. The Contract Owner may change
the Contract Owner at any time. If the Contract Owner dies,
a death benefit will be paid to the Beneficiary upon proof
of the Contract Owner's death. If the Owner is a
corporation, partnership or other non-natural person, the
death benefit is paid upon receipt of due proof of the
Annuitant's death. A change of Contract Owner will
automatically revoke any prior designation of Contract
Owner. A request for change must be: (1) made in writing;
and (2) received by Lincoln Life at its Home Office. The
change will become effective as of the date the written
request is signed. A new designation of Contract Owner will
not apply to any payment made or action taken by Lincoln
Life prior to the time it was received.
For non-qualified contracts, in accordance with Code Section
72(u), a deferred annuity contract held by a corporation or
other entity that is not a natural person is not treated as
an annuity contract for tax purposes. Income on the contract
is treated as ordinary income received by the owner during
the taxable year. But in accordance with Code Section 72(u),
an annuity contract held by a trust or other entity as agent
for a natural person is considered held by a natural person.
ASSIGNMENT
The Contract Owner may assign the Contract at any time
during his or her lifetime. Unless provided otherwise, an
assignment will not affect the interest of any previously
indicated Beneficiary. Lincoln Life will not be bound by any
assignment until written notice is received by Lincoln Life
at its Home Office. Lincoln Life is not responsible for the
validity of any assignment. Lincoln Life will not be liable
as to any payment or other settlement made by Lincoln Life
before such assignment has been recorded at Lincoln Life's
Home Office.
If the Contract is issued pursuant to a Qualified Plan, it
may not be assigned, pledged or otherwise transferred except
as may be allowed under applicable law.
BENEFICIARY
The Beneficiary is named when the Contract is applied for
and, unless changed, is entitled to receive any death
benefits to be paid. Prior to the Annuity Date, death
benefits are paid to the Beneficiary on the death of the
Owner.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary by filing a
written request with Lincoln Life at its Home Office unless
an irrevocable Beneficiary designation was previously filed.
After the change is recorded, it will take effect as of the
date the request was signed. If the request reaches the
Lincoln Life's Home Office after the death of the Annuitant
or Contract Owner, as applicable, but before any payment is
made, the change will be valid. Lincoln Life will not be
liable for any payment made or action taken before it
records the change.
ANNUITANT
The Annuitant must be a natural person. The maximum age of
the Annuitant on the date the Contract is issued is 90 years
old. The Annuitant may be changed at any time prior to the
Annuity Date unless the Contract is owned by a non-natural
person. Joint Annuitants are allowed at the time of
annuitization only, if Lincoln Life chooses to make
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<PAGE>
a joint and survivor annuity payment option available in
addition to the options provided in the Contract. The
Annuitant has no rights or privileges prior to the Annuity
Date. When an Annuity Option is elected, the amount payable
as of the Annuity Date is based on the age and gender
classification (in accordance with state law) of the
Annuitant, as well as the Option selected and the Annuity
Account Value.
TRANSFER OF CONTRACT VALUES BETWEEN SUB-ACCOUNTS
Prior to the Annuity Date, the Contract Owner may transfer
all or part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any fee or
charge if there have been no more than twelve transfers made
in the Contract Year. For additional transfers, Lincoln Life
reserves the right to deduct a transfer fee of up to $10
(See "Charges and Deductions -- Transfer Fee"). This
Contract is not designed for professional market timing
organizations or other entities using programmed and
frequent transfers.
Repeated patterns of frequent transfers are disruptive to
the operation of the Sub-Accounts, and should Lincoln Life
become aware of such disruptive practices, Lincoln Life may
refuse to permit more than 12 transfers in any year and may
modify the transfer provisions of the Contract.
There may be limits on the amount that can be transferred
from each Fixed Account Sub-Account during a Contract Year.
After the Annuity Date, provided a variable annuity option
was selected, the Contract Owner may make up to three
transfers between Variable Sub-Accounts in any Contract
Year.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed.
The transfer fee will be deducted from the amount which
is transferred if the entire amount in the Sub-Account is
being transferred, otherwise from the Sub-Account from
which the transfer is made.
b. The minimum amount which may be transferred is the lesser
of (i) $2,000 per Fixed Account Sub-Account or $50 per
Variable Account Sub-Account; or (ii) the Contract
Owner's entire interest in the Sub-Account. Lincoln Life,
at its sole discretion may waive these minimum
requirements.
c. No partial transfer will be made if the Contract Owner's
remaining Contract Value in Fixed Account Sub-Account
will be less than $2,000 or in the Variable Sub-Account
will be less than $50.
d. Transfers involving Variable Account Sub-Accounts will
reflect the purchase or cancellation of Variable
Accumulation Units having an aggregate value equal to the
dollar amount being transferred to or from a particular
Variable Account Sub-Account. The purchase or
cancellation of units shall be made using Variable
Accumulation Unit Values of the applicable Variable
Account Sub-Account at the end of the Valuation Period
during which the transfer request is received in good
order at Lincoln Life's Home Office. However, no transfer
may be made effective within seven calendar days of the
date on which the first annuity payment is due. Transfers
are not permitted during the right-to-examine period.
e. Any transfer request must clearly specify the amount
which is to be transferred and the Sub-Accounts which are
to be affected.
f. Transfers of all or a portion of any Fixed Account
Sub-Account values (other than transfers pursuant to the
Dollar Cost Averaging program or at the end of a
Guaranteed Period) are subject to any applicable Market
Value Adjustment;
g. Lincoln Life reserves the right to defer transfers from
any Fixed Account Sub-Account for up to six months after
date of receipt of the transfer request;
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h. Transfers involving the Variable Account Sub-Accounts are
subject to such restrictions as may be imposed by the
Funds;
i. Lincoln Life reserves the right at any time and without
prior notice to any party to terminate, suspend or modify
the transfer privileges described above.
j. After the Annuity Date, transfers may not take place
between a Fixed Annuity Option and a Variable Annuity
Option.
k. Lincoln Life reserves the right to reject any premium
allocation or transfer which would cause the Fixed
Account Sub-Account values in aggregate to exceed then
current Lincoln Life limits.
Transfers between Sub-Accounts may be made by calling or
writing Lincoln Life's Home Office. Transfer requests must
be received prior to 4:00 Eastern Time in order to be
effective that day.
Transfers between any Sub-Accounts may be suspended or
postponed during any period in which the New York Stock
Exchange is closed or has suspended trading.
PROCEDURES FOR TELEPHONE TRANSFERS
Owners may effect telephone transfers by calling Lincoln
Life's Home Office.
Lincoln Life will take the following procedures to confirm
that instructions communicated by telephone are genuine.
Before a service representative accepts any request, the
caller will be asked for specific information to validate
the request. All calls will be recorded. All transactions
performed will be confirmed by Lincoln Life in writing.
Lincoln Life is not liable for any loss, cost or expense for
acting on telephone instructions which are believed to be
genuine in accordance with these procedures.
SURRENDERS AND PARTIAL WITHDRAWALS
While the Contract is in force and before the Annuity Date,
Lincoln Life will, upon written request to Lincoln Life by
the Contract Owner, allow the surrender or partial
withdrawal of all or a portion of the Contract for its
Surrender Value. Surrenders or partial withdrawals will
result in the cancellation of Accumulation Units from each
applicable Sub-Account in the ratio that the value of each
Sub-Account bears to the total Annuity Account Value, unless
the Contract Owner specifies in writing in advance which
units are to be cancelled. Lincoln Life will pay the amount
of any surrender or partial withdrawal within seven (7) days
of receipt of a valid request, unless the "Delay of
Payments" provision is in effect. (See "Delay of Payments
and Transfers")
Certain tax withdrawal penalties and restrictions may apply
to surrenders and partial withdrawals from Contracts. (See
"Tax Matters.") Contract Owners should consult their own tax
counsel or other tax adviser regarding any surrenders and
partial withdrawals.
The Surrender Value is the Annuity Account Value for the
Valuation Period next following the Valuation Period during
which the written request to Lincoln Life for surrender is
received, reduced, in the case of full surrender, by the sum
of:
A. any applicable premium tax equivalents not previously
deducted;
B. any applicable Account Fee; and
C. any applicable Contingent Deferred Sales Charge; and
for partial withdrawals, by the sum of A and C above.
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RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Title 8, Section 830.105 of the Texas Government Code,
consistent with prior interpretations of the Attorney
General of the State of Texas, permits participants in the
Texas Optional Retirement Program "ORP" to redeem their
interest in a variable annuity contract issued under the ORP
only upon:
1. Termination of employment in all institutions of higher
education as defined in Texas law;
2. Retirement; or
3. Death.
Accordingly, a participant in the ORP will be required to
obtain a certificate of termination from the participant's
employer before accounts can be redeemed.
DELAY OF PAYMENTS AND TRANSFERS
Lincoln Life reserves the right to suspend or postpone
payment of proceeds or transfers for any period when:
1. the New York Stock Exchange is closed (other than
customary weekend and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably
practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets;
or
4. during any other period when the Commission, by order, so
permits for the protection of Contract Owners.
The applicable rules and regulations of the Commission will
govern as to whether the conditions described in 2. and 3.
exist.
Lincoln Life reserves the right to defer the payment or
transfer of amounts withdrawn from any Fixed Account
Sub-Account for a period not to exceed six months from the
date written request for such withdrawal or transfer is
received by Lincoln Life. If payment or transfer is deferred
beyond thirty (30) days, Lincoln Life will pay interest of
not less than 3% per year on amounts so deferred.
In addition, payment of the amount of any withdrawal
derived, all or in part, from any Premium Payment paid to
Lincoln Life by check or draft may be postponed until
Lincoln Life determines the check or draft has been honored.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At Lincoln Life's election and subject to the approval of
persons having voting rights under the Contracts, the
Variable Account may be operated as a management company
under the 1940 Act or any other form permitted by law;
de-registered under the 1940 Act in the event registration
is no longer required (deregistration of the Variable
Account requires an order by the Commission); or combined
with one or more other separate accounts. To the extent
permitted by applicable law, Lincoln Life also may transfer
the assets of the Variable Account associated with the
Contracts to another account or accounts. In the event of
any change in the operation of the Variable Account pursuant
to this provision, Lincoln Life may make appropriate
endorsement to the Contracts to reflect the change and take
such other action as may be necessary and appropriate to
effect the change.
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MODIFICATION
Upon notice to the Owner (or the Payee(s) during the Annuity
Period), the Contracts may be modified by Lincoln Life if
such modification: (i) is necessary to make the Contracts or
the Variable Account comply with, or take advantage of, any
law or regulation issued by a governmental agency to which
Lincoln Life or the Variable Account is subject; or (ii) is
necessary to attempt to assure continued qualification of
the Contracts under the Code or other federal or state laws
relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of
the Variable Account or its Sub-Account(s) (See "Change in
Operation of Variable Account"); or (iv) provides additional
Variable Account and/or fixed accumulation options. In the
event of any such modification, Lincoln Life may make
appropriate endorsement to the Contracts to reflect such
modification.
In addition, upon notice to the Owner, the Contracts may be
modified by Lincoln Life to change the withdrawal charges,
Account Fees, mortality and expense risk charges,
administrative expense charges, the tables used in
determining the amount of the first monthly fixed annuity
payment, and the formula used to calculate the Market Value
Adjustment, provided that such modification shall apply only
to Contracts established after the effective date of such
modification. In order to exercise its modification rights
in these particular instances, Lincoln Life must notify the
Owner of such modification in writing. All of the charges
and the annuity tables which are provided in the Contracts
prior to any such modification will remain in effect
permanently, unless improved by Lincoln Life, with respect
to Contracts established prior to the effective date of such
modification.
DISCONTINUANCE
Lincoln Life reserves the right to limit or discontinue the
offer and issuance of new Contracts. Such limitation or
discontinuance shall have no effect on rights or benefits
with respect to any Contracts issued prior to the effective
date of such limitation or discontinuance.
ANNUITY PROVISIONS
ANNUITY DATE; CHANGE IN ANNUITY DATE AND ANNUITY OPTION
The Contract Owner selects an Annuity Date at the time of
application or order to purchase. The Contract Owner may,
upon at least forty-five (45) days prior written notice to
Lincoln Life, at any time prior to the Annuity Date, change
the Annuity Date. The new Annuity Date must be at least 30
days after the effective date of the change. If the Income
Payment is a 100% Fixed Income Payment, the first Income
Payment Date under the Settlement Option selected will be at
least 30 days after the Annuity Date as selected by the
Owner. If the Income Payment is any part a variable Income
Payment, the first Income Payment under the settlement
option selected will be 14 days after the Valuation Period
which ends immediately preceding the Annuity Date as
selected by the Owner. The Annuity Date may not be later
than the month following the Annuitant's 90th birthday.
The Contract Owner may, upon at least forty-five (45) days
prior written notice to Lincoln Life, at any time prior to
the Annuity Date, select and/or change the Annuity Option.
The Annuity Date will then be automatically changed to the
date of such annuitization.
PENALTY-FREE ANNUITIZATION
At any time the Owner may request in writing payment of the
then current Annuity Account Value in accordance with any
one of the settlement options set forth in the Contract. In
such event, no Contingent Deferred Sales Charge or Market
Value Adjustment will be imposed at the time such settlement
is made.
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ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, the Contract
Owner may select one of the Annuity Options. These may be on
a fixed or variable basis, or a combination thereof.
However, if the amount to be applied under any settlement
option is less than $5,000, or if the first income payment
payable in accordance with such option is less than $50,
Lincoln Life reserves the right to pay the adjusted value in
a single payment to the payee designated by the Owner. If
the Annuity Option elected results in a payment less than
the minimum payment required by the Contract, Lincoln Life
reserves the right to change the frequency of payments to an
interval that will provide the minimum payment amount. The
Annuity Option must be selected at least 30 days prior to
the Annuity Date. If no such selection is made, the adjusted
Annuity Account Value will be applied under a life Annuity
with 120 months guaranteed. In such situation, the adjusted
Annuity Account Value on the Annuity Date will be applied to
either a fixed option or a variable option in proportion to
the Annuity Account Value in the Fixed Account or the
Sub-Accounts, respectively, on the Annuity Date. Lincoln
Life also may make available other settlement options.
Lincoln Life uses sex distinct or unisex annuity rate tables
when determining appropriate annuity payments.
GUARANTEED MINIMUM INCOME PAYMENT RIDER
Lincoln Life may offer in the future a rider benefit that
will allow a Contract Owner to receive a guaranteed minimum
income payment regardless of the investment results of the
Sub-Accounts in which the Contract Owner has allocated
Premium Payments. Where a Contract Owner elects the rider,
each annuity payment will be the greater of the annuity
payment under the settlement option elected by the Contract
Owner or the guaranteed minimum income payment provided by
the rider. It is anticipated an annual charge of up to 0.50%
will be deducted from the Contract's average daily net
assets while the rider is in effect. If Lincoln Life offers
the guaranteed minimum income payment rider, it is expected
to provide that a Contract Owner may request to annuitize
the Contract under the terms of the rider during certain
benefit option periods, as specified in the rider.
FIXED OPTIONS
Under a fixed option, once the selection has been made and
payments have begun, the amount of the payments will not
vary. The fixed options currently available are:
FIRST OPTION -- LIFE ANNUITY. An annuity which provides
annuity payments during the lifetime of the Annuitant,
ceasing with the last payable due prior to the death of the
Annuitant.
SECOND OPTION -- LIFE ANNUITY WITH CERTAIN PERIOD. An
annuity which provides annuity payments during the lifetime
of the Annuitant and further provides that if at the death
of an Annuitant payments have been made for less than the
elected certain period, which may be 120 or 240 months, the
annuity payments will continue for the remainder of elected
certain period.
THIRD OPTION -- CASH REFUND LIFE ANNUITY. An annuity which
provides annuity payments during the lifetime of the
Annuitant, ceasing with the last payment due prior to the
death of the Annuitant, with the guarantee that upon the
death of the Annuitant, if: (a) the total dollar amount
applied to the purchase this Fixed Income Payment option is
greater than; (b) the Fixed Income Payment multiplied by the
number of Income Payments paid prior to death; then a refund
payment equal to the dollar amount of
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(a) minus (b) will be made after the death claim is approved
by the Company for payment and the Company is in receipt of:
(a) proof of death acceptable to the Company; (b) written
authorization for payment; and (c) all claim forms, fully
completed.
FOURTH OPTION -- JOINT LIFE ANNUITY. An annuity which
provides annuity payments during the joint lifetime of the
Annuitant and a Joint Annuitant, ceasing with the last
payment due prior to the last death of the joint annuitants.
FIFTH OPTION -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY. An annuity which provides annuity payments during
the joint lifetime of the Annuitant and a Joint Annuitant,
with the two-thirds of such amount payable during the
remaining lifetime of the survivor and ceasing with the last
payment due prior to the last death of the joint annuitants.
SIXTH OPTION -- JOINT LIFE ANNUITY WITH CERTAIN PERIOD. An
annuity which provides annuity payments during the joint
lifetime of the Annuitant and Joint Annuitant and further
provides that if after death of both Annuitants payments
have been made for less than the elected certain period,
which may be 120 or 240 months, the annuity payments will
continue for the remainder of elected certain period.
SEVENTH OPTION -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY WITH CERTAIN PERIOD. An annuity which provides
annuity payments during the joint lifetime of the Annuitant
and a Joint Annuitant, with two-thirds of such amount
payable during the remaining lifetime of the survivor,
further providing that should one or both the Annuitants die
during the elected certain period, which may be 120 or 240
months, the full benefit payment will continue for the
remainder of the elected certain period.
VARIABLE OPTIONS
The actual dollar amount of variable annuity payments is
dependent upon (i) the Annuity Account Value at the time of
annuitization, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the
investment performance of the Sub-Account selected. Each
annuity payment will be less if payments are to be made more
frequently or for longer periods of time. The mortality and
expense risk charge will be assessed on all variable annuity
payments, including options that do not have a life
contingency and therefore no mortality risk.
The dollar amount of the first monthly variable annuity
payment is determined by applying the available value (after
deduction of any premium tax equivalents not previously
deducted) to the table using the age and gender (in
accordance with state law) of the Annuitant. The number of
Annuity Units is then determined by dividing this dollar
amount by the then current Annuity Unit value. Thereafter,
the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made
separately for each Sub-Account of the Variable Account. The
number of Annuity Units is determined for each Sub-Account
and is based upon the available value in each Sub-Account at
the end of the Valuation Period immediately preceding the
Annuity Date.
The dollar amount determined for each Sub-Account will then
be aggregated for purposes of making payments.
The dollar amount of the second and later variable annuity
payments is equal to the number of Annuity Units determined
for each Sub-Account times the Annuity Unit value for that
Sub-Account at the end of the Valuation Period that is 14
days prior to the Valuation Income Payment Date. This amount
may increase or decrease from month to month.
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The annuity tables contained in the Contract are based on a
four percent (4%) assumed net investment rate. If the actual
net investment rate exceeds four percent (4%), payments will
increase. Conversely, if the actual rate is less than four
percent (4%), annuity payments will decrease.
The Annuitant receives the value of a fixed number of
Annuity Units each Income Payment Date. The value of a fixed
number of Annuity Units will reflect the investment
performance of the Sub-Account selected and the amount of
each annuity payment will vary accordingly.
The Annuity Unit Value for a Sub-Account is determined by
multiplying the Annuity Unit Value for that Sub-Account for
the preceding Valuation Period by the Net Investment Factor
for the current Valuation Period (calculated as described on
pages 19 and 20 of this Prospectus) and multiplying the
result by 0.9998926, the daily factor to neutralize the
assumed net investment rate, discussed above, of 4% per
annum which is built into the annuity rate table. It may
increase or decrease from Valuation Period to Valuation
Period.
The variable options currently available are:
OPTION I -- VARIABLE LIFE ANNUITY. A variable annuity which
provides annuity payments during the lifetime of the
Annuitant, ceasing with the last payment due prior to the
death of the Annuitant.
OPTION II -- VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A
variable annuity which provides annuity payments during the
lifetime of the Annuitant and further provides that if at
the death of the Annuitant payments have been made for less
than the elected period certain, which may be 120 or 240
months, the annuity payments will continue for the remainder
of elected period certain.
OPTION III -- VARIABLE UNIT REFUND LIFE ANNUITY. A variable
annuity which provides annuity payments during the lifetime
of the Annuitant, ceasing with the last payment due prior to
the death of the Annuitant, with the guarantee that upon the
death of the Annuitant, if: (a) the number of Annuity Units
initially purchased (determined by dividing the total dollar
amount applied to purchase this Variable Income Payment
option by the Annuity Unit value on the Valuation Period
which ends immediately preceding the Annuity Date) is
greater than; (b) the number of Annuity Units paid as part
of each Variable Income Payment multiplied by the number of
Income Payments paid prior to death; then a refund payment
equal to the number of Annuity Units determined by (a) minus
(b) will be made. The refund payment value will be
determined using the Annuity Unit value on the Valuation
Date on which the death claim is approved by the Company for
payment after the Company is in receipt of: (a) proof of
death acceptable to the Company; (b) written authorization
for payment; and (c) all claim forms, fully completed.
OPTION IV -- VARIABLE JOINT LIFE ANNUITY. A variable annuity
which provides annuity payments during the joint lifetime of
the Annuitant and a Joint Annuitant, ceasing with the last
payment due prior to the last death of the joint annuitants.
OPTION V -- JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY. An annuity which provides annuity payments during
the joint lifetime of the Annuitant and a Joint Annuitant,
with two-thirds of such amount payable during the remaining
lifetime of the survivor and ceasing with the last payment
due prior to the last death of the joint annuitants.
OPTION VI -- VARIABLE JOINT ANNUITANT WITH CERTAIN PERIOD. A
variable annuity which provides annuity payments during the
joint lifetime of the Annuitant and a Joint Annuitant and
further provides that if after the death of both Annuitants
payments have been made for less than the elected period
certain, which may be 60, 120, 180 or 240 months, the
annuity payments will continue for the remainder of elected
period certain.
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OPTION VII -- VARIABLE JOINT LIFE AND TWO-THIRDS TO SURVIVOR
ANNUITY WITH CERTAIN PERIOD. A variable annuity which
provides annuity payments during the joint lifetime of the
Annuitant and a Joint Annuitant, with two-thirds of such
amount payable during the remaining lifetime of the
survivor, further providing that should one or both the
Annuitants die during the elected certain period, which may
be 120 or 240 months, the full benefit payment will continue
for the remainder of the elected period.
After the Annuity Date, the payee may, by written request to
Lincoln Life's Administrative Office, exchange Annuity Units
of one Variable Sub-Account for Annuity Units of equivalent
value in another Variable Sub-Account up to three times each
Contract Year.
EVIDENCE OF SURVIVAL
Lincoln Life reserves the right to require evidence of the
survival of the Annuitant(s) upon each Income Payment Date.
ENDORSEMENT OF ANNUITY PAYMENTS
Lincoln Life will make each annuity payment at its Home
Office by check. Each check must be personally endorsed by
the Payee or Lincoln Life may require that proof of the
Annuitant's survival be furnished.
THE FIXED ACCOUNT
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF
LINCOLN LIFE OTHER THAN THOSE ALLOCATED TO ANY SEPARATE
ACCOUNT. THE FIXED ACCOUNT IS PART OF LINCOLN LIFE'S GENERAL
ACCOUNT. BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY
PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933
ACT"), AND NEITHER THE FIXED ACCOUNT NOR LINCOLN LIFE'S
GENERAL ACCOUNT HAS BEEN REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940 (THE "1940 ACT"). THEREFORE, NEITHER THE
FIXED ACCOUNT NOR ANY INTEREST THEREIN IS GENERALLY SUBJECT
TO REGULATION UNDER THE PROVISIONS OF THE 1933 ACT OR THE
1940 ACT. ACCORDINGLY, LINCOLN LIFE HAS BEEN ADVISED THAT
THE STAFF OF THE COMMISSION HAS NOT REVIEWED THE DISCLOSURE
IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
The initial Premium Payment and any subsequent Premium
Payment(s) will be allocated to Sub-Accounts available in
connection with the Fixed Account to the extent elected by
the Owner at the time such Premium Payment is made. In
addition, all or part of the Owner's Annuity Account Value
may be transferred among Sub-Accounts available under the
Contract as described under "Transfer of Contract Values
between Sub-Accounts." Instead of the Owner's assuming all
of the investment risk as is the case for Premium Payments
allocated to the Variable Account, Lincoln Life guarantees
it will credit interest of at least 3% per year to amounts
allocated to the Fixed Account.
Assets supporting amounts allocated to Sub-Accounts within
the Fixed Account become part of Lincoln Life's general
account assets and are available to fund the claims of all
creditors of Lincoln Life. All of Lincoln Life's general
account assets will be available to fund benefits under the
Contracts. The Owner does not participate in the investment
performance of the assets of the Fixed Account or Lincoln
Life's general account.
Lincoln Life will invest the assets of the general account
in those assets chosen by Lincoln Life and allowed by
applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and
the percentage of their assets that may be committed to any
particular type of investment. In general, these
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laws permit investments, within specified limits and subject
to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks,
real estate mortgages, real estate and certain other
investments.
If the Account Value within a Fixed Account Sub-Account is
maintained for the duration of the Sub-Account's Guaranteed
Period, Lincoln Life guarantees that it will credit interest
to that amount at the guaranteed rate specified for the
Sub-Account which may but need not be more than 3% per year.
Any amount withdrawn from or transferred out of the
Sub-Account prior to the expiration of the Sub-Account's
Guaranteed Period is subject to a Market Value Adjustment
(see "Market Value Adjustment") and a Deferred Sales Charge,
if applicable. Lincoln Life guarantees, however, that a
Contract will be credited with interest at a rate of not
less than 3% per year, compounded annually, on amounts
allocated to any Fixed Account Sub-Account, regardless of
any application of the Market Value Adjustment (that is, the
Market Value Adjustment will not reduce the amount available
for surrender, withdrawal or transfer to an amount less than
the initial amount allocated or transferred to the Fixed
Account Sub-Account plus interest of 3% per year). Lincoln
Life reserves the right to defer the payment or transfer of
amounts withdrawn from the Fixed Account for a period not to
exceed six (6) months from the date a proper request for
surrender, withdrawal or transfer is received by Lincoln
Life.
FIXED ACCUMULATION VALUE. The fixed accumulation value of an
Annuity Account, if any, for any Valuation Period is equal
to the sum of the values of all Fixed Account Sub-Accounts
which are part of the Annuity Account for such Valuation
Period.
GUARANTEED PERIODS. The Owner may elect to allocate Premium
Payments to one or more Sub-Accounts within the Fixed
Account. Currently, each Sub-Account maintains a Guaranteed
Period with a duration of 1, 3, 5, 7, or 10 years. Lincoln
Life may, upon occasion, offer a Fixed Account Sub-Account
for periods of less than one year solely for the purpose of
Dollar Cost Averaging. Every Premium Payment allocated to a
Fixed Account Sub-Account starts a new Sub-Account with its
own duration and Guaranteed Interest Rate. The duration of
the Guaranteed Period will affect the Guaranteed Interest
Rate of the Sub-Account. Initial Premium Payments and
subsequent Premium Payments, or portions thereof, and
transferred amounts allocated to a Fixed Account
Sub-Account, less any amounts subsequently withdrawn, will
earn interest at the Guaranteed Interest Rate during the
particular Sub-Account's Guaranteed Period unless
prematurely withdrawn prior to the end of the Guaranteed
Period. Initial Sub-Account Guaranteed Periods begin on the
date a Premium Payment is accepted or, in the case of a
transfer, on the effective date of the transfer, and end on
the date after the number of calendar years in the
Sub-Account's Guaranteed Period elected from the date on
which the amount was allocated to the Sub-Account (the
"Expiration Date"). Any portion of Annuity Account Value
allocated to a specific Sub-Account with a specified
Expiration Date (including interest earned thereon) will be
referred to herein as a "Guaranteed Period Amount." Interest
will be credited daily at a rate equivalent to the compound
annual rate determined on the first day of the Sub-Account
Guaranteed Period. As a result of renewals and transfers of
portions of the Annuity Account Value described under
"Transfer of Contract Values between Sub-Accounts" above,
which will begin new Sub-Account Guaranteed Periods, amounts
allocated to Sub-Accounts of the same duration may have
different Expiration Dates. Thus each Guaranteed Period
Amount will be treated separately for purposes of
determining any applicable Market Value Adjustment (see
"Market Value Adjustment").
Lincoln Life will notify the Owner in writing at least 60
days prior to the Expiration Date for any Guaranteed Period
Amount. A new Sub-Account Guaranteed Period of the same
duration as the previous Sub-Account Guaranteed Period will
commence automatically at the end of the previous Guaranteed
Period unless Lincoln Life receives, following such
notification but prior to the end of such Guaranteed Period,
a written election by the
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Owner to transfer the Guaranteed Period Amount to a
different Fixed Account Sub-Account or to a Variable Account
Sub-Account from among those being offered by Lincoln Life
at such time. Transfers of any Guaranteed Period Amount
which become effective upon the expiration of the applicable
Guaranteed Period are not subject to the twelve transfers
per Contract Year limitations or the additional Fixed
Sub-Account transfer restrictions (see "Transfer of Contract
Values between Sub-Accounts").
GUARANTEED INTEREST RATES. Lincoln Life periodically will
establish an applicable Guaranteed Interest Rate for each of
the Sub-Account Guaranteed Periods within the Fixed Account.
Current Guaranteed Interest Rates may be changed by Lincoln
Life frequently or infrequently depending on interest rates
on investments available to Lincoln Life and other factors
as described below, but once established, rates will be
guaranteed for the entire duration of the respective
Sub-Account's Guaranteed Period. However, any amount
withdrawn from the Sub-Account may be subject to any
applicable withdrawal charges, Account Fees, Market Value
Adjustment, premium taxes or other fees. Amounts transferred
out of a Fixed Account Sub-Account prior to the end of the
Guaranteed Period will be subject to the Market Value
Adjustment.
The Guaranteed Interest Rate will not be less than 3% per
year compounded annually, regardless of any application of
the Market Value Adjustment. Lincoln Life has no specific
formula for determining the rate of interest that it will
declare as a Guaranteed Interest Rate, as these rates will
be reflective of interest rates available on the types of
debt instruments in which Lincoln Life intends to invest
amounts allocated to the Fixed Account (see "The Fixed
Account"). In addition, Lincoln Life's management may
consider other factors in determining Guaranteed Interest
Rates for a particular Sub-Account including: regulatory and
tax requirements; sales commissions and administrative
expenses borne by Lincoln Life; general economic trends; and
competitive factors. THERE IS NO OBLIGATION TO DECLARE A
RATE IN EXCESS OF 3% PER YEAR; THE OWNER ASSUMES THE RISK
THAT DECLARED RATES WILL NOT EXCEED 3% PER YEAR. LINCOLN
LIFE HAS COMPLETE DISCRETION TO DECLARE ANY RATE, SO LONG AS
THAT RATE IS AT LEAST 3% PER YEAR.
MARKET VALUE ADJUSTMENT
Any surrender or transfer of a Fixed Account Guaranteed
Period Amount, other than a surrender or transfer pursuant
to an election which becomes effective upon the Expiration
Date of the Guaranteed Period, will be subject to a Market
Value Adjustment ("MVA"). The MVA will be applied to the
amount being surrendered or transferred after deduction of
any applicable Account Fee and before deduction of any
applicable surrender charge.
The MVA generally reflects the relationship between the
Index Rate (based upon the Treasury Constant Maturity Series
published by the Federal Reserve) in effect at the time a
Premium Payment is allocated to a Sub-Account's Guaranteed
Period under the Contract and the Index Rate in effect at
the time of the Premium Payment's surrender or transfer. It
also reflects the time remaining in the Sub-Account's
Guaranteed Period. Generally, if the Index Rate at the time
of surrender or transfer is lower than the Index Rate at the
time the Premium Payment was allocated, then the application
of the MVA will result in a higher payment upon surrender or
transfer. Similarly, if the Index Rate at the time of
surrender or transfer is higher than the Index Rate at the
time the Premium Payment was allocated, the application of
the MVA will generally result in a lower payment upon
surrender or transfer.
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The MVA is computed by applying the following formula:
(1+A)to the power N
------------------
(1+B)to the power N
where:
A = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the beginning of the Guaranteed
Period.
B = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the time of surrender or transfer,
plus a 0.50% adjustment (unless otherwise limited by
applicable state law). If Index Rates "A" and "B" are within
.25% of each other when the index rate factor is determined,
no such percentage adjustment to "B" will be made, unless
otherwise required by state law. This adjustment builds into
the formula a factor representing direct and indirect costs
to Lincoln Life associated with liquidating general account
assets in order to satisfy surrender requests. This
adjustment of 0.50% has been added to the denominator of the
formula because it is anticipated that a substantial portion
of applicable general account portfolio assets will be in
relatively illiquid securities. Thus, in addition to direct
transaction costs, if such securities must be sold (E.G.,
because of surrenders), the market price may be lower.
Accordingly, even if interest rates decline, there will not
be a positive adjustment until this factor is overcome, and
then any adjustment will be lower than otherwise, to
compensate for this factor. Similarly, if interest rates
rise, any negative adjustment will be greater than
otherwise, to compensate for this factor. If interest rates
stay the same, this factor will result in a small but
negative Market Value Adjustment.
N = The number of years remaining in the Guaranteed Period
(E.G. 1 year and 73 days = 1 + (73 divided by 365) = 1.2
years)
Straight-Line interpolation is used for periods to maturity
not quoted.
See the Statement of Additional information for examples of
the application of the Market Value Adjustment.
DISTRIBUTION OF THE CONTRACTS
Lincoln Life is the principal underwriter of the contracts,
and, as such, will form a selling group. Under an agreement
with Lincoln Life, Delaware Distributors, L.P. ("DDLP") will
act as wholesaler and will assist Lincoln Life in forming
the selling group. DDLP will also perform certain enumerated
marketing and ancillary functions in support of the selling
group. Lincoln Life will have ultimate responsibility for
the distribution of the contracts. The Contracts will be
sold by our registered representatives who have been
licensed by state insurance departments. The Contracts may
also be sold by independent broker-dealers who have been
licensed by state insurance departments to represent us and
who have selling agreements with us. Lincoln Life is
registered with the Commission under the Securities Exchange
Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers (NASD). We will
offer the Contracts in all states where we are licensed to
do business and in which the Contracts are approved.
Commissions of up to 6.50% of deposits will be paid to
broker dealers who sell the Contracts. In some instances,
commissions on deposits may be lowered up by as
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much as 2.50% and replaced by a commission of up to .65% of
annual contract values. Lincoln Life will also incur other
promotional or distribution expenses associated with the
marketing of the Contracts.
PERFORMANCE DATA
MONEY MARKET SUB-ACCOUNT
From time to time, the Money Market Sub-Account may
advertise its "yield" and "effective yield." Both yield
figures will be based on historical earnings and are not
intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by
Annuity Account Values in the Money Market Sub-Account over
a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the Annuity Account
Values in the Money Market Sub-Account. The "effective
yield" is calculated similarly but, when annualized, the
income earned by Annuity Account Values in the Money Market
Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of
the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction
for the Mortality and Expense Risk Charge, the
Administrative Expense Charge, and the Account Fee.
OTHER VARIABLE ACCOUNT SUB-ACCOUNTS
From time to time, the other Variable Account Sub-Accounts
may publish their current yields and total returns in
advertisements and communications to Contract Owners. The
current yield for each Variable Account Sub-Account will be
calculated by dividing the annualization of the dividend and
interest income earned by the underlying Fund during a
recent 30-day period by the maximum Accumulation Unit value
at the end of such period. Total return information will
include the underlying Fund's average annual compounded rate
of return over the most recent four calendar quarters and
the period from the underlying Fund's inception of
operations, based upon the value of the Accumulation Units
acquired through a hypothetical $1,000 investment at the
Accumulation Unit value at the beginning of the specified
period and upon the value of the Accumulation Unit at the
end of such period, assuming reinvestment of all
distributions and the deduction of the Mortality and Expense
Risk Charge, the Administrative Expense Charge and the
Annuity Account Fee. Each Variable Account Sub-Account may
also advertise aggregate and average total return
information over different periods of time.
In each case, the yield and total return figures will
reflect all recurring charges against the Variable Account
Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge, the Administrative
Expense Charge and the Account Fee for the applicable time
period. Contract Owners should note that the investment
results of each Sub-Account will fluctuate over time, and
any presentation of a Variable Account Sub-Account's current
yield or total return for any prior period should not be
considered as a representation of what an investment may
earn or what a Contract Owner's yield or total return may be
in any future period. See "Historical Performance Data" in
the Statement of Additional Information.
PERFORMANCE RANKING OR RATING
In marketing the Contracts, we and our various sales
representatives may refer to certain ratings assigned to us
under the Rating System of the A.M. Best Co., Oldwick, New
Jersey. The objective of Best's Rating System is to evaluate
the various factors
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affecting the overall performance of an insurance company in
order to provide Best's opinion about that company's
relative financial strength and ability to meet its
contractual obligations. The procedure includes both a
quantitative and qualitative review of the insurance
company. Ratings apply to Lincoln Life and its general
contractual obligations, not to the contract's sub-accounts.
In marketing the Contracts and the underlying funds, we may
at times use data published by other nationally-known
independent statistical services. These service
organizations provide relative measures of such factors as
an insurer's claim-paying ability, the features of
particular contracts, and the comparative investment
performance of the funds with other portfolios having
similar objectives. A few such services are: Duff & Phelps,
the Lipper Group, Moody's, Morningstar, Standard and Poor's
and VARDS. Marketing materials may employ illustrations of
compound interest and dollar-cost averaging; discuss
automatic withdrawal services; describe our customer base,
assets, and our relative size in the industry. They may also
discuss other features of Lincoln Life, the Variable
Account, the funds and their investment management.
TAX MATTERS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON LINCOLN LIFE'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE
TO ANNUITIES IN GENERAL. LINCOLN LIFE CANNOT PREDICT THE
PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
OWNERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING
THE POSSIBILITY OF SUCH CHANGES. LINCOLN LIFE DOES NOT
GUARANTEE THE TAX STATUS OF THE CONTRACTS. OWNERS BEAR THE
COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in
general. A Contract Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the
Settlement Option elected. For a lump sum payment received
as a total surrender (total redemption), the recipient is
taxed on the portion of the payment that exceeds the cost
basis of the Contract. For Non-Qualified Contracts, this
cost basis is generally the Premium Payments, while for
Qualified Contracts there may be no cost basis. The taxable
portion of the lump sum payment is taxed at ordinary income
tax rates.
For annuity payments, the taxable portion is determined by a
formula which establishes the ratio that the cost basis of
the Contract bears to the total value of annuity payments
for the term of the Contract. The taxable portion is taxed
at ordinary income rates. For certain types of Qualified
Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek
competent financial advice about the tax consequences of any
distributions.
Lincoln Life is taxed as a life insurance company under
Subchapter L of the Code. For federal income tax purposes,
the Variable Account is not a separate entity from Lincoln
Life, and its operations form a part of Lincoln Life.
Accordingly, the Variable Account will not be taxed
separately as a "regulated investment company" under
Subchapter M of the Code. Lincoln Life does not expect to
incur any federal income tax liability with respect to
investment income and net capital gains arising from the
activities of the Variable Account retained as part of the
reserves under the Contract. Based on this expectation, it
is anticipated that no charges will be made against the
Variable Account for federal income taxes. If, in future
years, any federal income taxes or other economic burden are
incurred by Lincoln Life with respect to the Variable
Account or the Contracts, Lincoln Life may make a charge for
any such amounts that are attributable to the Variable
Account.
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DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable annuity
contracts. The Code provides that a variable annuity
contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments
are not adequately diversified in accordance with
regulations prescribed by the United States Treasury
Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition
of federal income tax to the Contract Owner with respect to
earnings allocable to the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the
Contracts meet the diversification requirements if, as of
the end of each quarter, the underlying assets meet the
diversification standards for a regulated investment company
and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment
companies.
The Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for
the investment portfolios underlying variable contracts such
as the Contracts. The regulations amplify the
diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe
harbor provision described above. Under the regulations, an
investment portfolio will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of
the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more
than 80% of the value of the total assets of the portfolio
is represented by any three investments; and (4) no more
than 90% of the value of the total assets of the portfolio
is represented by any four investments.
The Code provides that for purposes of determining whether
or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of
the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate
issuer."
Lincoln Life intends, and the Trusts have undertaken, that
all Funds underlying the Contracts will be managed in such a
manner as to comply with these diversification requirements.
The Treasury Department has indicated that guidelines may be
forthcoming under which a variable annuity contract will not
be treated as an annuity contract for tax purposes if the
owner of the contract has excessive control over the
investments underlying the contract (i.e., by being able to
transfer values among sub-accounts with only limited
restrictions). The issuance of such guidelines may require
Lincoln Life to impose limitations on a Contract Owner's
right to control the investment. It is not known whether any
such guidelines would have a retroactive effect.
DISTRIBUTION REQUIREMENTS
The Treasury Department has indicated that guidelines may be
forthcoming under which a variable annuity will not be
treated as an annuity for tax purposes if the owner of the
annuity has excessive control over the investments
underlying the contract. Should the Secretary of the
Treasury issue additional rules or regulations limiting the
number of underlying funds, transfers between underlying
funds, exchanges of underlying funds or changes in
investment objectives of underlying funds such that the
contract would no longer qualify as an annuity under Section
72 of the Code, Lincoln Life will take whatever steps are
available to remain in compliance. In addition, we do not
know what standards will be set forth in the regulations or
rulings which the Treasury Department
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has stated it expects to issue. It is possible that Treasury
Department's position, when announced, may adversely affect
the tax treatment of existing contracts. It is not clear
what this additional guidance will provide nor whether it
will be applied on a prospective basis only. Lincoln Life,
therefore, reserves the right to modify the contract as
necessary to attempt to prevent the contract owner from
being considered the federal tax owner of the assets of the
Variable Account. However, Lincoln Life makes no guarantee
that such modification to the contract will be successful.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity
contracts which are issued during a calendar year to the
same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining
the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid
taxation of the distributed amounts from such combination of
contracts. Contract Owners should consult a tax adviser
prior to purchasing more than one nonqualified annuity
contract in any single calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable
event. Contract Owners should therefore consult competent
tax advisers should they wish to assign their Contracts.
WITHHOLDING
Withholding of federal income taxes on the taxable portion
of all distributions may be required unless the recipient
elects not to have any such amounts withheld and properly
notifies Lincoln Life of that election. Different rules may
apply to United States citizens or expatriates living
abroad. Withholding is mandatory for certain distributions
from Qualified Contracts. In addition, some states have
enacted legislation requiring withholding.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss
shall be recognized on the exchange of one annuity contract
for another. If the surrendered contract was issued prior to
August 14, 1982, the tax rules that formerly provided that
the surrender was taxable only to the extent the amount
received exceeds the owner's investment in the contract will
continue to apply to amounts allocable to investment in the
contract before August 14, 1982. Special rules and
procedures apply to Code Section 1035 transactions.
Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisers.
TAX TREATMENT OF WITHDRAWALS --
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs the treatment of
distributions from annuity contracts. It provides that if
the Annuity Account Value exceeds the aggregate Premium
Payments made, any amount withdrawn will be treated as
coming first from the earnings and then, only after the
income portion is exhausted, as coming from the principal.
Withdrawn earnings are includable in gross income. It
further provides that a ten percent (10%) penalty will apply
to the income portion of any premature distribution.
However, the penalty is not imposed on amounts received: (a)
after the Payee reaches age 59 1/2; (b) after the death of
the Contract Owner (or, if the Contract Owner is a
non-natural person, the Annuitant); (c) if the Payee is
totally disabled (for this purpose disability is
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as defined in Section 72(m)(7) of the Code); (d) in a series
of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his/her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982.
The above information does not apply, except where noted, to
Qualified Contracts. However, separate tax withdrawal
penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified
Contracts.")
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be
suitable for use under various types of Qualified Plans.
Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified
Plan varies with the type of plan and terms and conditions
of each specific plan. Contract Owners, Annuitants and
Beneficiaries are cautioned that benefits under a Qualified
Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts
issued pursuant to the plan. Although Lincoln Life provides
administration for the Contract, it does not provide
administrative support for Qualified Plans. Following are
general descriptions of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only.
The tax rules regarding Qualified Plans are very complex and
will have differing applications, depending on individual
facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued
in connection with a Qualified Plan.
Special favorable tax treatment may be available for certain
types of contributions and distributions (including special
rules for certain lump sum 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 minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in
certain other circumstances. Therefore, Lincoln Life makes
no attempt to provide more than general information about
use of the Contract with the various types of qualified
plans. Purchasers and participants under qualified plans as
well as Annuitants, Payees and Beneficiaries are cautioned
that the rights of any person to any benefits under
qualified plans may be subject to the terms and conditions
of the plan themselves, regardless of the terms and
conditions of the Contract issued in connection therewith.
SECTION 403(b) Plans
Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to
purchase annuity policies for their employees are excludable
from the gross income of the employee, subject to certain
limitations. However, such payments may be subject to FICA
(Social Security) taxes. Additionally, in accordance with
the requirements of the Code, Section 403(b) annuities
generally may not permit distribution of (i) elective
contributions made in years beginning after December 31,
1988, and (ii) earnings on those contributions and (iii)
earnings on amounts attributed to elective contributions
held as of the end of the last year beginning before January
1, 1989. Distributions of such amounts will be allowed only
upon the death of the employee, on or after attainment of
age 59 1/2, separation from service, disability, or
financial hardship, except that income attributable to
elective contributions may not be distributed in the case of
hardship.
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INDIVIDUAL RETIREMENT ANNUITIES
Sections 219 and 408 of the Code permit individuals or their
employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA".
Individual Retirement Annuities are subject to limitation on
the amount which may be contributed and deducted and the
time when distributions may commence. In addition,
distributions from certain other types of qualified plans
may be placed into an Individual Retirement Annuity on a
tax-deferred basis.
ROTH IRA
Section 408A of the Code permits eligible individuals to
make nondeductible contributions to an individual retirement
program known as a Roth Individual Retirement Annuity (Roth
IRA). Roth IRAs are subject to limitations on the amount
that can be contributed and on the time when distributions
may be taken. Subject to certain limitations, a traditional
IRA may be converted or "rolled over" to a Roth IRA. The
taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10%
penalty tax on premature distributions.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Section 401(a) and 403(a) of the Code permit corporate
employers to establish various types of retirement plans for
employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contracts to
provide benefits under the plans.
DEFERRED COMPENSATION PLANS
Section 457 of the Code, while not actually providing for a
qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service
for state governments, local governments, political
sub-divisions, agencies, instrumentalities and certain
affiliates of such entities and tax exempt organizations
which enjoy special treatment. The Contracts can be used
with such plans. Under such plans a participant may specify
the form of investment in which his or her participation
will be made. All such investments of a nongovernmental
organization, however, are owned by, and are subject to, the
claims of the general creditors of the sponsoring employer.
Recent tax legislation provides that governmental plans, on
or after August 20, 1996, must hold the assets and income of
the plan for the exclusive benefit of participants and their
beneficiaries; preexisting plans have until January 1, 1999
to meet this requirement.
The above description of federal income tax consequences
pertaining to the different types of Qualified Plans that
may be funded by the Contracts is only a brief summary and
is not intended as tax advice. The rules governing the
provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are
subject to change, may have significant adverse tax
consequences. A prospective purchaser considering the
purchase of a Contract in connection with a Qualified Plan
should first consult a qualified and competent tax adviser
with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
TAX TREATMENT OF WITHDRAWALS --
QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the
taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified
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under Code Sections 401, 403(b) and 408. To the extent
amounts are not includable in gross income because they have
been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the
Payee reaches age 59 1/2; (b) distributions following the
death of the Contract Owner or Annuitant (as applicable) or
disability of the Payee (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or the joint lives (or joint life expectancies)
of such Payee and his/her designated beneficiary; (d)
distributions to a Payee who has separated from service
after attaining age 55; (e) distributions made to the extent
such distributions do not exceed the amount allowable as a
deduction under Code Section 213 to the Payee for amounts
paid during the taxable year for medical care: and (f)
distributions made to an alternate payee pursuant to a
qualified domestic relations order.
The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity.
Additional exceptions to the tax penalty are available for
the following distributions from an Individual Retirement
Annuity: (a) Payee is unemployed and uses the money to pay
health insurance premiums; and (b) for tax years after
December 31, 1997, Payee uses the distribution for higher
education expenses or a qualified first-time home purchase.
OTHER CONTRACTS
Lincoln Life and the Variable Account offer other flexible
payment deferred variable annuity contracts which invest in
the same Funds. These contracts may impose different charges
that could affect Sub-Account performance, and may offer
different benefits.
FINANCIAL STATEMENTS
The Statutory-basis financial statements and schedules of
Lincoln Life are located in the Statement of Additional
Information. You may obtain a free copy by writing Lincoln
National Life Insurance Co., P.O. Box 7866, Fort Wayne,
Indiana 46801, or calling 1-888-868-2583.
PREPARING FOR THE YEAR 2000
Many existing computer programs use only two digits to
identify a year in the date field. These programs were
designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results
by or at the year 2000. The year 2000 issue affects
virtually all companies and organizations.
LINCOLN LIFE, as part of its year 2000 updating process, is
responsible for the updating of the VAA-related computer
systems. An affiliate of LINCOLN LIFE, Delaware Service
Company (Delaware), provides substantially all of the
necessary accounting and valuation services for the VAA.
Delaware, for its part, is responsible for updating all of
its computer systems, including those which service the VAA,
to accommodate the year 2000. LINCOLN LIFE and Delaware (the
"Companies") have each been redirecting a large portion of
their internal information technology efforts and
contracting with outside consultants as part of this
updating process. Meanwhile, they have been coordinating
with each other as part of the process.
The year 2000 issue is pervasive and complex and affects
virtually every aspect of the businesses of both Lincoln
Life and Delaware (the "Companies"). The computer systems of
the Companies and their interfaces with the computer systems
of vendors,
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suppliers, customers and other business partners are
particularly vulnerable. The inability to properly recognize
date-sensitive electronic information and to transfer data
between systems could cause errors or even complete failure
of systems, which would result in a temporary inability to
process transactions correctly and engage in normal business
activities for the Variable Account. The Companies
respectively are redirecting significant portions of their
internal information technology efforts and are contracting,
as needed, with outside consultants to help update their
systems to accommodate the year 2000. The Companies have
respectively initiated formal discussions with other
critical parties that interface with their systems to gain
an understanding of the progress by those parties in
addressing year 2000 issues. While the Companies are making
substantial efforts to address their own systems and the
systems with which they interface, it is not possible to
provide assurance that operational problems will not occur.
The Companies presently believe that, assuming the
modification of existing computer systems, updates by
vendors and conversion to new software and hardware, the
year 2000 issue will not pose significant operations
problems for their respective computer systems. In addition,
the Companies are incorporating potential issues surrounding
year 2000 into their contingency planning process, in the
event that, despite these substantial efforts, there are
unresolved year 2000 problems. If the remediation efforts
noted above are not completed timely or properly, the year
2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life or Delaware, or
both.
The cost of addressing year 2000 issues and the timeliness
of completion will be closely monitored by management of the
respective Companies. Nevertheless, there can be no
guarantee either by Lincoln Life or by Delaware that
estimated costs will be achieved, and actual results could
differ significantly from those anticipated. Specific
factors that might cause such differences include, but are
not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all
relevant computer problems, and other uncertainties.
LEGAL PROCEEDINGS
Lincoln Life is involved in various pending or threatened
legal proceedings arising from the conduct of its business.
Most of these proceedings are routine and in the ordinary
course of business. In some instances these proceedings
include claims for unspecified or substantial punitive
damages and similar types of relief in addition to amounts
for alleged contractual liability or requests for equitable
relief. After consultation with legal counsel and a review
of available facts, it is management's opinion that the
ultimate liability, if any, under these suits will not have
a material adverse effect on the financial position of
Lincoln Life.
During the 1990's class action lawsuits alleging sales
practices fraud have been filed against many life insurance
companies, and Lincoln Life has not been immune. Several
suits involve alleged fraud in the sale of
interest-sensitive universal and whole life insurance
policies. Certain of these suits have been filed as class
actions against Lincoln Life, although as of the date of
this Prospectus the court had not certified a class in any
of them. Plaintiffs seek unspecified damages and penalties
for themselves and on behalf of the putative class. Although
the relief sought in these cases is substantial, the cases
are in the early stages of litigation, and it is premature
to make assessments about potential loss, if any. Management
denies the allegations and intends to defend these suits
vigorously. The amount of the liability, if any, which may
arise as a result of these suits (exclusive of any
indemnification from professional liability insurers) cannot
be reasonably estimated at this time.
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TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information which contains more details concerning
some subjects discussed in this Prospectus is available (at no cost) by calling
or writing Lincoln Life's Home Office. The following is the Table of Contents
for that Statement:
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
THE CONTRACTS-GENERAL PROVISIONS................ 3
The Contracts................................. 3
Loans......................................... 3
Non-Participating Contracts................... 3
Misstatement of Age........................... 3
CALCULATION OF VARIABLE ACCOUNT VALUES.......... 3
Variable Accumulation Unit Value.............. 3
SAMPLE CALCULATIONS AND TABLES.................. 4
Variable Account Unit Value Calculations...... 4
Withdrawal Charge and Market Value Adjustment
Tables....................................... 5
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
STATE REGULATION OF LINCOLN LIFE................ 6
ADMINISTRATION.................................. 6
ACCOUNT INFORMATION............................. 6
DISTRIBUTION OF THE CONTRACTS................... 7
CUSTODY OF ASSETS............................... 7
HISTORICAL PERFORMANCE DATA..................... 7
Money Market Sub-Account Yield................ 7
Total Returns................................. 7
Other Performance Data........................ 8
INDEPENDENT AUDITORS............................ 8
STATUTORY-BASIS FINANCIAL STATEMENTS AND
SCHEDULES...................................... 8
</TABLE>
48
